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SANYANG INDUSTRY CO., LTD.

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

US$55,000,000 Zero Coupon Convertible Bonds due 2019

Issue Price: 100 percent

The US$55,000,000 Zero Coupon Convertible Bonds due 2019 (the "Bonds") will be issued in registered form by Sanyang Industry Co., Ltd. (the "Company"). Unless previously redeemed, converted or repurchased and cancelled, the Bonds will be redeemed on February 27, 2019 at their principal amount.

Company will, at the option of the holder of any Bond (the "Bondholder"), redeem such Bond on February 27, 2017, at its Early Redemption Amount (as defined herein). The Bonds may be redeemed, in whole or in part, at the option of the Company at any time on or after March 27, 2014, at their Early Redemption Amount, in certain circumstances relating to the then prevailing Closing Price of the Shares (as defined herein) relative to the Conversion Price. The Bonds may be redeemed, in whole but not in part, at any time, at the option of the Company at their Early Redemption Amount, if more than 90 percent in principal amount of the Bonds has already been converted, redeemed or repurchased and cancelled. The Bonds may be redeemed, in whole but not in part, at any time at the option of the Company at the Early Redemption Amount in the event of certain changes relating to ROC taxation have occurred. The Bonds may also be redeemed, in whole or in part, at any time, at the option of the Bondholders at the Early Redemption Amount in the event of the delisting of the Shares (defined below) or in the event of a Change of Control (as defined herein). See the section on "Terms and Conditions of the Bonds - Redemption, Repurchase and Cancellation".

The Bonds may be converted at any time on or after March 29, 2014, and prior to the close of business (at the place the Bond is deposited for conversion) on February 27, 2019, into common shares, par value NT$10 per share, of the Company (the "Shares") unless previously redeemed, converted or repurchased and cancelled and except during a Closed Period (as defined herein).

" " Investing in the Bonds involves certain risks. See the section on Risk Factors .

The Conversion Price will initially be NT$52.96 per Share subject to adjustment in the manner provided herein and with a fixed rate of exchange applicable on conversion of the Bonds of NT$30.351 = US$1.00. See the section on "Terms and Conditions of the Bonds - Conversion." The Shares are listed on the Taiwan Stock Exchange ("TWSE") with ticker number of 2206 and application will be made to list the Shares issued on conversion of the Bonds on the TWSE. On February 25, 2014, the Closing Price of the Shares on the TWSE was NT$59.00 per Share.

Application has been made to admit the Bonds to listing on the Official List of the Luxembourg Stock Exchange and to trading on the Euro MTF market. The delivery of the Bonds will be made in book entry form through the facilities of Euroclear and Clearstream, Luxembourg (each as defined herein) on February 27, 2014 (the "Issue Date"). This Offering Circular constitutes a prospectus for the purpose of Luxembourg law dated July 10, 2005 on prospectuses for securities, as amended.

The Bonds and the Shares to be issued upon conversion of the Bonds have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the "Securities Act") and, subject to certain exceptions, may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S under the Securities Act). The Bonds may not be offered, sold or delivered in the Republic of China ("ROC").

Lead Manager

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The date of this Offering Circular is February 26, 2014

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

The distribution of this Offering Circular and the offering and sale of the Bonds in certain jurisdictions may be restricted by law. Persons into whose possession this Offering Circular comes are required by the Company and the Manager (as defined in "Plan of Distribution") to inform themselves about and to observe any such restrictions. For a description of certain further restrictions on offers and sales of the Bonds and distribution of this Offering Circular, see "Plan of Distribution". This Offering Circular does not constitute an offer of or an invitation by or on behalf of the Company, the Trustee (as defined in the terms and conditions of the Bonds), the Agents (as defined in the terms and conditions of the Bonds) or the Manager to underwrite any of the Bonds in any jurisdiction in which such offer or invitation would be unlawful.

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

The Manager, the Trustee and the Agents make no representations or warranties (express or implied) as to the accuracy, sufficiency or completeness of the information contained herein and nothing contained in this Offering Circular is, or shall be relied upon, as a promise or representation, whether as to the past or the future by the Manager, the Trustee or the Agents. This Offering Circular is not intended to provide the basis of any credit or other evaluation nor should it be considered as a recommendation by any of the Company, the Manager, the Trustee or the Agents that any recipient of this Offering Circular should purchase the Bonds.

The Bonds will be represented by beneficial interests in a permanent global certificate (the "Global Certificate") in registered form, which will be registered in the name of a nominee of, and shall be deposited on or about the Issue Date with a common depositary for, Euroclear Bank S.A./N.V. ("Euroclear") and Clearstream Banking, société anonyme ("Clearstream, Luxembourg"). Definitive Certificates will be issued to Bondholders if either Euroclear or Clearstream, Luxembourg (or any other clearing system as shall have been designated by the Company and approved by the Trustee on behalf of which the Bonds evidenced by the Global Certificate may be held) is closed for business for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise), announces an intention permanently to cease business or does in fact do so, or an event of default under the Bonds or the Indenture has occurred and is continuing - see the section on "The Global Certificate".

References to the "ROC" means the island of Taiwan and other areas under the effective control of the Republic of China.

The Company's consolidated and non-consolidated financial statements as at and for the three years ended December 31, 2010, 2011 and 2012 and its unaudited consolidated financial statements as at and for the nine months ended September 30, 2012 and 2013 included herein, were prepared in accordance with generally accepted accounting principles in the Republic of China ("ROC GAAP") and Taiwan-IFRSs, respectively.

IN CONNECTION WITH THE ISSUE OF THE BONDS, PRESIDENT SECURITIES (HONG KONG) LTD., ON BEHALF OF THE PURCHASERS, MAY OVERALLOT OR EFFECT TRANSACTIONS WITH A VIEW TO SUPPORTING THE MARKET PRICE OF THE BONDS OR THE SHARES AT A LEVEL HIGHER THAN THAT WHICH MIGHT OTHERWISE PREVAIL FOR A LIMITED PERIOD AFTER THE ISSUE DATE. HOWEVER, PRESIDENT SECURITIES (HONG KONG) LTD. IS UNDER NO OBLIGATION TO DO SO. SUCH STABILIZING, IF COMMENCED, MAY BE DISCOUNTINUED AT ANY TIME.

ENFORCEABILITY OF FOREIGN JUDGMENTS IN THE ROC

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

In order to enforce a final judgment (for which the period for appeal has expired or from which no appeal can be taken) obtained against the Company or such person in any court other than the courts of the ROC in respect of any legal suit or proceeding arising out of or relating to the Bonds, such judgment shall first be brought to the ROC court in which enforcement is sought for recognition and approval of enforcement. Such court will recognize without further review of the merits of such judgment, only if it is satisfied that:

(i) the court rendering the judgment has jurisdiction over the subject matter according to the laws of the ROC;
(ii) the judgment is not contrary to the public order or good morals of the ROC;
(iii) process was served on the Company or such persons, and the Company or such persons appear in the proceedings within the jurisdiction of such court within such time provided by the laws and regulations of such jurisdiction. For judgment rendered against the Company or such persons by default, if the notice of the complaint or the order was duly served in the jurisdiction that rendered such judgment, or the process was served with judicial assistance of the ROC; and
(iv) judgments of the courts of the ROC are recognized and enforceable in the court rendering the judgment on a reciprocal basis.

Remittance out of the ROC of any amount recovered from enforcing a foreign judgment in the ROC is also subject to the Foreign Exchange Control Statute and regulations as described in "Foreign Investment and Exchange Controls in the ROC" herein.

iii

SUMMARY......................................................................................................................................................................... 1 USE OF PROCEEDS......................................................................................................................................................... 4 RISK FACTORS ................................................................................................................................................................ 5 CAPITALIZATION......................................................................................................................................................... 13 BUSINESS OF THE COMPANY ................................................................................................................................... 14 MANAGEMENT.............................................................................................................................................................. 27 PRINCIPAL SHAREHOLDERS.................................................................................................................................... 31 RECENT DEVELOPMENTS AND OUTLOOK.......................................................................................................... 32 DIVIDENDS ..................................................................................................................................................................... 34 MARKET PRICE INFORMATION .............................................................................................................................. 35 CHANGES IN ISSUED SHARE CAPITAL.................................................................................................................. 36 TERMS AND CONDITIONS OF THE BONDS........................................................................................................... 37 THE GLOBAL CERTIFICATE ..................................................................................................................................... 65 EXCHANGE RATES ...................................................................................................................................................... 67 DESCRIPTION OF THE COMMON STOCK............................................................................................................. 68 FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN THE ROC............................................................ 72 THE SECURITIES MARKET OF THE ROC.............................................................................................................. 76 ROC TAXATION OF NON-RESIDENTS..................................................................................................................... 79 PLAN OF DISTRIBUTION............................................................................................................................................ 81 GENERAL INFORMATION.......................................................................................................................................... 84 INDEX TO FINANCIAL STATEMENTS.................................................................................................................... F-1

Except where the context otherwise requires, all references herein to the " Company " are to Sanyang Industry Co., Ltd., and references to the " Group " refer to the Company and its subsidiaries. In the context of referring to consolidated accounting figures, the term "Company" shall include the Company and its consolidated subsidiaries. Unless otherwise specified or the context requires, references to " US dollars " and " US$ " are to the lawful currency of the United States of America, references to " New Taiwan dollars ", " NT dollars ", " NT$ " and " $ " are to the lawful currency of the ROC. Unless otherwise specified, where financial information in relation to the Company has been translated into US dollars, it has been so translated, for convenience only, at the rate of NT$29.575 = US$1.00 using the Taiwan Business Bank Spot Rate as of September 30, 2013. Such translation should not be construed as a representation that the amounts in question have been, could have been or could be converted into US dollars at that or any other rate. The exchange rate between the NT dollar and the US dollar quoted by Bloomberg at 4:00 pm on February 25, 2014 was NT$30.372 = US$1.00.

Unless otherwise specified or the context requires, references in this Offering Circular to financial information as of and for the three years ended December 31, 2010, 2011 and 2012 refer to the Company's financial information derived from the audited consolidated and non-consolidated financial statements included elsewhere herein, and references to financial information as of and for the nine months ended September 30, 2012 and 2013 refer to the Company's financial information derived from the unaudited consolidated financial statements included elsewhere herein.

SUMMARY

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

Business of the Company

The Company is the third largest manufacturer of motorbikes in Taiwan, following Kwang Yang Motor Co., Ltd. (Kymco brand) and Yamaha Motor Taiwan Co., Ltd. Its principal businesses include manufacture and sale of motorbikes, automobiles, parts and components, as well as providing technical services.

The Company manufactures motorbikes with its own SYM brand in its main production facilities located in Taiwan, Vietnam and China, with a total annual capacity of 1.1 million motorbikes. The Company sold 254,475 motorbikes in 2012, among which 57% were sold in Taiwan and 43% were sold outside Taiwan. In Vietnam, the manufacturing is through Vietnam Manufacturing & Export Processing Co., Ltd., ("VMEP"), a 67.07% owned subsidiary of the Company, whose production of the motorbikes accounted for approximately 30% of the total production of the SYM brand motorbikes of the Group. VMEP was incorporated in 2000, and the shares of its direct holding company, Vietnam Manufacturing & Export Processing (Holding) Ltd., ("VMEPH") are listed on Hong Kong Stock Exchange since 2007. VMEP contributed US$181 million in operating revenue to the Company in 2012, which represented 16.33% of the total consolidated operating revenue of the Company. The SYM brand motorbikes are sold in Taiwan and globally, mostly in Asia Pacific region (such as Vietnam, China, Malaysia and the Philippines) and the European region (such as France, Italy and Greece). The research and development division of the Company is mainly located in both Taiwan and Vietnam.

For automobiles, and the Company is a long-term partner of Hyundai and assembles and produces automobiles for Hyundai in Taiwan based on the technical license agreements with Hyundai. The Company sells the Hyundai automobiles in Taiwan through its subsidiary, Nanyang Industry Co., Ltd. ("Nanyang"), which has established nearly 100 sales points in Taiwan.

For the year ended 2012, the Company had consolidated operating revenue of approximately NT$34,409 million, with motorbikes and automobiles accounting for 58% and 39%, respectively, of the Company's consolidated operating revenue. The non-consolidated operating revenue of the Company increased by NT$207 million from NT$23,454 million for the year 2011 to approximately NT$23,661 million for the year 2012. The Company's non-consolidated net income decreased by NT$881 million from NT$1,238 million in 2011 to NT$357 million in 2012. For the nine months ended September 30, 2013, the Company recorded nonconsolidated operating revenue of NT$16,500 million, as compared to NT$18,260 million in the same period of 2012, and recorded non-consolidated net income of NT$126 million, as compared to a non-consolidated net income of NT$497 million in the same period of 2012.

As of September 30, 2013, the Company's authorized share capital is NT$9.5 billion, consisting of 950,000,000 Shares with a par value of NT$10 per Share. As of September 30, 2013, the Company's issued and paid-in capital (stated as common stock in its financial statements) was NT$8,963,768,100, consisting of 896,376,810 common shares of the Company in registered form which were issued and fully paid for. As of September 30, 2013, the Company had 2,263 employees in Taiwan.

Corporate and Other Information

The Company was incorporated in the Republic of China (Taiwan) on September 14, 1961. The Company is registered with the Ministry of Economic Affairs of the ROC under a uniform registration number of 24004006. The Company's registered address is No. 3, Zhonghua Rd., Hukou Township, Hsinchu County, Taiwan. The Company's shares have been listed and traded on the TWSE since 1996.

The Company's website address is: http://www.sanyang.com.tw. The information on the Company's website is not part of this Offering Circular.

Summary of the Offering

Issuer:	Sanyang Industry Co., Ltd.
Issue:	US$55,000,000 Zero Coupon Convertible Bonds due 2019
Issue Price:	100 percent
Issue Date:	February 27, 2014
Maturity Date:	February 27, 2019
Status:	The Bonds will be direct, unsecured and unsubordinated obligations of the
	Company and will rank pari passu without any preference or priority among
	themselves and shall at all times rank at least equally with all other present and
	future direct, unsecured and unsubordinated obligations of the Company.
Withholding Tax:	In the event that principal or interest (if any) payable on the Bonds to
	nonresidents is subject to a withholding tax in the ROC, the Company will pay
	such additional amounts as will result in the receipt by the Bondholders of the
	net amounts after such withholding or deduction being equal to the amounts
	which would otherwise have been receivable by them had no such withholding
	or deduction been required, except as provided in the Terms and Conditions of
	the Bonds. See "Terms and Conditions of the Bonds - Taxation".
Conversion:	Subject to prior redemption and subject as otherwise provided herein, the
	Bonds are convertible at any time on or after March 29, 2014, and prior to the
	close of business (at the place at which the Bond is deposited for conversion)
	on February 17, 2019, except during any Closed Period, into Shares at a
	conversion price per Share (the "Conversion Price"), determined on the basis
	of a fixed exchange rate of NT$30.351 = US$1.00 (the "Fixed Exchange
	Rate").
Conversion Price:	The Conversion Price will initially be NT$52.96 per Share, subject to
	adjustments as described herein. For a fuller description, see "Terms and
	Conditions of the Bonds - Conversion".
Negative Pledge:	The Company will not create or permit to subsist security for the benefit of
	holders of any International Investment Securities (as defined in the Terms and
	Conditions of the Bonds) or for any guarantee thereof without granting
	equivalent security in respect of the Bonds. See "Terms and Conditions of the
	Bonds - Negative Pledge".
Final Redemption:	Unless previously redeemed, converted or repurchased and cancelled in the
	circumstances referred to in "Terms and Conditions of the Bonds", the Bonds
	will be redeemed at their principal amount in US dollars on February 27, 2019.
	See "Terms and Conditions of the Bonds - Redemption, Repurchase and
	Cancellation - Redemption at Maturity".

Redemption at the Option of	The Company may redeem the Bonds, in whole or in part, on or after March
the Company:	27, 2014, at their Early Redemption Amount, if the closing prices of the Shares
	on the TWSE (translated to U.S. Dollars at the then prevailing exchange rate)
	for at least 20 Trading Days, during any consecutive 30 Trading Day Period
	reaches 140% of the applicable Early Redemption Amount divided by the
	Conversion Ratio (as defined herein).
	The Company may redeem the Bonds, in whole but not in part, at any time, at
	their Early Redemption Amount if more than 90 percent in principal amount of
	the Bonds has already been converted, redeemed or repurchased and cancelled.
	See "Terms and Conditions of the Bonds - Redemption, Repurchase and
	Cancellation - Redemption at the Option of the Company".
Tax Redemption:	The Company may, at any time redeem the Bonds, in whole but not in part, at
	the Early Redemption Amount in the event of certain changes relating to ROC
	taxation which would oblige the Company to pay additional amounts to the
	holders of the Bonds. Any holder of the Bonds may elect not to have its Bonds
	redeemed by the Company in such event, in which case, such holder will not
	be entitled to receive payment of such additional amounts. See "Terms and
	Conditions of the Bonds - Redemption, Repurchase and Cancellation -
	Redemption for Tax Reasons".
Redemption at the Option of	The Company will, at the option of the holder of any Bond, redeem such Bond
the Bondholders:	at their Early Redemption Amount on February 27, 2017. See "Terms and
	Conditions of the Bonds - Redemption, Repurchase and Cancellation -
	Redemption at the Option of the Bondholders".
De-Listing Redemption	If the Shares are delisted from the TWSE, at the option of the holders of the
	Bonds, the Company will redeem the Bonds, in whole or in part, at the Early
	Redemption Amount.
Form and Registration of the	The Bonds will be issued in registered form in the denomination of
Bonds:	US$200,000 and integral multiples thereof and will be transferable in principal
	amounts of US$200,000 or an integral multiple thereof. The Bonds will be
	represented by beneficial interests in the Global Certificate, which will be
	registered in the name of a nominee of, and shall be deposited on or about the
	Issue Date with a common depositary for Euroclear and Clearstream,
	Luxembourg. Beneficial interests in the Global Certificate will be shown on,
	and transfers thereof will be effected only through, records maintained by
	Euroclear and Clearstream, Luxembourg. Except as described herein,
	definitive certificates for Bonds will not be issued in exchange for beneficial
	interests in the Global Certificate.
Governing law:	New York State law
Trustee and Principal Paying	The Bank of New York Mellon, London Branch
and Conversion Agent:
Paying, Transfer and	The Bank of New York Mellon (Luxembourg) S.A.
Conversion Agent and
Registrar:
Listing:	Application has been made to admit the Bonds to listing on the Official List of
	the Luxembourg Stock Exchange and to trading on the Euro MTF market. The
	Shares are listed on the TWSE and application will be made for the Shares to
	be issued upon conversion of the Bonds to be listed on the TWSE.
Use of Proceeds:	The net proceeds from the offering of the Bonds will be approximately
	US$53,982,500. The net proceeds from the issue of the Bonds will be used for
	the procurement of raw materials denominated in foreign currencies.

USE OF PROCEEDS

The net proceeds from the offering of the Bonds will be approximately US$53,982,500. The net proceeds from the issue of the Bonds will be used for the procurement of raw materials denominated in foreign currencies.

RISK FACTORS

Investing in the Bonds and Shares deliverable upon conversion of the Bonds involves risks. The potential investors should carefully consider the risks described below before making an investment decision. The potential investor should also carefully consider all of the information contained in this Offering Circular, including the Company's financial statements and related notes. The potential Investors should note that the Company are governed in the ROC by a legal and regulatory environment that in some material respects may be different from that prevailing in other countries.

RISKS RELATING TO BUSINESS

The Company operates in a highly competitive environment and its business will be harmed if it cannot compete successfully.

The markets for motorbikes and automobiles are highly competitive. The Company's ability to compete depends on factors both within and out of its control, including product pricing, product functionality, performance and reliability, successful and timely product development, component and raw material costs, and general economic conditions. Falling prices resulting from strong global competition may adversely affect the Company's results of operations, financial conditions and liquidity. The Company cannot offer any assurance that it will be able to compete successfully in the future. The Company's failure to compete successfully in these areas could have a material adverse effect to its business, competitive position, results of operations and financial conditions.

The automobile and motorbike industries are volatile.

The automobile and motorbike industries have been subject to considerable volatility in demand. Demand for vehicles depends to a large extent on the overall social, political and economic conditions and as automobiles and motorbike purchases are consider significant investments to many, the purchase decision can be highly sensitive to these factors. The economic conditions in many of the markets which the Company is competing in are poor in recent years which have resulted in weakness in consumer demand. It is unclear how the economic and product demand situations will develop in the future. The Company's financial condition and results of operations may be adversely affected if the weakness in demand for automobiles and motorbikes continues or progress further.

The Company's production depends on access to raw materials and its profit margin is highly dependent on cost of raw materials, parts and components

The Company's productions depend upon obtaining adequate supplies of raw materials and components on a timely basis. The key raw materials and components of motorbikes include metal, plastic pellets, coating and other components. The Company considers that there are stable sources for all of its key raw materials. Although the Company has not experienced any shortage of raw materials in the past three years, there can be no assurance that the Company will not experience any shortage in the future. The cost of the Company's raw materials and components can fluctuate due to factors beyond the Company's control. As the product pricings in the automobile and motorbike industries are usually made at the particular model's introduction and subsequent pricing changes are undesirable, the Company may not be able to pass on any increase in costs to its customers. Therefore any increase in the cost of the Company's raw materials and components, can have adverse impact on the Company's gross margin and its operations and financial condition.

The Company may be unable to manage its growth effectively

The Company plans to further expand its business by cultivating domestic markets and by selling abroad to the emerging markets in particular. Business operations in different jurisdictions, particularly in emerging markets, are subject to legal, political and economic uncertainties, including extreme fluctuations in currency exchange rates, high rates of inflation, exchange controls and other governmental actions and policy changes. This instability could result in adoption of new policies, laws or regulations that might materially and adversely affect the Company's business. If the Company fails to manage growth and expand into new markets effectively, its results of operations could be adversely affected.

The Company may face potential liability with respect to product defects

The Company generally warrants that its products are free from defects and perform in accordance with agreed specifications. To the extent that the products delivered by the Company to its customers do not, or are not deemed to, satisfy such warranties, the Company will be responsible for repairing or replacing the defective products, or, in certain circumstances, for the cost of effecting a recall of all products which might contain a similar defect. The Company also could potentially, in certain situations, be held responsible for injuries resulting from defects in its products.

The Company's operations are subject to manufacturing risks; occurrence of any such risks may result in delivery delays or material product defects, which will harm the Company's operating results and reputation.

The Company continues to update its manufacturing process to improve its efficiency and reduce product defects and unit manufacturing costs. However, the Company can offer no assurance that it will not experience any manufacturing problems in achieving acceptable output, product delivery delays for both as a result of, among other things, capacity constraints, construction delays, difficulties in upgrading or expanding existing facilities, difficulties in changing manufacturing line technologies or delays in equipment deliveries, any of which could result in a loss of future revenue.

The Company's automobile business is highly dependent on Hyundai Motor Company.

The Company manufactures and sells Hyundai brand automobiles. The Company is a long-term partner of Hyundai Motor Company ("Hyundai") and assembles and produces automobiles for Hyundai in Taiwan based on the technical license agreements with Hyundai. If the relationship between Hyundai and the Company is terminated or changed for any reason, such as allowed by Hyundai if there is any change in ownership and management at the Company, the Company may not be able to timely develop a new relationship with another automobile company. The Company's automobile business and financial conditions will likely suffer a significant adverse impact if its relationship with Hyundai cannot be maintained and it fails to timely form new alliance with other suitable automobile company or companies.

The Company's insurance may be inadequate

The Company believes that it maintains insurance coverage on its assets that is consistent with the industry norm. The insurance coverage maintained by the Company includes fire insurance, factory buildings insurance, cargo insurance, insurance for vehicles used in its business operations and insurance for machines, equipment and inventory. The Company also maintains product liability insurance on its products. In compliance with the industry practice, the insurance covers losses resulting from flood, fire, typhoon, lightning strike, smoke/water stain, earthquake, theft, explosion and product liabilities to third parties; provided, that, the product recall, business interruption, and account receivables are not covered. There is no assurance that the Company will not suffer uninsured losses or incur uninsured liabilities in the future, which will have a material adverse effect on the Company's operating and financial results.

The Company's business is subject to stringent environmental regulations

The ROC automobile and motorbike producers, including the Company, are subject to stringent environmental laws and regulations concerning, among other things, from waste water, generated in its manufacturing process. The Company was fined once in 2010 for violation of the Water Pollution Control Act. The Company believes that it is currently in compliance with applicable environmental laws and regulations in all material respects. However, in view of the possibility of unanticipated regulatory or other developments, particularly as environmental laws become more stringent, the amount and timing of future expenditures required to remain in compliance could vary substantially from their current levels and could adversely impact the availability of funds for capital expenditures and other purposes.

The Company's operating results vary significantly

The Company experiences significant fluctuations in its results of operations. The factors that contribute to

fluctuations include:

economic conditions in the Company's markets;
price and product competition;
the Company's major suppliers' ability to develop and implement new technologies;
the timing and volume of customer orders;
changes in the Company's product mix;
costs associated with adding new geographical locations or expanding the Company's facilities;
changes in the cost and availability of supplies;
shortages of experienced labor;
market acceptance of new products;
changes in demand and product obsolescence;
the timing of the Company's expenditures in anticipation of future orders;
the length of the Company's sales cycles;
trends in the industry; and
changes in economic conditions.

The Company's past financial and/or operating performance contained herein is not necessarily a reliable indicator of future performance and one should not use the Company's historical performance to anticipate results or future period trends.

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

The Company's success depends to a significant extent on the skills and efforts of key managerial and technical and other employees and upon its ability to continue attracting, retaining and motivating qualified personnel. There can be no assurance that the Company will be able to continue attracting and retaining the services of qualified employees essential for the Company's growth. The loss of the services of certain of these employees or an inability to attract or retain qualified employees could have a material adverse effect to the Company.

The Company is exposed to risks of currency exchange rate fluctuations

Historically, a majority of the Company's operating costs and expenses have been denominated in New Taiwan ("NT") Dollars while substantial portion of the Company's operating revenue has been denominated in U.S. Dollars, Euro, RMB and VND directly or through its overseas subsidiaries. Accordingly, a portion of the Company's operating costs, operating expenses and operating revenues are exposed to fluctuations between the U.S. Dollar and the NT Dollar. Although the Company attempts to mitigate the effects of exchange rate fluctuations primarily through the use of foreign currency borrowings and forward contracts, fluctuations in exchange rates may have an adverse impact on the Company's results of operations.

If the Company fails to successfully manage its exposure to financial markets risks through derivative contracts that it enters or may enter into, its operating results could suffer

The Company from time to time enters into a variety of derivative transactions for purposes of hedging. Such derivative contracts may expose it or increase its exposure to financial market risks, including foreign currency exchange rates. Even when it enters into derivative contracts for hedging purposes to mitigate financial market risks, there may be imperfect correlation, or even no correlation, between price movements of a derivative instrument and price movements of the underlying item being hedged, which will result in a less effective or ineffective hedge. Moreover, although successful hedging strategies can reduce the Company's risk of loss by wholly or partially offsetting the negative effect of unfavorable price movements in the hedged item, hedging strategies can also reduce its opportunity for gain by offsetting the positive effect of favorable price movements in the hedged item.

A high percentage of the Shares held by the directors are pledged.

All but one of the Company's directors have pledged the shares in the Company held by them. Some of the directors as well as their representatives and their spouses, including the Chairman, have pledged a very high percentage of their shares. As of September 30, 2013, 81.76% of the total number of the shares in the Company

held by the Company's directors is pledged.

The Huang family and non-Huang family directors may have a significant voice in decisions affecting the Company.

The Company's Chairman and three other members of the board of directors are relatives originally from the same family ("Huang family") and they may, collectively but not individually, have significant influence over the Company's business, including matters relating to the management and policies. Of the nine director seats allowed on the board, five are non-Huang family. The five non-Huang family directors may collectively exert significant influence over the Company’s business, including matters relating to the management and policies. As with any company where the ownership and the management of the Company are not absolutely and completely separate, there is no assurance that there is no conflict of interest for the board members and their business decisions.

The Company's investments in other companies may not be successful.

In 2011, an oversea subsidiary of the Company, Xiashing Motorcycle Co., Ltd. was involved in an avoidance of tax case and was assessed with an additional tax of NT$320 million by the local government in China. In addition, the Company's subsidiaries, Plassen International Limited and Cosmos System Inc., and their reinvested companies, Xiashing Motorcycle Co., Ltd., Qingzhou Engineering Co., Ltd. and Xiashing Motorcycle Sales Co., Ltd, have all suffered from financial distress for two consecutive years since 2011. The investments of the Company may fail, which may adversely affect the financial condition of the Company.

The Company might suffer certain losses due to contract dispute.

In June 2009, the Company acquired a contract (the "Procurement Contract") from the Armaments Procurement Bureau under the Ministry of National Defense for producing Light Tactical Vehicles, with a total contract price of approximately NT$4.85 billion. There were disputes between the parties on how the inspection of the Light Tactical Vehicles shall be conducted and a number of mediations resulted. Presently, some issues concerning the Light Tactical Vehicles remain unsettled and additional mediation will be required. The Company has recognized an estimated loss of NT$9.7 million for the contingency of the delay in 2012. There is no assurance that the mediation or any subsequent arbitration or law suit will result in favor of the Company. If the result is not in favor of the Company, the Company will be subject to damages and penalties.

The Company has been asked by the Financial Supervisory Commission to evaluate whether it is required to consolidate two companies invested by the Company.

The Company has been asked by the Financial Supervisory Commission ("FSC") to evaluate whether it is required to consolidate two former subsidiaries of the Company in its financial statements for the year 2012 and in its 2013 interim financial statements. These two former subsidiaries are Sheng Mao Investment Corporation and Hsu Mao Investment Corporation. In October 2012, the Company disposed a certain percentage of its invested shares in these two companies and has since then, maintained a less than 50% direct and indirect ownership percentage in each of these two companies. The FSC has been under the assumption that that even though the Company holds less than 50% shareholding in each of these two companies, the Company may still have de facto controlling power over these two companies and that these two companies should thus be consolidated into the Company's financial statements. The Company has been in continuous discussion with the FSC over the difference in understanding of the case and on the proper accounting treatment regarding these two companies. The FSC has recently asked the Company to make a final assessment on the proper accoun t ing treatment for these two companies and to restate its financial statements, if required. The Company has assessed that it does not have de facto controlling power over these two companies and that these two companies shall not be consolidated into the financial statements of the Company. If the Company is formally instructed to consolidate these two companies, then the Company is expected to appeal. Notwithstanding, the expected changes from the consolidation, should it occur, for the relevant accounting periods, will not exceed the thresholds imposed by the ROC Securities and Exchange Law for restatement of financial statements (i.e. the corrected amount of the comprehensive income is NT$15 million or more, and is also 1.5% or more of the originally stated net operating revenue after final accounting; or the corrected amount of any of the items (excluding reclassified items) in the balance sheet is NT$30 million or more, and is also 3% or more of the originally stated amount of total assets after final accounting). Even if the restatement of the

financial statements is not required, the Company, however would still be required to publish a correction if it is ultimately determined that these two companies should be consolidated into the Company's financial statements. There is no assurance that the market would not react negatively if the Company is required to publish such a correction.

The Taipei District Court has recently approved Hua Nan Commercial Bank's petition for involuntary bankruptcy of the Company's Chairman Shi H. Huang.

The Taipei District Court has recently approved Hua Nan Commercial Bank's petition for involuntary bankruptcy of the Company's Chairman Shi H. Huang due to certain non-performing loans. The Chairman has made an appeal to the court, and it is unclear how long the appeal process will take to reach a final verdict. The non-performing loans underlying Hua Nan Commercial Bank's petition, are not made to the Company or any of its subsidiaries. The bankruptcy ruling may affect Chairman's qualification to continue serving as a director/chairman of the Company. The Company does not expect the Chairman's bankruptcy, if it becomes final, to cause a default by the Company or any of its major subsidiaries. However, if the Chairman's bankruptcy becomes final, the Chairman has to step down and it is uncertain as to how the market and the shareholders would react in this situation, nor can the Company assure that such reaction would not have any adverse impact on the Company.

RISKS RELATING TO ROC

Economic developments in Taiwan have a significant Impact on the Company's business.

The Company's major assets are located in Taiwan, and its substantial revenue is derived from operations in Taiwan. Accordingly, the financial and business conditions and the market price of the Shares may be affected by changes in policies, taxation, foreign exchange, laws and other economic and political developments in or affecting Taiwan that are not under the Company's control. In particular, Taiwan is significantly affected by the global economic and political environment. For example, in late 2008 and 2009, Taiwan, along with the rest of the world, experienced a severe financial and economic downturn. There can be no assurance that Taiwan's economy will be immune in the future to the conditions similar to those prevalent during the financial crisis, or that those conditions,

The value of the Bonds and the Shares may be adversely affected by the volatility and manipulations of the ROC securities market.

The TWSE have experienced substantial fluctuations in the prices and trading volumes of listed securities, and subject to limited exceptions, there are currently limits on the range of daily price movements on the TWSE. In the past decade, the TWSE Index peaked at 10,393.59 in February 2000, and reached a low of 3,955 in November 2008. In, 2013, the TWSE Index peaked at 8,636 on December 31, 2013, and reached a low of 7,603 on March 13, 2013. On February 14, 2014, the TWSE Index closed at 8,513. In addition, various market manipulations, insider trading and payment defaults in the ROC securities market were discovered during the past three years. The recurrence of these problems could adversely affect markets and the shares traded on the TWSE, including the Shares. See "The Securities Markets of the ROC".

The Company's business and the price of the Shares may be adversely affected by political risks.

The ROC has a unique international political status. The PRC government asserts sovereignty over Taiwan and does not recognize the legitimacy of the ROC government. Although significant economic and cultural relations have been established in the past decade between the ROC and the PRC, the PRC has refused to renounce the possibility that it may at some point use force against Taiwan. The TWSE Index is vulnerable to the political instability and the Cross-Strait relations may also affect the Company's operations and the stock price.

The Company's assets in Taiwan are vulnerable to a variety of natural disasters.

Taiwan is susceptible to earthquakes, typhoons and other types of natural disasters, which could adversely affect the Company's business. In the past three years, natural disasters have caused significant property damage and

losses of life in Taiwan. Although the Company did not suffer significant losses in the past, natural disasters could severely disrupt the business operations.

RISKS RELATING TO THE BONDS

An active trading market for the Bonds may not develop.

The Bonds constitute an issue of securities for which there is no existing market. Application has been made to list the Bonds on the Luxembourg Stock Exchange. Trading is expected to commence after the Bonds are issued. There can be no assurance that such listing or eligibility (neither of which is a condition of issuance) will be received or, if received, will provide liquidity for the Bonds. There can be no assurance that an active trading market for the Bonds will develop. Further, even if such market is developed, the Bonds can trade at prices higher or lower than the price the holders originally paid for, depending on the following factors:

prevailing interest rates;
the Company's financial and business conditions;
the price of the Shares;
political, legal and economic developments in the United States, Europe, Taiwan and China and the rest of world; and
the market conditions.

Holders of the Bonds will bear the risk of fluctuations in the price of the Shares.

The market price of the Bonds will likely be affected by fluctuations in the price of the Shares. It is impossible to predict whether the price of the Shares will rise or fall. Trading prices of the Shares will be influenced by, among others, the results of operations, political, economic, financial and other factors that can affect the capital markets on which the Shares are listed. Any decline in the price of the Shares will adversely affect the secondary market price and trading of the Bonds.

Fluctuations in the exchange rates between NT dollars and US dollars may have a material adverse effect on the value of the Bonds in US dollar terms.

Although the principal amount of the Bonds is denominated in US dollars, the Shares are listed on the TWSE, which quotes and trades the Shares in NT dollars. As a result, fluctuations in the exchange rates will affect the secondary market price of the Bonds.

The imposition of foreign exchange restrictions, if happen, may have an adverse effect on foreign investors' ability to acquire ROC securities, including the Company's securities, or repatriate the interest, dividends or sale proceeds from those securities.

The ROC government may impose foreign exchange restrictions in certain emergency situations, including situations where there are sudden fluctuations in interest rates or exchange rates, where the ROC government experiences extreme difficulty in stabilizing the balance of payments or where there are substantial disturbances in the financial and capital markets in Taiwan. These restrictions may require foreign investors to obtain the ROC government's approval before buying ROC securities or repatriating the interest or dividends from those securities or the proceeds from the sale of those securities. No assurance can be given that these restrictions will not be imposed under certain emergent situations, which will likely affect the business of the Company and the secondary market price of the Shares and the Bonds.

Non-ROC holders of the Bonds will be required to register with the Taiwan Stock Exchange and appoint local agents in Taiwan if they convert the Bonds and become Shareholders of the Company

Under current ROC law, if non-ROC holders of the Bonds wish to convert any of their Bonds and to hold the Shares, they will be required to register with the Taiwan Stock Exchange (the "TWSE") for making investments in the ROC securities market prior to receiving Shares upon conversion of the Bonds. In addition, non-ROC converting holders of the Bonds will be required to appoint an eligible agent in the ROC to (i) open a securities trading account with a local brokerage firm (with qualification set by the FSC) and a bank account, (ii) pay

ROC taxes, (iii) remit funds, (iv) exercise shareholders’ rights and (v) perform such other functions as holders of Bonds may designate upon such conversion. In addition, non-ROC converting holders of the Bonds will be required to appoint a custodian bank to hold the securities in safekeeping, make confirmation and settle trades and report all relevant information. Without meeting these requirements, the converting holder would be unable to hold or subsequently sell the Shares. In addition, these regulations may change from time to time. The Company cannot assure the Bondholders that they will be able to register with the TWSE and open the requisite accounts in a timely manner or that current ROC law will remain in effect or that future changes in ROC law will not adversely affect the Bondholders' ability to convert the Bonds into the Shares. Non-ROC holders of the Bonds who elect to exercise their conversion rights, receive the Shares, and register as the Company's shareholders are required under current ROC laws and regulations to appoint an agent ("Tax Guarantor") in the ROC for filing tax returns and making tax payments on their behalf. A Tax Guarantor will be required to meet the qualifications set by the ROC Ministry of Finance and will act as the guarantor of the holder’s tax payment obligations. Evidence of the appointment of a Tax Guarantor and the approval of such appointment or tax clearance certification are required as conditions to repatriating the holder’s profits derived from the sale of the Shares. There can be no assurance that non-ROC holders will be able to appoint and obtain approval for a Tax Guarantor in a timely manner.

There are limitations on the exercise of the conversion rights of the Bonds.

The Bonds are convertible into Shares at the option of the holders pursuant to the terms of the Bonds. Holders of the Bonds will be able to exercise their conversion right during the Conversion Period and will not be able to exercise their conversion rights during any Closed Period. See "Terms and Conditions of the Bonds - Conversion". Further, under current ROC laws and regulations, a PRC person is not permitted to hold the Shares upon conversion of the Bonds and to register as shareholders of the Company unless it is a qualified domestic institutional investor ("QDII"), provided that the total shareholding of the PRC persons with respect to the Company cannot exceed a certain percentage of the Company's outstanding Shares. In addition, there are restrictions on the amount remitted to Taiwan for investments by QDIIs, separately and jointly. Accordingly, the qualification criteria for a PRC person to make investment and the investment threshold imposed by the FSC and the TWSE might cause a Bonds holder who is a PRC person to be unable to hold the Shares upon conversion of the Bonds and to register as shareholders of the Company. Under current ROC laws, “PRC person” means an individual holding a passport issued by the PRC, a resident of any area of China under the effective control or jurisdiction of the PRC (but not including a special administrative region of the PRC such as Hong Kong and Macau, if so excluded by applicable laws of the ROC), any agency or instrumentality of the PRC and any corporation, partnership or other entity organized under the laws of any such area or controlled by, or directly or indirectly having more than 30% of its capital owned by, or beneficially owned by any such person, resident, agency or instrumentality.

The Company has limited liquidity and may be unable to redeem the Bonds or other outstanding debt securities when requested by holders.

Under certain circumstances summarized in "Terms and Conditions of the Bonds" and the Indenture, the holders of the Bonds may require the Company to redeem all or a portion of the Bonds. The Company cannot assure it will have enough funds or would be able to arrange for sufficient funding to redeem the Bonds. The Company' ability to redeem the Bonds may also be limited by applicable law and subject to the terms of other outstanding indebtedness.

Holders of the Bonds will have no rights as shareholders until they acquire Shares upon conversion of the Bonds.

Unless and until the holders of the Bonds become shareholders after conversion of the Bonds, the holders of the Bonds will have no rights with respect to the Shares, including voting rights or rights to receive dividends or other distributions with respect to the Shares.

A holder of the Bonds or its designee requesting the conversion of the Bonds into the Shares may be required to provide certain information to the Company, and failure to provide such information may result in a delay of the conversion.

A holder of the Bonds or its designee requesting the conversion of the Bonds may be required to provide

information to the Company or the Conversion Agent, including the name and nationality to be registered, the number of Shares to be acquired by such person and the number of Shares acquired by such person through the date of the conversion of the Bonds. Under applicable ROC laws, the Company shall report to the FSC if the person to be registered as a shareholder (1) is a "related party" of the Company as defined in the ROC Statement of Financial Accounting Standard No. 6, or (2) will hold following such conversion more than 10% of the total number of the outstanding Shares. Failure to provide such information may result in delay of conversion of the Bonds.

RISKS RELATING TO THE SHARES AND THE CONTROL OF THE SHARES

Sales of a significant portion of the Shares may adversely affect the price of the Shares.

The market price of the Bonds and the Shares could decline as a result of the sale of a large number of the Shares. Sales of a large number of the Shares after this offering, or the perception that such sale could occur, may adversely affect the market price of the Bonds and the Shares.

Fighting of control over the Company may cause instability of the Company

Due to the fighting of the control over the Company between the current management and a certain group of the Company's shareholders (the "Dissenting Shareholders"), there has been and still are various civil and criminal litigations and complaints against the Company, some of its directors (including the Chairman) and supervisors brought up by the Dissenting Shareholders. So far, there has been no indictment or ruling against the Company, incumbent directors and supervisors and/or the complaints have been dismissed by the Prosecutors officer as groundless. The Dissenting Shareholders have, in numerous occasions, applied with the Ministry of Economic Affairs ("MOEA") to hold an extraordinary general meeting ("EGM") of the shareholders in order to vote for the removal of certain of the Company's incumbent board of directors and supervisors, but these applications have been rejected every time by the MOEA, on the grounds that the Dissenting Shareholders' allegations against certain of the Company's directors and supervisors have been found to be unfounded. There is no assurance that the litigations and actions against the Company and the current management will not cause adverse impact to the Company's stability going forward or its business performance; nor is there assurance that the current board composition and the management team will remain unchanged. The fighting of control over the Company likely has and will continue to be an unpredictable factor that influences the Company's stock price, its management stability and its business operations. The Dissenting Shareholders are able to block certain agenda in board meetings or make the function of the board dysfunctional.

The Company's Articles of Incorporation contain an article that places a restriction on making investments and disposals by the Company

Article 3-1 of the Company's Articles of Incorporation requires the Company to obtain an unanimous consent from all members of its Board of Directors before it or any of its subsidiaries can make an acquisition or disposal of asset or investment that exceeds NT$50 million in value. Such article was proposed by the Dissenting Shareholders who hold two seats in the Board of Directors. This restrictive article can potentially cause the Company to be unable to more freely and timely make investments, acquisitions or disposals.

CAPITALIZATION

The following table sets forth the Company consolidated and unaudited short term debt and capitalization as of September 30, 2013, and the capitalization as of that date as adjusted for the offering of the Bonds. The table below should be read in conjunction with the Company's consolidated unaudited financial statements as of September 30, 2013, including the notes to those statements, included elsewhere in this Offering Circular.

As of September 30,2013	As of September 30,2013	As of September 30,2013
Actual As adjusted for this offering NT$ US$(2) NT$ US$(2) (in thousands) 4,953,343 167,484 4,953,343 167,484 1,016,387 34,366 1,016,387 34,366 498,093 16,842 498,093 16,842 6,467,823 218,692 5,467,823 218,692 5,385,115 182,083 5,385,115 182,083 1,626,625 55,000 5,385,115 182,083 7,011,740 237,083 parent: 8,963,768 303,086 8,963,768 303,086 1,642,578 55,539 1,642,578 55,539 4,935,733 166,889 4,935,733 166,889 (909,260) (30,744) (909,260) (30,744) (141,578) (4,787) (141,578) (4,787) 2,074,968 70,159 2,074,968 70,159 16,566,209 560,142 16,566,209 560,142 21,951,324 742,225 23,577,949 797,225	As adjusted for this offering
NT$ 4,953,343 1,016,387 498,093 6,467,823 5,385,115 5,385,115 parent: 8,963,768 1,642,578 4,935,733 (909,260) (141,578) 2,074,968 16,566,209 21,951,324		US$(2)
		167,484 34,366 16,842
		218,692
		182,083 55,000
		237,083
		303,086 55,539 166,889 (30,744) (4,787) 70,159
		560,142
		797,225

Notes: (1) Total capitalization is the sum of long-term debt and stockholders' equity.

(2) Translations from NT dollars to US dollars and vice versa, for convenience of the reader, have been made at the spot rate of Taiwan Business Bank on September 30, 2013 of NT$29.575 to US$1.00.
(3) Other than the Bonds, the Company does not have any outstanding convertible debt securities, exchangeable debt securities or debt securities with warrants attached.

Except as disclosed herein, there has been no material change in the Company's total capitalization since September 30, 2013.

BUSINESS OF THE COMPANY

INTRODUCTION

The Company manufactures motorbikes with its own SYM brand in its main production facilities located in Taiwan, Vietnam and China, with a total annual capacity of 1.1 million motorbikes. The Company sold 254,475 motorbikes in 2012, among which 57% were sold in Taiwan and 43% were sold outside Taiwan. In Vietnam, the manufacturing is through Vietnam Manufacturing & Export Processing Co., Ltd., ("VMEP"), a 67.07% owned subsidiary of the Company, whose production of the motorbikes accounted for approximately 30% of the total production of the SYM brand motorbikes of the Group. VMEP was incorporated in 2000, and the shares of its direct holding company, Vietnam Manufacturing & Export Processing (Holding) Ltd., ("VMEPH") are listed on Hong Kong Stock Exchange since 2007. VMEP contributed US$181 million in revenue to the Company in 2012, which represented 16.33% of the consolidated operating revenue of the Company. The SYM brand motorbikes are sold in Taiwan and globally, mostly in Asia Pacific region (such as Vietnam, China, Malaysia and the Philippines) and the European region (such as France, Italy and Greece). The research and development division of the Company is located in both Taiwan and Vietnam.

The Company's motorbike products were awarded the "Taiwan Excellence Award" in 2011 and 2012, the "Golden National Award of Excellence" in 2010 and the "National Friendly Working Environment Award" in 2008. Its motorbike products were also awarded the "Best Brand" in Germany in 2011 for the scooter category, and voted as the best Maxi Scooter by the Brazilian press in the same year.

The Company's principal establishments are the Vietnam-based VMEP (which the Company owns through its subsidiaries VMEPH and SY International Ltd.) and Taiwan-based Nanyang. VMEP manufactures motorbikes through two manufacturing facilities located in Vietnam. The Vietnam facilities employ approximately 980 direct laborers and are 505,575 square meters in size combined. The Company manufacture automobiles and motorbikes through the manufacturing facility located in Hsinchu, Taiwan. The Hsinchu facility employs 1291 direct laborers and is 330,578 square meters in size.

For the year 2012, the Company had consolidated operating revenue of approximately NT$34,409 million, with motorbikes and automobiles accounting for 58% and 39%, respectively, of the Company's consolidated operating revenue. The non-consolidated operating revenue of the Company increased by NT$207 million from NT$23,454 million for the year 2011 to approximately NT$23,661 million for the year 2012. The Company's non-consolidated net income decreased by NT$881 million from NT$1,238 million in 2011 to NT$357 million in 2012. For the nine months ended September 30, 2013, the Company recorded nonconsolidated operating revenue of NT$16,500 million, as compared to NT$18,260 million in the same period of 2012, and recorded non-consolidated net income of NT$126 million, as compared to a non-consolidated net income of NT$497 million in the same period of 2012.

The Company was incorporated in the Republic of China (Taiwan) on September 14, 1961. Its predecessor, Sanyang Electric Machinery Plant, was founded in 1954. The Company is registered with the Ministry of Economic Affairs of the ROC under a uniform registration number of 24004006. The Company's registered address is No. 3, Zhonghua Rd., Hukou Township, Hsinchu County 303, Taiwan and its website address is: http://www.sanyang.com.tw. The Company's shares have been listed and traded on the TWSE since 1996. The information on the Company's website is not part of this Offering Circular.

896,376,810 common shares of the Company in registered form which were issued and fully paid for. As of September 30, 2013, the Company had 2,263 employees in Taiwan.

The following sets forth the Company's scope of business in accordance with Article 2 of the Company's Articles of Incorporation (the "Articles"):

The manufacture of automobiles, motorbikes, bicycles and their parts for domestic sales and export.
The manufacture of engines for domestic sales and export.
The manufacture of machineries, clip, craft, inspection, modification tools and their parts for domestic sales and export.
The manufacture of lawn mowers and their parts for domestic sales and export.
Solvent oil and oil sales. (Must not sell or exchange for gasoline or diesel; restricted market.)
Automobile and motorcycle maintenance and repair.
Automobile and motorcycle showcasing.
Automobile- and motorcycle-related books and magazines issuing.
Automobile and motorcycle driving and maintenance training.
Motor vehicle air pollution emissions and noise inspections.
Telecommunication restricted radio frequency device installations.
Telecommunication restricted radio frequency device import.
Telecommunication restricted radio frequency device manufacture.
Other transportation equipment and parts manufacturing.
Other transportation equipment and their parts wholesaling.
Previously stated items import and export business.
Providing support and consulting services for previously stated items.
Representative Agent for support and consulting services for previously stated items.
In addition to licensed businesses, the Company may operate any other businesses that are not prohibited or restricted by law.

Industry Overview

Motorbikes

The total motorbike production in Taiwan was 197,351 in 2012, with a decline of 11.28% compared to 2011. The total number of motorbikes sold in 2012 was 254,475, which represented an 8.09% decline compared to 2011. As to the overseas markets, in 2012, the overall sales in the five largest markets in Europe (France, Italy, Germany, Spain and UK) declined by 12.9% while the sales of the Company in those markets fell by 3.6%. The Company expects the demands for motorbikes in emerging markets, such as BRICs, ASEAN countries, Mexico and Latin America, will continue to expand while the European markets will slow down due to the European debt crisis and high unemployment rate. The Company believes its strong R&D capability, product quality and global resources give it a competitive advantage over many of its competitors.

Automobiles

The total number of the automobiles produced in 2012 in Taiwan was 15,357, compared to 12,384 in 2011. The total number of the automobiles sold in 2012 in Taiwan was 16,493, which represented 14.24% growth compared to the sales in 2011. Due to the high average age of the automobiles in Taiwan, the Company foresees a trend of buying new replacement automobiles in the next few years.

After becoming a member of WTO, the Company began to face more competitions from abroad. The operating cost of the Company continues to soar due to the rising price of petroleum and electricity in Taiwan, which weakens the Company's price competitiveness against imported vehicles. Furthermore, the completion of Taiwan's high speed rail system and various metro transportation systems also affects the demand of automobiles in Taiwan.

COMPANY STRATEGY

The Company intends to establish itself as a leading manufacturer of motorbikes and automobiles in Taiwan and ASEAN countries, maintain sustainable growth and create long-term shareholder value. To achieve these objectives, the Company plans to pursue the following key business strategies:

Expand into new markets

The Company intends to expand its business to emerging markets where the Company expects growth rate for motorbike demands will be higher.

Increase research and development capability

The Company believes that research and development is its core competence and a priority for its future success. The Company will continue to invest in research and development to increase its capability to develop more advanced products, with an emphasis on environmental friendliness and high product quality.

Expand product line

The Company intends to continuously re-adjust its product line to increase and broaden customer appeal. The Company also plans to develop premium, higher-priced models of motorbikes targeted towards higher-end markets, as well as environmentally-friendly products such as electric scooters. The Company will seek to leverage its strong research and development resources to shorten the timetable for developing new models and making model changes.

Invest into the Company's SYM brand

The Company intends to invest more in building and differentiating its SYM brand value. The Company will continue its brand advertisement campaign and renovate the storefronts of its distributors to a more attractive appearance. The Company will also expand its marketing in 2014 to take advantage of the Company's 60[th] anniversary. The Company's new marketing strategy will position its SYM brand as a distinct, high-end, lifestyle brand.

Automobile strategy

The Company has been rated as the top CKD factory of Hyundai. Since its cooperation with Hyundai, eight models of the Hyundai automobiles were assembled and produced by the Company in Taiwan. The Company intends to continue to expand its cooperation with Hyundai, such as potentially setting up more Hyundai sales and service outlets in China. The Company will also focus on platform integration for different product models to enhance the Company's cost competitiveness.

Financial restructuring

The Company will enhance its financial management structure, with an emphasis on focusing its investments in its core business and increasing margins. To optimize financial structure, any idle assets will be managed and/or sold to maximize value.

Products; Production

The Company is specialized in the manufacture and sale of motorbikes and automobiles. Additionally, the Company makes related parts, components and molds; provided that such products represent a small portion of the Company's products.

The table below shows the percentage of the Company's consolidated operating revenue from motorbikes and automobiles in 2010, 2011, 2012 and for the nine months ended September 30, 2013.

							Unit: NT$1,000;%	Unit: NT$1,000;%
	2010		2011		2012		For the nine months ended September 30, 2013
	Amount	%	Amount	%	Amount	%	Amount	%
Motorbikes	21,963,127	68.98%	23,611,629	64.11%	19,986,485	58.09%	14,752,747	58.90%
Automobiles	8,489,457	26.67%	12,166,058	33.04%	13,364,181	38.84%	9,792,713	39.10%
Others	1,388,308	4.35%	1,047,901	2.85%	1,058,278	3.07%	500,796	2.00%
Total	31,840,892	100%	36,825,588	100%	34,408,944	100%	25,046,256	100%

Motorbikes

SYM is the Company's own motorbike brand. The Company's motorbikes can be separated into three main classes: scooters, bikes and cubs. The main difference amongst the classes is the engine capacity, ranging from 50 c.c. to 600 c.c. A variety of distinct models within each class is a key to the Company's market segmentation strategy, from which particular classes of motorbikes are targeted at discrete classes of customers in different jurisdictions with different levels of income. The Company regularly carries out refinements to the existing models, and often a new model or a new generation of an existing model is introduced after the refinement. The Company also produces other types of vehicles include the all-terrain vehicles ("ATV") and electric scooters ("e-scooters"). Following the current trend, the Company's recent motorbikes are designed to be environmentally friendly and fuel-efficient. For example, the bending muffler in the Company's Jet SportX model is designed to lower the noise and emit less pollutant in the air.

The Company currently manufactures its motorbikes at its production facilities located in Taiwan, Vietnam and China. The Taiwan production site, which is 330,578 square meters, is located in Hsinchu County, with 2,263 employees. In Vietnam, the Company has two production sites, with one located near Ho Chi Minh City and one located near Hanoi. Both of these production sites are managed by Vietnam Manufacturing & Export Processing Co., Ltd. ("VMEP"), a company registered in Vietnam, which the Company owns 67.7% since 2000. The two Vietnam production sites have 1,976 employees, occupying 550,575 square meters of land. In 2000, the Company acquired 76.67% of Xiamen Xiashing Motorcycle Co., Ltd. ("Xiashing"), based in Xiamen, China which has motorbike production facilities in China. The Xiamen site has 638 employees, occupies 361,673 square feet of meters. These production facilities in Taiwan, Vietnam and China manufacture different models of motorbikes for sales domestically and overseas. Except for certain production facilities in Taiwan, the Group does not own its production sites.

In its Hsinchu production site, the Company has separate factories for making motorbikes and automobiles. In recent years, the Company has gradually moved the production of its mature models of motorbikes to its production site in Xiamen, China. The Group produced approximately 500,000 to 600,000 motorbikes in 2012, and approximately 40% of the motorbikes produced in Taiwan, 40% in Vietnam and 20% in China.

Automobiles

Hyundai, a Korean corporation, is the fifth largest automobile manufacturer in the world. The Company has been an exclusive technical partner of Hyundai's presence in Taiwan since 2002. Based on a technical license agreement with Hyundai, the Company purchases knock-down parts, such as engines, transmissions and other parts and accessories from Hyundai required for the exclusive manufacturing distribution, sales and service of Hyundai automobiles in Taiwan.

Historically, the Company has manufactured eight different models of Hyundai automobiles. Currently the Hyundai automobile models made by the Company available in Taiwan are i-10, i-30 GAS, iX35 2.0/2.4 GAS/DSL, Porter 2.5 DSL, Elantra 1.8 GAS, and Santa Fe 2.2 DSL/2.7 GAS, among which the ix35 SUV and the Elantra sedan have been the Company's key products in 2013. The diesel models made by the Company, such as the iX35, Santa Fe and Porter, offer plenty of power and low fuel consumption. The manufacture and sales of the Hyundai automobiles in Taiwan have been growing steadily over the past three years, with volumes of 10,948, 14,437 and 16,493 units in 2010, 2011 and 2012, respectively.

The Company does not manufacture or sell its own brand of automobiles in Taiwan, nor does it manufacture automobiles for any company other than Hyundai in Taiwan. In Vietnam, however, Sanyang Motor Vietnam Co., Ltd. ("SMV"), a 100% owned subsidiary of the Company, manufactures mini-buses and trucks under 3.5 ton under "SYM Auto", the Company's own brand. The models current available include SYM T880, SYM T1000, SYM V5, and SYM V9 and V11. The net operating revenue from the SYM Auto automobiles only contributed to a small portion of the total consolidated net operating revenue of the Company in 2012 and the Company does not expect that the growth of its own brand of automobiles will be significant in 2013.

Die and Machinery

The Company's Engineering Division ("SEGD") is a professional designer and maker of molds and machineries. Three main categories of the products are as follows:

Dies	Die casting molds, plastic injection molds, gravity die casting molds, press dies, forging dies, low-pressure die casting mold, and sand core mold.
Machinery	Automation production related machinery, special purpose machinery,fixtures,inspectionjigs,and welding jig.
Parts Casting& Processing	Parts castingandprocessing.

SEGD offers one stop shopping to its customers and is able to present all kinds of molds and machineries desired by the customers according to the specific drawing(s). The majority of the Company's molds are made for internal use to produce parts for the Company's products. The Company manufactures a small number of molds for external sale to its domestic suppliers and manufacturers unrelated to the production of parts for the Company's products.

Components, Raw Materials and Suppliers

Motorbikes

Except for the motorbike engines, the Company outsources most of the production of the components and parts for its motorbikes to its suppliers in Taiwan and overseas, and then assembles the parts and components in house. The Company adopts a policy of maintaining at least two suppliers for each type of key raw materials for its motorbikes. The principal raw materials used for the production of motorbikes are metal, plastic pellets and coatings. The supply of raw materials and components and parts for the production of motorbikes has been stable and the Company has never encountered any shortage during the past three years. The Company's payment terms to its suppliers for motorbike production are generally 45 days, depending on the credit with the suppliers and market conditions.

The following table shows the Company's major suppliers for raw materials and components and parts for motorbike production:

Major Supplier Raw Materials 1. Shin Wen Ching Metal Enterprise Co., Ltd. 2. Formosa Plastics Corporation Components and Parts 1. Taiwan Jing Bin Carburetor Co., Ltd. 2. China Terminals & Electric Co., Ltd.

Automobiles

For automobiles, the Company's production process mainly consisting of assembling using components, parts and accessories. The Company purchases majority of the components (knocked-down parts) from Hyundai. Since the Company has been in a long-term contractual relationship with Hyundai, the supply of components for automobile production is considered stable. The Company's payment terms to its suppliers for automobile production are generally 45 days. The Company relies heavily on Hyundai for its supply of the components and parts for producing the Hyundai automobiles. Other than Hyundai, the Company does not consider itself to be materially reliant on any particular supplier.

Quality Control

The Company has implemented a sophisticated quality control system to ensure its product quality and believes that the stability of its product quality is a key to its success. The Company's quality control system aims at Total Quality Management (TQM) through the "P(Plan)-D(Do)-C(Check)-A(Action)" management cycle, incorporating market quality information (MQI) from the consumers and T/R quality report from both domestic and overseas subsidiaries.

Quality control procedures are implemented throughout the production process, and products are subject to a number of inspections and control tests. The Company believes that its quality control system is capable of responding to the market feedback timely and effectively. The Company has received certification of ISO 9000 (quality management systems), ISO 14001 (environmental management standards) and QS 9000 (quality system requirements of the automotive industry). Its subsidiaries, VMEP in Vietnam and Xiashing in China, have also received certification of ISO 9001, ISO 14001 or 3C certification (China Compulsory Certification).

Research and Development

The Company's R&D Center dedicates its efforts to improving product quality, reducing production cost and developing new products with high technology and design philosophy, while still maintaining flexibility to timely meet market demand. To achieve these goals, the Company has devoted considerable resources to research and development of motorbike and machine manufacturing technologies. The Company is currently focusing its research and development efforts on core motorbike technology, low-priced motorbikes, low pollution motorbikes, all terrain vehicles (ATV) and also new automobile models.

Through research and development activities, the Company aims to design and manufacture innovative products that incorporate new designs and technologies such as ceramic coating cylinder technology, electric fuel injection technology and swirl tumble control system, which the Company believes will help to differentiate the Company from its competitors.

Customers, Sales and Marketing

For motorbikes, the Company's sales in overseas markets (in aggregate) are greater than its sales in the domestic market. Most of the Company's current overseas sales of motorbikes are in the Asia Pacific region and Europe. For automobiles produced and assembled by the Company in Taiwan, they are sold only in the domestic market.

The Company's consolidated operating revenue from motorbikes and automobiles by geographic location are as follows.

as follows.
								Unit: NT$1,000
	Products	2010		2011		2012		For the nine months ended September 30, 2013
		Amount	%	Amount	%	Amount	%	Amount %
	Motorbikes	7,138,745	22.42%	8,128,490	22.07%	6,952,430	20.21%	5,709,037 22.79%
Taiwan	Automobiles	7,872,834	24.73%	11,239,661	30.52%	12,224,863	35.53%	8,415,229 33.60%
	Others	1,053,221	3.31%	985,161	2.68%	718,164	2.09%	447,073 1.78%
Other Countries	Motorbikes Automobiles Others	14,824,382 616,623 335,087	46.56% 1.94% 1.04%	15,483,139 926,397 62,740	42.04% 2.52% 0.17%	13,034,055 1,139,318 340,114	37.88% 3.31% 0.98%	9,043,710 36.11% 1,377,484 5.50% 53,723 0.22%
	Total	31,840,892	100.00%	36,825,588	100.00%	34,408,944	100.00%	25,046,256 100.00%

The Company sells its products and provides services to customers solely through its distributors and agents. For motorbikes, the Company has 19 general distributors in 19 counties in Taiwan, which sells the Company's' products through thousands of sales outlets in Taiwan. Globally, the Company has more than 60 agents located worldwide for the sale of motorbikes, two of which are 100% owned subsidiaries of the Company, with one in Italy and the other in Germany.

For automobiles, the Company sells the Hyundai automobiles it manufactured in Taiwan mainly through Nanyang, an 89.58% owned subsidiary of the Company, and through nearly 100 sales locations in Taiwan. Nanyang's subsidiary in China also distributes Hyundai automobiles in Shanghai, Suzhou and Changzhou as one of the distributors of Beijing Hyundai Motor Company Corp. The Company also sells Hyundai automobiles through Nanchen Industry Co., Ltd., a 89.90% (directly and indirectly) owned subsidiary of the Company.

COMPETITION

Motorbikes

KYMCO and YAMAHA are the principal competing brands of the Company in Taiwan for its motorbikes. According to information published by Taiwan Transportation Vehicle Manufactures Association, the top

three motorbike manufacturers in Taiwan are Kwang Yang Motor Co., Ltd. (KYMCO brand), Yamaha Motor Taiwan Co., Ltd. (YAMAHA brand) and the Company, which in aggregate accounted for approximately 95% of the production in 2012 in Taiwan. The tables below show (1) the production of motorbikes in Taiwan and (2) the motorbikes sold in Taiwan for 2010, 2011 and 2012, respectively.

Motorbikes Production in Taiwan

	otorbikes Production in Taiwan Unit: motorbikes/%	otorbikes Production in Taiwan Unit: motorbikes/%	otorbikes Production in Taiwan Unit: motorbikes/%	otorbikes Production in Taiwan Unit: motorbikes/%	otorbikes Production in Taiwan Unit: motorbikes/%	otorbikes Production in Taiwan Unit: motorbikes/%	otorbikes Production in Taiwan Unit: motorbikes/%	otorbikes Production in Taiwan Unit: motorbikes/%
		KYMCO	YAMAHA	SYM(1)	PGO Scooter	Suzuki	Others	Total
2010	Numbers	392,862	274,996	296,825	17,063	40,604	9,647	1,031,997
	Market share(2)	38.07	26.65	28.76	1.65	3.93	0.94	100.00
2011	Numbers	461,191	297,674	389,367	21,045	33,281	4,870	1,207,428
	Market share(2)	38.20	24.65	32.25	1.74	2.76	0.40	100.00
2012	Numbers	460,522	307,015	258,311	30,357	28,101	1,778	1,086,084
	Market share(2)	42.40	28.27	23.78	2.80	2.59	0.16	100.00

Note: (1) SYM is the Company's motorbike brand

(2) Market shares refer to the percentage share of the aggregate motorbike production made by the Taiwanese motorbike manufacturers

	Motorbike Sales by Domestic Manufacturers Unit: motorbikes/%	Motorbike Sales by Domestic Manufacturers Unit: motorbikes/%	Motorbike Sales by Domestic Manufacturers Unit: motorbikes/%	Motorbike Sales by Domestic Manufacturers Unit: motorbikes/%	Motorbike Sales by Domestic Manufacturers Unit: motorbikes/%	Motorbike Sales by Domestic Manufacturers Unit: motorbikes/%	Motorbike Sales by Domestic Manufacturers Unit: motorbikes/%	Motorbike Sales by Domestic Manufacturers Unit: motorbikes/%
		KYMCO	YAMAHA	SYM(1)	PGO Scooter	Suzuki	Others	Total
2010	Domestic sales	200,751	172,829	145,868	4,808	13,133	4,096	541,485
	Export sales	191,094	97,366	150,171	11,752	28,343	4,486	483,212
	Total sale	391,845	270,195	296,039	16,560	41,476	8,582	1,024,697
	Market share(2)	38.24	26.37	28.89	1.62	4.05	0.84	100.00
2011	Domestic sales	263,331	187,254	168,112	7,445	10,827	2,646	639,615
	Export sales	191,025	115,862	221,230	13,161	22,904	2,382	566,564
	Total sale	454,356	303,116	389,342	20,606	33,731	5,028	1,206,179
	Market share(2)	37.67	25.13	32.28	1.71	2.80	0.42	100.00
2012	Domestic sales	261,161	178,236	144,189	14,371	8,658	0	606,615
	Export sales	206,853	126,306	114,043	16,188	18,442	1,778	483,610
	Total sale	468,014	304,542	258,232	30,559	27,100	1,778	1,090,225
	Market share(2)	42.93	27.93	23.69	2.80	2.49	0.16	100.00

Note: (1) SYM is the Company's motorbike brand

(2) Market shares refer to the percentage share of the aggregate domestic and exports sales made by the Taiwanese motorbike manufacturers

Automobiles

Under contract with Hyundai, the Company is the exclusive manufacturer of Hyundai automobiles in Taiwan since 2002. The Company's principal competitors in Taiwan's automobile industry include Yulong Motor (NISSAN brand, etc.), Hotai Motors (Toyota brand) and CMC Motor (Mitsubishi brand). Data regarding domestic automobile suppliers in 2010, 2011 and 2012 can be found in the tables below.

	Automobile Production in Taiwan Unit: automobiles/%	Automobile Production in Taiwan Unit: automobiles/%	Automobile Production in Taiwan Unit: automobiles/%	Automobile Production in Taiwan Unit: automobiles/%	Automobile Production in Taiwan Unit: automobiles/%	Automobile Production in Taiwan Unit: automobiles/%	Automobile Production in Taiwan Unit: automobiles/%
		Hotai Motor	CMC Motor	Yulong(1)	the Company	Others	Total
2010	Production	122,312	52,143	51,570	9,904	67,527	303,456
	Market share(2)	40.31	17.18	16.99	3.26	22.25	100.00
2011	Production	156,917	60,099	56,371	12,384	57,525	343,296
	Market share(2)	45.71	17.51	16.42	3.61	16.76	100.00
2012	Production	173,619	53,707	46,121	15,356	50,235	339,038
	Market share(2)	51.21	15.84	13.60	4.53	14.82	100.00

Note: (1) The figures in the Yulong column refers to the production of Nissan brand automobiles by Yulong.

(2) Market shares refer to the percentage share of the aggregate automobile production by the Taiwanese automobile manufacturers.

	Domestic Automobile Sales Unit: automobiles/%	Domestic Automobile Sales Unit: automobiles/%	Domestic Automobile Sales Unit: automobiles/%	Domestic Automobile Sales Unit: automobiles/%	Domestic Automobile Sales Unit: automobiles/%	Domestic Automobile Sales Unit: automobiles/%	Domestic Automobile Sales Unit: automobiles/%
		Hotai Motor	CMC Motor	Yulong(1)	the Company	Others	Total
2010	Sales	116,280	50,474	47,378	9,578	65,734	289,444
	Market share	40.17	17.44	16.37	3.31	22.71	100.00
2011	Sales	157,148	57,677	55,778	12,628	57,344	340,575
	Market share	46.14	16.94	16.38	3.71	16.84	100.00
2012	Sales	173,257	53,097	49,403	15,480	49,747	340,984
	Market share	50.81	15.57	14.49	4.54	14.59	100.00

Note: (1) Yulong refers to the sales of Nissan brand automobiles by Yulong.

(2) Market shares refer to the percentage share of the aggregate automobile sales by the Taiwanese automobile manufacturers.

Intellectual Property

As of September 30, 2013, the Company holds 456 patents in Taiwan and 10 patents in China. The Company also has 125 patent applications pending in Taiwan. The Company also registers 482 trademarks in Taiwan, 117 trademarks in Macau, 108 trademarks in China, 101 trademarks in Vietnam, and 31 trademarks in Europe.

Litigation and Regulatory Issues

The Company is currently involved in various litigations and mediation. The litigations include criminal and civil actions against the Company, its directors and/or supervisors.

Civil Action

The civil actions brought up against the Company, its directors and/or supervisors are pending at either district court or high court, subject to the final judgment. The Taipei District Court has recently approved Hua Nan Commercial Bank's petition for involuntary bankruptcy of the Company's Chairman Shi H. Huang due to certain non-performing loans (which are not made to the Company or its subsidiaries). The Chairman has made an appeal to the court, and it is unclear how long the appeal process will take to reach a final verdict.

Criminal Action

There is one criminal complaint filed by shareholders of the Company against board members for breach of trust. The criminal proceeding is pending before the prosecutor's office for investigation.

Mediation Process

The Company is in a mediation proceeding to settle parts of the disputes regarding the Procurement Contract (as described in the section headed "Risk Factors - The Company might suffer certain losses due to contract dispute.") between the Company and the Ministry of Defense.

Environmental Matters

When manufacturing motorbikes and automobiles, the Company is obliged to adopt appropriate environmental measures to prevent and control damage to the environment resulting mainly from waste water, generated in the course of manufacturing. The production sites and facilities of the Company are subject to various environmental laws and regulations in each jurisdiction, which apply to discharge of waste water, air pollution, etc. To ensure compliance with statutory requirements in each jurisdiction, the Company has obtained various permits for operations and established its internal control measures in connection with its productions. The Company has also adopted ISO 14001 environmental management system and ISO 14064-1 standard procedures.

The Company has engaged qualified professional personnel to inspect environmental issues and employees' safety. The Company's safety and sanitary management department is responsible for the implementation of the environmental protection measures. The department consists of three employees with qualification certificates issued by the competent authority.

The Company is in compliance with, in all material respects, applicable environmental laws and regulations currently in force. During the past three years, the Company was fined once in 2010 for violation of the

Water Pollution Control Act regarding maintenance and preventive measures and emergency response measures. The Company has paid the fine and took relevant measures to rectify the issue. The Company does not foresee any significant increase in its annual cost for environmental compliance.

Employees

The number of employees working at the Company remains steady over the past three years. The numbers of employees were 2,181, 2,198, 2,326 and 2,263 as of the December 31 of 2010, 2011, 2012, and September 30, 2013. As of March 15, 2013, 34.5% of the employees held a bachelor's degree and the Company's employees, on average, is 42 years of old and have been working for the Company for 17 years. The current president Yong-hua Liu was promoted from vice president in February 2013. The number of employees by the Group (the Company and its subsidiaries) were 7,414, 7,950, 7,895 and 8,082 as of the December 31 of 2010, 2011, 2012, and September 30, 2013.

The Company's employees' salaries are reviewed and may be adjusted annually based on their performance, the Company's profitability and the industry benchmarks. The Articles provide that the employees may participate in profit distribution. They are entitled to 1% of the Company's profits after tax, reserves and deductions. The Company distributed NT$6,598,000 to its employees as bonus for 2012.

The employees are under two different statutory pension plans under the ROC Labor Standards Act (the "Old Plan") and the ROC Labor Pension Act (the "New Plan"), respectively. Under the Old Plan, the Company is required to set aside no less than 2% of employees' total monthly salary and deposit into a special account with the Labor Retirement Reserve Fund at the Bank of Taiwan. Under the New Plan, the Company is required to set aside no less than 6% of an employee's monthly salary into that employee's individual pension account at the Bureau of Labor Insurance. For the employees who adopt the Old Plan, the Company reserves 10% of employees' monthly salary at the Labor Retirement Reserve Funds in accordance with the Company's Rules Governing the Retirement of Employees. For the employees who adopt the New Plan or are employed after the effectiveness of the ROC Labor Pension Act, the Company reserves 6% of employees' monthly salary into their individual accounts with the Bureau of Labor Insurance.

The employees of the Company formed a labor union in accordance with laws, which holds meetings quarterly with the Company. In addition, the Company entered into a collective bargaining agreement with the labor union based on Labor Standards Act since 1989. The latest collective bargaining agreement was amended in June 2013. The Company believes that its relations with the employees are harmonious.

The Company provides employees on-job training every year. Through 2012, the Company has conducted more than 80 training sessions for more than 6,000 employees.

Insurance

The Company maintains insurance policies in respect of its operations in, including fire insurance, factory buildings insurance, cargo insurance, insurance for vehicles used in its business operations and insurance for machines, equipment and inventory. Buildings and equipment, raw materials and inventory of products are insured for their net book value. The Company also purchased liability insurance for directors, supervisors and executive officers. Insurance policies of the Company are generally renewed annually. In compliance with the industry practice, the insurance covers losses resulting from fire, lightning strike, various natural disasters, smoke/water stain, theft, explosion and product liabilities to third parties; provided, that, the product recall, business interruption, and account receivables are not covered. During the past three years, the Company did not have any material insurance claims. The Company believes that its insurance coverage is in line with the industry standard in Taiwan.

Subsidiaries

As of September 30, 2013, among the subsidiaries directly or indirectly held by the Company, four of the subsidiaries have book value representing at least 10% of consolidated net assets of the Company or accounting for more than 10% of the consolidated net operating revenue of the Company:

Nanyang Industry Co., Ltd.

The Company holds 89.58% of the shares of Nanyang Industry Co., Ltd. ("Nanyang"), an ROC incorporated

company as of September 30, 2013. Nanyang is located at Rm. 4, 5F., No. 160, Sec. 6, Minquan E. Rd., Neihu Dist., Taipei City, Taiwan, ROC. Its main business is the sale of the Hyundai automobile in Taiwan. As of September 30, 2013, Nanyang has a book value of NT$1,212,242,000 (US$40,988,740). Nanyang has an issued common stock of NT$1,222,392,000 (US$41,331,936) and a reserve of NT$120,166,152 (US$4,063,099) as of September 30, 2013 and operating revenue of NT$8,106,787,000 (US$274,109,450) for the first nine months of 2013, which accounted for 32.37% of the consolidated operating revenue of the Company for the same period. As of September 30, 2013, the shares of Nanyang held by the Company were all paid in full and there is no debt owed to and by the Company with regard to Nanyang. The Company has received cash dividends from Nanyang in 2012 and 2013 in the amount of NT$361,374,189 and NT$229,965,393 respectively.

Vietnam Manufacturing and Export Processing (Holdings) Ltd.

Through its Samoa subsidiary SY International Ltd, the Company holds 67.07% of the shares of Vietnam Manufacturing and Export Processing (Holdings) Ltd. ("VMEPH"), a Cayman Islands holding company that holds the operation of Vietnam Manufacturing and Export Processing Limited ("VMEP") in Vietnam. VMEPH is located at Scotia Centre, 4th Floor P.O Box 2804 George Town, Grand Cayman, Cayman Islands. Its main business is investment. VMEPH's shares have been listed on Hong Kong Stock Exchange since 2007. As of September 30, 2013, VMEPH has a book value of US$108,840,000 (NT$3,218,943,000). VMEPH has an issued common stock of US$1,162,870 and a reserve of NT$0 (US$0) as of September 30, 2013 and an operating revenue of US$127,476,076 for the nine months ended September 30, 2013, which accounted for 15.15% of the consolidated operating revenue of the Company for the same period. As of September 30, 2013, shares of VMEPH held (indirectly) by the Company through SYI were all paid in full and there is no debt owed to and by the Company with regard to VMEPH. The Company has not received any dividend directly from VMEPH during the fiscal year ended December 31, 2012.

Vietnam Manufacturing and Export Processing Limited

VMEPH, a 67.07% owned subsidiary of the Company, holds 100% of the shares of VMEP. VMEP is located at Sec 5, Tam Hiep Ward, Bien Hoa City, Dong Nai Province, Vietnam. Its main business is motorbikes and related parts production. As of September 30, 2013, VMEP has a book value of US$102,614,000. VMEP has issued common stock of US$58,560,000 and a reserve of NT$0 (US$0) as of September 30, 2013, and VMEP and its subsidiaries had net loss of US$6,474,517 and operating revenue of US$112,414,086 for the nine months ended September 30, 2013, which accounted for 13.27% of the consolidated net operating revenue of the Company for the same period. As of September 30, 2013 shares of VMEP held (indirectly) by the Company through VMEPH and SYI were all paid in full and there is no debt owed to and by the Company with regard to VMEP. The Company has not received any dividend directly from VMEP during the fiscal year ended December 31, 2012.

SY International Ltd.

The Company holds 100% of the shares of SYI, an Samoa incorporated company as of September 30, 2013. SYI is located at Offshore Chambers, P.O. BOX217, Apia, Samoa. SYI's main business is investment. Its main investments included: (1) investment in Vietnam production facilities including holding 67.07% of VMEPH (Motorbike production) and 100% of Sanyang Motor Vietnam Co., Ltd.; (2) Investment in Mainland China production facilities including holding 100% of Cosmos System Inc. and 100% of Plassen International Ltd. As of September 30, 2013, SYI has a book value of NT$6,398,461,000 . SYI has issued common stock of US$53,341,956 and a reserve of NT$0 (US$0) as and SYI and its subsidiaries had net operating revenue of US$212,128,576 for the nine months ended September 30, 2013, which accounted for 23.57% of the consolidated operating revenue of the Company for the same period. SYI provided approximately US$29 million financing to the Company in 2012, and as of September 30, 2013, approximately US$18 million of the borrowing remained outstanding.

The table below sets forth the information of the Company's consolidated subsidiaries as of September 30, 2013. The Company has not received any dividend directly from SYI during the fiscal year ended December 31, 2012 and shares of SYI held by the Company were all paid in full.

	Unit: All book values in thousands and in NT$except for those otherwise indicated to be denominated in other currencies	Unit: All book values in thousands and in NT$except for those otherwise indicated to be denominated in other currencies	Unit: All book values in thousands and in NT$except for those otherwise indicated to be denominated in other currencies	Unit: All book values in thousands and in NT$except for those otherwise indicated to be denominated in other currencies	Unit: All book values in thousands and in NT$except for those otherwise indicated to be denominated in other currencies	Unit: All book values in thousands and in NT$except for those otherwise indicated to be denominated in other currencies
Investor	Investee	Address	Main Business and Products	Percentage of Common Shares	Book value of the Investments as of September 30, 2013	Nominal value of the Investee shares held by the Investor as of September 30, 2013
				Owned by the
				Investor as of September 30, 2013
The Company	Shan Young Assets Management Co., Ltd.	Rm. 4, 5F., No.160, Sec. 6, Minquan E. Rd., Neihu Dist., Taipei City114,Taiwan,ROC	Real estate development and management	100.00%	1,885,252	600,000
	Youth Taisun Co., Ltd.	No.18, Wenhua Rd., Hukou Township, Hsinchu County 303,Taiwan,ROC	Automobile and motorbike parts production	89.39%	199,405	149,760
	Jin Yang Motorcycles Co., Ltd.	Rm. 4, 5F., No.160, Sec. 6, Minquan E. Rd., Neihu Dist., Taipei City114,Taiwan,ROC	Automobile, motorbike and parts sale	100.00%	37,706	29,000
	Nanyang Industry Co., Ltd.	Rm. 4, 5F., No.160, Sec. 6, Minquan E. Rd., Neihu Dist., Taipei City114,Taiwan,ROC	Automobile and parts sale, repair and maintenance	89.58%	1,212,242	1,095,073
	Nova Design Co., Ltd.	8F., No.96, Sec. 1, Xintai 5th Rd., Xizhi Dist., New Taipei City221,Taiwan,ROC	Product design	62.26%	123,002	112,057
	Nanchen Industry Co., Ltd.	No. 437, Bo'ai 1st Rd., Gushan Dist., Kaohsiung City, Taiwan, ROC	Automobile sale	19.85%	4,312	13,695
	Ching Ta Investment Corporation	Rm. 4, 5F., No.160, Sec. 6, Minquan E. Rd., Neihu Dist., Taipei City 114, Taiwan, ROC	Investment	94.73%	925,962	590,703
	Chao Yang Car Leasing Co., Ltd.	Rm. 4, 5F., No.160, Sec. 6, Minquan E. Rd., Neihu Dist., Taipei City114,Taiwan,ROC	Class-1 passenger car rental and leasing	16.27%	55,582	44,364
	Profit Source Investment Ltd.	Offshore Chambers, P.O. Box 217,Apia,Samoa	Investment	100.00%	2,259,383	US$22,793
	Sanyang Deutschland GmbH	Starkeburg str., 12 D-64546 Moerfelden-Walldorf, Germany	Motorbike and parts sale	100.00%	147,102	EUR$3,000
	Sun Goal Limited	Offshore Chambers , P.O. BOX 217,Apia,Samoa	Investment	100.00%	281,486	US$10,000
	SY International Ltd.	Offshore Chambers, P.O. BOX 217,Apia,Samoa	Investment	100.00%	6,398,461	US$53,342
	Sanyang Italia S.r.l.	Via Vittor Pisani, 2720124, Milano Italy	Motorbike and parts sale	100.00%	134,029	EUR$4,000
Nanyang Industry Co., Ltd.	Nanchen Industry Co., Ltd.	No. 437, Bo'ai 1st Rd., Gushan Dist. Kaohsiung City 804, Taiwan,ROC	Automobile sale	70.05%	88,890	48,336
	Chao Yang Car Leasing Co., Ltd.	Rm. 4, 5F., No.160, Sec. 6, Minquan E. Rd., Neihu Dist., Taipei City114,Taiwan,ROC	Class-1 passenger car rental and leasing	61.46%	211,259	167,631
	Li Yang Industry Ltd.	1F., No. 21, Sec. 2, Zhongyang N. Rd., Beitou Dist., Taipei City112,Taiwan,ROC	Automobile, motorbike and parts sale	51.00%	6,920	6,120
	Star & Sun Investment Corporation	Rm. 4, 5F., No. 160, Sec. 6, Minquan E. Rd., Neihu Dist., Taipei City114,Taiwan,ROC	Investment	100.00%	15,629	15,000
	Nanyang Holding Co.,Ltd.	Equity Trust Chambers., P.O. Box 3269,Apia,Samoa	Investment	100.00%	368,454	US$13,650
Nova Design Co.,Ltd.	Nova LLC	Texas, USA	Investment	42.30%	117,150	US$2,500
Chao Yang Car Leasing Co., Ltd	Jau Ryh Leasing Co., Ltd.	Rm. 4, 5F., No. 160, Sec. 6, Minquan E. Rd., Neihu Dist., Taipei City114,Taiwan,ROC	Pick-up truck rental and Leasing	65.00%	9,062	7,897

Investor	Investee	Address	Main Business and Products	Percentage of Common Shares	Book value of the Investments as of September 30, 2013	Nominal value of the Investee shares held by the Investor as of September 30, 2013
				Owned by the
				Investor as of September 30, 2013
Ching Ta Investment Corporation	Three Brothers Machinery Industrial Co.,Ltd.	No. 16, Wangjian Village, Xinwu Township, Taoyaun County327,Taiwan,ROC	Motorbike parts production and sale	50.00%	181,647	97,500
	Ching Jiun Co., Ltd.	No. 65, Guangfu Rd., Hukou Township, Hsinchu County 303,Taiwan,ROC	Metal machinery, iron materials manufacturing, processingand sale	64.38%	139,639	51,500
	Youth Taisun Co., Ltd	No. 18, Wenhua Rd., Hukou Township, Hsinchu County 303,Taiwan,ROC	Automobile and motorbike parts production	10.00%	22,984	16,753
	Yi Yang Motorcycles Co., Ltd.	No. 168, Jianguo Rd., Hualien City, Hualien County 970, Taiwan,ROC	Automobile and motorbike parts and equipment wholesale	68.92%	6,448	5,100
	NOVA LLC	Texas,USA	Investment	57.70%	159,801	US$3,410
	Chao Yang Car Leasing Co., Ltd.	Rm. 4, 5F., No.160, Sec. 6, Minquan E. Rd., Neihu Dist., Taipei City114,Taiwan,ROC	Class-1 passenger car rental and leasing	21.12%	72,669	57,601
	Nova Design Co., Ltd.	8F., No.96, Sec. 1, Xintai 5th Rd., Xizhi Dist., New Taipei City 221, Taiwan, ROC	Product design	30.08%	71,469	54,153
Profit Source Investment Ltd.	Chong Hing International Ltd	Akara Bulding, 24 De Castro Street, Wickhams Cay I, Road Town, Tortola, British Virgin Islands	Investment	100.00%	US$76,395	US$12,632
SY International Ltd.	Billion Ally Ltd.	Offshore Chambers, P.O. BOX 217,Apia,Samoa	Investment	100.00%	US$540	US$3,957
	Cosmos System Inc.	P.O Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands	Investment	100.00%	US$12,134	US$23,040
	Vietnam Manufacturing and Export Processing (Holdings)Ltd.	Scotia Centre, 4th Floor P.O Box 2804 George Town, Grand Cayman, Cayman Islands	Investment	67.07%	US$108,840	HK$9,077
	New Path Trading Limited	Offshore Chambers, P.O. BOX 217,Apia,Samoa	Investment	100.00%	US$12,690	US$9,200
	Plassen International Ltd.	P.O Box 957, Offshore Incorporations Centre Road Town, Tortola , British Virgin Islands	Investment	100.00%	US$(9,213)	US$23,000
	Shinny Way Ltd.	Offshore Chanmbers, P.O. Box 217,Apia,Samoa	Investment	100.00%	US$39	US$1,255
	Sanyang Motor Vietnam Co., Ltd.	Location 4, 5C RD, Nhon Trach Industry, Zone 2, Nhon Trach, Dong Nai Province, Vietnam	Automobile engine and parts production and installation; transportation vehicle under 3.5 tons and 6 to 9-seater automobile	100.00%	US$ 11,425	US$43,000
Sun Goal Limited	Jiyang Machinery IndustryCo.,Ltd.	No. 3, Hai Feng Rd., Nan Feng Township,ZhangJia GangCity	Automobile parts production	100.00%	US$9,518	US$10,000
Three Brothers Machinery Industrial Co., Ltd.	Three Brothers Machinery Industrial (BVI)Co.,Ltd.	British Virgin Islands	Investment	100.00%	153,151	US$5,119
	Vietnam Three Brothers Machinery Industrial Co.,Ltd.	Tong Nai Province, Vietnam	Motorbikes and related parts production	69.00%	41,233	US$1,035
	Full Ta Co., Ltd, Samoa	No. 24 , Lesperonce, Providence Industrial Lstate, MAHE Seychelles	Investment	51.00%	836	US$765
Cosmos System Inc.	Qingzhou EngineeringCo.,Ltd.	Zhang Jia Gang City, Jiang Su Province,China	Motorbike parts production and sale	100.00%	US$11,629	US$23,040
Plassen International Limited	Xiamen Xia Shing Motorcycle Co., Ltd.	1F, No.99, Xing Lin Xi Bin Rd.,Ji Mei Dist., Xia Men City, Fu Jian Province, China	Motorbikes and related parts assembling, production and sale; maintenance and repairingafter sale.	76.67%	US$(9,455)	US$23,000
Vietnam Manufacturing and Export Processing (Holdings) Ltd.	Chin Zong Trading Co., Limited	Rm. 4, 5F., No. 160, Sec. 6, Minquan E. Rd., Neihu Dist., Taipei City114,Taiwan,ROC	Motorbikes and related parts production	100.00%	US$6,267	150,000
	Vietnam Manufacturing and Export Processing Limited	Sec 5, Tam Hiep Ward, Bien Hoa City, Dong Nai Province, Vietnam	Motorbikes and related parts production	100.00%	US$102,614	US$120,433

Investor	Investee	Address	Main Business and Products	Percentage of Common Shares	Book value of the Investments as of September 30, 2013	Nominal value of the Investee shares held by the Investor as of September 30, 2013
				Owned by the
				Investor as of September 30, 2013
	PT. Sanyang Industry Indonesia	Kawasam Industri, MM2100 Blok, No.1 Ciditung, Bekasi 17520 Barat,Indonesia	Motorbike parts and molds development and wholesale	99.00%	US$396	US$2,624
Chin Zong Trading Co., Limited	PT. Sanyang Industry Indonesia	Kawasam Industri, MM2100 Blok, No.1 Ciditung, Bekasi 17520 Barat,Indonesia	Motorbike parts and molds development and wholesale	1.00%	-	US$27
New Path Trading Limited	Sanyang Global (Xiamen) Co., Ltd	1F, No. 99, XingLin XiBi Rd., JiMei Dist., XiaMen City, FuJian Province,China	Product design	100.00%	US$ 12,484	US$9,000
Nova LLC	Nova Design (Shanghai ) Co., Ltd.	No.46 ,WeiDa Rd., ShangHai International Automobile City, China	Product design	100.00%	US$8,065	US$5,000
	Nova Design (Italy)Co.,Ltd.	Italy	Product design	90.00%	US$142	EUR$100
Three Brothers Machinery Industrial (BVI) Co., Ltd.	Guangzhou Three Brothers Machinery Industrial Co.,Ltd.	Guangzhou City, GuangDong Province, China	Motorbikes and related parts production	100.00%	US$2,425	US$932
	Xiamen Three Brothers Machinery Industrial Co.,Ltd.	XiaMen City, FuJian Province, China	Motorbikes and related parts production	100.00%	US$1,982	US$4,400
Full Ta Co., Ltd. Samoa	Hanoi Full Ta Precision Company Limited	Pot 37, Quang Minh Industry, Me Linh Ha No i, Vietnam.	Motorbikes and related parts production	100.00%	US$78	US$1,500
Xiamn Xia Shing Motorcycle Co., Ltd.	Xiamen Xia Shing Motorcycle Sales Co., Ltd.	1F, No. 99, Xing Lin Xi Bi Rd., JiMei Dist., XiaMen City, FuJian Province, China	Motorbikes and related parts sale	100.00%	CNY(20,429)	CNY1,000
Vietnam Manufacturing and Export Processing Limited	Duc Phat Molds Inc	Lots 1X-1, Chochieu St., Thanhhoa Hamlet, Hanoi 3 Industrial Zone, Thongnhat Dist, Dong Nai Province, Vietnam	Molds production	100.00%	US$-	US$840
	Vietnam Casting Forge Precision Limited	Ho Nai Industrial Zone, Thong Nhat District, Dong Nai Province,Vietnam	Motorbike parts production	100.00%	US$-	US$4,500
	Vietnam Three Brothers Machinery Industrial Co.,Ltd.	Tong Nai Province, Vietnam	Motorbikes and related parts production	31.00%	US$612	US$465
Nanyang Holding Co., Ltd	Suzhou Hui Ying Automobile Sales and Service Limited	No.201, Dan Feng Rd., Mu Du Township, Wu Zhong Dist., Su Zhou City,China	Automobile parts retail	100.00%	US$8,532	US$9,600
	Changzhou NanYang Automobile Sales and Service Limited	No. 213 , Yu Long Rd., Zhong Lou Economic Development Dist.,ChangZhou,China	Automobile parts retail	100.00%	US$3,925	US$4,050
Suzhou Hui Ying Motor Sales and Service Limited	Shanghai Hui Ying Motor Sales and Service Limited	1F~2F, No. 58, Rong Shu Rd., Song Jiang Dist. Shang Hai City,China	Automobile parts retail	100.00%	CNY15,539	CNY16,000
	Changzhou Hui Ying Automobile Sales and Service Limited	No. 213, YuLong Rd., Zhong Lou Economic Development Dist.,ChangZhou,China	Automobile parts retail	100.00%	CNY10,050	CNY14,000

MANAGEMENT

Directors

The Company's directors are elected by the shareholders at the shareholders' meeting. The Chairman is elected by the board members from among themselves. The Company's board of directors is responsible for the management of the Company.

The term of office for the Company's directors is three years from the date of election. Directors may serve any number of consecutive terms and can only be removed from office by the shareholders' resolution. However, a director removed without a justifiable reason may be entitled to compensations for damages. Normally, all board members are elected at the same time. If and when one-third or more of the directors are vacant, a shareholders’ meeting shall be convened within 60 days to elect directors to fill the vacancies.

The following table sets forth the name of each of the Company's current nine directors, his/her other positions in the Company, registered shareholding percentages (as of September 30, 2013) and other significant positions held:

Name Shi H. Huang1 Yonghua Liu2 Yomei Huang Shi-Xiong Huang33 Jie-Yu Huang4 Yi Qiu5 Chin-Yuan Wu Li-Chuan Gao	Shareholding percentage 1.79% 1.79% 0.44% 4.56% 4.56% 4.56% 1.60% 0.00%	Other significant positions held Chairman of Chinfon Global Corp. Director of Nanyang Industry Co., Ltd. Director of Shan Young Assets Management Co. Ltd. General Manager of the Company Director of Nanyang Industry Co., Ltd. Director of Shan Young Assets Management Co. Ltd. Director of Nanchen Industry Co., Ltd. ("Nanchen") Director of Chinfon Global Corp Director of Nanyang Industry Co., Ltd. Director of Nanyang Industry Co., Ltd. Professor of Graduate Institute of International Business Administration of Chinese Culture University Director of CPC Corporation CEO of Jin Ding Development Construction Co., Ltd.	Address
			14F., No. 180, Sec. 4, Zhongxiao E. Rd., Da’an Dist., Taipei City, Taiwan No. 3, Zhonghua Rd., Hukou Township, Hsinchu County, Taiwan No. 3, Zhonghua Rd. Hukou Township, Hsinchu County, Taiwan 13F., No. 180, Sec. 4, Zhongxiao E. Rd., Da’an Dist., Taipei City, Taiwan 14F., No. 180, Sec. 4, Zhongxiao E. Rd., Da’an Dist., Taipei City, Taiwan 2F.-1, No. 88, Sec. 2, Nanjing E. Rd., Zhongshan Dist., Taipei City, Taiwan No. 1640, Zhongzheng W. Rd., Zhubei City, Hsinchu County, Taiwan 10F.-1, No. 330, Ln. 150, Sec. 5, Xinyi Rd., Xinyi Dist., Taipei City, Taiwan

____ Note: 1. Shi H. Huang, Chairman of the Company and representative of Sheng Mao Investment Co., Ltd., also individually held 0.12% of the outstanding shares of the Company.

Yonghua Liu, representative of Sheng Mao Investment Co., Ltd. also individually held 0.01% of the outstanding shares of the Company.

Shi-Xiong Huang, representative of Shu Mao Investment Co., Ltd. also individually held 0.29% of the outstanding shares of the Company.
Jie-Yu Huang, representative of Shu Mao Investment Co., Ltd. also individually held 0.29% of the outstanding shares of the Company.
Yi Qiu, representative of Shu Mao Investment Co., Ltd.
Directors Shi H. Huang, Yomei Huang, Shi-Xiong Huang, and Jie-Yu Huang are related to each other (members of the Huang family).
Business address of Sheng Mao Investment Co., and Shu Mao Investment Co., Ltd. is 160 Minquan East Road, 5F, section 6, Neihu District, Taipei, Taiwan.

Supervisors

The Company currently has two supervisors, each serving a three-year term. Supervisors are elected at the same time as the election of the directors. Supervisor cannot concurrently serve as a director or officer of the Company. The ROC Company Law requires at least two supervisors be in office at all times for a company whose shares are issued to the public and that a supervisor's term of office be no more than three years. Supervisors' duties and responsibilities include supervision of the Company's business and financial conditions. Supervisors are also required to examine the financial reports.

The following table sets forth the name of each of the Company's current supervisors and shareholding percentages as of September 30, 2013:

Name Shian-Chih Chiu Rong-Da Chen1	Shareholding Percentage
	0.17% 0.36%

Note: 1. Representative of Ta Feng Co., Ltd.

In accordance with the ROC law, each of the Company's directors and supervisors owe fiduciary duties to all shareholders. In order to strengthen corporate governance of companies in Taiwan, effective from January 1, 2007, the ROC Securities and Exchange Law authorizes the ROC Financial Supervisory Commission ("FSC"), after considering the scale, shareholding structure and business nature of a public company, to require a public company to elect at least three independent directors, who shall also form the audit committee. Due to the Company's current scale, the Company is not required by the FSC to have any independent director or audit committee.

Executive Officers

The following table sets forth information relating to the Company's executive officers as of September 30, 2013:

Name Yong-Hua Liu Yung-Chieh Chang Chin-Yung Chiang, Nai-Shih Lin, Wu-Hsiung Liu	Position President1 Vice president Vice president Vice president Vice president	Shareholding Percentage 0.01% 0.02% 0.02% 0% 0.02%	Years with the Company*
			38 34 39 8 25

__ Note: "Years with the Company" include the time they were with the Company at other positions. The business address of the executive officers is No. 3, Zhonghua Rd., Hukou Township, Hsinchu County, Taiwan.

Biographies of Directors, Supervisors and Executive Officers

Directors

Dr. Shi H. Huang has served as the Company's Chairman since January 1980. He is also the Chairman of Chinfon Global Corp. Dr. Huang received his doctoral degree of medical science from the National Taiwan University.

Ms. Yomei Huang has served as the Company's director since June 2008, and is the current Vice Chairwoman of the Company. Ms. Huang receive her master degree in business and management from Columbia University

Mr. Yong-hua Liu has served as the Company's director since March 2013. He is also president of the Company since 2013. Mr. Liu holds a chemical engineering degree from Chung Yuan Christian University.

Mr. Shi-Xiong Huang has served as the Company's director since March 1996. He is also a director of Chinfon Global Corp. and Nanyang. Mr. Huang graduated from Tamkang University.

Mr. Jie-Yu Huang has served as the Company's director since May 2011. He is also a director of Nanyang. Mr. Huang received his doctoral degree of political science from New York University.

Mr. Yi Qiu has served as the Company's director since October 2012. Mr. Qiu is a professor at Graduate Institute of International Business Administration of Chinese Culture University. Mr. Qiu received his doctoral degree in economics from National Taiwan University.

Mr. Chin-Yuan Wu has served as the Company's director since May 2011. He is CEO of Jin Ding Development Construction Co., Ltd. Mr. Wu received his college degree from National Taipei Institute of Technology.

Mr. Li-Chuan Gao has served as the Company's director since May 2011. He graduated from Fu Jen Catholic University

Supervisors

Mr. Shian-Chih Chiu has served as the Company's supervisor since May 2011. He is a director of Nanyang. Mr. Chiu graduated from Honda Technical College.

Mr. Rong-Da Chen has served as the Company's supervisor since October 2012. He is the vice president of Engtown Construction Co., Ltd. Mr. Chen holds an accounting degree from Shih Chien University.

Executive Officers

Mr. Yung-Chieh Chang has served as the Company's vice president since April 2002. He received EMBA degree from National Taiwan University.

Mr. Chin-Yung Chiang has served as the Company's vice president since October 2003. He graduated from National Lo-Tung Commercial Vocational High School.

Mr. Nai-Shih Lin, has served as the Company's vice president since June 2005. He received his master degree in business and management from New York Institute of Technology.

Mr. Wu-Hsiung Liu has served as the Company's vice president since June 2006. He received EMBA degree from National Chengchi University.

Compensation to Directors, Supervisor and Executive Officers

For the year 2012, the Company paid remuneration to its directors and supervisors of approximately NT$54,327,000 (US$1,836,923) in aggregate. For the same year, the Company paid compensation to its executive officers listed above of approximately NT$23,462,000 (US$793,305) in aggregate.

Interests of Management and Related-Party Transactions

The Company conducts related-party transactions with its subsidiaries. SY International Ltd., a wholly owned subsidiary of the Company, provided approximately NT$834 million financing to the Company in 2012 (as of September 30, 2013, approximately US$18 million of the borrowing remained outstanding). Shan Young Asset Management Company, a wholly owned subsidiary of the Company, provided its real estate as guarantee to the Company’s financing in the approximate amount of NT$5.4 billion. For detailed information, please refer to the Company's consolidated and non-consolidated financial statements for 2010, 2011 and 2012. The Company has not conducted any related party transactions with any member of its Board of Directors and Executive Officers during the preceding financial year and the current financial year that are outside normal course of business (such as purchases outside normal activity and acquisition or disposal of fixed assets). There are no outstanding loans granted by the Company to any member of the Board of Directors or Executive Officers.

The Company has not granted any stock options to any member of the Board of Directors or Executive Officers.

PRINCIPAL SHAREHOLDERS

The names and shareholdings of the shareholders of record of the Company as of March 22, 2013, with respect to the Common shares owned by each of the Company's ten largest shareholders are listed as follows:

Name Chinfon Global Corp. Da Yang Investment Limited Shu Mao Investment Co., Ltd. Chuan Yuan Investment Limited Sanyang Investment Co., Ltd. Bai Ke Investment Limited Wu, Li-Chu Qian Jing Investment Limited Kuo, Hung-Ta Yi Qian Corporation	Number of Shares held 51,889,802 50,047,000 40,899,185 37,688,000 36,017,437 35,237,000 33,668,560 27,204,000 26,034,000 23,010,000	Percentage of total outstanding Shares
		5.79% 5.58% 4.56% 4.20% 4.02% 3.93% 3.76% 3.03% 2.90% 2.57%

RECENT DEVELOPMENTS AND OUTLOOK

The Company has prepared its consolidated financial statements for the three years ended December 31, 2010, 2011 and 2012. These financial statements have been audited by KPMG, who conducted the audit of such financial statements in accordance with auditing standards generally accepted in the ROC. KPMG have also reviewed the consolidated financial statements for the nine-month period ended September 30, 2012 and 2013. The review of such interim financial statements is substantially less in scope than an audit and is conducted in accordance with Statement of Auditing Standards No. 36 "Engagements to Review Financial Statements".

The following discussion and analysis has been made on the basis of the Company's audited consolidated financial statements as at and for the years ended December 31, 2010, 2011 and 2012 and the Company's unaudited consolidated financial statements as at and for the nine months ended September 30, 2012 and 2013.

Results of Operations in 2012

The consolidated net sales of the Company decreased by NT$2,524.80 million, or 7.09%, from NT$35,607.51 million (US$1,203.97 million) for the year ended December 31, 2011, to NT$33,082.71 million (US$1,118.60 million) for the year ended December 31, 2012. The decrease in consolidated net sales in 2012 was primarily due to a lower demand for higher priced automobiles and motorbikes in the markets that where the Company operates.

The consolidated gross profit of the Company decreased by NT$943.86 million, or 11.10%, from NT$8,506.94 million (US$287.64 million) for the year ended December 31, 2011, to NT$7,563.08 million (US$255.73 million) for the year ended December 31, 2012. The decrease in consolidated gross profit was principally due to price competition among the Company's competitors, a higher percentage of lower margin products being sold.

The consolidated operating expenses of the Company increased by NT$75.66 million, or 1.03% from NT$7,316.21 million (US$247.38 million) for the year ended December 31, 2011, to NT$7,391.87 million (US$249.94 million) for the year ended December 31, 2012. The increase in operating expenses is primarily due increase in marketing expenses necessary to promote "SYM" and "Hyundai" brands in Taiwan.

The consolidated income from operations of the Company decreased by NT$1,019.52 million, or 85.62% from NT$1,190.73 million (US$40.26 million) for the year ended December 31, 2011, to NT$171.21 million (US$5.79 million) for the year ended December 31, 2012. The decrease in operating income was primarily due to changes in the Company's product mix, market demand, currency exchange rates, production cost and marketing expense.

The consolidated non-operating income of the Company decreased by NT$7.09 million, or 0.73%, from NT$996.44million (US$33.69 million) for the year ended December 31, 2011, to NT$989.35million (US$33.45 million) for the year ended December 31, 2012.

The consolidated non-operating expenses of the Company increased by NT$72.36 million, or 17.23% from NT$420.05million (US$14.20 million) for the year ended December 31, 2011, to NT$492.41 million (US$16.65 million) for the year ended December 31, 2012.

The Company has consolidated income before income tax of NT$668.15 million (US$22.59 million) in 2012 compared to the consolidated income before income tax of NT$1,767.11 million (US$59.75 million) in 2011, and the consolidated income of the Company decreased by NT$1,014.40 million, from NT$1,445.31 million (US$48.87 million) for the year ended December 31, 2011, to NT$430.91 million (US$14.57 million) for the year ended December 31, 2012. The decrease in consolidated income was primarily due to the reasons described above.

Results of Operations in first nine months of 2013

For the first nine months ended September 30, 2013, the Company's consolidated operating revenue decreased by 6.52% to NT$25,046.26 million (US$846.87 million) from NT$26,792.15 million (US$905.91 million) for the corresponding period in 2012. The decrease in consolidated operating revenue was primarily due to lower demand for motorbikes in Vietnam and in certain export markets such as EU.

The consolidated gross profit of the Company for the nine months ended September 30, 2013 decreased by 9.31% to a gross profit of NT$3,813.14 million (US$128.93 million) from a gross profit of NT$4,204.39 million (US$142.16 million) for the corresponding period in 2012. This decrease of gross profit is mainly attributable to reduction in motorbike sales.

The consolidated operating expenses of the Company for the first nine months ended September 30, 2013 increased by 8.50% to NT$4,081.43 million (US$138.00 million) from NT$3,761.55 million (US$127.19 million) for the corresponding period in 2012. The increase in consolidated operating expenses was primarily due to an increase in sales and marketing expenses.

The consolidated income from operations of the Company for the nine months ended September 30, 2013 increased by 160% to a loss of NT$268.29 million (US$9.07 million) from a consolidated income from operations of NT$442.85 million (US$14.97 million) for the corresponding period in 2012. This decrease in income from operations is mainly attributable to reduction in sales due to market factors and an increase in sales expenses.

The consolidated non-operating income and expenses of the Company for the first nine months ended September 30, 2013 increased by 12.08% to NT$397.47 million (US$13.44 million) from an income of NT$354.63 million (US$11.99 million) for the corresponding period in 2012. This increase in consolidated non-operating income and expenses is mainly attributable to increase in dividend income of the Company.

Principally as a result of these factors, the consolidated profit for the period of the Company for the nine months ended September 30, 2013 decreased to NT$93.71 million (US$3.17 million) from a consolidated profit for the period of NT$627.21 million (US$21.21 million) for the same period in 2012.

Financial Resources and Capital Expenditure

Net cash provided by operating activities was approximately NT$997.35 million (US$33.72 million) in 2012 compared to net cash provided by operating actives of NT$1,563.38 million (US$52.86 million) in 2011. Net cash used by operating activities was NT$1,017.45 million (US$34.40 million) for the nine months ended September 30, 2013. The Company's principal cash requirements during these periods are for its core business operations as working capital and capital expenditures related to, for example, brand, sales and distribution.

The Company's capital expenditures, in the form of acquisition of real property, plant and equipment amounted to approximately NT$1,516.90 million (US$51.29 million), and NT$839.02 million (US$28.37 million) in 2011 and 2012, respectively; and NT$537.42 million (US$18.17 million) for the nine months ended September 30, 2013.

The Company's primary sources of finance have been cash from operations, long-term bank borrowings and from securities offerings including new issue of Shares. The Company, prior to the issue of the Bonds, does not have any significant foreign currency denominated borrowings.

DIVIDENDS

The following table sets forth cash and stock dividends declared and paid in each of the years indicated.

Dividends* 2011 2012 2013	Cash Dividends per Share 0.10 0.45 0.45	Stock Dividends per share 0.60 0 0	Total Shares issued as Stock Dividends
			50,738,310 0 0

__ Note: The dividends amount represents cash and stock dividends which were declared and paid in the year for the earnings of the preceding year.

The distribution of dividend is governed by the ROC Company Law, the ROC Securities and Exchange Law as well as the Articles. The Company Law provides that a company shall set aside legal reserve equal to ten percent of its earnings (less losses, if any, of previous years and applicable income taxes) until its legal reserve equals to its paid-in capital. The Articles further provide that, after paying all taxes in accordance with ROC law, recovering any past losses, and deducting legal reserve and special reserve (if any), any balance thereof may be distributed as follows: (i) one percent as employee bonus, (ii) two percent as remuneration to the directors and supervisors and (iii) along with the retained earnings from the previous years, dividends as proposed by the board of directors to shareholders and approved by the shareholders' meeting.

At each of the Company's annual general shareholders' meeting, the board of directors submits to the shareholders for their approval of the distribution plan for the preceding fiscal year. The registered shareholders as of the record date for distribution of dividends are entitled to receive dividend.

MARKET PRICE INFORMATION

The Shares have been quoted and traded on the Taiwan Stock Exchange ("TWSE") since 1996. The table below sets forth, for the periods indicated, the high and low closing prices (as adjusted retroactively for issuance of new shares and consolidation of shares) and the average daily volume of trading activity on the TWSE for the Shares and the high and low of the daily closing values of the TWSE Index.

2008 First Quarter Second Quarter Third Quarter Fourth Quarter 2009 First Quarter Second Quarter Third Quarter Fourth Quarter 2010 First Quarter Second Quarter Third Quarter Fourth Quarter 2011 First Quarter Second Quarter Third Quarter Fourth Quarter 2012 First Quarter Second Quarter Third Quarter Fourth Quarter 2013 First Quarter Second Quarter Third Quarter October November December 2014 January	Closing price per Share High Low (NT$) 21.11 14.91 21.06 11.23 11.99 7.60 7.88 5.19 7.87 5.74 15.00 7.72 14.34 12.31 14.81 12.03 13.30 10.14 13.11 10.19 17.12 11.98 17.45 14.86 17.83 15.09 18.58 15.47 20.52 16.50 18.05 15.90 20.80 16.25 19.90 16.25 20.65 18.85 21.90 17.10 29.65 18.00 29.35 24.15 45.40 28.10 51.50 44.45 51.20 44.80 54.40 45.50 48.95 45.85	Average daily trading volume for theperiod1 13,275,974 7,664,947 4,883,585 3,618,633 4,839,706 26,992,302 10,317,216 10,317 4,203,647 6,143,416 16,023,420 12,733,299 5,679,876 8,314,006 12,844,179 3,663,859 7,338,757 2,049,605 3,220,681 3,488,584 11,064,666 3,982,747 3,639,359 4,864,257 2,395,952 2,190,833 1,340,959	TAIEX2	TAIEX2
			High 8,865 9,295 7,408 5,764 5,391 6,954 8,188 8,189 8,357 8,172 8,241 8,973 9,145 9,062 8,824 7,622 8,144 7,863 7,782 7,757 8,039 8,399 8,299 8,465 8,406 8,623 8,625	Low
				7,408 7,524 5,642 4,090 4,243 5,314 7,323 7,219 7,213 7,072 7,254 8,046 8,235 8,479 6,877 6,633 6,952 6,895 6,971 7,088 7,617 7,663 7,814 8,187 8,099 8,313 8,462

______ Source: Bloomberg

Notes: (1) The average daily trading volume (number of shares traded) for the period indicated. The trading volume is adjusted retroactively for issuance of new shares, including stock dividends, capitalization of employee stock bonuses and capital reserve.
(2) The Taiwan Stock Exchange Capitalization Weighted Stock Index ("TAIEX") is a capitalizationweighted index. It covers all of the listed stocks excluding preferred stocks, full-delivery stocks and newly listed stocks, which are listed for less than one calendar month. The TAIEX is adjusted in the event of new listing, de-listing and new shares offering to offset the influence on TAIEX owing to non-trading activities. The base year value as of 1966 was set at 100.

On February 25, 2014, the reported closing price of the Shares was NT$59.00 per Share and the TAIEX closed at 8575.62.

CHANGES IN ISSUED SHARE CAPITAL

The following table shows the increases in the issued share capital of the Company since 1990:

		Number of Shares
		Outstanding
Date of Issue	Type of Issue	after Issue
July 1990	Capitalization of retained earnings and capital surplus	455,000,000
December 1992	Capitalization of retained earnings and capital surplus	486,850,000
September 1994	Issuance of shares for cash;	569,000,000
	Capitalization of retained earnings and capital surplus
October 1995	Capitalization of retained earnings and capital surplus	694,180,000
July 1998	Capitalization of retained earnings and capital surplus	746,243,500
September 1999	Capitalization of capital surplus	776,093,240
August 2000	Capitalization of capital surplus	790,070,000
August 2001	Capitalization of capital surplus	805,370,000
September 2008	Capitalization of retained earnings	845,638,500
August 2011	Capitalization of retained earnings	896,376,810

Note: Other than the Bonds, the Company does not have any outstanding convertible debt securities, exchangeable debt securities or debt securities with warrants attached.

TERMS AND CONDITIONS OF THE BONDS

The following terms and conditions (except for the sentences in italics) will be endorsed on the Certificates issued in respect of the Bonds:

The issue of US$55,000,000 Zero Coupon Convertible Bonds due 2019 (the " Bonds ") of Sanyang Industry Co., Ltd. (the " Company ") was authorized by a resolution of the board of directors of the Company adopted on August 28, 2013. The Bonds are constituted by an indenture (the " Indenture ") dated as of February 27, 2014, and made between the Company and The Bank of New York Mellon, London Branch (the " Trustee ", which term includes any successor trustee under the Indenture), as trustee for the holders of the Bonds. The Company has entered into a paying and conversion agency agreement (the " Agency Agreement ") dated as of February 27, 2014 with the Trustee, The Bank of New York Mellon (Luxembourg) S.A. as the registrar (the " Registrar "), as the paying agent (the " Paying Agent ") and as the transfer agent (the " Transfer Agent ") and The Bank of New York Mellon, London Branch as the principal paying and conversion agent (the " Paying Agent " and " Conversion Agent " as applicable, and collectively, the " Principal Agent ", which expression shall, unless the context otherwise requires, include its successors). The Registrar, the Principal Agent, the Paying Agent, the Transfer Agent and the Conversion Agent are together referred to as the " Agents ." The statements in these terms and conditions (the " Conditions ") include summaries of, and are subject to, the detailed provisions of the Indenture. Copies of the Indenture and the Agency Agreement will be available for inspection by the Bondholders (as defined below) during normal business hours at the corporate trust office of the Trustee. The Bondholders are entitled to the benefit of the Indenture and are bound by, and are deemed to have notice of, all the provisions of the Indenture, and the Agency Agreement.

The owners shown in the records of Euroclear Bank S.A./N.V. (" Euroclear ") and Clearstream Banking, société anonyme (" Clearstream, Luxembour g") of book-entry interests in the Bonds are entitled to the benefit of, are bound by, and are deemed to have notices of, all the provisions of the Indenture and the Agency Agreement applicable to them.

1. Status

The Bonds constitute direct, unconditional, unsubordinated and (subject to the provisions of Condition 3) unsecured obligations of the Company and rank pari passu without any preference among themselves and (subject as aforesaid) with all other present and future unsubordinated and unsecured obligations of the Company.

2. Form, Denomination and Title

(A) Form and Denomination

The Bonds will be issued in registered form, in denominations of US$200,000 and integral multiples thereof. The Bonds will be offered, sold and will be transferable in principal amounts of US$200,000 or an integral multiple thereof. The Bonds are not issuable in bearer form. A bond certificate (each a " Certificate ") will be issued to each Bondholder in respect of its registered holding of Bonds. Each Bond and each Certificate will be serially numbered with an identifying number which will be recorded on the relevant Certificate and in the register of Bondholders which the Company will procure to be kept by the Registrar.

The Bonds will initially be represented by a global certificate (the " Global Certificate ") deposited with The Bank of New York Mellon, London Branch, as common depositary for, and registered in the name of a nominee for, Euroclear and Clearstream, Luxembourg. The Bondholders will not be entitled to receive definitive physical certificates in denominations of US$200,000 and integral multiples thereof in respect of their Bonds (the " Definitive Certificate ") except in the limited circumstances described in the Global Certificate.

(B) Title

Title to the Bonds will pass only by transfer and registration in the register of Bondholders. The registered holder of any Bond will (except as otherwise required by law) be treated as its absolute owner for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any interest in it or any writing on, or the theft or loss of, the Certificate issued in respect of it) and no person will be liable for so treating the holder. In these Conditions, " Bondholder " and (in relation to a Bond) " holder " mean the person in whose name a Bond is registered in the register of Bondholders.

3. Negative Pledge

So long as any of the Bonds remain outstanding (as defined in the Indenture), the Company shall not create any mortgage, charge, pledge, lien or other form of encumbrance (each an " Encumbrance ") upon the whole or any part of its undertaking, property, assets or revenues, present or future, to secure for the benefit of the holders of any International Investment Securities (as defined below) (i) payment of any sum due in respect of any such International Investment Securities, (ii) any payment under any guarantee of any such International Investment Securities or (iii) any payment under any indemnity or other like obligation relating to any such International Investment Securities without in any such case at the same time according to the Bonds, either the same security as is granted to or is outstanding in respect of such International Investment Securities.

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

4. Interest

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

5. Transfers of Bonds; Issue of Certificates

(A) Register

The Company will cause to be kept at the specified office of the Registrar and in accordance with the terms of the Agency Agreement a register on which shall be entered the names and addresses of the holders of the Bonds and the particulars of the Bonds held by them and of all transfers and payments of the Bonds (the " Register "). Each Bondholder shall be entitled to receive only one Certificate in respect of its entire holding of the Bonds.

(B) Transfers

Subject to Condition 5(E) below, a Bond may be transferred upon the surrender at the specified office of any Transfer Agent of the Certificate in respect of the Bond to be transferred, together with the form of transfer obtainable from any of the Transfer Agents (the " Form of Transfer "), duly completed and executed and any other evidence that such Transfer Agent may require. In the case of a transfer of only part of a holding of Bonds in respect of which a Certificate is issued, a new Certificate shall be issued to the transferee in respect of the part transferred and a further new Certificate in respect of the balance of the holding not transferred shall be issued to the transferor. Transfers of interests in the Bonds evidenced by the Global Certificate will be effected in accordance with the rules of the relevant clearing systems.

(C) Delivery of Certificates

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

Where only part of a principal amount of the Bonds (being that of one or more Bonds) in respect of which a Certificate is issued is to be transferred, exchanged or converted, a new Certificate in respect of the Bonds not so transferred or converted will, within seven business days of delivery of the original Certificate to the Registrar or other relevant Agent, be made available for collection at the specified office of the Registrar or such other relevant Agent or, if so requested in the form of transfer, be mailed by uninsured mail at the risk of the holder of the Bonds not so transferred or converted (but free of charge to the holder) to the address of such holder appearing on the Register.

For the purposes of this Condition 5(C), " business day " shall mean a day on which banks are open for general business in the city in which the specified office of the relevant Transfer Agent with whom a Certificate is deposited in connection with a transfer is located.

(D) Formalities Free of Charge

Registration of transfers of the Bonds will be effected without charge by or on behalf of the Company or any Agent, but only upon (i) payment (or the giving of such indemnity as such Agent may require) of any tax or other governmental charges, which may be imposed in relation to it and (ii) the relevant Agent being satisfied that the regulations concerning the transfer of the Bonds have been complied with.

(E) No Transfer Periods

No Bondholder may require the transfer of a Bond to be registered (i) during the period of 10 days ending on the due date for any payment of principal, interest (if any) and premium (if any) on the Bond; (ii) after such Bond has been selected for redemption pursuant to Conditions 8(B) and 8(C); (iii) after the Conversion Notice (as defined in Condition 6(B)) and the Certificate in respect of such Bond have been deposited for conversion pursuant to Condition 6; or (iv) following exercise of the Bondholder's put option pursuant to Conditions 8(D) and 8(E).

(F) Regulations

All transfers of Bonds and entries on the register of Bondholders will be made subject to the detailed regulations concerning transfer of Bonds (the " Regulations ") set forth in the Agency Agreement. The Regulations may be changed by the Company with the prior written approval of the Trustee and the Registrar. A copy of the Regulations will be mailed (free of charge) by the Registrar to any Bondholder who requests one.

6. Conversion

On exercise of the Conversion Right (as defined below), the converting Bondholder pursuant to the election made by such Bondholder will receive Shares. To convert a Bond into Shares, the Bondholder must deposit the Conversion Notice (as defined herein) and the Certificate in respect of that Bond with a Conversion Agent.

The Company shall, within five Trading Days (as defined in Condition 8(B) and subject to certain

exceptions) after the Conversion Date (as defined in Condition 6(B)(ii)), issue and deliver the Shares converted from the Bond to the converting Bondholder or its designee, subject to the requirements relating to the conversion in the Agency Agreement being satisfied.

The Indenture provides, in summary, that the term "Shares" means, when used to refer to the Company's common shares, NT$10 par value per share, but such term also includes shares of any other class or classes of the share capital of the Company authorized after the date of the Indenture which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation or winding-up of the Company.

(A) Conversion Right
(i) Conversion Period: Each Bondholder has the right (the " Conversion Right ") during the Conversion Period (as defined below) to convert any Bond into the Company's common shares, NT$10 par value per share (the " Shares "), credited as fully paid. Subject to and upon compliance with the provisions of this Condition, the Conversion Right attaching to any Bond may be exercised, at the option of the holder thereof, at any time on or after March 29, 2014 and prior to the close of business (at the place where the Conversion Notice and the Certificate in respect of such Bond are deposited for conversion) on February 17, 2019 (or if such date shall not be a business day (as defined below), on the immediately preceding business day at such place), or, if such Bond shall have been called for redemption prior to February 17, 2019, then up to the close of business (at the place aforesaid) on the date ten business days prior to the date fixed for redemption thereof (or if such day shall not be a business day, on the immediately preceding business day) (the " Conversion Period "); provided, however, that the Conversion Right shall be suspended during any Closed Period and the Conversion Period shall not include any such Closed Period. " Closed Period " means: (i) the 60-day period prior to the date of any of the Company's annual general shareholders' meetings; (ii) the 30-day period prior to the date of any of the Company's special shareholders' meetings; (iii) the 5-day period prior to the record date of the Company for determination of shareholders entitled to receive dividend, bonuses or other benefits to the record date; (iv) the period beginning on the 15th Trading Day prior to the first day of any closing period (being the period during which the Company's shareholders'' register is closed) for the determination of shareholders entitled to receive stock or cash dividends, or to the right to participate in any rights issue, and ending on (and including) such record date; (v) the period beginning on the record date of a capital reduction to one day prior to the Trading Day on which the shares of the Company are relisted on the Taiwan Stock Exchange (" TWSE ") after such capital reduction; and (vi) such other period during which the Company may be required to close it shareholders' register under ROC laws and regulations applicable from time to time.
(i) In case any amendments are made to the aforesaid laws and regulations, the conversion shall be construed in accordance with the prevailing laws and regulations. The Company shall procure that the Bondholders are given timely prior notice of any Closed Period in accordance with Condition 15.

In this Condition 6(A)(i), " business day " means a day (other than a Saturday or Sunday) on which commercial banks are open for general business in New York and in the place where the Conversion Agent with whom the Certificate and the Conversion Notice are deposited is open for business.

(ii) Number of Shares Issuable on Conversion:

The number of Shares to be issued upon conversion of any Bond will be determined by dividing the principal amount of the Bond (translated into NT dollars at the fixed exchange rate of NT$30.351 = US$1.00 (the " Fixed Exchange Rate ")) by the

Conversion Price (as defined in Condition 6(A)(iii)) in effect on the Conversion Date (as defined in Condition 6(B)(ii)).

If a Certificate or Certificates in respect of more than one Bond shall be deposited for conversion at any one time by the same Bondholder, the number of Shares to be issued upon conversion thereof will be calculated on the basis of the aggregate principal amount of the Bonds in respect of which the Certificate(s) were so deposited. Fractions of Shares will not be issued on conversion, and the Company will, upon conversion of the Bonds, pay cash in US Dollars in a sum equal to such portion of the principal amount of the Bond or Bonds deposited for conversion as corresponds to any fraction of a Share not delivered as aforesaid, net of remittance and other processing fees, rounding to one US Dollar with 0.5 being rounded upwards. For the purpose of calculating the amount of such payment, the Company shall use the exchange rate referred to above in this Condition 6(A)(ii).

The Trustee and the Agents shall be under no duty to calculate, determine or verify the number of Shares to be issued or the amount of cash to be paid upon conversion of the Bonds or verify the Company's determination of such number of Shares or method used or to be used in such determination and neither the Trustee nor the Agents shall be responsible to Bondholders or any other person for any loss arising from any failure to do so or for any delay of the Company in making such determination or any erroneous determination by the Company.

(iii) Initial Conversion Price: The price at which Shares will be issued upon conversion (the " Conversion Price ") will initially be NT$52.96 per Share, but will be subject to adjustment in the manner provided in Condition 6(C).
(iv) Revival on Default: Notwithstanding the provisions of Condition 6(A)(i), if there shall be default in making payment in full in respect of any Bond which shall have been called for redemption on the date fixed for redemption thereof, the Conversion Right attaching to such Bond will continue to be exercisable up to and including the close of business (at the place where the Certificate in respect of such Bond and the Conversion Notice are deposited for conversion) on the date upon which the full amount of the monies payable in respect of such Bond has been duly received by the Trustee or the Principal Agent and notice of such receipt has been duly given to the Bondholders.
(B) Conversion Procedure
(i) Exercise Procedure: To exercise the Conversion Right attaching to any Bond, the holder thereof must complete, execute and deposit at its own expense between 9:00 a.m. and 3:00 p.m. (local time at the specified office of the Conversion Agent referred to below) on any business day (as defined below) during the Conversion Period at the specified office of a Conversion Agent, a notice of conversion (a " Conversion Notice ") in duplicate, duly completed and signed, in the then current form obtainable from the specified office of any Conversion Agent, together with the relevant Certificate and any certificates and other documents as may be required under the law of the ROC or the jurisdiction in which such Conversion Agent is located.

A Conversion Notice or a Certificate deposited outside the hours specified above or on a day which is not a business day at the place of the specified office of the relevant Conversion Agent shall for all purposes be deemed to have been deposited with that Agent between 9:00 a.m. and 3:00 p.m. on the next following business day.

Bondholders who deposit a Conversion Notice during a Closed Period will not be permitted to convert their Bonds until the Trading Day following the last day of the Closed Period which (if all other conditions of conversion have been fulfilled) will be the

Conversion Date for such Bonds. Such Bondholders will not be registered as holders of Shares until the Conversion Date.

The Conversion Notice shall contain, inter alia , an appointment of a local agent by such converting Bondholder and an irrevocable instruction to convert the relevant Bond for Shares issued pursuant to Condition 6(B)(iii), as soon as Shares are available. A Conversion Notice once deposited may not be withdrawn without the consent in writing of the Company. The Company shall immediately notify the Trustee in writing of such written consent, such notification to be accompanied by the relevant Conversion Notice. Neither the Trustee nor any Agent shall be bound to supervise the proceedings or acts of, and shall not in any way or to any extent be responsible for any loss, liability, expense, demand, cost, claim or proceedings incurred by any local agent appointed by such converting Bondholder.

In this Condition 6(B)(i), " business day " means a day (other than a Saturday or Sunday) on which commercial banks are open for general business in New York, and in the city of the Conversion Agent with whom the Certificate and the Conversion Notice are deposited.

(ii) Taxes and Expenses; Deposit Date and Conversion Date: As a condition precedent to the exercise of its Conversion Right, together with the deposit of the Conversion Notice, the Bondholder must pay to the relevant taxing authority all stamp, issue, registration, excise and similar taxes or duties or transfer costs (if any) arising on conversion in the country in which the Bond is deposited for conversion, or payable in any jurisdiction consequent upon the issue or delivery of Shares or any other property or cash upon conversion to or to the order of a person other than the converting Bondholder. Except as aforesaid, the Company will pay the expenses arising in the ROC on the issue of Shares on conversion of Bonds and all charges of the Conversion Agents in connection therewith. The date on which, in respect of any Bond, the relevant Certificate and the Conversion Notice (in duplicate) relating thereto, together with any certificates and other documents as may be required under applicable law evidencing payment of tax, are deposited with a Conversion Agent and the payments, if any, required to be paid by the Bondholder are made to the relevant taxing authority is hereinafter referred to as the " Deposit Date ". The " Conversion Date " applicable to a Bond shall mean the next day following the Deposit Date, which day both is a Trading Day and occurs during the Conversion Period. The Trustee and Agents are not under any obligation to calculate or determine whether a Bondholder or the Company is liable to pay any tax including stamp, issue, registration and similar tax and duties or the amounts payable (if any) in connection with this Condition 6 and shall not be liable for any failure by any Bondholder or the Company to make any such payment to the relevant authorities or determine the sufficiency or insufficiency of any amount so paid.
(iii) Holder of Record: With effect from the opening of business in the ROC on the Conversion Date, the Company will deem the converting Bondholder (or its designee) as indicated in the Conversion Notice to have become the holder of record of the number of Shares to be issued upon such conversion to such holder (disregarding any retroactive adjustment of the Conversion Price referred to below prior to the time such retroactive adjustment shall have become effective) and at such time, subject to Condition 6(B)(v), the rights of such converting Bondholder as a Bondholder with respect to such Bonds deposited for conversion shall cease (except rights arising under Condition 6(B)(iv).
(iv) Delivery of Shares: As of the Conversion Date, the Company will register the converting Bondholder (or its designee) in the Company's register of shareholders as the owner of the number of Shares to be issued pursuant to Condition 6(B)(iii) upon conversion of such Bonds and, subject to any applicable limitations then imposed by ROC laws and regulations, according to the request made in the relevant Conversion Notice, procure that, as soon as practicable, and in any event, with limited exceptions, within five Trading Days after the Conversion Date, there be delivered to the local agent appointed by the

converting Bondholder a certificate or certificates for the relevant Shares, registered in the name specified for that purpose in the relevant Conversion Notice, together with any other property or cash (including, without limitation, cash payable pursuant to Condition 6(A)(ii)) required to be delivered upon conversion and such assignments and other documents (if any) as may be required by law to effect the delivery thereof.

(v) Retroactive Adjustment of Conversion Price: If the Conversion Date in relation to any Bond shall be on or after a date with effect from which an adjustment to the Conversion Price takes retroactive effect pursuant to any of the provisions referred to in Condition 6(C) and the Indenture and the relevant Conversion Date falls on a date when the relevant adjustment has not been reflected in the Conversion Price, the Company will, as soon as possible after the effective date of such adjustment of the Conversion Price, issue and deliver (to the local agent appointed by the converting Bondholder) such number of Shares as is equal to the excess of the number of Shares that would have been required to be issued on conversion of such Bond if the relevant retroactive adjustment had been made as at the said Conversion Date over the number of Shares previously issued pursuant to such conversion, and in such event and in respect of such number of Shares, references in this Condition 6(B)(v) to the Conversion Date shall be deemed to refer to the date upon which such retroactive adjustment becomes effective (disregarding the fact that it becomes effective retroactively).
(C) Adjustments to Conversion Price

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

(i) Declaration of Dividend in Shares or Free Distribution or Bonus Issue of Shares to shareholders . If the Company shall declare a dividend in Shares or make a free distribution or bonus issue of Shares which is treated as a capitalization issue for accounting purposes (including but not limited to capitalization of retained earnings or capital reserves) then the Conversion Price in effect on the date when such dividend and/or distribution is declared (or, if the Company has fixed a prior record date for the determination of shareholders entitled to receive such dividend and/or distribution, on such record date) shall be adjusted in accordance with the following formula:

NCP = OCP x [N / (N + n)]

where:

NCP = the Conversion Price after such adjustment.
OCP = the Conversion Price before such adjustment.
N = the number of Shares outstanding at the time of declaration of such dividend and/or distribution (or at the close of business in Taipei on such record date as the case may be), excluding outstanding treasury shares of the Company.
n = the number of Shares to be distributed to the shareholders as a dividend and/or free distribution.

provided that no adjustment of the Conversion Price in respect of such dividend, bonus issue or free distribution shall be made under this subsection (i), but in lieu thereof an adjustment shall be made under Conditions 6(C)(iii), (iv), (v), (vi), (viii) or (ix) below (as the case may require) in certain cases as set forth in the Indenture.

An adjustment made pursuant to this Condition 6(C)(i) shall become effective immediately on the relevant event referred to in this Condition 6(C)(i) becoming effective or, if a record

date is fixed therefor, immediately after such record date; provided that in the case of a free distribution or bonus issue of Shares or dividend in Shares which must, under applicable laws of the ROC, be submitted for approval to a general meeting of shareholders or be approved by a meeting of the board of directors of the Company before being legally paid or made, and which is so approved after the record date fixed for the determination of shareholders entitled to receive such distribution, bonus issue or dividend, such adjustment shall, immediately upon such approval being given by such meeting, become effective retroactively to immediately after such record date.

(ii) Subdivision, Combination and Reclassification of Shares. If the Company shall (a) subdivide its outstanding Shares, (b) combine its outstanding Shares into a smaller number of Shares (excluding the cancellation of outstanding treasury shares), or (c) reclassify any of its Shares into other securities of the Company, then the Conversion Price shall be appropriately adjusted so that the holder of any Bond on the Conversion Date which occurs after the coming into effect of the adjustment described in this subsection (ii) shall be entitled to receive the number of Shares and/or other securities of the Company which it would have held or have been entitled to receive after the happening of any of the events described above had such Bond been converted immediately prior to the happening of such event (or, if the Company has fixed a prior record date for the determination of shareholders entitled to receive any such securities issued upon any such subdivision, combination or reclassification, immediately prior to such record date), but without prejudice to the effect of any other adjustment to the Conversion Price made with effect from the date of the happening of such event (or such record date) or any time thereafter.

An adjustment made pursuant to this Condition 6(C)(ii) shall become effective immediately on the relevant event referred to in this Condition 6(C)(ii) becoming effective or, if a record date is fixed therefor, immediately after such record date; provided that in the case of a division, combination or reclassification of Shares which must, under applicable laws of the ROC, be submitted for approval to a general meeting of shareholders or be approved by a meeting of the board of directors of the Company before being legally paid or made, and which is so approved after the record date fixed for the determination of shareholders entitled to receive such distribution or bonus issue of Shares or other securities issued upon such combination or reclassification, such adjustment shall, immediately upon such approval being given by such meeting, become effective retroactively to immediately after such record date.

(iii) Rights Issues to Shareholders. If the Company shall grant, issue or offer to the holders of Shares rights entitling them to subscribe for or purchase Shares (a " Rights Issue ", which expression shall include those Shares which are required to be offered to employees and persons other than shareholders in connection with such grant, issue or offer) at a consideration per Share receivable by the Company (as determined in the Indenture) which is fixed (a) on or prior to the record date mentioned below and is less than the Current Market Price per Share on such record date or (b) after the record date mentioned below and is less than the Current Market Price per Share on the date the Company fixes the said consideration, then the Conversion Price in effect (in a case within (a) above) on the record date for the determination of shareholders entitled to receive such rights or (in a case within (b) above) on the date the Company fixes the said consideration shall be adjusted in accordance with the following formula:

NCP = OCP x [(N + v) / (N + n)]

where:

NCP = the Conversion Price after such adjustment.
OCP = the Conversion Price before such adjustment.

N = the number of Shares outstanding at the close of business in the ROC (in a case within (a) above) on such record date or (in a case within (b) above) on the date the Company fixes the said consideration, excluding outstanding treasury shares of the Company.
n = the number of Shares to be issued in connection with such Rights Issue at the said consideration.
v = the number of Shares which the aggregate consideration receivable by the Company would purchase at such Current Market Price per Share specified in (a) or, as the case may be, (b) above.

Subject to the provisions of the Indenture, such adjustment shall become effective immediately upon the issue of Shares pursuant to the Rights Issue but retroactively to immediately after the record date mentioned above.

(iv) Warrants Issued to Holders of Shares. If the Company shall grant, issue or offer to the holders of Shares warrants entitling them to subscribe for or purchase Shares at a consideration per Share receivable by the Company (as determined in the Indenture) which is fixed (a) on or prior to the record date for the determination of shareholders entitled to receive such warrants and is less than the Current Market Price per Share at such record date or (b) after the record date mentioned above and is less than the Current Market Price per Share on the date the Company fixes the said consideration, then the Conversion Price in effect (in a case within (a) above) on the record date for the determination of shareholders entitled to receive such warrants or (in a case within (b) above) on the date the Company fixes the said consideration shall be adjusted in accordance with the following formula:

NCP = OCP x [(N + v) / (N + n)]

where:

NCP = the Conversion Price after such adjustment.
OCP = the Conversion Price before such adjustment.
N = the number of Shares outstanding at the close of business in the ROC (in a case within (a) above) on such record date or (in a case within (b) above) on the date the Company fixes the said consideration, excluding outstanding treasury shares of the Company.
n = the number of Shares initially to be issued upon exercise of such warrants at the said consideration where no applications by shareholders entitled to such warrants are required. Where applications by shareholders entitled to such warrants are required, n = the number of such Shares that equals (aa) the number of warrants which underwriters have agreed to underwrite as referred to below or, as the case may be, (bb) the number of warrants for which applications are received from shareholders as referred to below save to the extent already adjusted for under (aa).
v = the number of Shares which the aggregate consideration receivable by the Company (as determined in the Indenture) would purchase at such Current Market Price per Share specified in (a) or, as the case may be, (b) above.

Subject to the provisions of the Indenture, such adjustment shall become effective (i) where no applications for such warrants are required from shareholders entitled to the same, upon their issue or (ii) where applications by shareholders entitled to the same are required as aforesaid, immediately after the latest date for the submission of such applications or (if later) immediately after the Company fixes the said consideration but in all cases retroactively to immediately after the record date mentioned above.

(v) Issues of Rights or Warrants for Equity-Related Securities to Holders of Shares. If the Company shall grant, issue or offer to the holders of Shares rights or warrants entitling them to subscribe for or purchase any securities convertible into or exchangeable for Shares at a consideration per Share receivable by the Company (as determined in the Indenture) which is fixed (a) on or prior to the record date mentioned below and is less than the Current Market Price per Share at such record date or (b) after the record date mentioned below and is less than the Current Market Price per Share on the date the Company fixes the said consideration, then the Conversion Price in effect (in a case within (a) above) on the record date for the determination of shareholders entitled to receive such rights or warrants or (in a case within (b) above) on the date the Company fixes the said consideration shall be adjusted in accordance with the following formula:

NCP = OCP x [(N + v) / (N + n)]

where:

NCP = the Conversion Price after such adjustment.
OCP = the Conversion Price before such adjustment.
N = the number of Shares outstanding at the close of business in the ROC (in a case within (a) above) on such record date or (in a case within (b) above) on the date the Company fixes the said consideration, excluding outstanding treasury shares of the Company.
n = the number of Shares initially to be issued upon exercise of such rights or warrants and conversion or exchange of such convertible or exchangeable securities at the said consideration which, in the case of rights, equals (aa) the number of Shares initially to be issued upon conversion or exchange of the number of such convertible or exchangeable securities which the underwriters have agreed to underwrite as referred to below or, as the case may be, (bb) the number of Shares initially to be issued upon conversion or exchange of the number of such convertible or exchangeable securities for which applications are received from shareholders as referred to below save to the extent already adjusted for under (aa), and which, in the case of warrants where no applications by shareholders entitled to such warrants are required, equals such number of Shares initially to be issued upon such exercise and conversion or exchange. Where applications by shareholders entitled to such warrants are required, n = the number of such Shares that equals (x) the number of warrants which underwriters have agreed to underwrite as referred to below or, as the case may be, (y) the number of warrants for which applications are received from shareholders as referred to below save to the extent already adjusted for under (x).
v = the number of Shares which the aggregate consideration receivable by the Company (as determined in the Indenture) would purchase at such Current Market Price per Share specified in (a) or, as the case may be, (b) above.

Subject to the provisions of the Indenture, such adjustment shall become effective (a) where no applications for such warrants are required from shareholders entitled to the same, upon

their issue and (b) where applications by shareholders entitled to the warrants are required as aforesaid and in the case of convertible or exchangeable securities by shareholders entitled to the same pursuant to such rights, immediately after the latest date for the submission of such applications or (if later) immediately after the Company fixes the said consideration; but in all cases retroactively to immediately after the record date mentioned above.

(vi) Capital Distribution, Other Distributions to Shareholders. (a) If the Company or any or its Subsidiaries shall make any Capital Distribution (as defined below) or distribution to all holders of Shares (i) evidences of its indebtedness or other assets (excluding any cash dividend described in (b) below) or (ii) shares of capital stock of the Company (other than Shares) or (iii) rights or warrants to subscribe for or purchase any shares of capital stock of the Company (other than Shares) (other than those mentioned in Conditions 6(C)(iii), (iv) or (v) above) at less than the fair market value of such evidence of indebtedness, assets, capital stock or rights or warrants (determined as of the date on which such distribution is approved (the " Grant Date ")), the Conversion Price will be adjusted in accordance with the following formula:

NCP = OCP x [(CMP - fmv) / CMP]

where:

NCP and OCP have the meanings ascribed thereto in Condition 6(C)(i) above (which may be further adjusted pursuant to the provisions of Condition 6(C)(ii) above).

CMP = the Current Market Price per Share on the record date for the determination of shareholders entitled to receive such distribution.
fmv = the then fair market value on the Grant Date (as determined by the Company and notified to the Trustee or, if pursuant to applicable law of the ROC such determination is to be made by application to a court of competent jurisdiction, as determined by such court or by an appraiser appointed by such court) of the evidences of indebtedness or other assets or the portion of capital stock or of such subscription rights or warrants so distributed applicable to one Share (less any consideration payable for the same by the relevant holder of Shares). In making a determination of the fair market value of any such evidences of indebtedness, shares of capital stock, assets, rights or warrants, the Company shall consult a leading independent securities company or bank or accounting firm in Taipei selected by the Company in good faith and shall take fully into account the advice received from such company or bank or accounting firm.

(b) If the Company shall make distribution of cash to all holders of Shares, by dividend or otherwise, the Conversion Price will be adjusted in accordance with the following formula:

NCP = OCP x [(CMP – C) / CMP]

where:

NCP = the Conversion Price after such adjustment.
the Conversion Price before such adjustment.
CMP = the Current Market Price per Share on the record date for the determination of shareholders entitled to receive such distribution.
C = the amount of cash distributed per Share.

Any adjustment required by a Capital Distribution or other distribution shall become effective immediately after the record date for the determination of shareholders entitled to receive such Capital Distribution or other distribution; provided that (a) in the case of such a Capital Distribution or other distribution which must, under applicable law of the ROC, be submitted for approval to a general meeting of shareholders or be approved by a meeting of the Board of Directors of the Company before such Capital Distribution or other distribution may legally be made and is so approved after the record date fixed for the determination of shareholders entitled to receive such Capital Distribution or other distribution, such adjustment shall, immediately upon such approval being given by such meeting, become effective retroactively to immediately after such record date and (b) if the fair market value of such Capital Distribution or other distribution cannot be determined until the record date fixed for the determination of shareholders entitled to receive such Capital Distribution or other distribution, such adjustment shall, immediately upon such fair market value being determined, become effective retroactively to immediately after such record date.

(vii) Issue of Convertible or Exchangeable Securities Other than to Holders of Shares or on Exercise of Warrants. If the Company shall issue any securities convertible into or exchangeable for Shares (other than the Bonds, or in any of the circumstances described in subsection (vi) above and subsection (x) below) and the consideration per Share receivable by the Company (as determined in the Indenture) shall be less than the Current Market Price per Share on the date in the ROC on which the Company fixes the said consideration (or, if the issue of such securities is subject to approval by a meeting of shareholders, on the date on which the Board of Directors of the Company fixes the consideration to be recommended at such meeting), then the Conversion Price in effect immediately prior to the date of issue of such convertible or exchangeable securities shall be adjusted in accordance with the following formula:

NCP = OCP x [(N + v) / (N + n)]

where:

NCP and OCP have the meanings ascribed thereto in Condition 6(C)(i) above (which may be further adjusted pursuant to the provisions of Condition 6(C)(ii) above).

N = the number of Shares outstanding at the close of business in the ROC on the day immediately prior to the date of such issue, excluding outstanding treasury shares of the Company.
n = the number of Shares initially to be issued upon conversion or exchange of such convertible or exchangeable securities at the initial conversion or exchange price or rate.
v = the number of Shares which the aggregate consideration receivable by the Company (as determined in the Indenture) would purchase at the Current Market Price per Share.

Such adjustment shall become effective as of the calendar day in the ROC corresponding to the calendar day at the place of issue on which such convertible or exchangeable securities are issued.

(viii) Other Issues of Shares . If the Company shall issue any Shares (other than Shares issued upon conversion or exchange of any convertible or exchangeable securities (including the Bonds) issued by the Company or upon exercise of any rights or warrants granted, offered or issued by the Company or in any of the circumstances described in Condition 6(C)(i), (ii) or (iii) above) for a consideration per Share receivable by the Company (as determined in the Indenture) less than the Current Market Price per Share on the date in the ROC on which the Company fixes the said consideration (or, if the issue of such Shares is subject to approval by a meeting of shareholders, on the date on which the Board of Directors of the Company fixes the consideration to be recommended at such meeting), then the Conversion Price in

effect immediately prior to the issue of such additional Shares shall be adjusted in accordance with the following formula:

NCP = OCP x [(N + v) / (N + n)]

where:

NCP = the Conversion Price after such adjustment.

OCP = the Conversion Price before such adjustment.
N = the number of Shares outstanding at the close of business in the ROC on the day immediately prior to the date of such issue, excluding outstanding treasury shares of the Company
n = the number of additional Shares issued as aforesaid.
v = the number of Shares which the aggregate consideration receivable by the Company (as determined in the Indenture) would purchase at the Current Market Price per Share; provided that if the new Shares are issued by the Company to exchange for the total outstanding shares of an entity to be consolidated with, merged or amalgamated into the Company, such "aggregate consideration receivable by the Company" shall mean the aggregate amount of the net worth per common share on the latest reviewed or audited financial statement of such entity multiplied by "n" and further multiplied by the applicable share swap ratio under such consolidation, merger or amalgamation.

Such adjustment shall become effective as of the calendar day in the ROC of the issue of such additional Shares.

(ix) Issue of Equity Related Securities . If the Company shall grant, issue or offer options, rights or warrants (excluding those rights and warrants referred to in Conditions 6(C)(iii), (iv) and (v)) to subscribe for or purchase Shares or securities convertible into or exchangeable for Shares and the consideration per Share receivable by the Company (as determined in the Indenture) shall be less than the Current Market Price per Share on the date in the ROC on which the Company fixes the said consideration (or, if the offer, grant or issue of such rights, options or warrants is subject to approval by a meeting of shareholders, on the date on which the Board of Directors of the Company fixes the consideration to be recommended at such meeting), then the Conversion Price in effect immediately prior to the date of the offer, grant or issue of such options, rights or warrants shall be adjusted in accordance with the following formula:

NCP = OCP x [(N + v) / (N + n)]

where:

NCP = the Conversion Price after such adjustment.
OCP = the Conversion Price before such adjustment.
N = the number of Shares outstanding at the close of business in the ROC on the day immediately prior to the date of such issue, excluding outstanding treasury shares of the Company.

n = the number of Shares initially to be issued on exercise of such options, rights or warrants and (if applicable) conversion or exchange of such convertible or exchangeable securities.
v = the number of Shares which the aggregate consideration receivable by the Company (as determined in the Indenture) would purchase at the Current Market Price per Share.

Such adjustment shall become effective as of the calendar day in the ROC corresponding to the calendar day at the place of issue on which such rights or warrants are issued.

(i) Capital Reduction . If the Company shall reduce its share capital (other than by means of canceling any Shares repurchased by the Company as treasury shares or by means of cancelling any Shares and returning capital in cash to shareholders) then the Conversion Price shall be adjusted in accordance with the following formula:

NCP = OCP x (N / n)

where:

NCP = the Conversion Price after such adjustment.
OCP = the Conversion Price before such adjustment.
N = the number of Shares outstanding immediately prior to such capital reduction, excluding outstanding treasury shares of the Company.
n = the number of Shares outstanding immediately after such capital reduction.

Such adjustment shall become effective on the record date for the determination of the shareholders participating in such capital reduction.

(xi) Tender or Exchange Offer . In case a tender or exchange offer made by the Company or any Subsidiary (as defined below) for all or any portion of the Shares shall expire and such tender or exchange offer shall involve the payment by the Company or such Subsidiary of consideration per Share having a fair market value (as determined by the Board of Directors of the Company or such Subsidiary, whose determination shall, if made in good faith, be conclusive evidence of such fair market value) at the last time (the " Expiration Date ") tenders or exchanges could have been made pursuant to such tender or exchange offer (as it shall have been amended) that exceeds the Current Market Price per Share, as of the Expiration Date, the Conversion Price shall be adjusted in accordance with the following formula:

NCP = OCP x [(N x CMP) / [fmv + [(N - n) x CMP]]]

where:

NCP = the Conversion Price after such adjustment.
OCP = the Conversion Price before such adjustment.
N = the number of Shares outstanding (including any tendered or exchanged Shares) on the Expiration Date, excluding outstanding treasury shares of the Company.
CMP = Current Market Price per Share as of the Expiration Date.

fmv = the fair market value of the aggregate consideration payable to the holders of Shares based on the acceptance (up to a maximum specified in the terms of the tender or exchange offer) of all Shares validly tendered or exchanged and not withdrawn as of the Expiration Date (the Shares deemed so accepted up to any such maximum, being referred to as the " Purchased Shares ").
n = the number of Purchased Shares.

Such adjustment shall become retroactively effective immediately prior to the opening of business on the day following the Expiration Date.

If any event or circumstance analogous to the events and circumstances described in Conditions 6(C) (i) through (xi) occur, the Conversion Price shall be adjusted as set forth in the analogous subsection in the Indenture.

Notwithstanding contrary provided herein, no adjustment of the Conversion Price will be made in the event that the Company reduces its Shares by the cancellation of its treasury shares.

All adjustments to the Conversion Price will be rounded to the nearest NT$0.01.

Any adjustment will be notified promptly by the Company to the Bondholders, the Trustee, the Agents and, so long as the Bonds are listed on the on the Euro MTF market of the Société de la Bourse de Luxembourg S.A. (the " Luxembourg Stock Exchange " ) and the rules of the Luxembourg Stock Exchange so require, the Luxembourg Stock Exchange, in accordance with Condition 15. Any such notice relating to an adjustment of the Conversion Price should set forth the event giving rise to the adjustment, the Conversion Price prior to the adjustment, the effective date of such adjustment and the Conversion Price after the adjustment.

The Trustee or the Agents shall not be obliged to calculate, determine or verify any adjustment or monitor whether any event has occurred that might fall within (i) to (xi) above and shall assume that no such event has occurred until a Responsible Officer of the Trustee has received a notice in writing from the Company to the contrary and shall not be responsible to the Bondholders or any persons for any loss arising from any failure by it to do so or any adjustment or lack of adjustment of the Conversion Price.

For the purposes of these Conditions:

" Capital Distribution " means any cash dividend, distribution of cash, distribution of assets in specie or payment on redemption, or for the purchase of, capital stock of the Company made by the Company for any fiscal year.

" Current Market Price ", in relation to the Shares, for any day means (a) the average of the Closing Prices for the 10 consecutive Trading Days ending immediately before such day and (b) when used with respect to any issuance or distribution, the average of the Closing Prices for the 10 consecutive Trading Days ending immediately before the first day on which the Shares without the right to receive such issuance or distribution trade in a regular way on the TWSE, other applicable securities exchange or any applicable securities market; provided, however, if no Closing Price is available for one or more Trading Days, such day or days shall be disregarded in any relevant calculation and shall be deemed not to have existed when ascertaining any period of consecutive Trading Days.

(D) Mergers; Disposals

So long as any of the Bonds remain outstanding, the Company will not merge, amalgamate or consolidate with or into any other corporation or entity where the Company is not the continuing entity or sell or transfer all, or substantially all, of the assets of the Company, whether as a single transaction or a number of transactions, related or not, to any corporation, entity or person or to one or more members of any group under the common control of any corporation, entity or person unless the Company shall have notified the Bondholders and the Trustee (promptly and in writing)

of such event in accordance with Condition 15 and the Company and such corporation, entity or person shall have executed a indenture supplemental to the Indenture in form and substance satisfactory to the Trustee providing that such corporation, entity or person shall assume the obligations of the Company under the Bonds, the Indenture and the Agency Agreement and providing that each Bond then outstanding shall be convertible into the class and amount of shares and other securities, cash and other property receivable upon such consolidation, amalgamation, merger, sale or transfer by a holder of the number of Shares into which such Bond would have been convertible immediately prior to such consolidation, amalgamation, merger, sale or transfer (assuming for such purpose that the Bonds were convertible at the time of such consolidation, amalgamation, merger, sale or transfer) at the Conversion Price as adjusted from time to time pursuant to the Indenture. Such supplemental Indenture will provide for adjustments, which will be as nearly equivalent as may be practicable to the adjustments provided for in the foregoing provisions to this Condition. The above provisions of this Condition 6(D) will apply in the same way to any subsequent or further consolidations, amalgamations, mergers, sales or transfers.

(E) Company's Undertakings

(i) Closed Periods: The Company undertakes to ensure that any Closed Period is as short a period as is reasonably practicable having regard to applicable ROC laws and regulation and practices.
(ii) Maintain Listing: The Company will maintain a listing on the TWSE for the Shares, including Shares, and obtain and maintain a listing for all the Shares issued on the exercise of the Conversion Right attached to the Bonds on the TWSE.
(iii) Notice of Conversion Price adjustment: The Company will give notice to the Trustee and the Bondholders in accordance with Condition 15 of any adjustment in the Conversion Price of the Bonds in accordance with the terms set forth in the Indenture. Any such notice relating to a change in the Conversion Price shall set forth the event giving rise to the adjustment, the Conversion Price prior to such adjustment, the adjusted Conversion Price and the effective date of the adjustment.

7. Payments

(A) Principal, Premium (if any) and Interest (if any)

Payment of principal, premium (if any) and interest (if any) will be made against surrender of the relevant Certificate at the specified office of any Paying Agent by transfer to the registered account of the Bondholder or by US dollar cheque drawn on a bank in New York City mailed to the registered address of the Bondholder if it does not have a registered account. Payments of principal, interest (if any) and premium (if any) will only be made after surrender of the relevant Certificate at the specified office of any Paying Agent.

(B) Registered Accounts

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

(C) Fiscal Laws

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

(D) Payment Initiation

Where payment is to be made by transfer to a registered account, payment instructions (for value the due date or, if that date is not a business day, for value the next following business day) will be initiated and, where payment is to be made by cheque, the cheque will be mailed, on the later of the due date for payment and the business day on which the relevant Certificate is surrendered (if applicable) at the specified office of an Agent.

(E) Payment Delay

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

(F) Business Days

In this Condition 7, the term " business day " means a day (other than a Saturday or Sunday) on which commercial banks are open for general business in the ROC, New York City and the specified location of the Agent and, in the case of the surrender of a Certificate, in London and in the place where the Certificate is surrendered.

(G) Partial Payments

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

8. Redemption, Repurchase and Cancellation

(A) Redemption at Maturity

Unless previously redeemed, converted or repurchased and cancelled as herein provided, the Company will redeem the Bonds at their principal amount in US dollars on February 27, 2019.

(B) Redemption at the Option of the Company
(i) On or at any time after March 27, 2014, the Company may, having given not less than 30 nor more than 60 days' notice to the Bondholders (which notice will be irrevocable), redeem all, or some only (being US$200,000 in principal amount or an integral multiple thereof), of the Bonds at the Early Redemption Amount (defined below) if the Closing Price of the Shares on TWSE (translated into US dollars at the then prevailing exchange rate) for each of the 20 Trading Days in any 30 consecutive Trading Day period reaches 140% of the applicable Early Redemption Amount divided by the Conversion Ratio (as defined below).
(ii) The Company may, having given not less than 30 nor more than 60 days' notice to the Bondholders, redeem all of the Bonds at their Early Redemption Amount if more than 90% of the Bonds have been previously converted, redeemed, or repurchased and cancelled.

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

The Company shall, at least 15 business days before the latest date for the publication of the notice of redemption required to be given to Bondholders in accordance with Condition 15, give notice in writing of its intention to redeem all or any of the Bonds under this Condition 8 to the Principal Agent and the Trustee stating the date fixed for redemption, the manner in which redemption will be effected, the redemption amount and the last Deposit Date in the Conversion Period.

In this Condition 8(B), the term " business day " means a day on which commercial banks and foreign exchange markets are open for general business in the ROC, New York City and the city in which the specified office of the Principal Agent is located which shall initially be London.

" Closing Price " of the Shares for each Trading Day shall be the last reported transaction price of the Shares on the TWSE for such day or, if no transaction takes place on such day, the last available reported transaction price of the Shares on the TWSE in effect on the Trading Day immediately preceding such day or, if the Shares are not listed or admitted to trading on such exchange as of such date, the average of the closing bid and offered prices of Shares for such day as furnished by a leading investment bank of international repute licensed to trade on the TWSE selected by the Company for the purpose.

" Prevailing Rate " for the translation of the Closing Prices shall be the closing rate for the purchase of US dollars with NT dollars quoted by Taipei Forex Inc. (or any replacement entity selected by the Company and notified in writing to the Trustee) at the close of business on each relevant Trading Day.

" Trading Day " means a day on which the TWSE is open for business but does not include a day when (a) no such last transaction price or closing bid and offered prices are reported and (b) (if the Shares are not listed or admitted to trading on such exchange as of such date) no such closing bid and offered prices are furnished as aforesaid.

" Conversion Ratio " means the par value of the Bonds multiplied by the Fixed Exchange Rate as numerator divided by the prevailing Conversion Price as denominator.

" Early Redemption Amount " means, of each US$200,000 principal amount of the Bonds, the amount calculated in accordance with the following formula, rounded (if necessary) to the nearest US dollar:

Early Redemption Amount = I x (1 + r/2)[d/180]

where:

I = Issue price (100% of principal amount) of the Bonds;

r = 1.5%

d = number of days from and including February 27, 2014 to but excluding, the date for redemption, calculated on the basis of a 360-day year consisting of 12 months of 30 days each, and in the case of an incomplete month, the actual number of days elapsed.

Notwithstanding the right of the Company to redeem the Bonds as set forth in this Condition 8(B), the Company may not specify a date for redemption that falls in a Closed Period or within 15 days following the last day of a Closed Period.

The Trustee shall not be under any duty to monitor whether any event or circumstance has happened or exists which may result in redemption pursuant to this Condition 8(B) and will not be responsible to Bondholders for any loss arising from any failure by it to do so. Neither the Trustee nor the Agents shall be under any duty to monitor, determine, calculate or verify any calculation made pursuant to this Condition 8(B) and will not be responsible to Bondholders for any loss arising from any failure by it to do so.

If, as a result of any change in, amendment or non-renewal of, or judicial decision relating to, the laws of the ROC or any political subdivision or taxing authority or legislative body thereof or

therein, or any treaty to which the ROC is party, or any change in the official application or interpretation of any such laws or treaty, in any such case, occurring after the Issue Date, or as a result of any action taken or proposed by the ROC or any political subdivision or any taxing authority or legislative body thereof or therein, or brought in a court of competent jurisdiction in the ROC or any political subdivision thereof, whether or not such action was taken or brought with respect to the Company but which, in any such case, becomes effective or generally known after the Issue Date, on the occasion of the next payment due in respect of any Bond, the Company has or will become required to pay Additional Amounts as provided in Condition 9 and such obligation cannot be avoided by the Company taking reasonable measures available to it, the Company may at its option, having given not less than 30 nor more than 60 days' notice (in accordance with Conditions 8(I) and 15 to the Bondholders (which notice will be irrevocable) redeem, in whole but not in part, the Bonds on the expiry date of the notice of redemption (the " Tax Call Date ") at the Early Redemption Amount, provided that no notice of redemption shall be given earlier than 90 days before the earliest date on which the Company would be required to pay the additional amounts were a payment in respect of the Bonds then due. Prior to the publication of any notice of redemption pursuant to this paragraph, the Company shall deliver to the Trustee a certificate in form and substance reasonably acceptable to the Trustee signed by two authorized officers of the Company stating that the Company is entitled to effect such redemption and setting forth a statement of facts showing the conditions precedent to the right of the Company so to redeem have occurred, and an opinion addressed to the Trustee in form and substance reasonably acceptable to the Trustee by an independent law firm of recognized standing admitted to practice in the ROC to the effect that the Company has or will become obliged to pay such Additional Amounts as a result of such change or amendment and the Trustee shall be entitled to accept and conclusively rely on such certificate as sufficient evidence of the conditions precedent referred to in this Condition 8(C) in which event it shall be conclusive and binding on the Bondholders.

If the Company gives a notice of redemption of the Bonds under this Condition 8(C), each Bondholder shall have the right (the " Non-Redemption Right ") to elect that all but not a portion of its Bonds not be redeemed by giving the notice to such effect to the Company (with a copy to the Trustee) no later than 15 days prior to the redemption date fixed by the Company. If a Bondholder exercises the Non-Redemption Right with respect to such Bonds, no Additional Amounts referred to in Condition 9 shall be payable on the payments due after the relevant date (as defined in Condition 9) in respect of such Bonds and such payments shall be made subject to the deduction or withholding required by law or regulation (or the interpretation or administration thereof) of a relevant taxing jurisdiction in effect after the Issue Date of the Bonds. For the avoidance of doubt, the Company shall continue to be responsible to such Bondholders for any Additional Amount that is payable in respect of the Bonds under Condition 9 as a result of the laws or regulations (or the interpretation or administration thereof) of a relevant taxing jurisdiction in effect on the Issue Date.

(D) Redemption at the Option of Bondholders

The Company will, at the option of the holder of any Bond, redeem the Bonds held by that Bondholder, in whole or in part only (being US$200,000 in principal amount and integral multiples thereof), on February 27, 2017 (the " Put Date ") at their Early Redemption Amount.

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

Conditions 8(B), 8(C) and 8(D) or the timing of the notices given by the Bondholders or the Company pursuant thereto.

(E) Redemption in the Event of the Delisting of the Shares
(i) In the event that the Shares cease to be listed or admitted to trading on the TWSE (a " Delisting "), each Bondholder shall have the right (the " Delisting Put Right "), at such Bondholder's option, to require the Company to purchase the Bonds held by that Bondholder, in whole or in part only (being US$200,000 in principal amount and integral multiples thereof) on a day (the " Delisting Put Date ") that is the 20th business day (as defined in Condition 7(F)) after the Bondholder has been notified by the Company of the Delisting at their Early Redemption Amount (the " Delisting Put Price ").
(ii) Promptly after becoming aware of a Delisting, the Company shall notify the Bondholders in writing of the Delisting and of their Delisting Put Right in accordance with Condition 15.

To exercise its right to require the Company to purchase its Bonds, the Bondholder must deliver a written notice of the exercise of such right (a " Purchase Notice ") in the form obtainable from any of the Paying Agents, to any Paying Agent on any business day (as defined in Condition 7(F)) prior to the close of business at the specified office of such Paying Agent on such day and which day is not less than 10 business days (as defined in Condition 7(F)) prior to the Delisting Put Date.

Payment of the Delisting Put Price upon exercise of the Delisting Put Right for any Certificate for which a Purchase Notice has been delivered is conditional upon delivery of such Certificate (together with any necessary endorsements) to any Paying Agent on any business day (as defined in Condition 7(F)) together with the delivery of such Purchase Notice and will be made promptly and no later than five days following the later of the Delisting Put Date and the time of delivery of such Certificate. If the Company has paid to the Paying Agent by the Delisting Put Date money sufficient to pay the Delisting Put Price of Bonds for which Purchase Notices have been delivered in accordance with the provisions hereof upon exercise of such right, then, whether or not such Certificate in respect of such Bond is delivered to the Paying Agent, on and after such Delisting Put Date, (i) such Bond will cease to be outstanding; (ii) such Bond will be deemed paid; and (iii) all other rights of the Bondholder shall terminate (other than the right to receive the Delisting Put Price).

(F) Redemption in the Event of a Change of Control

If a Change of Control (defined below) occurs with respect to the Company, the Company shall notify the Bondholders, the Trustee and the Agent promptly (which notice shall be delivered in accordance with Conditions 8(I) and 15, and each Bondholders shall have the right (the " Change of Control Put Right ") at such bondholder's option, to require the Company to redeem such bondholder's Bonds, in whole or in part only (being US$200,000 in principal amount and integral multiples thereof), at the Early Redemption Amount on the 20th Business Day after the date of such notice.

" Control " means (i) the right to appoint and/or remove all or the majority of the members of the Company's Board of Directors or other governing body, whether obtained directly or indirectly, and whether obtained by ownership of share capital, the possession of voting rights, contract or otherwise; or (ii) the acquisition or control of more than 50% of the voting rights of the issued share capital of the Company.

" Change of Control " occurs when:

(1) any Person or Persons (as defined below) acting together acquires Control of the Company if such Person or Persons does not or do not have, and would not e deemed to have, control of the Company on the Issue Date;
(2) the Company consolidates with or merges into or sells or transfers all or substantially all of the Company's assets to any other Person, unless the consolidation, merger, sale or transfer

will not result in the other Person or Persons acquiring Control over the Company or the successor entity; or

(3) one or more other Person acquire the legal or beneficial ownership of all or substantially all of the Company's capital stock.

" Person " includes any individual, company, corporation, firm, partnership, joint venture, undertaking, association, organization, trust, state or agency of a state (in each case whether or not being a separate legal entity) but does not included the Company's Board of Directors or any other governing board and does not include the Company's wholly-owned direct or indirect subsidiaries.

(G) Repurchase

The Company may at any time and from time to time purchase the Bonds in the open market or otherwise. The Bonds so purchased will forthwith be cancelled. If purchases by the Company are made by tender, the tender must be made to all Bondholders alike.

(H) Selection of Bonds

In the case of redemption of some only of the Bonds pursuant to Condition 8(B), the Bonds to be redeemed will be selected in accordance with the procedures of the relevant clearing system or in accordance with the requirements of the stock exchange on which the Bonds are listed (as applicable), or if the Bonds are in certificated form, by lot by the Trustee, in such manner as the Trustee shall deem to be appropriate and fair.

(I) Redemption Notices

All notices to Bondholders given by or on behalf of the Company pursuant to this Condition will specify the date fixed for redemption, the redemption price, the Conversion Price as at the date of the relevant notice, the Closing Price of the Shares and the aggregate principal amount of the Bonds outstanding as at the latest practicable date prior to the publication of the notice and, in the case of a partial redemption, a list of the Bonds called for redemption all in accordance with Condition 15.

(J) Cancellation

All Bonds, which are redeemed or converted or repurchased and surrendered to any Paying Agent, will forthwith be cancelled. Certificates in respect of all Bonds cancelled will be forwarded to or to the order of the Principal Agent and such Bonds may not be reissued or resold.

(K) No Duty to Monitor

Neither the Trustee nor the Agents shall be under any duty to monitor whether any event or circumstance has occurred or exists which enables the Company or the Bondholders to exercise the option to redeem the Bonds under this Condition 8 and will not be responsible to Bondholders or any other person for any loss arising from any failure by it to do so.

9. Taxation

Interest and premium (if any) payable on the Bonds to non-residents of the ROC is currently subject to a withholding tax in the ROC equal to 15% of the gross amount of such interest and premium (if any), though this tax may not necessarily be applicable to such non-residents who reside in countries that have entered into the Double Tax Treaty with the ROC.

Subject to Condition 8(C), all payments of principal and premium and other amounts on the Bonds and all issuance of Shares on conversion of the Bonds will be made after any deduction or withholding for or on account of any present or future taxes, duties, assessments or governmental charges of whatever

nature (" Taxes ") imposed or levied by or on behalf of the government of the ROC or any authority thereof or therein having power to tax; provided that in respect of any such deduction or withholding from any such payment the Company will pay such additional amounts (" Additional Amounts ") as will result in the receipt by the Bondholders of the amounts which would otherwise have been receivable in the absence of any such deduction or withholding, except that no Additional Amounts shall be payable in respect of any Bond:

(i) to a Bondholder or beneficial owner (or to a third party on behalf of a Bondholder or beneficial owner) where such Bondholder or beneficial owner is liable for such Taxes in respect of such Bond by reason of its being connected with the ROC otherwise than merely by holding such Bond or by the receipt of principal or premium or any other amount in respect of any Bond or the enforcement of payment on such Bond;
(ii) to or on behalf of a Bondholder or beneficial owner to the extent that such Bondholder or beneficial owner would not be liable for or subject to such deduction or withholding by making a declaration of non-residence or other claims for exemption or deduction to the relevant tax authorities if such Bondholder or beneficial owner is eligible to make such declaration or claim and, such Bondholder or beneficial owner fails to timely to do so;
(iii) presented for payment more than 30 days after the relevant date except to the extent that the Bondholder or beneficial owner thereof would have been entitled to the Additional Amounts on presenting the same for payment on the last day of such 30-day period;
(iv) to or on behalf of a Bondholder or beneficial owner who is subject to withholding or deduction imposed on a payment to such Bondholder or beneficial owner and required to be made pursuant to European Council Directive 2003/48/EC or any European Union Directive implementing the conclusions of the ECOFIN Council meeting of November 26-27, 2000 on the taxation of savings income (the " Directive ") or any law implementing or complying with, or introduced in order to conform with, such Directive; or
(v) to or on behalf of a Bondholder or beneficial owner if such Bondholder or beneficial owner would have been able to avoid the withholding or deduction by the presentation (where presentation is required) of the relevant Bond to, or otherwise accepting payment from, another paying agent in a member state of the European Union.

For this purpose the " relevant date " in relation to any Bond means (a) the due date for payment in respect thereof, or (b) if the full amount of the moneys payable on such due date has not been received by the Trustee and the Principal Agent on or prior to such due date, the date on which notice is duly given to the Bondholders that such moneys have been so received.

Additionally, the obligation to pay such Additional Amounts shall not apply with respect to (i) any estate, inheritance, gift, sales, transfer or personal property tax or any similar taxes, duties, assessments or other governmental charges of similar nature or (ii) any taxes, duties, assessments or other governmental charges that are payable otherwise than by deduction or withholding from payments on the Bonds or issuance of Shares on conversion of the Bonds.

References in these Conditions to principal, premium and/or any other amounts which may be payable pursuant hereto or pursuant to the Indenture shall be deemed also to refer to any Additional Amounts which may be payable under this Condition or any undertaking given in addition to or substitution for it under the Indenture.

10. Events of Default

The Trustee at its discretion may, and if so requested in writing by the holders of not less than 25% in principal amount of the Bonds then outstanding shall (but subject always to the Trustee being indemnified and/or provided with security and/or pre-funded to its satisfaction), give notice in writing to the Company that the Bonds are immediately due and payable, if any of the following events (an " Event

of Default ") shall have occurred and be continuing:

(i) the Company fails to pay the principal of or interest (if any) or premium (if any) on any of the Bonds within seven business days (as defined in Condition 7(F)) after the same shall become due and payable in accordance with these Conditions; or
(ii) the Company defaults in performance or observance of or compliance with any of its other obligations (other than the covenant to pay the principal, premium (if any) or interest (if any) in respect of the Bonds) set out in the Bonds, or the Indenture which default is incapable of remedy or, if such default is capable of remedy, such default is not remedied within 30 days after written notice of such default shall have been given to the Company by the Trustee or the Holders; or
(iii) any other present or future indebtedness of the Company, for or in respect of monies borrowed or raised becomes (or becomes capable of being declared) due and payable prior to its stated maturity by reason of an event of default (howsoever described), or any such indebtedness is not paid when due or, as the case may be, within any applicable grace period originally provided for, or the Company fails to pay when due any amount payable by it under any present or future guarantee or indemnity or arrangement or obligation having a like or similar effect (howsoever described) for any monies borrowed or raised by any person, provided that the aggregate amount of the relevant indebtedness and guarantees in respect of which one or more events mentioned above in this paragraph (iii) have occurred and is continuing equals or exceeds US$10,000,000 or its equivalent in any other currency (determined as provided below); or
(iv) an execution by a court having jurisdiction is levied or enforced or sued out, or other legal enforcement process is levied or sued out upon, commenced or issued upon, against or in respect of the whole or any substantial part of the undertaking, property, assets or revenues of the Company and in any such case is not discharged or stayed within 60 days of having been so levied, sued out, commenced or issued; or
(v) any person entitled to the benefit thereof shall institute appropriate legal proceedings to enforce any Encumbrance (as defined in Condition 3) upon the whole or any substantial part of the assets or revenues of the Company; or
(vi) the Company becomes bankrupt or insolvent, or consents to or suffers the appointment of an administrator, liquidator (except for the purpose of and followed by a voluntary solvent reorganization, merger, consolidation, amalgamation or other similar arrangement the terms of which have previously been approved by a receiver (or other similar official) in bankruptcy or insolvency of the Company or in respect of the whole or any substantial part of the undertakings, property, assets or revenues of the Company or the Company stops, suspends or threatens to stop or suspend payment of all or a material part of (or of a particular type of) its debts; or
(vii) an order issued by a court with competent jurisdiction is made or an effective resolution passed by the Company for the winding-up or dissolution of the Company; or
(viii) any governmental authority or agency condemns, seizes, compulsorily purchases or expropriates all or a substantial part of the assets or shares of the Company; or
(ix) proceedings shall have been initiated against the Company under any applicable bankruptcy, insolvency or reorganization law and such proceedings shall not have been discharged or stayed within a period of 60 days; or
(x) any action, condition or thing (including the obtaining or effecting of any necessary consent, approval, authorization, exemption, filing, license, order, recording or registration) at any time required to be taken, fulfilled or done in order to (i) enable the Company lawfully to enter into, exercise its rights and perform and comply with its obligations under the Bonds and the Indenture, (ii) ensure that those obligations are legally binding and enforceable and (iii) make the

Bonds and the Indenture admissible in evidence in the courts of the ROC is not taken, fulfilled or done, and such case is incapable of remedy; or

(xi) any event occurs which under the laws of the ROC has an analogous effect to any of the events referred to in the foregoing paragraphs.

Upon any such notice being given to the Company, the Bonds will immediately become due and payable at their principal amount plus any premium and overdue interest on the amounts due, from the date on which such amounts first become due, shall be payable, to the extent permitted by law, at the rate of 5% per annum.

For the purposes of Condition 10(iii) above, any indebtedness which is in a currency other than US dollars shall be translated into US dollars at the spot rate for the sale of US dollars against the purchase of the relevant currency quoted by the Trustee in its sole discretion on any day when the Trustee requests such a quotation for such purposes. If no direct spot rate is available, a rate shall be calculated by reference to the cross-rates through US dollars and relevant currencies. Any calculation or translation so made shall be conclusive and binding on the Company and the Bondholders without liability for any loss or liability occasioned thereby.

11. Prescription

Claims against any payment in respect of the Bonds shall be prescribed unless made within six years from the relevant date of payment in respect thereof. Neither the Trustee nor the Agents shall be responsible or liable for any amounts so prescribed.

Under the laws of the ROC, claims in respect of the (i) payment of principal would become unenforceable after 15 years and (ii) payment of interest and premium would become unenforceable after 5 years, each measured from the relevant date for payment in respect thereof.

12. Enforcement

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

13. Meetings of Bondholders, Modification and Waiver

(A) Meetings; Modification Requiring Consent of Each Bondholder

The Indenture will contain provisions for convening meetings of Bondholders to consider any matter affecting their interests, including the approval of amendments or modifications of the terms and conditions of the Bonds or the provisions of the Indenture upon either the written consent of the holders of not less than a majority in principal amount of the Bonds then outstanding or the approval at a meeting of Bondholders duly called by persons entitled to vote not less than a majority in principal amount of the Bonds then outstanding, with a quorum of two or more persons, holding or representing over 50% in principal amount of the Bonds then outstanding; provided that no such modification of the terms and conditions of the Bonds or the provisions of the Indenture may, without the consent of each Bondholder affected thereby:

(i) modify the Maturity Date;

(ii) reduce the principal or redemption price of, or premium or rate of interest, if any, on, any Bond or increase the Conversion Price (as adjusted in accordance with the provisions of the Indenture);
(iii) change the place or currency of payment of principal of, or premium or interest, if any, on, any Bond or the method of calculating any such payment;
(iv) impair the right to institute suit for the enforcement of any payment on any Bond;
(v) alter the Company's obligations relating to mergers and disposals, and the payment of Additional Amounts, as described in Conditions 6(D) and 9, respectively;
(vi) except to the extent permitted by Condition 13(B) below, modify, cancel or adversely affect the Conversion Right, Bondholders' Put Right, Delisting Put Right, Change of Control Put Right or Non-Redemption Right;
(vii) reduce the above-stated percentage of outstanding Bonds the consent of whose Bondholders is necessary to modify or amend the Indenture;
(viii) reduce the percentage or aggregate principal amount of outstanding Bonds the consent of whose Bondholders is necessary for waiver of compliance with provisions of the Indenture or for waiver of Defaults under the Indenture;
(ix) modify the provisions concerning the voting and quorum required at any meeting of Bondholders; or
(x) release the Company from any obligation under the Indenture other than in accordance with the provisions of the Indenture, or amend or modify any provision relating to such release.

(B) Modification Without Consent

The Company is permitted to modify the Bonds, the Indenture and the Agency Agreement without the consent of the Bondholders if it would:

(i) modify any of the provision of the Bonds, the Indenture, the Agency Agreement that is not materially prejudicial to the interests of the Bondholders; or
(ii) evidence the succession of another corporation to the Company and the assumption by such successor of the covenants and obligations of the Company with respect to the Bonds, in the event of any merger, consolidation or other action in accordance with Condition 6(D); or
(iii) add to the covenants of the Company for the benefit of the Bondholders; or
(iv) surrender any right or power conferred upon the Company; or
(v) reduce the Conversion Price, provided that such reduction in the Conversion Price shall not adversely affect the interest of the Bondholders taken as a whole in any material respect; or
(vi) cure any ambiguity, correct or supplement any provision in the Bonds, the Indenture, the Agency Agreement which may be inconsistent with any other provision herein or which is otherwise defective, provided such action pursuant to this clause (vi) shall not adversely affect the interest of the Bondholders taken as a whole; or
(vii) make any modification of any of the provisions of the Bonds, this Indenture or the Agency Agreement that is of a formal, minor or technical nature or necessary to correct a manifest error or is to comply with mandatory provisions of law; or

(viii) make any modification to the Conversion Rights that (a) is necessary or desirable to effect or facilitate the exercise of Conversion Rights and (b) is not materially prejudicial to the interests of the Bondholders taken as a whole.

In connection with such modification, waiver or authorization, the Trustee may require a certificate from the Company certifying, and a legal opinion from a legal advisor of recognized international standing advising the Trustee, that the modification, waiver or authorization is of a formal, minor or technical nature or to correct a manifest error or to comply with mandatory provision of law. Any such modification, waiver or authorization shall be binding on the Bondholders. Any such modification, waiver or authorization shall be notified by the Company to the Bondholders as soon as practicable thereafter in accordance with Condition 15.

14. Replacement of Certificates

If any Certificate is mutilated, defaced or is alleged to be destroyed, stolen or lost, it may be replaced at the specified office of the Trustee upon payment by the claimant of such costs as may be incurred in connection therewith and on such terms as to evidence and indemnity as the Company and the Trustee may require (which terms will require, inter alia, that if such Certificate is subsequently deposited for conversion into Shares there shall be paid to the Company and the Trustee on demand such costs (equal to the principal, premium (if any) and interest (if any)) due on the relevant Bond at the Fixed Exchange Rate). Mutilated or defaced Certificates must be surrendered before replacements will be issued.

15. Notices

All notices to Bondholders shall be validly given if mailed to them at their respective addresses in the register of Bondholders maintained by the Registrar and so long as the Bonds are listed Luxembourg Stock Exchange and if the rules of that exchange so require, publish in a leading newspaper having general circulation in Luxembourg (which is expected to be the Luxembourger Wort ) or published on the website (www.bourse.lu) of the Luxembourg Stock Exchange.

Any such notice shall be deemed to have been given on the later of (i) the date of such publication and (ii) the seventh day after such notice is mailed to the Bondholders at their addresses in the register of the Bondholders maintained by the Registrar.

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

16. Indemnification

The Indenture contains provisions for the rights of the Trustee to seek direction from the Bondholders before taking any action and for the indemnification of the Trustee and for its relief from responsibility, including provisions relieving it from taking proceedings to enforce payment unless indemnified or secured to its satisfaction. In addition, the Trustee is entitled to enter into business transactions with the Company and any entity relating to the Company without accounting for any profit.

The Trustee may rely without liability to the Bondholders on any certificate prepared by the directors of the Company and accompanied by a certificate or report prepared by the auditors of the Company pursuant to the Conditions and/or the Indenture, whether or not addressed to the Trustee and whether or

not the liability of the auditors of the Company in respect thereof is limited by a monetary cap or otherwise limited or excluded and shall be obliged to do so where the certificate or report is delivered pursuant to the obligation of the Company to procure such delivery under the Conditions; any such certificate or report shall be conclusive and binding on the Company, the Trustee and the Bondholders.

17. Agents

The names of the initial Agents and their specified offices are set out below. The Company reserves the right, subject to the provisions of the Agency Agreement, at any time to vary or terminate the appointment of Agents, provided that the Company will at all times maintain (i) a Principal Agent, (ii) a Paying Agent with a specified office in a European Union member state that will not be obliged to withhold or deduct tax pursuant to any law implementing European Council Directive 2003/48/EC or any other Directive implementing the conclusions of the ECOFIN Counsel meeting of 26-27 November 2000, (iii) a Paying, Transfer and Conversion Agent having a specified office in Luxembourg for so long as the Bonds are listed on the Euro MTF market of the Luxembourg Stock Exchange, and (iv) a Registrar which will maintain the register of Bondholders outside the United Kingdom. Notice of any such termination or appointment, of any changes in the specified offices of the Agents or of any change in the identity or specified office of the Registrar or the Principal Agent will be given promptly by the Company, in writing, to the Bondholders and the Trustee in accordance with Condition 15.

18. Governing Law and Jurisdiction

(A) Governing Law

The offering and issue, management and disposal of the Bonds are governed by and shall be construed in accordance with the laws of the State of New York. The exercise of the Conversion Rights provided hereunder will be subject to the laws and regulations of the ROC and restrictions or limitations provided thereunder.

(B) Jurisdiction

The courts of the State of New York and of the United States of America sitting in the Borough of Manhattan are to have non-exclusive jurisdiction over any disputes, which may arise out of, or in connection with the Bonds, and accordingly any legal action or proceedings arising out of or in connection with the Bonds (" Proceedings ") may be brought in such courts. The Company has in the Indenture and the Agency Agreement irrevocably submitted to the non-exclusive jurisdiction of such courts.

(C) Agent for Service of Process

The Company has irrevocably appointed Law Debenture Corporate Services Inc. at 400 Madison Avenue, 4th Floor, New York, New York 10017, U.S.A. as its agent in New York to receive service of process in any Proceedings in New York based on any of the Bonds.

PRINCIPAL PAYING AGENT AND CONVERSION AGENT

The Bank of New York Mellon, London Branch One Canada Square 40th Floor London E14 5AL United Kingdom

REGISTRAR, PAYING AGENT, TRANSFER AND CONVERSION AGENT AND LUXEMBOURG LISTING AGENT

The Bank of New York Mellon (Luxembourg) S.A. Vertigo Building - Polaris 2-4 rue Eugène Ruppert L-2453 Luxembourg

THE GLOBAL CERTIFICATE

The Global Certificate contains provisions, which apply to the Bonds in respect of which the Global Certificate is issued, some of which modify the effect of the terms and conditions of the Bonds (the " Conditions ") set out in this Offering Circular. As long as the Bonds are listed on the Euro MTF market of the Luxembourg Stock Exchange, an Agent for making payments on, transfers, deposit of conversion notices, and conversions of, the Bonds will be maintained in Luxembourg. Terms defined in the Conditions have the same meaning in the paragraphs below. The following is a summary of those provisions:

Meetings

The registered holder (as defined in the Conditions) of the Global Certificate will be treated as being two persons for the purposes of any quorum requirements of a meeting of Bondholders and, at any such meeting, as having one vote in respect of each US$200,000 in principal amount of Bonds for which the Global Certificate is issued. The Trustee may allow a person with an interest in Bonds in respect of which the Global Certificate has been issued to attend and speak (but not to vote) at a meeting of Bondholders on appropriate proof of his identity and interest.

Cancellation

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

Trustee's Powers

In considering the interests of the holders of the Bonds while the Global Certificate is registered in the name of a nominee for a clearing system, the Trustee may, to the extent it considers it appropriate to do so in the circumstances, (a) have regard to such information as may have been made available to it by or on behalf of the relevant clearing system or its operator as to the identity of its accountholders (either individually or by way of category) with entitlements in respect of the Bonds and (b) consider such interests on the basis that such accountholders were the holders of the Bonds in respect of which the Global Certificate is issued.

Conversion

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

Payments

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

Notices

Put Options

The Bondholders' put options in Conditions 8(D), 8(E) and 8(F) may be exercised by the holder of the Global Certificate giving notice to the Principal Agent of the principal amount of Bonds in respect of which the relevant option is exercised and presenting the Global Certificate for endorsement or exercise within the time limits specified in Conditions 8(D), 8(E) and 8(F).

Call Option

The call option exercisable by the Company in Conditions 8(B) and 8(C) may be exercised by the Company giving notice to the Bondholder within the time limits set out in and containing the information required by those Conditions and Condition 8(I). No drawing of the Bonds will be required under Condition 8(H) in the event that the Company exercises its redemption option in Condition 8(B) in respect of less than the aggregate principal amount of the Bonds in respect of which the Global Certificate is issued. Instead, there will be a pro rata allocation of the Bonds to be redeemed among the accounts of Euroclear and Clearstream, Luxembourg in accordance with the rules of those clearing systems.

Registration of Title

Certificates in definitive form for individual holdings of Bonds will not be issued in exchange for interests in Bonds in respect of which the Global Certificate is issued, except: (i) the Common Depositary or any successor to the Common Depositary notifies the Company in writing that it is at any time unwilling or unable to continue as a depositary and a successor depositary is not appointed by the Company within 90 days; (ii) where either Euroclear or Clearstream, Luxembourg (or any alternative clearing system on behalf of which the Bonds evidenced by the Global Certificate may be held (the " Alternative Clearing System ")) is closed for business for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or announces an intention permanently to cease business or does in fact do so; or (iii) an event of default under the Bonds or the Indenture has occurred and is continuing.

Transfers

Transfers of interests in the Bonds will be effected through the records of Euroclear and Clearstream, Luxembourg and their respective participants in accordance with the rules and procedures of Euroclear and Clearstream, Luxembourg and their respective direct and indirect participants.

Enforcement

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

Accountholders

For so long as any of the Bonds are represented by the Global Certificate and such Global Certificate is held on behalf of Euroclear and/or Clearstream, Luxembourg, each person who is for the time being shown in the records of Euroclear or Clearstream, Luxembourg as the holder of a particular principal amount of such Bonds (each an " Accountholder ") (in which regard any certificate or other document issued by Euroclear or Clearstream, Luxembourg as to the principal amount of such Bonds standing to the account of any person shall be conclusive and binding for all purposes) shall be treated as the holder of such principal amount of such Bonds for all purposes (including for the purposes of any quorum requirements of, or in the right to demand a poll at, meetings of the Bondholders) other than with respect to the payment of principal and premium and interest (if any) on such Bonds, the right to which shall be vested, as against the Company and the Trustee, solely in the holder of the Global Certificate in accordance with and subject to its terms and the terms of the Indenture. Each Accountholder must look solely to Euroclear or Clearstream, Luxembourg, as the case may be, for its share of each payment made to the holder of the Global Certificate.

EXCHANGE RATES

Set forth below are the period-end spot exchange rates in effect between the NT dollar and the US dollar expressed in NT dollars per US dollar, for the period indicated.

Period-End 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 January February March April May June July August September October November December 2014 January	NT$ per US$1.00
	33.960 31.740 32.825 32.583 32.432 32.792 31.985 29.299 30.279 29.033 29.550 29.637 29.825 29.540 29.940 29.982 29.986 29.929 29.630 29.424 29.634 29.807 30.326

Source: Bloomberg

The exchange rate between the NT dollar and the US dollar quoted by Bloomberg at 4:00 pm on February 25, 2014 was NT$30.372 = US$1.00

DESCRIPTION OF THE COMMON STOCK

The following is a summary of certain provisions of the Company's the Articles, the ROC Securities and Exchange Law (the "Securities and Exchange Law") and regulations promulgated thereunder and the Company Law of the ROC, all as currently in effect.

General

As of September 30, 2013, no treasury stock is directly held by the Company. However, the Company's shares held by its subsidiaries are 5,732,000 shares, which would be treated as treasury stock in the consolidated financial statement of the Company.

The Company Law provides that any change in the issued share capital of a company requires approval of the board of directors. In the event that the issuance of any new shares will result in change in the authorized share capital of a company, the company must amend its Articles with the shareholders' approval. The company must also report to the FSC for the issuance of new shares.

Dividends

Under the Company Law, except under certain limited circumstances, a ROC company is not permitted to distribute dividends or make any other distributions to shareholders at any time other than when it is generating net profits ("Earnings"). Before distributing a dividend or making any other distribution to shareholders from Earnings, a company must first apply such Earnings to its losses suffered in previous years, if any, pay all outstanding taxes and set aside the legal reserve referred to below.

Subject to compliance of the above requirements, following approval of the financial statements for the preceding fiscal year by the shareholders in an annual shareholders' meeting, dividends ("Annual Dividends") can be, unless otherwise stipulated under that the Articles, distributed in proportion to the number of the shares held by the shareholders as registered on the register of shareholders as at the relevant record date decided by the Board of Directors. Annual Dividends may be distributed either in cash or in form of stock or a combination thereof. The ratio between any cash dividend and stock dividend is proposed by the board of directors and is determined by the shareholders at the shareholders' meeting.

Cash dividends unclaimed for a period of five years from the date of the relevant notice of distribution may no longer be claimed. Such unclaimed cash dividends will, upon expiry of such five-year period, become the Company's property. Stock dividends are not subject to any prescription period under ROC law. Stock dividends can be registered under the shareholders' names without the shareholders' consent. For information as to dividend policy of the Company, see the section headed "Dividends and dividend policy".

Distribution of Shares

In addition to dividends paid out of earnings, the ROC Company Law also permits a company to make distributions to shareholders from reserves (including legal reserve, special reserve and capital reserve). However, the capitalized portion payable out of a company's legal reserve can only be effected when and to the extent that the accumulated legal reserve exceeds 25 percent of the paid-in capital of such company. For information as to ROC taxes on cash and stock dividends, see the section headed "Taxation - ROC Taxation of Non-Residents" below.

Pre-emptive Rights and Issue of Common Stock

The Company Law provides that between 10 percent and 15 percent of any issue of shares of capital stock for cash must be first offered to the company's employees. In addition, the Securities and Exchange Law require that, if a public company listed on the TSE or GTSM intends to offer new shares for cash, at least 10 percent of such issue must be offered to the public except under certain circumstances or when exempted by the FSC.

This percentage can be increased by a resolution passed at a shareholders' meeting, thereby reducing the number of new shares subject to the pre-emptive rights of existing shareholders. Unless the percentage of shares to be offered to the public is increased by shareholders, existing shareholders who are registered at the shareholders' register as of the record date have a pre-emptive right to acquire the remaining 75 to 80 percent of the issue in proportion to their existing shareholdings. The shares not subscribed for by the employees and shareholders at the expiration of the period for the exercise of their rights may be freely offered by the Company (subject to ROC law) to the public or specified person through the arrangement of the Board of Directors. The preemptive right does not apply to the shares issued upon conversion of convertible bonds.

Meetings of Shareholders

The annual meeting of shareholders of the Company is usually held within six months after the end of each calendar year. Extraordinary meetings of shareholders may be convened by resolution of the Board of Directors whenever they consider it necessary, and they must do so if requested in writing by shareholders holding not less than three percent of the paid-in capital who have held these shares for more than a year. Extraordinary meetings of shareholders may also be convened by a Supervisor of the Company when necessary. Notice in writing of ordinary and extraordinary shareholders' meetings stating the place, time and purpose thereof must be dispatched to each shareholder of the Company at least 30 days and 15 days, respectively, prior to the date set for the meeting. Except in certain circumstances as described below, a majority of the holders of all issued and outstanding Shares of the Company present at a shareholders' meeting constitutes quorum.

The Company publishes notices of shareholder meetings as well as notices with respect to dividends, rights issues and capital increases, on a newspaper with national circulation in the ROC or on http://newmops.tse.com.tw, the website designated by the FSC for public disclosure of all material information.

Voting Rights

A holder of common stock has one vote for each share of common stock except for the following common stock which does not contain voting right: (i) shares of common stock held by the company itself, (ii) shares of common stock held by a company which is a subsidiary of the issuer of the common stock, provided that such issuer holds more than fifty percent of the voting shares or issued capital of such subsidiary, or (iii) shares of common stock of a controlling company or its subsidiary held by a company of which more than fifty percent of voting shares or issued capital of such holder is directly or indirectly held by such controlling company and such controlling company's subsidiary. With respect to election of Directors and Supervisor by shareholders, it is carried out on a cumulative voting basis.

Notwithstanding the above, in order to approve certain major corporate actions, including any amendment to the Articles (which is required for, inter alia , any increase in authorized share capital), the dissolution or amalgamation of a company, the entering into, amendment or termination of any contract for the lease of the Company's business in whole, or for entrusted business or for regular joint operation with third parties, the transfer of all or an important part of its business or its properties, the taking over of the whole of the business or properties of any other company which would have a significant impact on the acquiring company's operations, or the distribution of any stock dividend, the Company Law provides that a resolution has to be passed at a meeting of the shareholders with a quorum of holders of at least two-thirds of all issued and outstanding common stock at which the majority present vote in favor thereof. Alternatively, in the case of a public company, such as the Company, such a resolution may be approved by the holders of at least two-thirds of the common stock represented at a meeting of shareholders with a quorum of holders of at least a majority of issued and outstanding common stock.

A shareholder may be represented at a general meeting or an extraordinary meeting by proxy. A valid proxy form must be delivered to the Company at least five days prior to the date fixed for the ordinary or extraordinary meeting. Voting rights attaching to the shares exercised by proxy shall be subject to ROC proxy regulation. For trust enterprises or stock affair agents approved by the FSC, where a person who holds a proxy for two or more shareholders who together hold more than 3% of the total issued Common Shares, the votes of those shareholders in excess of 3% of the outstanding Common Shares shall not be counted.

A shareholder who has a personal interest in the matter under discussion at a meeting, which may impair the

interest of the company, shall not vote nor exercise the voting right on behalf of another shareholder on such matter.

According to Article 177-1 of the ROC Company Law and the standards issued by FSC, once the number of shareholders of the Company is over 10,000 and the paid-in capital reaches NT$10 billion, this company is required adopt electronic voting as an option for the shareholders to exercise their voting rights at the shareholders meetings. The Company does not adopt the e-voting system.

Minority Shareholders' Right to Propose Shareholder Meeting Agenda

Under the Company Law, any holder of at least 1% of the outstanding shares of the Company may submit one proposal in writing containing no more than 300 words (Chinese characters) to the Company for discussion at the Company's annual general shareholders meeting. Such proposals must be delivered to the Company during a specific period of time prior to the day that is the start of the close period (i.e. 60 days) prior to the shareholders' meeting. The Company may decide the length of time for the submission of the proposal provided that the time period is at least 10 days.

Registration of Shareholders and Record Dates

The Company maintains the register of shareholders of the Company at its Share Registrar at its share registrar office in Taiwan and enters transfers of common stock in the register of shareholders upon presentation of the certificates in respect of the common stock transferred accompanied by other required documents.

As mentioned above, the record date for the Annual Dividend will be determined and announced by the Company. For the purpose of determining the shareholders entitled to the Annual Dividends and other rights pertaining to the common shares, the ROC Company Law provides that, for a public company, the registration of shareholders is closed for a period of 60 days prior to the annual general shareholders' meeting, 30 days prior to the extraordinary shareholders' meeting and five days prior to the dividend distribution day, respectively.

Annual Financial Statements

Under the ROC Company Law, 10 days before the annual general shareholders' meeting, the Company's annual audited financial statements must be available at the principal office of the Company for inspection by shareholders.

Transfers of Common Stock

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

Acquisition by the Company of its own Shares

Except as permitted under the ROC Company Law and the ROC Securities and Exchange Law, the Company cannot buy back its own Shares. The exceptions include:

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

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

And any Shares bought back by the Company must be (i) sold by the Company at the current market price within six months after its buyback if these Shares are for maintaining its credit and shareholders' equity, or (ii) transferred to the Company's employees within three years after its buyback, if these Shares are for transfer to its employees or for conversion as stated above as the case may be. In addition, the company may not exercise any shareholders' rights attaching to such shares.

Transfer Restrictions

The ROC Securities and Exchange Law limits the number of the shares each of the Company's directors, supervisors, managers or major shareholders (i.e. a shareholder who, together with his or her spouse, minor children or nominees, holds more than 10% of the shares) can sell or transfer on the stock exchange daily. Furthermore, the methods of transfer of shares shall be subject to the regulatory and reporting requirements in accordance with the relevant securities laws and regulations. Except for certain exceptions or with the approval of the FSC, each director, supervisor, manager or major shareholder of a public company shall report his/her/its intent to transfer shares to the FSC at least three days prior to the intended transfer.

Liquidation Rights

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

Other Rights of Shareholders

Under the ROC Company Law, a dissenting shareholder, who has served a notice in writing to the company and has raised his objection at the shareholders' meeting, is entitled to exercise the appraisal right in the event of a merger, spin-off and other major corporation actions, such as the entering into, amendment or termination of any contract for the lease of the Company's business in whole, or for entrusted business or for regular joint operation with third parties, the transfer of all or an important part of its business or its properties, the taking over of the whole of the business or properties of any other company which would have a significant impact on the acquiring company's operations, within 20 days of a shareholders' resolution.

In addition to the appraisal right, a shareholder may, within 30 days from the date of adoption of the said resolution, file a petition in the court for annulment of such resolution where the procedure or the method of resolution is legally defective.

Notification to shareholders

Information concerning shareholders is published on a newspaper with national circulation in the ROC or on http://newmops.tse.com.tw and a notice is also sent to the shareholders according to the records maintained in the Company's Share Registrar. For shareholders holding less than 1000 shares of a company, an individual notice is not required, provided that a notice is published on a newspaper or the website abovementioned.

FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN THE ROC

Foreign Investment

Foreign investment in the ROC securities markets were once restricted. Since 1983, the ROC government has adopted, enacted and amended laws and regulations to enable investment in the ROC securities markets by oversea Chinese, foreign nationals, and PRC nationals.

Currently, the Regulations Governing Investment in Securities By Overseas Chinese and Foreign Nationals (the "Securities Investment Regulations for Foreign Investors"), announced on May 26, 1983 and last amended on March 23, 2006, and the Regulations Governing Securities Investment and Futures Trading in Taiwan by Mainland Area Investors (the "Securities Investment Regulations for PRC Nationals"), announced on April 30, 2009 and last amended on October 6, 2010, are the two major regulations governing foreign investment in ROC securities. Foreign investors who are not PRC nationals shall follow the Securities Investment Regulations for Foreign Investors for their respective investment in ROC securities.

Under the Securities Investment Regulations for Foreign Investors, investors are classified into "Onshore General Foreign Investors", "Offshore General Foreign Investors", "Onshore Foreign Institutional Investors" and "Offshore Foreign Institutional Investors", based upon whether they are institutional investors or natural persons, and whether they reside in the ROC ("Offshore General Foreign Investors" and "Offshore Foreign Institutional Investors", hereafter "Offshore Investor"; Onshore General Foreign Investors" and "Onshore Foreign Institutional Investors", hereafter "Onshore Investor"). Foreign investors are required to register with the Taiwan Stock Exchange Corporation ("TWSE") to trade securities listed on TWSE, and the TWSE may withdraw or rescind the registration if the application documents submitted by foreign investors are untrue or incomplete, or if any material violation of the relevant regulations exists. Offshore investors are required to appoint their local agent or nominee to act on their behalf in Taiwan.

An Offshore Investor may only invest in ROC securities as permitted by the Financial Supervisory Commission (the "FSC") such as shares, certificates of bond conversion entitlement, and Taiwan Depositary Receipts publicly or privately offered by TWSE-listed, GreTai Securities Market ("GTSM")-listed or emerging market-listed companies, beneficiary certificates issued by securities investment trusts, government bonds, bank debentures, corporate bonds, convertible bonds, bonds with warrant, beneficiary securities or asset-backed securities issued by the special purpose trust or special purpose vehicle, and warrants. The FSC has lifted the cap for the total investment amount of offshore investors in 2003.

In the past, PRC persons were prohibited from investing, whether directly or indirectly, in ROC securities. The Securities Investment Regulations for PRC Nationals promulgated in 2009 (as amended in 2010) allow PRC nationals and institutional investors to make investment in ROC securities, if they are qualified for any of the following categories: (i) qualified domestic institutional investors approved by the PRC government, also known as "QDIIs"; (ii) PRC residents who are employees of a TWSE-listed or GTSM-listed company and thereupon granted securities; (iii) companies incorporated under the laws of PRC or PRC residents who are the shareholders of a foreign company whose shares or depositary receipts are listed and traded on the TWSE or GTSM; or (iv) other categories as permitted by the competent authority. Subject to the requirements and restrictions set forth below, a PRC investor may invest in TWSE-listed or GTSM-listed securities, beneficiary certificates issued by securities investment trusts, government bonds, bank debentures, corporate bonds issued by public companies, beneficiary securities or asset-backed securities issued by the special purpose trust or special purpose vehicle, warrants and other securities as permitted by the FSC.

PRC investors are required to appoint their agent or nominee in Taiwan for opening a securities trading account.
PRC investors are required to appoint a custodian permitted by the competent authority to handle the custody of funds and certificates related to securities.

In exercising the voting rights of the shares of a TWSE-listed or GTSM-listed company, unless otherwise permitted by laws and regulations, PRC investors may not substantial control or effect the operation and management of the company.
The amount of investment remittance for each QDII is capped at US$100 million, and the total amount remitted into Taiwan by all QDIIs shall not exceed US$500 million.

Depositary Receipts

In April 1992, the ROC Securities and Futures Commission (later reformed and known as the Securities and Futures Bureau of the FSC) enacted regulations permitting ROC companies with securities listed on the TWSE, with the prior approval of the FSC, to sponsor the issue and sale to foreign investors of depositary receipts. Depositary receipts represent deposited shares of ROC companies. In December 1994, the ROC Ministry of Finance allowed companies whose shares are traded on the GTSM or listed on the TWSE, upon approval of the FSC, to sponsor the issue and sale of depositary receipts.

After depositary receipts are issued initially by a foreign depositary, a holder of depositary receipts may request the foreign depositary to cause the underlying shares (1) to be sold in the ROC, with the proceeds from that sale distributed to the depositary receipt holder after deducting tax payments and relevant costs and expenses, or (2) to be withdrawn from the depositary receipt facility and transferred to the depositary receipt holder (other than citizens of the PRC and entities organized under the laws of the PRC).

Under existing laws and regulations relating to foreign exchange control, a depositary or a holder of depositary receipts may, without obtaining further approvals from Central Bank of the Republic of China ("CBC") or any other governmental authority or agency of the ROC, convert NT Dollars into other currencies, including US Dollars, in respect of the following: proceeds of the sale of shares represented by depositary receipts, proceeds of the sale of shares received as stock dividends and deposited into the depositary receipt facility and any cash dividends or cash distributions received. In addition, a depositary, also without any of these approvals, may convert inward remittances of payments into NT Dollars for purchases of underlying shares for deposit into the depositary receipt facility against the creation of additional depositary receipts. A depositary may be required to obtain foreign exchange approval from CBC on a payment-by-payment basis for conversion from NT Dollars into other currencies relating to the sale of subscription rights for new shares. Proceeds from the sale of any underlying shares by holders of depositary receipts withdrawn from the depositary receipt facility may be converted into other currencies without obtaining CBC approval. Proceeds from the sale of the underlying shares withdrawn from the depositary receipt facility may be used for reinvestment in the TWSE, the GTSM, or stock of emerging market companies, subject to limitations and restrictions set forth in "Foreign Investment" above (as applicable).

Overseas Corporate Bonds

Since 1989, the FSC and its predecessors have approved a series of overseas bonds issued by ROC companies listed on the TWSE in offerings outside the ROC. Under current ROC law and subject to the FSC approval, overseas corporate bonds can be (i) exchanged or converted by bondholders, other than persons of the PRC except for QDIIs, into shares of ROC companies; or (ii) converted into or exchanged for depositary receipts issued by the same ROC company or by the issuing company of the exchange shares, in the case of exchangeable bonds. 'The relevant regulations also permit ROC companies that have attained public company status to issue corporate bonds in offerings outside the ROC. Proceeds from the sale of the shares converted from overseas convertible bonds may be used for reinvestment in securities listed on the TWSE or traded on the GTSM, subject to limitations and restrictions set forth in "Foreign Investment" above (as applicable).

According to the Securities Investment Regulations for Foreign Investors, a non-resident foreign converting bondholder, when exercising the conversion right to convert bonds into shares of a ROC company, will be required to register with the TWSE, and obtain the approval from CBC if it is an offshore foreign institutional investor, and to appoint a local agent (with such qualifications provided by the FSC) to open a securities trading account with a local brokerage firm, pay ROC taxes, remit funds, exercise shareholders' rights and perform such other matters as may be designated by such converting bondholder on behalf of and as agent for such converting bondholder. The converting holder is also required to appoint a custodian bank to hold the securities and any cash proceeds in safekeeping, to make confirmation to settle trades, and to report all

relevant information. Additionally, such converting holder is required to appoint a tax guarantor for filing tax returns and making tax payments.

According to the Securities Investment Regulations for PRC Nationals, a PRC holder of overseas convertible bonds may not convert or exchange such convertible into shares unless (i) it is a qualified QDII, (ii) the businesses of the issuer are in the Positive List promulgated by the MOEA.

Unless otherwise limited by CBC, an ROC company may, without obtaining further approvals from CBC or any other government authority of the ROC, convert NT Dollars to other non-ROC currencies, including US Dollars, for making payments in respect of redemption of the bonds or repayment of principal of and interest on the bonds. A non-ROC converting bondholder may, through its local agent and without obtaining prior approval from CBC, convert into foreign currencies net proceeds realized from the sale of certificates of bond conversion entitlement, common shares or any stock dividends relating to such shares, or any cash dividend or other cash distribution in respect of such common shares, as well as inward remittance of subscription payments in respect of rights offerings. However, a converting bondholder must obtain prior approval from CBC on a payment-by-payment basis for conversion from NT Dollars into other currencies in respect of the proceeds from the sale of subscription rights for newly issued Shares.

Other Foreign Investment

In addition to investments permitted under the Regulations, foreign investors (other than foreign investors who have registered with the TWSE for making investments in the ROC securities market) who wish to make direct investments in the shares of ROC companies are required to submit a Foreign Investment Approval application to the Investment Commission of the ROC Ministry of Economic Affairs or other government authority. The Investment Commission or such other government authority reviews each Foreign Investment Approval application and approves or disapproves each application after consultation with other governmental agencies (such as CBC and the FSC).

Under current law, any non-ROC person possessing a Foreign Investment Approval may remit capital for the approved investment and is entitled to repatriate annual net profits, interest and cash dividends attributable to such investment. Dividends attributable to such investment may be repatriated upon submitting certain required documents to the remitting bank, and investment capital and capital gains attributable to such investment may be repatriated after approvals of the Investment Commission or other authorities have been obtained.

In addition to the general restriction against investment by non-ROC persons in securities of ROC securities markets, non-ROC persons (except in certain limited cases) are currently prohibited from investing in certain industries in the ROC pursuant to a Negative List, as amended by the Executive Yuan. The prohibition on foreign investment in the prohibited industries specified in the Negative List is absolute in the absence of specific exemption from the application of the Negative List. Pursuant to the Negative List, certain other industries are restricted so that non-ROC persons (except in certain limited cases) may invest in such industries only up to a specified level and with the specific approval of the relevant competent authority which is responsible for enforcing the relevant legislation which the Negative List is intended to implement.

Exchange Controls

The Foreign Exchange Control Statute and regulations provide that all foreign exchange transactions must be executed by banks designated to handle such business, by the Ministry of Finance and by CBC. Current regulations favor trade-related foreign exchange transactions and Foreign Investment Approval investments. Consequently, foreign currency earned from exports of merchandise and services may now be retained and used freely by exporters, and all foreign currency needed for the importation of merchandise and services may be purchased freely from the designated foreign exchange banks.

Trade aside, ROC companies and resident individuals may, without foreign exchange approval, remit outside the ROC foreign currency of up to US$50,000,000 (or its equivalent) and US$5,000,000 (or its equivalent) respectively in each calendar year. In addition, ROC companies and resident individuals may, without foreign exchange approval, remit into the ROC foreign currency of up to US$50,000,000 (or its equivalent) and US$5,000,000 (or its equivalent) respectively in each calendar year. Furthermore, any remittance of foreign currency into the ROC by an ROC company or resident individual in a year will be offset by the amount

remitted out of the ROC by the company or individual (as applicable) within its annual quota and will not use up its annual inward remittance quota to the extent of such offset. The above limits apply to remittances involving a conversion of NT Dollars to a foreign currency and vice versa. A requirement is also imposed on all enterprises to register medium- and long-term foreign debt with CBC.

In addition, foreign persons, may, subject to certain requirements, but without foreign exchange approval of CBC, remit outside and into the ROC foreign currencies of up to US$100,000 (or its equivalent) for each remittance. The above limit applies to remittances involving a conversion of NT Dollars to a foreign currency and vice versa.

THE SECURITIES MARKET OF THE ROC

The information provided in this section has been extracted from various government and other publicly available publications that have not been prepared or independently verified by the Company, the Manager or any of their respective affiliates or advisers in connection with the offering of the Bonds. Where applicable, references to the Financial Supervisory Commission (the "FSC") in this section include its subordinate bureau, the ROC Securities and Futures Bureau and the ROC Securities and Exchange Commission, its predecessor.

In September 1960, the ROC government established the ROC Securities and Exchange Commission to supervise and control all aspects of the existing domestic securities market and the TWSE began to take shape soon thereafter. In the 1970s and the early 1980s, the ROC government implemented a number of steps designed to upgrade the quality and importance of the ROC securities markets, such as encouraging listing on the TWSE and establishing an over-the-counter securities exchange. In the mid-1980s, the ROC government began to revise its laws and regulations in a manner designed to facilitate the gradual internationalization of the ROC securities markets. In 1997, the ROC Securities and Exchange Commission was renamed the ROC Securities and Futures Commission. Effective from July 1, 2004, the ROC government formed the ROC Financial Supervisory Commission of the Executive Yuan. The Securities and Futures Commission has been renamed the ROC Securities and Futures Bureau and placed under the supervision of the FSC.

The Taiwan Stock Exchange

In 1961, the ROC Securities and Futures Commission established the TWSE to provide a marketplace for securities trading. The TWSE is a corporation owned by government-controlled and private banks and enterprises. The TWSE is independent of entities transacting business through it, each of which pays a user's fee. Subject to limited exceptions, all transactions in listed securities by brokers, traders and integrated securities firms (firms which are permitted to combine the activities of brokerage, dealing and underwriting) must be made through the TWSE.

The TWSE commenced operations in 1962. Since the early 1980's, the ROC Securities and Futures Commission actively encouraged new listings on the TWSE and the number of listed companies grew from 119 in 1983 to 809 by the end of 2012. As of December 31, 2012, the total market value of shares listed on the TWSE was approximately NT$21.35 trillion.

The instruments traded on the TWSE have historically been limited to common shares and bonds. However, recent legislative revisions and the present attitude of the FSC regarding liberalization of securities regulations have encouraged some innovation. In 1988, the Ministry of Finance permitted the issue of the ROC's first exchangeable bonds (such bonds being exchangeable at the option of the bondholders into shares of companies owned by the issuers). Since 1989, there have been offerings of domestic convertible bonds and convertible preferred shares. In addition, beneficiary units evidencing beneficiary interests in closed-end investment funds and bonds issued by super-national financial institutions are also listed on the TWSE and traded on the GTSM (see below).

In the move of becoming more globalized securities markets, the FSC amended the Regulations Governing the Offering and Issuance of Securities by Foreign Issuers in 2008, under which foreign issuers are allowed to list certain securities on the TWSE or GTSM. Now several foreign issuers have listed their securities on the TWSE and GTSM in forms of depositary receipts or common shares.

The TWSE has established specific requirements for listing based on the number and distribution of a company's stockholders, years in existence, amount of capital, profitability and capital structure. For a ROC company to be listed, it must have been established for at least three fiscal years, have paid-in capital of at least NT$600 million upon the application for listing and have at least 1,000 registered stockholders, including no less than 500 stockholders not being insider or insider's affiliate which insider holds more than 50% of its outstanding shares. These 500 or more stockholders must together hold either at least 20% of the outstanding shares or at least 10 million shares. The company may not have an accumulated deficit for the previous fiscal year, and the pre-tax net income and the operating income of the company must meet any of the following requirements: (1) having exceeded 6% of paid-in capital for each of the previous two fiscal years or having exceeded 6% in average of the paid-in capital for the previous two fiscal years with the profitability of the most recent fiscal year being higher than that of the preceding fiscal year; or (2) having

been no less than 3% of the paid-in capital for each of the previous five fiscal years. However, certain special listing criteria apply to high-tech companies and key businesses engaging in national economic development.

The GreTai Securities Market

The securities market in Taiwan was originated from the over-the-counter securities market since 1940s. However, the over-the-counter securities market was once abolished by the government in 1962. To complement the TWSE, the over-the-counter securities market was resumed in October 1982 on the initiative of the FSC. In early 1988, the FSC promulgated regulations designed to encourage trading of unlisted securities of companies whose securities do not qualify for listing on the TWSE. As trading volume on the over-the-counter market was minimal, the GTSM was established in November 1994 to take over the previous over-the-counter market. The GTSM is best described as a centralized market for companies with relatively small capitalization. The GTSM has instituted a computerized trading system in December 1994 to enhance the efficiency of trading. The GTSM has used the TWSE method of trading as a model, and aims to reform GTSM trading to the point where few differences exist between the two market systems. Compared to the TWSE, however, the GTSM is still in its infancy. By the end of 2012, the number of companies listed on the GTSM is 638 and, the total market value of shares listed on the GTSM was NT$1.737 trillion.

The GTSM has established specific requirements for trading securities on the GTSM based on the history of a company, the number and distribution of a company's shareholders, amount of capital, profitability and capital structure. For a ROC company to have its shares traded on the GTSM, it must have been in existence for at least two full fiscal years, have a minimum paid-in capital of NT$50 million and at least 300 registered shareholders not being insider or insider's affiliate which insider holds more than 50% of its outstanding shares. Such shareholders must together hold in excess of either 20% of the outstanding shares or 10 million shares. The company must be recommended in writing by at least two securities firms. Each of the pre-tax net income of the company should not be less than NT$4 million and must have (i) been not less than 4% of the paid-in capital for the previous fiscal year and there should be no accumulated deficit for the previous fiscal year, (ii) been not less than 3% of the paid-in capital for each of the previous two fiscal years or (iii) averaged not less than 3% of the paid-in capital for the previous two fiscal years with the profitability of the most recent fiscal year exceeding that of the preceding fiscal year. The directors and supervisors and the shareholders holding 10% or more of the outstanding shares of the company must deposit a certain portion of their shares with an institution designated by the GTSM. The company should have established a securities transfer office or stock affair agent at the place where the GTSM is situated. The Company's shares should have been traded on the Emerging Stock Market for not less than six months and shall be issued in the form of book-entry securities. A company may be exempt from the above two-year existence and profitability requirements, provided that the government authority issues an opinion confirming that the company is a high-tech company and its products have been successfully developed and have marketability.

The GTSM Index is a capitalization-weighted index, calculated on the basis of all stocks that have been listed for more than one month weighted according to the number of shares outstanding. Capitalization-weighting is a calculation technique that takes into account not only the movement in a stock's price, but also the weight of the stock. The weight of a company's stock is calculated from the market capitalization of that company's stock. A small movement in the price of a company with a large market capitalization can therefore move the index as easily as a large movement in the price of a company with a small market capitalization. The index was started with a base value of 100 on November 1, 1995.

Price Limits, Commissions, Transaction Tax and Other Matters

In order to reduce market volatility, the TWSE has placed limits on block trading and on the range of daily price movements. A single buy order or sell order for a single security that involves 500 trading lots (500,000 shares) or more, or NT$15 million or more, must be registered and executed in accordance with TWSE block trade guidelines. A single buy order or sell order for a basket of stocks that involves five TWSE listed stocks or more, with a total value of NT$15 million or more, must also be registered and executed in accordance with TWSE block trade guidelines.

Fluctuations in the price of securities traded on the TWSE are subject to a limit of seven percent above and below the previous day's closing price (or reference price set by the TWSE if the previous day's closing price is not available because of lack of trading activity) in the case of shares, convertible bonds and Taiwan Depositary Receipts and five percent in the case of bonds. Over the last few years, the limit on the price

movements of shares has fluctuated, moving from five percent to three percent following the 1987 market crash, then back to five percent and finally, in October 1989, from five percent to the current level of seven percent. Starting from March 2005, the restriction concerning the daily price fluctuation limit does not apply to the first five trading days beginning from listing for the shares of newly listed companies, except for companies which had shares previously traded in the GTSM. The FSC has indicated that the limits on share price movements may be further relaxed or abolished entirely.

All shares have a par value of NT$10 and trade in board lots of 1,000 shares. Although odd-lot trading may be conducted on the TWSE, delays are occasionally experienced in respect of such trading.

Effective from July 1, 2001, the brokerage commission may be any rate not exceeding 0.1425 percent of the transaction price. A securities transaction tax, currently levied at the rate of 0.3 percent of the transaction price for shares is payable by the seller of securities and a tax at the rate of 0.1% of the transaction price is payable by the seller of debt securities other than government bonds. Such securities transaction taxes are withheld at the time of the transactions giving rise to such taxes. According to the amended Statute for Upgrading Industries effective as of February 1, 2002, no securities transaction tax will be imposed on the transfer of corporate bonds and financial debentures from January 1, 2010 through December 31, 2016.

Regulations and Supervision

The FSC has extensive regulatory authority over securities activities and securities-related industries in the ROC. Companies are generally required to obtain approval from, or register with, the FSC for all public offerings of securities. The FSC has promulgated regulations requiring, unless otherwise exempted, periodic reporting of financial and operating information by all public companies. In addition, the FSC is responsible for the establishment of standards for financial reporting and carries out licensing and supervision with respect to the other participants in the ROC securities market.

The FSC has responsibility for implementation of the Securities and Exchange Law and for overall administration of governmental policies in the ROC securities market. FSC has extensive regulatory authority over the offering, issue and trading of securities. In addition, the Securities and Exchange Law specifically empowers the FSC to promulgate rules under certain circumstances.

The Securities and Exchange Law prohibits market manipulation. It permits an issuer to recover certain shortswing trading profits made through purchases and sales (or sales and purchases) within six months by directors, managerial personnel, supervisors and shareholders holding more than 10% of the outstanding shares of the issuer. The Securities and Exchange Law prohibits trading by "insiders" based on non-public information that materially affects share price movements. Pursuant to the Securities and Exchange Law, the term "insiders" includes directors, supervisors, managers and shareholders holding more than 10% of the outstanding shares of the issuing company and their spouses, minor children and nominees, any person who has learned such information due to an occupational or controlling relationship with the issuing company and any person who has learned such information from any of the foregoing. Sanctions include prison terms. In addition, damages may be awarded to persons injured by the transaction. Notwithstanding these regulatory requirements, there have been recurring press reports on insider trading and manipulation of stock prices in the ROC.

The Securities and Exchange Law also imposes criminal liability on certified public accountants and other professionals who make false certifications in their examination and audit of an issuer's contracts, reports and other evidentiary documents that are related to securities transactions. The FSC regulations require that financial reports of listed companies be audited by accounting firms consisting of at least three certified public accountants and be signed by at least two certified public accountants.

For damages suffered from the violations of ROC Securities and Exchange Law, class actions may be brought against the violating persons to recover for the company. The shareholders may also make such claim through the Securities and Futures Investor Protection Center, a quasi-governmental organization established specifically to launch class action for the shareholders. The FSC is also empowered to curb abuses and violations of applicable laws and regulations through administrative measures such as the issuance of warnings, temporary suspension of operation, alteration of trading manner, imposition of administrative fines and revocation of licenses.

ROC TAXATION OF NON-RESIDENTS

Prospective investors should consult their own advisers concerning the tax consequences of an investment in Bonds or Shares:

The following is a summary under present law of the principal ROC tax consequences of the ownership and disposition of Bonds or Shares to a Non-Resident Individual or Non-Resident Entity that holds Bonds or Shares (each a "Non-ROC Holder"). As used in the preceding sentence, a "Non-Resident Individual" is a foreign national individual who owns Bonds or Shares and is not physically present in the ROC for 183 days or more during any calendar year and a "Non-Resident Entity" is a corporation or a non-corporate body that owns Bonds or Shares and is organized under the laws of a jurisdiction other than the ROC and has no fixed place of business or other permanent establishment in the ROC. Prospective purchasers of Bonds should consult their own tax advisers concerning the tax consequences of owning Bonds or Shares in the ROC and any other relevant-taxing jurisdiction to which they are subject.

Premium and Interests

Payments of premium or interest (if any) on a Bond to a Non-ROC Holder are subject to ROC withholding tax, currently at a rate of 15% of the time of payment. The Company has agreed to pay such withholding tax on the payments of interest and premium. See "Terms and Conditions of the Bonds -Taxation".

Conversion

Gains on conversion of the Bonds into the Shares will not be subject to ROC income taxes. There is no ROC stamp, issue or registration tax imposed on the issuance of the Shares upon conversion of the Bonds.

Dividends on the Shares

Dividends (whether in cash or shares) declared by the Company out of retained earnings and paid out to holders of Shares are normally subject to ROC income tax collected by way of withholding at the time of distribution. The current rate of withholding for non-residents is 20% for a Non-ROC Holder of the amount of the distribution in the case of cash dividends or the par value of the share distributed in the case of stock dividends, unless a lower withholding rate is provided under a tax treaty between the ROC and the jurisdiction where the Non-ROC holder is a resident.

Distribution of stock dividends declared by the Company out of capital reserves are not subject to withholding tax, except under limited circumstances.

Capital Gains

According to the ROC Income Tax Act, starting from January 1, 2013, capital gain generated from the sale of shares, including Shares converted from the Bonds, that are listed on the TSE, GTSM or Emerging Stock Market by any individual may be subject to income tax. Under the amended ROC Income Tax Act, a NonResident Individual will be subject to a 15% taxation on the amount of capital gain generated from the sale of shares (after deduction of any losses incurred from trading securities within the year). Individuals who reside in the ROC may be subject to different tax rates and thresholds with regard to the capital gains. Non-Resident Entities will not be subject to the income tax mentioned above.

According to the Income Basic Tax Act amended by ROC Legislative Yuan on August 8, 2012, effective from January 1, 2013, capital gain of NT$0.5 million or more from securities transactions of resident corporate investors or non-ROC entities with a fixed place of business, such as branches or business agent in the ROC will be subject to the alternative minimum tax (AMT) assessment at 12% to 15%, provided that relevant costs, such as securities transaction tax may be deducted from the calculation of such capital gain. If any investor has held the securities for more than three years, 50% of such capital gain may be exempted from AMT. Capital gains generated by a Non-Resident Entity from trading securities are not subject to AMT mentioned above.

Preemptive Rights

Distributions of statutory subscription rights for the Common Shares in compliance with the ROC Company Law are not subject to ROC tax. Proceeds derived from sales of statutory subscription rights evidenced by securities are currently exempted from income tax but are subject to securities transactions tax, currently at the rate of 0.3% of the gross amount received. Proceeds derived from sales of statutory subscription rights which are not evidenced by securities are subject to income tax at the rate of 20% of the gains realized.

Securities Transaction Tax

The ROC government imposes a securities transaction tax that will apply to sales of Shares. The transaction tax, which is payable by the seller, is generally levied on sales of shares at the rate of 0.3 percent of the sales proceeds. Pursuant to Article 2-1 of the Securities Transaction Tax Act, no securities transaction tax will be imposed on the transfer of corporate bonds and financial debentures (including the Bonds) from January 1, 2010 through December 31, 2016.

There is no ROC transfer, stamp, issue or registration tax imposed on the issuance of the Shares upon conversion of the Bonds. However, securities transaction tax, gift tax and/or income tax may be imposed in relation to the converting Bondholder's designation of other person to be the holder of the Shares upon conversion of the Bonds.

Estate Taxation and Gift Tax

ROC estate tax is payable on any property within the ROC of a deceased Non-Resident Individual, and ROC gift tax is payable on any property within the ROC donated by a Non-Resident Individual. Estate and gift tax is currently imposed at the rate of 10%, respectively. Under ROC estate and gift tax laws, because the issuer is a ROC entity, the Shares will be deemed to be located in the ROC without regard to the location of the owner.

Tax Treaty

The ROC has double taxation treaties with Singapore, Australia, Indonesia, India, Thailand, New Zealand, South Africa, Gambia, the Netherlands, Swaziland, Malaysia, Macedonia, Vietnam, United Kingdom, Senegal, Sweden, Belgium, Denmark, Israel, Paraguay, Hungary, Slovakia, France, Germany and Switzerland which reduce the rate of withholding tax on dividends or interest paid with respect to shares or bonds in ROC companies. The tax treaties may entitle residents of these countries to favorable tax rate on dividend and interest paid by ROC companies. Accordingly, a holder of Bonds or Shares who is otherwise entitled to the benefit of a treaty should consult its own tax advisers concerning eligibility for benefit under the treaty with respect to the Bonds or the Shares.

PLAN OF DISTRIBUTION

President Securities (Hong Kong) Ltd. (the "Lead Manager") has, pursuant to an Underwriting Agreement dated February 21, 2014, agreed with the Company to procure subscribers to subscribe and pay for the Bonds at the issue price of 100 percent of their principal amount. The Lead Manager will be entitled to underwriting commission in the amount of approximately US$1,017,500 on the Issue Date as underwritten. The Underwriting Agreement provides that the Company will indemnify the Manager against certain liabilities. In addition, the Company has agreed to reimburse certain expenses of the Manager in connection with the issue of the Bonds. The Underwriting Agreement provides that the obligations of the Manager are subject to certain conditions precedent, and entitles the Manager to terminate it in certain circumstances prior to payment being made to the Company. The Manager or their affiliates may subscribe to a portion of the Bonds.

Offers of Similar Securities

The Company has agreed in the Underwriting Agreement that neither the Company, nor any person acting on its behalf, will issue, offer, sell, contract to sell or otherwise dispose of any Shares or securities of the same class as the Shares (other than pursuant to (i) employee benefits plans or distributions of dividends from retained earnings and capital reserve or employee bonuses in the form of Shares or (ii) conversion of the Bonds or of other convertible bonds issued prior to the date of the Underwriting Agreement) or any securities convertible into, exchangeable for or which carry rights to subscribe or purchase Bonds, Shares, or securities of the same class as the Bonds, Shares or other instruments representing interests in Bonds, Shares or securities of the same class as the Bonds, Shares (other than the Bonds and other than as aforesaid), or announce plans or otherwise make public an intention to do any of the foregoing (other than as aforesaid), in any such case without the prior written consent of the Lead Manager between the date hereof and the date which is 90 days after the date of the Underwriting Agreement.

General

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

United States

The Bonds and the Shares to be issued upon conversion of the Bonds have not been and will not be registered under the U.S. Securities Act of 1933 (the "Securities Act"), and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in certain transactions exempt from the registration requirements of the Securities Act. Terms used in this paragraph have the meanings given to them by Regulation S under the Securities Act ("Regulation S").

The Manager has agreed that, except as permitted by the Underwriting Agreement, it will not offer or sell the Bonds or the Shares to be issued upon conversion of the Bonds as part of its distribution at any time within the United States.

European Economic Area

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a "Relevant Member State"), the Manager has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the "Relevant Implementation Date") it has not made and will not make an offer of Bonds to the public in that Relevant Member State prior to the publication of a prospectus in relation to the Bonds which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of Bonds to the public in that Relevant Member State at any time:

(1) to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;
(2) to any legal entity that has two or more of (i) an average of at least 250 employees during the last financial year; (ii) a total balance sheet of more than €43,000,000, and (iii) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts;
(3) to fewer than 100 natural or legal persons (other than qualified investors as defined below) subject to obtaining the prior consent of the representatives for any such offer; or
(4) in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of securities shall result in a requirement for the publication of a prospectus pursuant to Article 3.

For purposes of this provision, the expression an "offer to the public" in relation to any securities in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe the securities, as the expression may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State, and the expression "Prospectus Directive" means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in each Relevant Member State, and the expression 2010 PD Amending Directive means Directive 2010/73/EU.

The ROC

The Bonds may not be offered, sold or delivered, directly or indirectly, in the ROC, as part of the distribution of the Bonds.

Hong Kong

The Bonds may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), (ii) to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong), and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a "prospectus" within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong) and no advertisement, invitation or document relating to the securities may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to securities which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.

Singapore

This Offering Circular has not been registered as a prospectus with the Monetary Authority of Singapore under the Securities and Futures Act of Singapore (the "Securities and Futures Act"). Accordingly, the Bonds may not be offered or sold or made the subject of an invitation for subscription or purchase nor may this Offering Circular or any other document or material in connection with the offer or sale, or invitation for subscription or purchase of such Bonds be circulated or distributed, whether directly or indirectly, to the public or any member of the public in Singapore other than (1) to an institutional investor or other person falling within Section 274 of the Securities and Futures Act, (2) to a sophisticated investor (as defined in Section 275 of the Securities and Futures Act) and in accordance with the conditions specified in Section 275 of the Securities and Futures Act or (3) otherwise than pursuant to, and in accordance with the conditions of, any other applicable provisions of the Securities and Futures Act.

Japan

The Manager has represented and agreed that the Bonds have not and will not be registered under the Financial Instruments and Exchange Law of Japan (the "Financial Instrument and Exchange Law"). The Manager has also represented and agreed that, in connection with the initial offering of the Bonds, it will not

directly or indirectly offer or sell any Bonds in Japan, or to, or for the benefit of any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and other applicable laws and regulations of Japan.

GENERAL INFORMATION

Listing: Application has been made to admit the Bonds to list on the Official List of the Luxembourg Stock Exchange and to trading on the Euro MTF market. As long as the Bonds are listed on the Euro MTF market of the Luxembourg Stock Exchange, and the rules of such exchange so require, The Bank of New York Mellon (Luxembourg) S.A. will in its capacity as paying, conversion and transfer agent, serve as an agent for making payments on, transfers, deposit of conversion notices, and conversions of the Bonds in Luxembourg..

Registered Office: The Company is registered with the Ministry of Economic Affairs of the ROC under a uniform registration number of 25637751. The Company is located at No. 3, Zhonghua Rd., Hukou Township, Hsinchu County, Taiwan, ROC. The Shares of the Company are listed on the Taiwan Stock Exchange under ticker number of 2206. Important information of the Company, including information on the Company's financials, securities offerings, and general meetings is disclosed to general public via the Market Observation Post System (URL: http://mops.twse.com.tw/mops/web/index) maintained by the Taiwan Stock Exchange.

Authorizations : The Company has obtained all necessary consents, approvals and authorizations in connection with the issue of the Bonds. The issue of the Bonds was authorized by a resolution of the Board of Directors of the Company passed on August 28, 2013.

Material Change : Except as disclosed in this Offering Circular, there has been no material adverse change in the financial position or prospects of the Company since September 30, 2013.

Litigation : Save as disclosed in the section "Business of the Company- Litigation", neither the Company nor any of its subsidiaries is involved in any litigation or arbitration proceedings which may have, or have had during the 12 months preceding the date of this Offering Circular, a significant effect on the financial position of the Company and its Subsidiaries, as a whole, nor, so far as any of them is aware, are any such proceedings pending or threatened.

Independent Accountants : The Company's consolidated and non-consolidated financial statements as at and for the years ended December 31, 2010, 2011, and 2012 included in this offering circular have been audited by KPMG, independent auditors, as stated in their reports included herein.

With respect to the Company's unaudited consolidated financial statements as of and for the nine months ended September 30, 2012 and 2013 included in this offering circular, KPMG have reported that they have applied limited procedures in accordance with professional standards for a review of such information in accordance with Statement on Auditing Standards No. 36, "Engagements to Review Financial Statements". KPMG have further stated with respect to the financial statements included in this offering circular that they did not audit and they do not express an opinion on such interim consolidated financial statements. Accordingly, the degree of reliance on the information on the Company's unaudited interim consolidated financial statements should be restricted in light of the limited nature of the review procedures applied.

Financial Statements : The Company prepares financial statements quarterly. The annual financial statements of the Company are audited while the interim financial statements of the Company are not audited. The Company's annual financial statements are prepared on consolidated and non-consolidated basis. The Company's interim financial statements are prepared on consolidated basis only. Prior to 2013, the Company also prepared non-consolidated interim financial statements, and of those interim financial statements, only the semi-annual non-consolidated financial statements are audited.

Documents Available : Copies (and certified English translations where the documents are not in English) of the following documents may be inspected and freely obtainable during normal business hours at the specified office of The Bank of New York Mellon (Luxembourg) S.A. in Luxembourg for as long as the Bonds are listed on the Euro MTF market of the Luxembourg Stock Exchange:

the Articles of the Company;
a copy of the reports of the independent accountants, the audited financial statements of the Company as at and for the years ended December 31, 2010, 2011 and 2012, and the unaudited financial statements of the Company as of the nine months ended September 30, 2012 and 2013;

the Underwriting Agreement relating to the Bonds;
the Indenture constituting the Bonds (which includes the form of the global certificate and the definitive certificate);
the Agency Agreement; and
this Offering Circular.

Copies of the most recent consolidated annual statements published by the Company (in each case in English), will be available at the specified office of The Bank of New York Mellon (Luxembourg) S.A. in Luxembourg free of charge for inspection by the Bondholders.

Reliance on Certificates : The Trustee is entitled under the Indenture to rely without liability to the Bondholders on any certificate prepared by the directors of the Company and accompanied by a certificate or report prepared by the auditors of the Company, whether or not addressed to the Trustee, and whether or not the same are subject to any limitation on the liability of the auditors of the Company and whether by reference to a monetary cap or otherwise limited or excluded, and any such certificate or report shall be conclusive and binding on the Company, the Trustee and the Bondholders.

Clearing Systems : The Bonds have been accepted for clearance and settlement through the facilities of Euroclear and Clearstream. Relevant trading information for the Bonds is set forth below:

Common Code …………………………………………………………………….. 101196356 ISIN …………………………………………………………………………… XS1011963565

INDEX TO FINANCIAL STATEMENT

Contents ANNUAL CONSOLIDATED FINANCIAL STATEMENTS AUDIT REPORT OF INDEPENDENT AOOCUNTANTS AUDITED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2010, 2011 AND 2012 AUDITED CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,2010, 2011 AND 2012 AUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012 AUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012 NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENT AS OF DECEMBER 31, 2010, 2011 AND 2012 ANNUAL FINANCIAL STATEMENTS AUDIT REPORT OF INDEPENDENT AOOCUNTANTS AUDITED BALANCE SHEET AS OF DECEMBER 2010, 2011 AND 2012 AUDITED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,2010, 2011 AND 2012 AUDITED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012 AUDITED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012 NOTES TO AUDITED FINANCIAL STATEMENT AS OF DECEMBER 31, 2010, 2011 AND 2012 INTERIM FINANCIAL STATEMENTS REVIEW REPORT OF INDEPENDENT AOOCUNTANTS UNAUDITED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 2012 AND 2013 UNAUDITED CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2013 UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2013 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2013 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENT AS OF SEPTEMBER 30, 2012 AND 2013	Page
	F-2 F-4 F-6 F-7 F-8 F-10 F-78 F-80 F-82 F-83 F-84 F-86 F-135 F-137 F-139 F-140 F-141 F-143

Contents
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
AUDIT REPORT OF INDEPENDENT AOOCUNTANTS
AUDITED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2010, 2011 AND 2012
AUDITED CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,2010, 2011
AND 2012
AUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE YEARS
ENDED DECEMBER 31, 2010, 2011 AND 2012
AUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
2010, 2011 AND 2012
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENT AS OF DECEMBER 31, 2010, 2011 AND
2012
ANNUAL FINANCIAL STATEMENTS
AUDIT REPORT OF INDEPENDENT AOOCUNTANTS
AUDITED BALANCE SHEET AS OF DECEMBER 2010, 2011 AND 2012
AUDITED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,2010, 2011 AND 2012
AUDITED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED
DECEMBER 31, 2010, 2011 AND 2012
AUDITED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012
NOTES TO AUDITED FINANCIAL STATEMENT AS OF DECEMBER 31, 2010, 2011 AND 2012
INTERIM FINANCIAL STATEMENTS
REVIEW REPORT OF INDEPENDENT AOOCUNTANTS
UNAUDITED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 2012 AND 2013
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER
30, 2012 AND 2013
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 2012 AND 2013
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2012 AND 2013
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENT AS OF SEPTEMBER 30, 2012 AND 2013

Page

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F-84
F-86
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F-137
F-139
F-140
F-141
F-143

～ F-1 ～

Audit Report of Independent Accountants

To the Board of Directors of Sanyang Industry Co., Ltd.

We have audited the accompanying consolidated balance sheets of Sanyang Industry Co., Ltd. (the “Company”) and its subsidiaries as of December 31, 2010 ,2011and 2012, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sanyang Industry Co., Ltd. and its subsidiaries as of December 31, 2010, 2011 and 2012, and the results of their operations and their cash flows for the years then ended, in conformity with Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the Republic of the China.

～ F-2 ～

As described in Note 7(n) of the financial statements, SY International Ltd. (a subsidiary held 100% by Sanyang Industry Co., Ltd.) decided to financially support its ultimate subsidiaries namely, Xiamen Xia Shing Motorcycle Sales Co., Ltd. and Xiamen Xia Shing Motorcycle Co., Ltd., which are the immediate subsidiaries of Plassen International Ltd. and Qingzhou Engineering Co., Ltd., which is also an immediate subsidiary of Cosmos System Inc. as they were going through financial difficulties.

The accompanying consolidated financial statements as of and for the year ended December 31, 2012, have been translated into United States dollars solely for the convenience of the readers. We have audited the translation, and in our opinion, the consolidated financial statements expressed in New Taiwan dollars have been translated into United Stated dollars on the basis set forth in Note 2(ad) of the notes to the accompanying consolidated financial statements.

KPMG

Taipei, Taiwan, R.O.C. November 13, 2013

The accompanying consolidated financial statements are intended only to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in the Republic of China.

Note to Readers

～ F-3 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2010, 2011 and 2012

(All Amounts Expressed in Thousands of Dollars)

	December 31	December 31	December 31
2010 NT$ $ 9,667,954 1,740 - 56,998 - 1,262,120 101,410 1,503,198 6,881,847 574,672 59,933 20,109,872 1,506,997 812,349 10,000 110,144 20,000 2,459,490 1,712,561 4,818,145 13,511,015 1,344,464 1,400,366 5,426,136 791,099 29,003,786 (16,168,236) (248,632) 371,555 39,272 12,997,745 157,016 232,591 389,607 862,617 292,576 128,302 169,777 173,304 1,626,576 $ 37,583,290	2011 NT$ 8,577,342 92,462 7,387 17,182 164,204 1,673,537 39,489 974,091 8,254,313 593,038 97,954 20,490,999 1,866,893 929,453 10,000 70,013 20,000 2,896,359 1,714,575 5,043,643 13,920,846 1,437,569 1,399,801 5,370,485 926,174 29,813,093 (16,725,464 ) (219,350 ) 168,786 114,526 13,151,591 111,726 486,145 597,871 961,854 173,103 142,995 51,524 256,733 1,586,209 38,723,029	2012
		NT$ 7,440,305 91,294 - 25,870 132,744 1,506,487 55,503 1,330,963 8,568,305 383,149 79,395 19,614,015 2,353,785 1,182,959 10,000 55,101 20,000 3,621,845 1,714,575 5,087,089 14,192,544 1,443,857 1,443,861 5,369,857 940,674 30,192,457 (17,410,805) (293,090) 85,439 50,544 12,624,545 43,406 427,113 470,519 987,826 166,916 99,291 - 315,974 1,570,007 37,900,931	US$
			256,297 3,145 - 891 4,573 51,894 1,912 45,848 295,153 13,198 2,735
			675,646
			81,081 40,750 344 1,898 689
			124,762
			59,062 175,236 488,892 49,737 49,737 184,976 32,404
			1,040,044 (599,752) (10,096) 2,943 1,741
			434,880
			1,495 14,713
			16,208
			34,028 5,750 3,420 - 10,884
			54,082
			1,305,578

～ F-4 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES Consolidated Balance Sheets (Cont’d)

December 31, 2010, 2011 and 2012

(All Amounts Expressed in Thousands of Dollars)

	December 31	December 31	December 31
2010 NT$ $ 9,248,749 - 2,382,228 95,042 71,031 964,037 113,233 386,592 1,667,738 823,388 15,752,038 2,184,342 1,918,752 1,840,991 136,027 - 119,284 2,096,302 21,951,434 8,456,385 61,892 2,115,080 2,176,972 1,562,636 1,125,135 692,450 3,380,221 (1,561,633) (582,829) (68,374) 1,598,944 (102,363) (716,255) 13,297,323 2,334,533 15,631,856 $ 37,583,290	2011 NT$ 5,790,089 48,135 2,048,675 199,671 67,573 1,221,556 - 480,113 599,684 815,744 11,271,240 6,111,081 1,902,130 1,842,964 211,577 - 192,646 2,247,187 21,531,638 8,963,768 63,334 2,141,845 2,205,179 1,631,881 1,125,135 1,269,284 4,026,300 (1,338,489) (562,205) (110,410) 1,583,058 (102,363) (530,409) 14,664,838 2,526,553 17,191,391 38,723,029	2012
		NT$ 5,443,210 38,351 1,940,152 246,520 38,114 1,731,943 43,493 267,345 750,247 705,460 11,204,835 5,587,067 1,902,130 1,887,166 248,790 40,686 361,061 2,537,703 21,231,735 8,963,768 204,402 2,156,135 2,360,537 1,755,683 1,125,135 1,098,837 3,979,655 (1,663,438) (590,097) (122,068) 1,583,058 (37,581) (830,126) 14,473,834 2,195,362 16,669,196 37,900,931	US$
			187,503 1,321 66,833 8,492 1,313 59,660 1,498 9,209 25,844 24,301
			385,974
			192,458
			65,523
			65,007 8,570 1,402 12,438
			87,417
			731,372
			308,776
			7,041 74,273
			81,314
			60,478 38,758 37,852
			137,088
			(57,301) (20,327) (4,205) 54,532 (1,295)
			(28,596)
			498,582 75,624
			574,206
			1,305,578

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

～ F-5 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES Consolidated Statements of Income

For the Years Ended December 31, 2010, 2011 and 2012

(All Amounts Expressed in Thousands of Dollars, Except for Per Share Data)

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES Consolidated Statements of Income For the Years Ended December 31, 2010, 2011 and 2012 (All Amounts Expressed in Thousands of Dollars, Except for Per Share Data)	., LTD. AND ITS SUBSIDIARIES Statements of Income cember 31, 2010, 2011 and 2012 nds of Dollars, Except for Per Share Data)	., LTD. AND ITS SUBSIDIARIES Statements of Income cember 31, 2010, 2011 and 2012 nds of Dollars, Except for Per Share Data)	., LTD. AND ITS SUBSIDIARIES Statements of Income cember 31, 2010, 2011 and 2012 nds of Dollars, Except for Per Share Data)
For the Year Ended December 31 2010 2011 2012 NT$ NT$ NT$ Operating revenue: Sales revenue (Note 5) $ 32,090,823 36,483,987 34,140,303 Less: sales returns (2,270) (5,856) (464,493) sales discounts and allowances (897,984) (870,624) (593,103) Net sales 31,190,569 35,607,507 33,082,707 Rental income (Note 5) 264,654 273,283 285,233 Other operating income (Note 5) 385,669 944,798 1,041,004 31,840,892 36,825,588 34,408,944 Operating cost: Cost of goods sold (Note 5) 23,491,139 27,570,112 26,080,077 Rental costs 208,773 138,832 140,571 Other operating costs 457,223 609,705 625,217 24,157,135 28,318,649 26,845,865 Gross profit 7,683,757 8,506,939 7,563,079 Operating expenses: Selling expenses 2,635,546 2,485,002 2,559,164 Commodity tax 1,738,295 2,129,957 2,297,992 General and administrative expenses 1,972,035 1,894,598 1,732,194 Research and development expenses 756,203 806,656 802,520 7,102,079 7,316,213 7,391,870 Income from operations 581,678 1,190,726 171,209 Non-operating income: Interest revenue 287,989 363,963 326,839 Investment income under the equity method(Note 4(e)) 232,930 282,403 367,330 Dividends income 2,377 13,641 49,862 Gain on disposal of fixed assets 219,799 92,830 7,949 Gain on disposal of investments (Note 4(e) and 5) 28,054 12,088 2,338 Foreign exchange gain 76,190 41,147 77,958 Gain on reversal on valuation of fixed assets ( No t e 4 ( f ) ) - 40,498 - Gain on valuation of financial assets (Note 4(b)) - 7,285 - Others 366,996 142,580 157,071 1,214,335 996,435 989,347 Non-operating expense: Interest expense 319,514 351,395 336,252 Impairment loss (Note 4(b) and (f)) 37,175 40,000 88,182 Loss on valuation of financial assets (Note 4(b)) 96,083 - 43,259 Others (Note 7) 79,349 28,655 24,718 532,121 420,050 492,411 Income before income tax 1,263,892 1,767,111 668,145 Income tax expense (Note 4(m)) 276,944 321,804 237,234 Consolidated income $ 986,948 1,445,307 430,911 Income attributable to: Shareholders of parent company $ 692,450 1,238,026 356,725 Minority interest 294,498 207,281 74,186 $ 986,948 1,445,307 430,911 Earnings per share attributable to parent company (Note 4(s)) (in dollars) Basic earnings per share – Before Income tax $ 0.88 1.51 0.54 – After Income tax $ 0.84 1.42 0.41	For the Year Ended December 31
	2010	2011 NT$ 36,483,987 (5,856) (870,624) 35,607,507 273,283 944,798 36,825,588 27,570,112 138,832 609,705 28,318,649 8,506,939 2,485,002 2,129,957 1,894,598 806,656 7,316,213 1,190,726 363,963 282,403 13,641 92,830 12,088 41,147 40,498 7,285 142,580 996,435 351,395 40,000 - 28,655 420,050 1,767,111 321,804 1,445,307 1,238,026 207,281 1,445,307 1.51 1.42	2012
			NT$ 34,140,303 (464,493) (593,103) 33,082,707 285,233 1,041,004 34,408,944 26,080,077 140,571 625,217 26,845,865 7,563,079 2,559,164 2,297,992 1,732,194 802,520 7,391,870 171,209 326,839 367,330 49,862 7,949 2,338 77,958 - - 157,071 989,347 336,252 88,182 43,259 24,718 492,411 668,145 237,234 430,911 356,725 74,186 430,911 0.54 0.41	US$
				1,176,035 (16,000) (20,431)
				1,139,604 9,825 35,860
				1,185,289
				898,384 4,842 21,537
				924,763
				260,526
				88,156 79,159 59,669 27,645
				254,629
				5,898
				11,259 12,653 1,718 274 80 2,685 - - 5,411
				34,080
				11,583 3,038 1,490 851
				16,962
				23,016 8,172
				14,844
				12,288 2,555
				14,844
				0.02
				0.01

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

～ F-6 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES

Consolidated Statements of Changes in Stockholders' Equity

For the Years Ended December 31, 2010, 2011 and 2012

(All Amounts Expressed in Thousands of New Taiwan Dollars)

	Retained Earnings Legal Reserve Special Reserve Unappropriated Earnings 1,548,171 720,949 418,651 14,465 - (14,465) - 404,186 (404,186) - - 692,450 - - - - - - - - - - - - 1,562,636 1,125,135 692,450 69,245 - (69,245 ) - - (84,564 ) - - (507,383 ) - - 1,238,026 - - - - - - - - - - - - 1,631,881 1,125,135 1,269,284 123,802 - (123,802) - - (403,370) - - 356,725 - - - - - - - - - - - - - - - 1,755,683 1,125,135 1,098,837	Retained Earnings Legal Reserve Special Reserve Unappropriated Earnings 1,548,171 720,949 418,651 14,465 - (14,465) - 404,186 (404,186) - - 692,450 - - - - - - - - - - - - 1,562,636 1,125,135 692,450 69,245 - (69,245 ) - - (84,564 ) - - (507,383 ) - - 1,238,026 - - - - - - - - - - - - 1,631,881 1,125,135 1,269,284 123,802 - (123,802) - - (403,370) - - 356,725 - - - - - - - - - - - - - - - 1,755,683 1,125,135 1,098,837
	Legal Reserve 1,548,171 14,465 - - - - - - 1,562,636 69,245 - - - - - - - 1,631,881 123,802 - - - - - - - 1,755,683	Special Reserve 720,949 - 404,186 - - - - - 1,125,135 - - - - - - - - 1,125,135 - - - - - - - - 1,125,135
$

$

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

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2010, 2011 and 2012

(All Amounts Expressed in Thousands of Dollars)

For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
2010 NT$ $ 986,948 1,307,992 82,879 64,525 - 25,644 160 (232,930) 25,973 (219,799) (28,054) 96,083 37,175 - 1,426,566 (19,565) (3,722,685) (67,027) 386,578 18,965 (33,326) 99,563 (101,464) 10,802 66,786 (143,131) (124,152) 61,908 6,414	2011 NT$ 1,445,307 1,240,534 90,561 (35,757 ) (40,498 ) 90,768 87 (282,403 ) 77,121 (92,830 ) (12,088 ) (7,285 ) 40,000 - (338,735 ) 61,921 (1,353,922 ) (18,366 ) 529,107 80,232 (83,429 ) (333,553 ) 104,629 (3,458 ) 257,519 93,521 (7,644 ) 62,041 1,563,380	2012
		NT$ 430,911 1,201,909 89,595 32,457 - 63,173 48 (367,330) 44,774 (7,949) (2,338) 43,259 88,182 9,727 119,673 (16,014) (426,864) 209,889 (353,638) 110,769 (59,241) (108,523) 46,849 (29,459) 97,290 (212,768) (110,284) 103,257 997,354	US$
			14,844 41,402 3,086 1,118 - 2,176 2 (12,653) 1,542 (274) (81) 1,490 3,038 335 4,122 (552) (14,704) 7,230 (12,182) 3,816 (2,041) (3,738) 1,614 (1,015) 3,351 (7,329) (3,799) 3,557
			34,355

～ F-8 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES

Consolidated Statements of Cash Flows (Cont’d)

For the Years Ended December 31, 2010, 2011 and 2012

(All Amounts Expressed in Thousands of Dollars)

For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
2010	2011 NT$ (90,824) - - 131 (158,047) (13,297) (1,516,899) 277,856 12,088 (47,496) (232,961) (226,962) 73,362 (1,923,049) (3,610,533) - (84,564) 2,857,630 75,550 (108,798) (870,715) 139,772 (1,090,612) 9,667,954 8,577,342 307,091 179,325	2012
NT$ - - - 279,947 (944) - 240,490 (178,931) (1,312,985) 413,914 104,023 (67,891) (31,182) 355,042 (433,082) (631,599) 2,165,413 - - (213,456) 32,742 (225,804) 1,758,895 (330,469) 803,241 8,864,713 $ 9,667,954 $ 315,547 $ 209,947 $ 1,667,738 $ - $ - $ -		NT$ (3,674) 26,435 (9,358) 228 - - (839,021) 105,239 195,008 (46,716) - (253,506) 168,415 (656,950) (295,011) (9,784) - (373,036) 37,213 (405,377) (1,045,995) (431,446) (1,137,037) 8,577,342 7,440,305 336,916 87,746 750,247 7,422 403,370 138,733	US$
			(127) 911 (322) 8 - - (28,902) 3,625 6,717 (1,609) - (8,733) 5,801
			(22,631)
			(10,162) (337) - (12,850) 1,282 (13,964)
			(36,031)
			(14,862)
			(39,169) 295,466
			256,297
			11,606
			3,023
	599,684 - - -		25,844
			256
			13,895
			4,779

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

～ F-9 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

DECEMBER 31, 2010, 2011 AND 2012

(All Amount Expressed in Thousands of New Taiwan Dollars and United State Dollars,

Except Per Share Information and Unless Otherwise Stated)

1. ORGANIZATION AND BUSINESS

Sanyang Industry Co., Ltd. (the “Company”) was incorporated in September, 1961, under the laws of the Republic of China and operations commenced on January 1, 1962. The Company is engaged primarily in the manufacture and sale of automobiles, motorcycles, and related automotive parts, and in providing manufacturing-related technical and consulting services. The headquarters of the Company moved to the Hsinchu Industrial Park during December 1999 and successfully integrated with the main factory. The Company started to enter the motorcycle market in Mainland China and Vietnam by investing in 2000.

As of December 31, 2010, 2011 and 2012, the Company and its subsidiaries (the “Consolidated Company”) had 7,414, 7,950 and 7,895 employees, respectively.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Consolidated Company’s financial statements were prepared in accordance with Guidelines Governing the Preparation of Financial Report by Securities Issuers and generally accepted accounting principles of the Republic of China. The significant accounting policies and their measurement basis are as follows:

(a) Principles of preparing consolidated financial statements

The consolidated financial statements include the Company and its controlled subsidiaries. The significant inter-company transactions were eliminated.

(b) Principles of consolidation

(1) The subsidiaries included in the consolidated financial statements were as follows:

Investor	Subsidiary	Shareholding ratio	Shareholding ratio	Shareholding ratio	Nature of Business	Notes
		December 31
		2010	2011	2012
The Company The Company The Company The Company The Company	Shan Young Assets Management Co., Ltd. (Shan Young) Youth Taisun Co., Ltd. (Youth Taisun) Jin Yang Motorcycles Co., Ltd. (Jin Yang) Hsu Mao Investment Corporation (Hsu Mao) Nanyang Industry Co., Ltd. (Nanyang)	100.00% 89.39% 100.00% 49.50% 89.58%	100.00% 89.39% 100.00% 49.50% 89.58%	100.00% 89.39% 100.00% - 89.58%	Lease, sale and development of real estate Manufacture of motorcycle parts Sale of cars, motorcycles and related parts Investing activities Sale, repair and maintenance of cars and related parts	Investee company directly held over 50% by the Company Investee company directly held over 50% by the Company Investee company directly held over 50% by the Company Note (i) Investee company directly held over 50% by the Company

～ F-10 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

Investor	Subsidiary	Shareholding ratio December 31 2010 2011 2012 19.85% 19.85% 19.85% 59.16% 62.26% 62.26% 77.00% 77.00% - 16.27% 16.27% 16.27% 94.73% 94.73% 94.73% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 42.30% 42.30% 42.30% 51.00% 51.00% 51.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 70.05% 70.05% 70.05% 61.46% 61.46% 61.46% 50.00% 50.00% 50.00%	Shareholding ratio December 31 2010 2011 2012 19.85% 19.85% 19.85% 59.16% 62.26% 62.26% 77.00% 77.00% - 16.27% 16.27% 16.27% 94.73% 94.73% 94.73% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 42.30% 42.30% 42.30% 51.00% 51.00% 51.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 70.05% 70.05% 70.05% 61.46% 61.46% 61.46% 50.00% 50.00% 50.00%	Shareholding ratio December 31 2010 2011 2012 19.85% 19.85% 19.85% 59.16% 62.26% 62.26% 77.00% 77.00% - 16.27% 16.27% 16.27% 94.73% 94.73% 94.73% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 42.30% 42.30% 42.30% 51.00% 51.00% 51.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 70.05% 70.05% 70.05% 61.46% 61.46% 61.46% 50.00% 50.00% 50.00%	Nature of Business	Notes
		December 31
		2010 19.85% 59.16% 77.00% 16.27% 94.73% 100.00% 100.00% 100.00% 100.00% 100.00% 42.30% 51.00% 100.00% 100.00% 70.05% 61.46% 50.00%	2011 19.85% 62.26% 77.00% 16.27% 94.73% 100.00% 100.00% 100.00% 100.00% 100.00% 42.30% 51.00% 100.00% 100.00% 70.05% 61.46% 50.00%
The Company The Company The Company The Company The Company The Company The Company The Company The Company The Company Nova Design Nanyang Nanyang Nanyang Nanyang Nanyang Ching Ta	Nanchen Industry Co., Ltd. (Nanchen) Nova Design Co., Ltd. (Nova Design) Sheng Mao Investment Corporation(Sheng Mao) Chao Yang Car Leasing Co., Ltd. (Chao Yang) Ching Ta Investment Corporation (Ching Ta) Profit Source Investment Ltd. (Profit Source) Sanyang Deutschland GmbH (SYDE) Sun Goal Limited (Sun Goal) SY International Ltd. (SYI) Sanyang Italia S.r.l (SYIT) Nova LLC (Nova LLC) Li Yang Industry Ltd. (Li Yang) Star & Sun Investment Corporation (Star & Sun Investment) Nanyang Holding Co.,Ltd.(NY Samoa) Nanchen Industry Co., Ltd. (Nanchen) Chao Yang Car Leasing Co., Ltd. (Chao Yang) Three Brothers Machinery Industrial Co., Ltd. (TBM)			19.85% 62.26% - 16.27% 94.73% 100.00% 100.00% 100.00% 100.00% 100.00% 42.30% 51.00% 100.00% 100.00% 70.05% 61.46% 50.00%	Sale of cars Design of products Investing activities Rental of cars Investing activities Holding Company Sale of motorcycles and related parts Holding Company Holding Company Sale of motorcycles and related parts Holding Company Repair of cars and sale of related parts Investing activities Holding Company Sale of cars Rental of cars Manufacture of motorcycles and related parts	Investee company held over 50% by the Company and its subsidiaries Investee company directly held over 50% by the Company Note (ii) Investee company held over 50% by the Company and its subsidiaries Investee company directly held over 50% by the Company Investee company directly held over 50% by the Company Investee company directly held over 50% by the Company Investee company directly held over 50% by the Company Investee company directly held over 50% by the Company Investee company directly held over 50% by the Company Investee company held 100% by the Company and its subsidiaries Investee company directly held over 50% by the subsidiary Investee company directly held over 50% by the subsidiary Investee company directly held over 50% by the subsidiary Investee company held 89.90% by the Company and its subsidiaries Investee company held 98.85% by the Company and its subsidiaries Investee company directly held over 50% by the subsidiaries

～ F-11 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

Investor	Subsidiary	Shareholding ratio December 31 2010 2011 2012 30.08% 30.08% 30.08% 57.7% 57.7% 57.7% 68.92% 68.92% 68.92% 64.38% 64.38% 64.38% 34.3% 37.98% - 21.12% 21.12% 21.12% 10.00% 10.00% 10.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 67.07% 67.07% 67.07% 100.00% 100.00% 100.00% 65.00% 65.00% 65.00%	Shareholding ratio December 31 2010 2011 2012 30.08% 30.08% 30.08% 57.7% 57.7% 57.7% 68.92% 68.92% 68.92% 64.38% 64.38% 64.38% 34.3% 37.98% - 21.12% 21.12% 21.12% 10.00% 10.00% 10.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 67.07% 67.07% 67.07% 100.00% 100.00% 100.00% 65.00% 65.00% 65.00%	Shareholding ratio December 31 2010 2011 2012 30.08% 30.08% 30.08% 57.7% 57.7% 57.7% 68.92% 68.92% 68.92% 64.38% 64.38% 64.38% 34.3% 37.98% - 21.12% 21.12% 21.12% 10.00% 10.00% 10.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 67.07% 67.07% 67.07% 100.00% 100.00% 100.00% 65.00% 65.00% 65.00%	Nature of Business	Notes
		December 31
		2010 30.08% 57.7% 68.92% 64.38% 34.3% 21.12% 10.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 67.07% 100.00% 65.00%	2011 30.08% 57.7% 68.92% 64.38% 37.98% 21.12% 10.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 67.07% 100.00% 65.00%
Ching Ta Ching Ta Ching Ta Ching Ta Ching Ta Ching Ta Ching Ta Profit Source Sun Goal SYI SYI SYI SYI SYI SYI SYI Chao Yang	Nova Design Co., Ltd. (Nova Design) Nova LLC Yi Yang Motorcycles Co., Ltd (Yi Yang) Ching Jiun Co., Ltd. (Ching Jiun) Ching Zhao Investment Co., Ltd.(Ching Zhao) Chao Yang Car Leasing Co., Ltd. (Chao Yang) Youth Taisun Co., Ltd. (Youth Taisun) Chong Hing International Limited (Chong Hing) Jiyang Machinery Industry Co., Ltd. (Jiyang) Billion Ally Ltd. (Billion) Cosmos System Inc. (Cosmos) New Path Trading Ltd. (New Path) Plassen International Ltd. (PIL) Sanyang Motor Vietnam Co., Ltd. (SMV) Vietnam Manufacturing and Export Processing (Holdings)Ltd.(VMEPH) Shinny Way Ltd (Shinny Way) Jau Ryh Leasing Co., Ltd. (Jau Ryh)			30.08% 57.7% 68.92% 64.38% - 21.12% 10.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 67.07% 100.00% 65.00%	Design of products Holding Company Sale of motorcycles and related parts Metal machinery, iron materials manufacturing, processing and sale Investing activities Rental of cars Manufacture of motorcycle parts Holding Company Manufacture of automobile parts Investing activities Holding Company Holding Company Holding Company Production of engine and parts of cars; under 3.5 ton transport vehicle and 6-9 seats cars. Holding Company Holding Company Rental of cars	Investee company held 92.34% by the Company and its subsidiaries Investee company directly held over 50% by the subsidiary Investee company directly held over 50% by the subsidiary Investee company directly held over 50% by the subsidiary Note (iii) Investee company held 98.85% by the Company and its subsidiaries Investee company held 99.39% by the Company and its subsidiaries Investee company directly held over 50% by the subsidiary Investee company directly held over 50% by the subsidiary Investee company directly held over 50% by the subsidiary Investee company directly held over 50% by the subsidiary Investee company directly held over 50% by the subsidiary Investee company directly held over 50% by the subsidiary Investee company directly held over 50% by the subsidiary Investee company directly held over 50% by the subsidiary Investee company directly held over 50% by the subsidiary Majority seats of the board of directors held by the subsidiary(Note (iv))

～ F-12 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

Investor	Subsidiary	Shareholding ratio December 31 2010 2011 2012 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 60% - - 90.00% 90.00% 90.00% 69.00% 69.00% 69.00% 100.00% 100.00% 100.00% 51.00% 51.00% 51.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 99.00% 99.00% 99.00% 1.00% 1.00% 1.00% 76.67% 76.67% 76.67% 100.00% 100.00% 100.00%	Shareholding ratio December 31 2010 2011 2012 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 60% - - 90.00% 90.00% 90.00% 69.00% 69.00% 69.00% 100.00% 100.00% 100.00% 51.00% 51.00% 51.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 99.00% 99.00% 99.00% 1.00% 1.00% 1.00% 76.67% 76.67% 76.67% 100.00% 100.00% 100.00%	Shareholding ratio December 31 2010 2011 2012 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 60% - - 90.00% 90.00% 90.00% 69.00% 69.00% 69.00% 100.00% 100.00% 100.00% 51.00% 51.00% 51.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 99.00% 99.00% 99.00% 1.00% 1.00% 1.00% 76.67% 76.67% 76.67% 100.00% 100.00% 100.00%	Nature of Business	Notes
		December 31
		2010 100.00% 100.00% 100.00% 60% 90.00% 69.00% 100.00% 51.00% 100.00% 100.00% 100.00% 100.00% 99.00% 1.00% 76.67% 100.00%	2011 100.00% 100.00% 100.00% - 90.00% 69.00% 100.00% 51.00% 100.00% 100.00% 100.00% 100.00% 99.00% 1.00% 76.67% 100.00%
NY Samoa NY Samoa NOVA LLC NOVA LLC NOVA LLC TBM TBM TBM Cosmos New Path VMEPH VMEPH VMEPH Ching Zong PIL TBM (BVI)	Suzhou HuiYing Motor Sales and Service Limited (Suzhou HuiYing) Changzhou Nanyang Auto-mobile Sale and Service Co., Ltd. (Changzhou Nanyang) Shanghai Nova Design Co., Ltd. (Shanghai Nova) Shanghai Nova Design Co., Ltd. (Xiamen Nova) Nova Design Europe, SRL (Italy Nova) Vietnam Three Brothers Machinery Industrial Co., Ltd. (VTBM) Three Brothers Machinery Industrial (BVI) Co., Ltd. (TBM BVI) Full Ta Co., Ltd. (Full Ta) Qingzhou Engineering Co., Ltd. (Qingzhou Engineering) Sanyang Global (Xiamen) Co., Ltd. (Sanyang Global) Chin Zong Trading Co., Ltd. (Chin Zong) Vietnam Manufacturing and Export Processing Co., Ltd. (VMEP) PT. Sanyang Industri Indonesia.(SY Indonesia) PT. Sanyang Industri Indonesia.(SY Indonesia) Xiamen Xia Shing Motorcycle Co., Ltd. (Xia Shing) Xiamen Three Brothers Machinery Industrial Co., Ltd. (XTBM)			100.00% 100.00% 100.00% - 90.00% 69.00% 100.00% 51.00% 100.00% 100.00% 100.00% 100.00% 99.00% 1.00% 76.67% 100.00%	Sale of cars and related parts Sale of cars and related parts Design of products Design of products Design of products Manufacture of motorcycles and related parts Holding Company Holding Company Manufacture and sale of motorcycle parts Manufacture, research & development of motor- cycles and related parts Sale of motorcycles and related parts Manufacture of cars, motorcycles and related parts Manufacture of motorcycles and related parts Manufacture of motorcycles and related parts Manufacture of motorcycles and related parts Manufacture of motorcycles and related parts	Investee company directly held over 50% by the subsidiary (Note (v)) Investee company directly held over 50% by the subsidiary Investee company directly held over 50% by the subsidiary Investee company directly held over 50% by the subsidiary(Note (vi)) Investee company directly held over 50% by the subsidiary Investee company directly held over 50% by the subsidiary Investee company directly held over 50% by the subsidiary Investee company directly held over 50% by the subsidiary(Note (vii)) Investee company directly held over 50% by the subsidiary Investee company directly held over 50% by the subsidiary Investee company directly held over 50% by the subsidiary Investee company directly held over 50% by the subsidiary Investee company directly held over 50% by the subsidiary Investee company directly held over 50% by the subsidiaries Investee company directly held over 50% by the subsidiary Investee company directly held over 50% by the subsidiary

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

Investor	Subsidiary	Shareholding ratio December 31 2010 2011 2012 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 31.00% 31.00% 31.00% 72.00% 72.00% - 100.00% 100.00% - 100.00% 100.00% - 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%	Shareholding ratio December 31 2010 2011 2012 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 31.00% 31.00% 31.00% 72.00% 72.00% - 100.00% 100.00% - 100.00% 100.00% - 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%	Shareholding ratio December 31 2010 2011 2012 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 31.00% 31.00% 31.00% 72.00% 72.00% - 100.00% 100.00% - 100.00% 100.00% - 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%	Nature of Business	Notes
		December 31
		2010 100.00% 100.00% 100.00% 100.00% 31.00% 72.00% 100.00% 100.00% 100.00% 100.00% 100.00%	2011 100.00% 100.00% 100.00% 100.00% 31.00% 72.00% 100.00% 100.00% 100.00% 100.00% 100.00%
TBM (BVI) Xia Shing VMEP VMEP VMEP Shinny Way Ching Zhao Sunny Mind Suzhou HuiYing Suzhou HuiYing Full Ta	Guaugzhou Three Brothers Machinery Industrial Co., Ltd. (GTBM) Xiamen Xia Shing Motorcycle Sales Co., Ltd. (Xia Shing Motor Sales) Duc Phat Molds Inc. (Duc Phat) Vietnam Casting Forge Precision Ltd. (VCFP) Vietnam Three Brothers Machinery Industrial Co., Ltd. (VTBM) Hangzhou Xia Shing San- yang Electric Vehicle Co., Ltd. (Hangzhou Xia Shing) Sunny Mind High Tech- nology Inc.(Sunny Mind) Yang Run Hotel and Construction Co., Ltd. (Yang Run Hotel) Shanghai HuiYing Auto- mobile Sale and Service Co., Ltd.(Shanghai HuiYing) Changzhou HuiYing Auto-mobile Sale and Service Co., Ltd. (Changzhou HuiYing) Ha Noi Full Ta Precision Co., Ltd.(Vietnam Full Ta)			100.00% 100.00% 100.00% 100.00% 31.00% - - - 100.00% 100.00% 100.00%	Manufacture of motorcycles and related parts Sale of motorcycles and related parts Production of model Manufacture of motorcycles and related parts Manufacture of motorcycles and related parts Sale of electric vehicles Holding Company Hotel development, real development, lease, sale and logistic management Sale of cars and related parts Sale of cars and related parts Manufacture of motorcycles and related parts	Investee company directly held over 50% by the subsidiary Investee company directly held over 50% by the subsidiary Investee company directly held over 50% by the subsidiary Investee company directly held over 50% by the subsidiary Investee company directly held over 50% by the subsidiaries Investee company directly held over 50% by the subsidiary(Note (viii)) Note (iii) Note (iii) Investee company directly held over 50% by the subsidiary(Note (v)) Investee company directly held over 50% by the subsidiary(Note (v)) Investee company directly held over 50% by the subsidiary

(i) As the Consolidated Company disposed 52% of its invested shares in Hsu Mao in 2012, its percentage of equity holding decreased to 48%. Therefore, Hsu Mao was not included in the Company’s consolidated financial statements in 2012.
(ii) As the Consolidated Company disposed 52.17% of its invested shares in Sheng Mao in 2012, its percentage of equity holding decreased to 32.83%. Therefore, Sheng Mao was not included in the Company’s consolidated financial statements in 2012.
(iii) In 2010, as Ching Ta has majority seats in the board of directors of Ching Zhao, Ching Zhao was included in the Company’s consolidated financial statements in 2010. On July 28, 2011, Ching Ta converts its ownership of the preferred shares of stock of Ching ～ F-14 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

Zhao into its common stock. Thus, Ching Ta’s equity holding ratio had changed to 37.98%. As Ching Ta did not win the majority of the directors in the by-election of the directors of Ching Zhao; Ching Ta ceased control of Ching Zhao. Therefore, Ching Zhao was not included in the Company’s consolidated financial statements in 2012.

(iv) In 2010, Chao Yang increased its equity holdings of Jau Ryh Leasing Co., Ltd. to 65%.
(v) In 2010, Nan Yang Industry Co., Ltd. established NY Samoa to reinvest in Suzhou HuiYing Motor Sales and Service Ltd. and Changzhou Nanyang Automobile Sale and Service Co., Ltd. in order to expand car parts markets in mainland China.
(vi) In 2011, Xiamen Nova was put into liquidation, and not included in the Consolidated Company’s consolidated financial statements in 2011.
(vii) In May 2010, Three Brothers Machinery Industrial Co., Ltd. established Full Ta to reinvest in Ha Noi Full Ta Precision Co., Ltd. for purposes of expanding its market in Vietnam.
(viii)In 2012, Hangzhou Xia Shing was put into liquidation, and not included in the Consolidated Company’s consolidated financial statements in 2012.
(2) Change in subsidiaries included in consolidated financial statements: none.
(3) Subsidiaries not included in the consolidated financial statements: none.
(4) Accounting year of subsidiary different from the holding company: none.
(5) Accounting policies of subsidiary different from the holding company: none.
(6) Special risk of foreign subsidiary’s operations: none.
(7) Restriction on subsidiary’s distribution of earnings by law or contract: none.
(8) Method and term of amortization of consolidated debits (credits): If the consolidated debits (credits) could not be identified, it is amortized by the straight-line method over 10 years, otherwise, over the estimated useful lives.

(c) Use of estimates

The preparation of the accompanying consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates.

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

(d) Foreign currency transactions and financial report translation

The Company and its domestic consolidated subsidiaries record its transactions in New Taiwan dollars. Non-derivative foreign currency transactions are recorded at the exchange rates prevailing at the transaction date. At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are translated into New Taiwan dollars using the exchange rates on that date, and the resulting unrealized exchange gains or losses from such translations are reflected in the accompanying statements of income. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the reporting currency using the foreign exchange rates at the balance sheet date. If the non-monetary assets or liabilities are measured at fair value through profit or loss, the resulting unrealized exchange gains or losses from such translation are reflected in the accompanying statements of income. If the nonmonetary assets or liabilities are measured at fair value through stockholders’ equity, the resulting unrealized exchange gains or losses from such translation are recorded as a separate component of stockholders’ equity.

For long-term equity investments in foreign investees which are accounted for by the equity method, their foreign currency-denominated assets and liabilities are translated at spot rate on the balance sheet date; the components of their stockholders’ equity are translated at the historical rate except for the beginning balance of retained earnings, which is translated using the spot rate at the beginning of the year. Income statement accounts are translated at the weighted-average rate of the year. Translation differences are accounted for as cumulative translation adjustments to stockholders’ equity.

(e) Basis for classifying assets and liabilities as current or non-current
Unrestricted cash, cash equivalents, assets held for trading, or other assets that the Consolidated －
Company will convert to cash or use within in a relatively short period of time one year or －
one operating cycle, whichever is longer are classified as current assets; other assets are classified as non-current assets. Debts due within one year or one operating cycle, whichever is longer, are classified as current liabilities; other liabilities are classified as non-current liabilities.
(f) Asset impairment
Effective January 1, 2005, the Consolidated Company adopted Statement of Financial Accounting Standards No. 35 (SFAS 35) “Accounting for Asset Impairment.” In accordance with SFAS 35, the Consolidated Company assesses at each balance sheet date whether there is any indication that an asset (individual asset or cash-generating unit) other than goodwill may

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

have been impaired. If any such indication exists, the Consolidated Company estimates the recoverable amount of the asset. The Consolidated Company recognizes impairment loss for an asset whose carrying value is higher than the recoverable amount for an asset other goodwill.

The Consolidated Company reverses any impairment loss recognized in prior periods for assets other than goodwill if there is any indication that the impairment loss recognized no longer exists or has decreased. The carrying value after the reversal should not exceed the recoverable amount or the depreciated or amortized balance of the assets assuming no impairment loss was recognized in prior periods.

The Consolidated Company assesses the cash-generating unit to which goodwill is allocated on an annual basis and recognizes an impairment loss on the excess of carrying value over the recoverable amount for an asset (individual asset or cash-generating unit) other than goodwill.

(g) Cash and cash equivalents

Cash and cash equivalents consist of cash on hand, cash in banks, miscellaneous petty cash, and other highly liquid investments which do not have a significant level of market or credit risk from potential interest rate changes.

(h) Financial assets at fair value through profit or loss

Financial assets held-for-trading are those that are being held for the purpose of short-term profit-taking. Financial derivatives, except for those that meet the criteria for hedge accounting, are classified as financial instruments reported at fair value through profit or loss. Financial instruments are measured at fair value at initial recognition. Transaction cost is charged to current expense. Subsequent to initial recognition, changes in fair value are recognized in profit or loss.

(i) Available-for-sale financial assets

Available-for-sale financial assets are initially measured at fair value plus transaction costs that are directly attributable to the acquisition. Available-for-sale financial assets are subsequently measured at fair value, and changes therein, other than impairment losses and foreign exchange gains and losses on available-for-sale monetary items, are recognized directly in equity. When an investment is derecognized, the cumulative gain or loss in equity is transferred to profit or loss.

If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized in earnings. If, in a subsequent period, the amount of the impairment loss decreases, for equity securities, the previously recognized impairment loss is reversed to the extent of the decrease and recorded as an adjustment to equity; for debt securities, the amount of the decrease

～ F-17 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

is recognized in profit or loss, provided that the decrease is clearly attributable to an event which occurred after the impairment loss was recognized.

(j) Held-to-maturity financial assets

Held-to-maturity financial assets are financial instruments that the Consolidated Company has the positive intention and ability to hold to maturity. At initial recognition, held-to-maturity financial assets are initially measured at fair value plus transaction costs that are directly attributable to the acquisition. Subsequent to initial recognition, held-to-maturity financial assets are carried at amortized cost. Profit or loss is recognized when these financial assets are derecognized, impaired, or amortized. Acquisition or sale of these financial assets is measured using trade-date accounting.

(k) Hedge accounting

Hedge accounting recognizes the offsetting effects on profit or loss of changes in the fair values of the hedging instrument and the hedged item. If hedging relationships conform to the criteria for hedge accounting, the hedging instruments are accounted for as follows:

(i) Fair value hedges

Changes in the fair value of a hedging instrument designated as a fair value hedge are recognized in profit or loss. The hedged item also is stated at fair value in respect of the risk being hedged, with any gain or loss being recognized in profit or loss.

(ii)Cash flow hedges

Changes in the fair value of a hedging instrument designated as a cash flow hedge are recognized directly in equity. If a hedge of a forecasted transaction subsequently results in the recognition of an asset or a liability, then the amount recognized in equity is reclassified into profit or loss in the same period or periods during which the asset acquired or liability assumed affects profit or loss. Otherwise, the associated cumulative gain or loss is removed from equity and recognized in profit or loss in the same period or periods during which the hedged forecast transaction affects profit or loss.

(iii)Hedge of net investment in foreign operation
- Changes in the fair value of the hedging instrument are recognized directly in equity. The gain or loss on the hedging instrument relating to the effective portion of the hedge that has been recognized directly in equity is recognized in profit or loss on disposal of the foreign operation.
(l) Financial assets carried at cost

Financial assets with no quoted market price in an active market and whose fair value cannot be

～ F-18 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

reliably measured are measured at cost. If objective evidence of impairment exists, impairment loss is recognized thereon, which is not reversed in subsequent periods, unless the assets are sold.

(m) Investment in Debt Security with No Active Market

The amortized cost and interest income on investment in debt security with no active market is calculated using the effective interest method. At initial recognition, investment in debt security with no active market is initially measured at fair value plus transaction costs that are directly attributable to the acquisition. Acquisition or sale of the financial asset is measured using tradedate accounting.

An impairment loss is recognized when there is objective evidence that the investment is impaired. The impairment loss is reversed if an increase in the investment’s recoverable amount is due to an event which occurred after the impairment loss was recognized; however, the adjusted carrying amount of the investment may not exceed the unamortized cost.

(n) Notes and Accounts receivable and other receivables

Notes and accounts receivable are rights resulting from the sale of goods or rendering of services. Other receivables are receivables arising from non-operating activities.

The Consolidated Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment.

The asset impairment loss is determined based on difference between the assets carrying amount and the present value of estimated future cash flows discounted by the financial asset’s original effective interest rate. The carrying amount of the assets is reduced for impairment through the use of an allowance account. Impairment loss is recognized in profit or loss. In determining the amount of asset impairment, the collateralized financial asset and related insurance recoverable amount are included in calculating the present value of the estimated future cash flows.

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 recognized, the previously recognized impairment loss is reversed either directly or by adjusting an allowance account through profit or loss. The reversal shall not result in a carrying amount of the financial asset that exceeds what the amortized cost would have been at the date impairment is reversed.

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

(o) Inventories

Inventories are measured at the lower of cost or net realizable value. The cost of inventories is based on the standard cost method. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses at the end of the period. The difference between the standard cost and actual cost is allocated to inventory on a proportional basis.

(p) Long-term equity investments

Long-term investments in which the Consolidated Company, directly or indirectly, owns 20% or more of the investee companies’ voting shares, or own less than 20% of the investee companies’ voting shares but have significant influence on the investee companies, are accounted for by the equity method. Starting from January 1, 2006, differences between investment cost and investee’s net equity determined at fair value are accounted for as follows:

(i) If the cause of the difference is attributable to a specific transaction, the difference is accounted for using the original accounting treatment. However, goodwill is no longer amortized and the amortization expense recognized in previous years is not reversed.
(ii) If the difference is related to a difference that is originally amortized for a certain period, the unamortized portion relating to the excess of investment cost over the investee’s net equity is accounted for as goodwill.
(iii) Long-term equity investment credit is amortized over the remaining period previously used for the amortization.

If any indication of impairment arises, an impairment test is performed immediately; otherwise an impairment test is performed annually. When the recoverable amount is below the book value, impairment loss is recognized.

The difference between the selling price and the book value of long-term equity investments under the equity method is recognized as disposal gain or loss in the accompanying consolidated statements of income. If there is a capital surplus arising from long-term equity investments, such capital surplus is debited against the disposal gain or loss based on the disposal ratio.

Unrealized gains and losses resulting from transactions between the Consolidated Company and its investee company and among investee companies are deferred. Gains and losses arising from transactions relating to depreciable or amortizable assets are recognized over their useful lives. Gains and losses from transactions relating to other assets are recognized when realized.

When investee companies issue common stock and the Consolidated Company do not purchase

～ F-20 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

the equity shares in accordance with their ownership holding ratio, the Consolidated Company adjust its capital surplus based on the net changes in the capital surplus and long-term equity investments. If the capital surplus arising from long-term investment accounted for under the equity method is insufficient, the deficiency is debited to retained earnings.

If the Consolidated Company have the power to control an investee company and the investee’s equity becomes negative and other shareholders have no obligation or are unable to provide funds to cover the loss, the Consolidated Company recognizes the loss in full. The excess of recognized investment loss over the related long-term equity investment is accounted for as long-term equity investment credits and, after offsetting against the receivables from related parties, is reflected as a liability in the accompanying consolidated balance sheets.

(q) Property, plant and equipment, assets held for lease, idle assets and depreciation Property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Interest expense related to the purchase and construction of property and equipment is capitalized and included in the cost of the related assets. Significant additions, improvements and replacements are capitalized. Maintenance and repair costs are expensed in the period incurred. Gains or losses upon the disposal of property, plant and equipment are accounted for as non-operating income or expense currently. The Consolidated Company accounts for the removal and recovery costs for fixed assets that are accrued during the period when they are not used in operations as costs of fixed assets. If a component of fixed assets is a significant part of the total cost, such component is depreciated individually.

Depreciation is provided by using the straight-line method over the estimated useful lives of the assets. If the property, plant and equipment are still in use beyond their estimated useful lives, the residual value is further depreciated by using the straight-line method over the remaining estimated lives. Estimated useful lives of major property are as follows:

Buildings 20-40 years

Machinery and equipment 3-15 years Utilities and transportation equipment 3-10 years

Furniture and office equipment 3-5 years

The residual useful lives, the depreciation method, and the residual value are evaluated at each financial year-end and changes thereof are accounted for as changes in accounting estimates. Property, plant and equipment leased to other parties through operating lease arrangements are classified as assets held for lease. Depreciation expenses of rental assets are recorded as a reduction of rental income.

～ F-21 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

Because of changes in markets and in product design, property, plant and equipment not currently used in operation are reclassified as idle assets and are stated at the lower of carrying value or net realizable value. Depreciation expenses of idle assets are recorded as non-operating expenses and losses. The Consolidated Company assess whether objective evidence of impairment exists for its property, plant and equipment, assets held for lease, and idle assets, at each balance sheet date in accordance with SFAS 35.

(r) Land leasehold rights

Land leasehold rights are amortized using the straight-line method over the operating lives upon the approval of the registrations of land leasehold rights. Land leasehold rights not currently used in operation are reclassified as idle assets and are stated at the lower of carrying value or net realizable value. Amortization expenses of idle assets are recorded as non-operating expenses and losses. The Consolidated Company assess whether objective evidence of impairment exists for its land leasehold rights at each balance sheet date in accordance with SFAS 35.

(s) Intangible assets

According to the Statement of Financial Accounting Standard No. 37 (SFAS 37) “Intangible Assets”, intangible assets are stated at cost, except for government grant which is stated at fair value. Intangible assets with finite life are measured at cost plus the revaluation increment arising from the revaluation in accordance with the laws, less any accumulated amortization and any impairment losses.

The amortizable amount of intangible assets with definite lives is determined after deducting its residual value. Amortization is recognized as an expense on a straight-line basis over the estimated useful lives of intangible assets from the date that they are made available for use. The economic useful lives of intangible assets are as follows:

Computer software cost 2 to 5 years

The residual value, amortization period, and amortization method for an intangible asset with a finite useful life are evaluated at least at each financial year-end. Any change thereof is accounted for as a change in accounting estimate.

(t) Pension plan

The Company and its domestic consolidated subsidiaries established non-contributory employee defined benefit retirement plans (the “Plans”) covering full-time employees. In accordance with the Plans, employees are eligible for retirement or are required to retire after meeting certain age or service requirements. Payments of retirement benefits are based on an employee’s average monthly salary of the six months before the employee’s retirement and the

～ F-22 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

number of points accumulated by the employee according to his/her years of service. Each employee receives 2 points or two months’ salary for each service year from year 1 to year 15, and 1 point or one month salary thereafter. According to the employee severance benefit plan, employees with more than five years but less than twenty-five years of service are entitled to receive severance benefits. Payments of employee severance benefits are based on the length of service and a certain proportion (20%~110%) of the final monthly salary. A lump-sum retirement benefit is paid through the retirement fund. Under this retirement plan, the Company and its domestic subsidiaries are responsible for making the entire pension payment. Starting from July 1, 2005, the enforcement rules of the newly enacted Labor Pension Act (the “New Act”) require the following categories of employees to adopt the New Act’s defined contribution plan:

(i) employees covered by the original Plans who opted to be subject to the pension mechanism under the New Act; and
(ii) employees who commenced working after the enforcement date of the New Act.

In accordance with the New Act, the Company and its domestic subsidiaries contribute monthly at the rate of not lower than 6% of the worker’s monthly wages to the employee’s individual pension fund account at the ROC Bureau of Labor Insurance.

The Company and its domestic consolidated subsidiaries adopted ROC SFAS No. 18, “Accounting for Pensions”, for their defined benefit retirement plans. SFAS No. 18 requires a company to have an actuarial calculation of its pension liability using the balance sheet date as the measurement date. The excess of accumulated benefit obligation over the fair value of pension plan assets is deemed to be the minimum pension liability and is recognized as accrued pension liability.

Certain of the Company’s foreign subsidiaries, such as VMEP, VCFP, Duc Phat, SYDE, SMV, SY Indonesia, Qingzhou Engineering Co., Ltd. and Xiamen Xia Shing Motorcycle Co., Ltd. have adopted defined contribution retirement plans. These plans are funded every year in accordance with the regulations of the respective countries. Contributions to defined contribution retirement plans are expensed as incurred.

(u) Earnings per Share (“EPS”)
Earnings per share of common stock is determined based on net income available to common stockholders divided by the weighted-average number of outstanding shares of common stock. The effect on earnings per share from an increase in capital stock through the distribution of stock dividends from unappropriated earnings, capital surplus, or employee stock bonuses approved in the annual stockholders’ meetings held before and in 2008 is computed retroactively.

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

(v) Employee Bonuses and Remuneration to Directors and Supervisors
Employee bonuses and directors’ and supervisors’ remuneration appropriated effective January 1, 2008, are accounted for based on Interpretation (96) 052 issued by the Accounting Research and Development Foundation. Under this interpretation, the Company and its domestic consolidated subsidiaries estimate and recognize the employee bonuses and directors’ and supervisors’ remuneration as expenses in the year employees’ services are rendered. Differences between the amounts approved in the shareholders’ meeting and recognized in the financial statements, if any, are treated as changes in accounting estimates and recognized in profit or loss.
(w) Share-based payment transactions

The Company adopted SFAS No. 39, “Share-based Payment,” for share-based payment arrangements with a grant date on or after January 1, 2008, and Interpretations (92) 070, 071 and 072 issued by ROC Accounting Research and Development Foundations (ARDF) for employee stock options that were granted before January 1, 2008.

(i) An equity-settled share-based payment transaction is measured based on the fair value of the award at grant date, and recognized as expenses over the vesting period with a corresponding increase in equity. The vesting period is estimated based on the vesting conditions under the share-based payment arrangement. Vesting conditions include service conditions and performance conditions (including market conditions). In estimating the fair value of an equity-settled share-based award, only the effect of market conditions is taken into consideration.
(ii)A cash-settled shared-based payment transaction is measured at the balance sheet date and the settlement date based on the fair value of the award as of those dates and is recorded as a liability incurred for the goods and services received. Changes in fair values are recognized in profit or loss.
(iii)The fair value of employee share options and similar instruments at grant date is estimated using the Black-Scholes option-pricing model, taking into account the exercise price, the current market price of the underlying shares, management’s best estimation of the expected term, expected volatility, expected dividends, risk-free interest rate.
(iv)According to SFAS No. 39 “Share-based Payment”, the Consolidated Company did not need to apply SFAS No. 39 retroactively to the share-based payments that were granted before January 1, 2008; however, the pro forma net income and net income per share should be disclosed.
(x) Treasury Stock
As the Consolidated Company purchased its outstanding shares, the Consolidated Company

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

adopted Financial Accounting Standard No. 30 ”Accounting for Treasury Stock” in the accounting of treasury shares, which are stated at cost. When treasury stock is sold, the excess of the proceeds from sale over the book value of treasury stock is recorded as capital surplustreasury stock transaction. If the disposal price is lower than the book value, the difference is offset against capital surplus resulting from other treasury stock transactions, and any deficiency is debited to retained earnings. The carrying amount of treasury stock is calculated by using the weighted-average method according to the same class of treasury stock.

In accordance with Financial Accounting Standard No. 30 “Accounting for Treasury Stock,” the Company’s shares held by its subsidiaries are deemed as treasury stock when recognizing investment income (loss) and when preparing the financial statements.

(y) Recognition of revenue
Revenue is recognized when title to the product and the risks and rewards of ownership are transferred to the customer. Also, allowances for sales returns and discounts are estimated based on historical experience. Such allowances are recognized in the same period when sales are made.
(z) Technical service and cost
Technical service revenues include consulting service revenues, technical development revenues from assisting foreign companies to develop new motorcycle products, and royalties based on the number of motorcycles sold by foreign sales agents. Consulting service revenues, technical development revenues, and related costs are recognized when services are rendered. Technical service costs refer to the remuneration both for the employees providing consulting service and for the technical development assistance.

(aa) Income tax

In accordance with Statement of Financial Accounting Standards No. 22 (SFAS 22) Income Taxes”, income taxes are accounted for using the asset and liability method. The income tax effects resulting from taxable temporary differences are recognized as deferred income tax liabilities. The income tax effects resulting from deductible temporary differences, loss carry forwards and investment tax credits are recognized as deferred income tax assets. The realization of the deferred income tax assets is evaluated, and if it is considered more likely than not that the deferred tax assets will not be realized, a valuation allowance is recognized accordingly. The Company and its domestic consolidated subsidiaries recalculate deferred income tax liabilities and deferred income tax assets in accordance with the newly modified effective tax rate, and report the difference between newly calculated amount and the originally calculated one as current expense or benefit. Adjustments to prior years’ income taxes are ～ F-25 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

reported as current income taxes.

Deferred income tax assets or liabilities are classified as current and non-current in accordance with the nature of the related assets and liabilities or the length of time to their reversal.

Income taxes credits from purchase of equipment, technical research and development, and personnel training are recognized by the flow-through method.

The 10% surtax on undistributed earnings of the Company and its domestic consolidated subsidiaries is reported as current expense on the date when the stockholders declared not to distribute the earnings during their annual meeting.

(ab) Commitments and Contingencies

If loss from a commitment or contingency is deemed highly likely and the amount can be reasonably estimated, then such loss is immediately recognized. Otherwise only the nature of such loss is disclosed in the notes to the financial statements.

(ac) Operating Segment

An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity). The segment’s operating results are reviewed regularly by the entity’s chief operating decision maker to make decisions pertaining to the allocation of the resources to the segment and to assess its performance for which discrete financial information is available.

(ad) Convenience Translation into U.S. Dollars

The consolidated financial statements are stated in New Taiwan dollars. A translation of the December 31, 2012 New Taiwan dollar consolidated financial statements in U.S. dollar is included solely for the convenience of the readers, using the spot rate of Taiwan Business Bank on December 31, 2012, of NT$29.03 to US$1 uniformly for all the financial statement accounts. The convenience translations should not be construed as representations that the New Taiwan dollar amounts have been, could have been, or could in the future be, converted into U.S. dollars at this rate or any other rate of exchange.

～ F-26 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

3. REASONS FOR AND EFFECT OF ACCOUNTING CHANGES

Effective from January 1, 2011, the Consolidated Company adopted the third revision of SFAS No. 34 “Financial Instrument Recognition and Measurement” on the recognition, subsequent measurement and impairment testing of originated loans and receivables and on trouble debt restructuring and modification of debt agreement commencing from January 1, 2011. The adoption of this amended accounting principle disclosed no significant influences on the consolidated income for the year ended December 31, 2011.

Effective from January 1, 2011, the Consolidated Company adopted SFAS No. 41 “Operating Segments”. In accordance with SFAS No. 41, information is disclosed to enable users of the Consolidated Company’s financial statements to evaluate the nature and financial effects of the business activities in which the Consolidated Company engages and the economic environment in which it operates. Accordingly, the Consolidated Company determines and presents operating segments based on the information that internally is provided to the chief operating decision maker. This new accounting Standard superseded by SFAS No. 20 “Segment Reporting”. The adoption of this accounting standard did not have any cumulative effect for the year ended December 31, 2011.

4. SUMMARY OF MAJOR ACCOUNTS

(a) Cash and cash equivalents

Cash and cash equivalents
Cash on hand Cash in banks Demand deposits Checking deposits Time deposits Sub-total Cash equivalents Total		December 31
	2010 NT$ $46,101 7,621,906 18,968 1,881,651 9,522,525 99,328 $ 9,667,954	2011 NT$ 54,407 5,364,980 20,848 2,987,073 8,372,901 150,034 8,577,342	2012
			NT$ 51,317 4,544,187 28,219 2,692,404 7,264,810 124,178 7,440,305	US$
				1,768
				156,534 972 92,746
				250,252
				4,277
				256,297

～ F-27 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

(b) Financial assets

(b) Financial assets
Financial assets reported at fair value through profit or loss－current Beneficiary certificates Financial instruments Derivatives financial assets for hedging－current Forward exchange swap contracts Available-for-sale financial assets－ current Stock investments Bond fund Held-to-maturity financial assets Structured deposits Available -for-sale financial assets－ noncurrent Bank debentures Financials assets carried at cost－ noncurrent Stock investments Investments in debt security with no active market－noncurrent Bank debentures Derivative financial liabilities for hedging－current Forward exchange swap contracts		December 31
	2010 NT$ $ 1,740 - $ 1,740 $ - $ 56,998 - $ 56,998 $ - $ 10,000 $ 110,144 $ 20,000 $ 113,233	2011 NT$ 1,198 91,264 92,462 7,387 17,182 - 17,182 164,204 10,000 70,013 20,000 -	2012
			NT$ 1,432 89,862 91,294 - 15,691 10,179 25,870 132,744 10,000 55,101 20,000 43,493	US$
				49 3,096
				3,145
				-
				540 351
				891
				4,573
				344
				1,898
				689
				1,498

(i) As of December 31, 2010, 2011 and 2012, the interest rates of the bank debentures with no active market held by the Consolidated Company were all 5.5%.
(ii) For the years ended December 31, 2010, 2011 and 2012, the Consolidated Company recognized a net loss amounting to NT$96,083, a net gain amounting to NT$7,285 and a net loss amounting to NT$43,259, respectively, on valuation of derivative financial liabilities and assets intended for hedging.
(iii) Due to the accumulated deficit of LICO Technology Corporation, the Consolidated Company recognized impairment loss on financial assets carried at cost of NT$40,000 and NT$14,684 for the years ended December 31, 2011 and 2012, respectively.

～ F-28 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

(iv) The Company entered into derivative contracts to manage the exposure due to the fluctuations of exchange rate in financing activities. These transactions meet the criteria for fair value hedge accounting. As of December 31, 2010, 2011 and 2012, the details of derivative financial liabilities and assets intended for hedging were as follows:

December 31

Buying USD/ Selling NTD	2010 Notional Principal (US$) Maturity Date /Contract Period $ 79,203 2011.01.07~ 2011.07.29	2011 Notional Principal (US$) Maturity Date /Contract Period 22,439 2012.02.27~ 2012.06.19	2012	2012
	Notional Principal (US$) $ 79,203	Notional Principal (US$) 22,439	Notional Principal (US$) 65,723	Maturity Date /Contract Period
				2013.01.09~ 2013.06.10

－ (c) Notes and accounts receivable non-related parties, net

	December 31	December 31	December 31
2010 NT$ $ 81,214 28,314 (2,150) 107,378 1,336,767 90,973 (12,204) 1,415,536 74,642 - 74,642 (335,436) $ 1,262,120	2011 NT$ 93,903 28,236 (2,144) 119,995 1,632,466 90,805 (12,196) 1,711,075 157,987 (18,236) 139,751 (297,284) 1,673,537	2012
		NT$ 73,745 28,183 (2,140) 99,788 1,480,962 89,966 (12,084) 1,558,844 199,540 (20,499) 179,041 (331,186) 1,506,487	US$
			2,540 971 (74)
			3,437
			51,015 3,099 (416)
			53,698
			6,874 (707)
			6,167
			(11,408)
			51,894

Please refer to Note 6 about the notes receivable which were pledged to financial institutions as collateral for loans for the years ended December 31, 2010, 2011 and 2012.

～ F-29 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

(d) Inventories

nventories
Finished goods Less: Allowance for inventory market price decline and obsolescence Sub-total Work in process Less: Allowance for inventory market price decline and obsolescence Sub-total Raw materials and supplies Less: Allowance for inventory market price decline and obsolescence Sub-total Inventory in transit Construction in progress		December 31
	2010 NT$ $ 1,566,063 (70,021) 1,496,042 1,858,527 (14,605) 1,843,922 3,594,848 (247,431) 3,347,417 127,998 66,468 $ 6,881,847	2011 NT$ 1,771,473 (66,094) 1,705,379 3,734,130 (7,857) 3,726,273 2,510,558 (155,836) 2,354,722 197,315 270,624 8,254,313	2012
			NT$ 3,902,809 (127,711) 3,775,098 1,945,500 (15,218) 1,930,282 2,790,379 (118,024) 2,672,355 190,570 - 8,568,305	US$
				134,441 (4,401)
				130,040
				67,017 (524)
				66,493
				96,121 (4,066)
				92,055
				6,565
				-
				295,153

(i) For the years ended December 31, 2010 , 2011 and 2012, the components of the cost of goods sold were as follows:

For	the Year Ended December 31	the Year Ended December 31	the Year Ended December 31
2010 NT$ $ 23,499,969 (34,634) 160 25,644 - $ 23,491,139	2011	2012 NT$ US$ 26,071,276 898,080 (54,420) (1,874) 48 2 29,031 1,000 34,142 1,176 26,080,077 898,384
	NT$		US$ 898,080 (1,874) 2 1,000 1,176 898,384
	27,535,409 (56,152) 87 36,589 54,179
	27,570,112

(ii) As of December 31, 2010, 2011 and 2012, the inventories of Light Tactical Vehicle amounted to NT$3,267,915, NT$3,807,718 and NT$4,024,539, respectively. Please refer to Note 7(g) about the testing of the Light Tactical Vehicle samples and the dispute regarding the performance of contract with the Armaments Procurement Bureau under the Ministry of National Defense (PCAB).
(iii) Please refer to Note 6 about the inventories pledged to financial institutions as collateral for loans for the years ended December 31, 2010, 2011 and 2012.

～ F-30 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

(e) Long-term investments under the equity method

Name of Investee Company December 31, 2010(NT$) Xiamen King Long United Automotive Industry Co., Ltd. Zoeng Chang Industry Co., Ltd. Vietnam HongZheng Technology Co., Ltd. Total December 31, 2011(NT$) Xiamen King Long United Automotive Industry Co., Ltd. Zoeng Chang Industry Co., Ltd. Vietnam HongZheng Technology Co., Ltd. Chongqing Kuayue Sanyang Co., Ltd. Total December 31, 2012(NT$) Xiamen King Long United Automotive Industry Co., Ltd. Zoeng Chang Industry Co., Ltd. Vietnam HongZheng Technology Co., Ltd. Chongqing Kuayue Sanyang Co., Ltd. Ching Zhao Investment Corporation Sheng Mao Investment Corporation Hsu Mao Investment Corporation Total December 31, 2012(US$) Xiamen King Long United Automotive Industry Co., Ltd. Zoeng Chang Industry Co., Ltd. Vietnam HongZheng Technology Co., Ltd. Chongqing Kuayue Sanyang Co., Ltd. Ching Zhao Investment Corporation Sheng Mao Investment Corporation Hsu Mao Investment Corporation Total	Original Investment $ 855,409 33,200 27,433 $ 855,409 33,200 27,433 13,297 $ 855,409 33,200 27,433 13,297 96,000 38,807 49,395 $ 29,466 1,144 945 458 3,307 1,337 1,702	Equity Holding % 25% 40% 38% 25% 40% 38% 30% 25% 40% 38% 30% 29.29% 48% 32.83% 25% 40% 38% 30% 29.29% 48% 32.83%	Amount 1,258,126 229,674 19,197 $1,506,997 1,594,394 235,243 26,769 10,487 $1,866,893 1,897,020 240,100 27,160 5,522 71,031 48,218 64,734 $2,353,785 65,347 8,271 935 190 2,447 1,661 2,230	Investment Income (Loss) 217,523 11,984 3,423 232,930 262,431 15,660 8,106 (3,794) 282,403 369,559 13,909 360 (4,694) (14,118) 998 1,316 367,330 12,730 479 13 (162) (486) 34 45 12,653	Cumulative Translation Adjustments credit (debit)
					(88,693) (1,848) (2,991)
					(93,532)
					62,797 (1,071) (534) 984
					62,176
					(48,222) (32) 31 (271) (8,096) - -
					(56,590)
					(1,661) (1) 1 (9) (279) - -
			$ 81,081		(1,949)

(i) Ching Ta (a subsidiary of the Company) converted its ownership of the preferred shares of stock of Ching Zhao into common shares of stock. Therefore, Ching Ta’s shareholding ratio in Ching Zhao has been diluted to 37.98%. As Ching Ta did not win the majority of the directors from the by-election of the directors of Ching Zhao; Ching Ta ceased control over Ching Zhao, and its percentage of equity holding decreased to 29.29%. Consequently, Ching Zhao was not included in the Company’s consolidated financial statements for the year ended December 31, 2012.

～ F-31 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

(ii) In 2012, the Consolidated Company disposed its 52% and 52.17% invested shares in Sheng Mao and Hsu Mao so that its percentage of equity holding in Sheng Mao and Hsu Mao decreased to 48% and 32.83%, respectively. Therefore, Sheng Mao and Hsu Mao were not included in the Consolidated Company’s consolidated financial statements in 2012. Please refer to Note 5 (b (vi)) for details.
(iii) In 2010, Ching Ta held more than half of Ching Zhao’s directors’ seats, thus Ching Zhao is included in the Company’s consolidated financial statements since 2010.
(iv) On February 3, 2010, the Board of Directors of the Company resolved to increase its investment in Xiamen King Long United Automotive Industry Co., Ltd. by US$389 (NT$12,350) in cash, and likewise increase its equity investment in Profit Source Investment Ltd. by US$3,287 from the capitalization of earnings of Profit Source Investment Ltd., for the purpose of expanding the automobile business in Mainland China. These investments were registered in the same year. In addition, the Company increased in 2011 its equity investment in Xiamen King Long United Automotive Industry Co., Ltd. by US$3,909 from the capitalization of earnings of this investee.
(v) In 2010, 2011 and 2012, the subsidiaries of the Consolidated Company had received cash dividends from their long-term investments under equity method, which were eliminated against the long-term investments under the equity method. The related information was as follows:

follows:
Name of Investee Company Xiamen King Long United Automotive Industry Co., Ltd. Zoeng Chang Industry Co., Ltd. Hsu Mao Investment Corporation Total		For the Year Ended
	2010 NT$ $ 21,463 4,510 - $ 25,973	2011 NT$ 68,101 9,020 - 77,121	2012
			NT$ 34,887 9,020 867 44,774	US$
				1,202 311 29
				1,542

(vi) In 2010, the Consolidated Company indirectly invested in Hangzhou Sanyang Trade Co., Ltd through SYI’s investee company, Innate Kudos Enterprise Corp., in order to increase its sales channels of overseas motorcycle. As of December 31, 2010, the Consolidated Company remitted US$1,178 to Hangzhou Sanyang Trade Co., Ltd. as its investment capital. Due to the continuous operating losses of this investee, the Consolidated Company had evaluated that the recoverable amount of this investment was less than its carrying value so that the Consolidated Company recognized an impairment loss thereon in 2010. In 2011, this investment was sold for US$208, and the Consolidated Company recognized a gain on disposal of investment of NT$6,100.

～ F-32 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

(f) Property, plant and equipment

Item December 31, 2010(NT$) Land Buildings Machinery and equipment Utilities and transportation equipment Office equipment Assets held for lease Construction in progress Prepayments for equipment Total Less: Accumulated impairment Net Book Value December 31, 2011(NT$) Land Buildings Machinery and equipment Utilities and transportation equipment Office equipment Assets held for lease Construction in progress Prepayments for equipment Total Less: Accumulated impairment Net Book Value December 31, 2012(NT$) Land Buildings Machinery and equipment Utilities and transportation equipment Office equipment Assets held for lease Construction in progress Prepayments for equipment Total Less: Accumulated impairment Net Book Value	Cost $ 1,712,561 4,818,145 13,511,015 1,344,464 1,400,366 791,099 371,555 39,272 $ 23,988,477 $ 1,714,575 5,043,643 13,920,846 1,437,569 1,399,801 926,174 168,786 114,526 $ 24,725,920 $ 1,714,575 5,087,089 14,192,544 1,443,857 1,443,861 940,674 85,439 50,544 $ 24,958,583	Revaluation Increments 5,414,436 8,767 2,735 173 25 - - - 5,426,136 5,367,169 2 2,817 404 93 - - - 5,370,485 5,367,169 2 2,519 155 12 - - - 5,369,857	Total 7,126,997 4,826,912 13,513,750 1,344,637 1,400,391 791,099 371,555 39,272 29,414,613 7,081,744 5,043,645 13,923,663 1,437,973 1,399,894 926,174 168,786 114,526 30,096,405 7,081,744 5,087,091 14,195,063 1,444,012 1,443,873 940,674 85,439 50,544 30,328,440	Accumulated Depreciation - 2,674,977 11,093,515 1,125,419 956,630 317,695 - - 16,168,236 - 2,705,636 11,552,222 1,165,854 943,995 357,757 - - 16,725,464 - 2,832,193 11,939,183 1,132,450 1,108,545 398,434 - - 17,410,805	Net Book Value
					7,126,997 2,151,935 2,420,235 219,218 443,761 473,404 371,555 39,272
					13,246,377 (248,632)
					$ 12,997,745
					7,081,744 2,338,009 2,371,441 272,119 455,899 568,417 168,786 114,526 13,370,941 (219,350) $ 13,151,591 7,081,744 2,254,898 2,255,880 311,562 335,328 542,240 85,439 50,544 12,917,635 (293,090) $ 12,624,545

～ F-33 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

Item December 31, 2012(US$) Land Buildings Machinery and equipment Utilities and transportation equipment Office equipment Assets held for lease Construction in progress Prepayments for equipment Total Less: Accumulated impairment Net Book Value	Cost $ 59,062 175,236 488,892 49,737 49,737 32,404 2,943 1,741 $ 859,752	Revaluation Increments 184,884 - 87 5 - - - - 184,976	Total 243,946 175,236 488,979 49,742 49,737 32,404 2,943 1,741 1,044,728	Accumulated Depreciation	Net Book Value
				- 97,561 411,270 39,010 38,186 13,725 - - 599,752	243,946 77,675 77,709 10,732 11,551 18,679 2,943 1,741
					444,976 (10,096)
					$ 434,880

(i) For the years ended December 31, 2010 , 2011 and 2012, the capitalized interest amounted to NT$321, NT$340 and NT$1,510, and the interest rates used in computing the capitalized interest were 3.113%, 2.998%, and 2.980%, respectively.
(ii) In 2011, the Consolidated Company reversed an impairment loss on assets which amounted to NT$40,498, based on the results of its evaluation of the recoverability of the property, plant and equipment. As the evaluation of the expected cash flow in the future is lower than the book value of the property, plant and equipment, the subsidiaries recognized a loss of NT$73,498 for the year ended December 31, 2012.
(iii) Please refer to Note 6 for property, plant and equipment, which were pledged to financial institutions as collateral for loan for the years ended December 31, 2010, 2011 and 2012.

(g) Land leasehold rights

Land leasehold rights
Location Chang Jia Gang City, Jiang Su, China Xing Lin District, Xiamen City, China Ji Mei District, Xiamen City, China Fan Yu District, Guangzhou City, China Shanghai City, Jiang Su, China – I Shanghai City, Jiang Su, China –II South of Zonglu Road, Changzhou, China and East of Zhongwu Avenue, Changzhou, China No.CN7, Fu Yi Industrial Park, Chang Mei County, Hanoi City, Vietnam Xian Nu Township, Jiangdo City – for food service and accommodation Xian Nu Township, Jiangdo City –for accommodation Less: Construction in progress Total	Maturity Period 1998.01.01~2045.12.24 1993.01.01~2043.01.01 1996.05.30~2046.05.30 2006.11.01~2044.11.27 2007.12.31~2057.12.31 2012.06.10~2062.06.10 2011.04.08~2051.02.27 2011.03.28~2057.10.19 2008.07.30~2048.07.24 2008.07.30~2078.07.24		December 31
		2010 NT$ $ 37,322 137,408 11,166 5,723 9,790 - - - 31,182 20,151 (20,151) $ 232,591	2011 NT$ 39,340 144,008 11,779 6,005 - - 51,653 201,385 31,975 22,741 (22,741) 486,145	2012
				NT$ 37,092 135,355 11,115 6,156 - 9,878 48,874 178,643 - - - 427,113	US$
					1,278 4,663 383 212 - 340 1,683 6,154 - - -
					14,713

Please refer to Note 6 for the land leasehold rights, which were pledged to financial institutions as collateral for loans for the years ended December 31, 2010, 2011 and 2012.

～ F-34 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

(h) Assets held for lease

Assets held for lease
Items December 31, 2010(NT$) Land Buildings Machinery and equipment Other equipment Total Less: Accumulated impairment Net Book Value December 31, 2011(NT$) Land Buildings Machinery and equipment Other equipment Total Less: Accumulated impairment Net Book Value December 31, 2012(NT$) Land Buildings Machinery and equipment Other equipment Total Less: Accumulated impairment Net Book Value December 31, 2012(US$) Land Buildings Machinery and equipment Other equipment Total Less: Accumulated impairment Net Book Value	Cost $ 119,403 250,641 389 19,290 $ 389,723 $ 132,794 220,389 389 19,652 $ 373,224 $ 133,605 250,139 389 7,879 $ 392,012 $ 4,602 8,617 13 271 $ 13,503	Revaluation Increments 668,314 - - - 668,314 788,682 - - - 788,682 788,682 - - - 788,682 27,168 - - - 27,168	Total	Accumulated Depreciation - 135,064 389 19,154 154,607 - 139,198 389 19,652 159,239 - 143,787 389 7,879 152,055 - 4,953 13 271 5,237	Net Book Value
			787,717 250,641 389 19,290		787,717 115,577 - 136
			1,058,037		903,430 (40,813)
			921,476 220,389 389 19,652
					$ 862,617
					921,476 81,191 - -
			1,161,906		1,002,667 (40,813)
			922,287 250,139 389 7,879 1,180,694 31,770 8,617 13 271 40,671
					$ 961,854
					922,287 106,352 - -
					1,028,639 (40,813)
					$ 987,826
					31,770 3,664 - -
					35,434 (1,406)
					$ 34,028

Please refer to Note 6 for the assets held for lease, which were pledged to financial institutions as collateral for loans for the years ended December 31, 2010, 2011 and 2012.

～ F-35 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

(i) Idle assets

Items December 31, 2010(NT$) Land Machinery and equipment Other equipment Total Less: Accumulated impairment Net Book Value December 31, 2011(NT$) Land Machinery and equipment Other equipment Total Less: Accumulated impairment Net Book Value December 31, 2012(NT$) Land Machinery and equipment Other equipment Total Less: Accumulated impairment Net Book Value December 31, 2012(US$) Land Machinery and equipment Other equipment Total Less: Accumulated impairment Net Book Value	Cost $ 76,813 1,780,135 22,828 $ 1,879,776 $ 104,300 1,431,679 22,771 $ 1,558,750 $ 102,052 1,442,883 22,771 $ 1,567,706 $ 3,515 49,703 784 $ 54,002	Revaluation Increments 152,444 - - 152,444 44,990 - - 44,990 44,990 - - 44,990 1,550 - - 1,550	Accumulated Depreciation - 1,663,289 22,206 1,685,495 - 1,348,373 22,398 1,370,771 - 1,370,232 22,647 1,392,879 - 47,200 780 47,980	Net Book Value 229,257 116,846 622 346,725 (54,149) $ 292,576 149,290 83,306 373 232,969 (59,866) $ 173,103 147,042 72,651 124 219,817 (52,901) $ 166,916 5,065 2,503 4 7,572 (1,822) $ 5,750

Please refer to Note 6 for idle assets, which were pledged to financial institutions as collateral for loan as of December 31, 2010, 2011 and 2012.

～ F-36 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

(j) Short-term loans

Short-term loans
Items Material purchase loans Credit loans Collateralized loans Bankers’ acceptance payable, net Total		December 31
	2010 NT$ $ 3,334,458 487,386 4,573,696 853,209 $ 9,248,749	2011 NT$ 1,710,995 129,468 3,251,014 698,612 5,790,089	2012
			NT$ 2,005,159 113,301 2,596,150 728,600 5,443,210	US$
				69,072 3,903 89,430 25,098
				187,503

All of the short-term loans have maturities within one year. For the years ended December 31, 2010, 2011 and 2012, interest rates ranged from 0.95% to 2.98%, from 1.03% to 8.65% and from 1.07% to 7.93%, respectively.

(k) Short-term notes and bills payable

Short-term notes and bills payable
Short-term notes and bills payable		December 31 2011 2012 NT$ NT$ US$ 48,135 38,351 1,321
	2010 NT$ $ -	2011
		NT$	NT$ 38,351
		48,135

For the years ended December 31, 2011 and 2012, the interest rates of short-term notes and bills payable were both 3.075%.

(l) Long-term loans

Long-term loans
Item Material purchase loans Credit loans Syndicated loans Long-term commercial paper payable, net Less: current portion of long-term loans Net Value		December 31
	2010 NT$ $ 773,010 278,534 2,665,000 135,536 (1,667,738) $ 2,184,342	2011 NT$ 814,897 146,028 5,710,000 39,840 (599,684) 6,111,081	2012
			NT$	US$
			845,584 41,730 5,420,000 30,000 (750,247)	29,128 1,438 186,703 1,033 (25,844)
			5,587,067	192,458

(i) For the years ended December 31, 2010, 2011 and 2012, the interest rates for long-term loans were floating from 1.849% to 4.620% and 1.963% to 8.530% and 2.08% to 7.11%, respectively.

～ F-37 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

(ii) Details of syndicated loans
(1) The Company

Financial Institution	Interest rate	Usage and redemption duration		December 31	December 31	December 31
			2010	2011	2012
			NT$	NT$	NT$	US$ 31,691 120,565 34,447 - -
Land Bank and 5 other banks Land Bank, TC Bank and 6 other banks Land Bank, TC Bank and 11 other banks Total Less: current	The benchmark interest annual rate of the Bank plus 1.70%, and if the rate is lower than 2.6% on drawing day or upon the coupon reset date, 2.6% will be the appropriate rate for syndicated loan. The benchmark annual interest rate of the Bank plus 1.15% The benchmark annual interest rate of the Bank plus 1.15% The benchmark annual interest rate of the Bank plus 2.2% The benchmark annual interest rate of the Bank plus 2.2%	Credit line is repayable in 9 semi -annual installments after the first draw-down. NT$145,000 is payable in term 1 to term 7; NT$240,000 for term 8; NT$245,000 for term 9, and the remaining redemption amount and related interest are payable in the last term. Interest is payable monthly and principal is payable on due date. Repayment is at least 70% of the sales amount of construction in progress held by the guarantor (Shan Young Assets Management Co., Ltd.). " " "	$1,500,000 - - 690,000 475,000	1,210,000 3,500,000 1,000,000 - -	920,000 3,500,000 1,000,000 - -
			2,665,000 (1,455,000)	5,710,000 (290,000)	5,420,000 (290,000)	186,703 (9,990)
			$1,210,000	5,420,000	5,130,000	176,713

(aa) In February 2010, the Company signed a five-year syndicated loan with Taiwan Land Bank and five other banks for the purpose of paying off the existing loans from all the financial institutions and maintaining medium-term working capital. The Company was also offered a new non-revolving credit line of NT$1.5 million by Taiwan Land Bank and five other banks.
(ab) In June 2011, the Company signed a four-year syndicated loan with Land Bank, TC Bank and six other banks for purposes of paying off the existing loans from all the financial institutions and maintaining medium-term working capital. Also, the Company was offered a new credit line of NT$4.5 million, of which NT$ 1 million could be revolving and the NT$3.5 million could be non-revolving credit facility.

～ F-38 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

(ac) According to the syndicated loan contracts, one with Land Bank, and another one with TC bank together with Land Bank, the Company is required to comply with certain financial ratios or limitations as described under item (ad) below , based on its annual and semi-annual consolidated financial statements audited by the independent auditors. If the Company breaches these financial covenants, it is allowed to cure the breach within five months starting from October 1st of the audit year and May 1st of the subsequent year as if the Company is not complied with its financial covenants based on its semi-annual and annual consolidated financial statements, respectively. Also, it is required to provide an independent auditor’s report on those financial statements. Otherwise, the Company will have to pay interest based on the original interest rate indicated in the contract plus 0.25%, and the penalty which is determined on the remaining balance of the syndicated loan at the rate of 0.05%. However, if those certain financial covenants, based on the Consolidated Company’s financial statements which is prepared in accordance with Taiwan-IFRSs effective in 2013, are not maintain those ratios in items (ad) below, it’s not considered as violate, and the Company could renegotiate with those banks about the certain financial covenants.
(ad) According to the syndicated loan contracts indicated under a and b above, the Company is required to maintain certain financial ratios based on its annual and semi-annual consolidated financial statements as follows:
(1) With Land Bank and five other banks Current ratio ≧ 100%

Debt ratio ≦180% Times Interest Earned (earnings after tax and before interest + depreciation and amortization expense/ interest expense) ≧ 2 Stockholders’ equity ＞ NT$10 million

(2) With Land Bank together with TC Bank and six other banks
Current ratio ≧100% Debt ratio ≦ 200%

Times Interest Earned (earnings after tax and before interest + depreciation and amortization expense/ interest expense) ≧ 2 Stockholders’ equity ＞ NT$10 million

(ae) Loans of the subsidiary-Nanyang Industries Co., Ltd.
As of December 31, 2011, Nanyang had renegotiated with its creditor banks, and signed a new loan agreement with the banks who agree to a loan moratorium. As to those unpaid loans, they were going to be paid according to the previous loan agreements.
(af) As of December 31, 2012, the Consolidated Company were in compliance with its financial covenants based on its annual consolidated financial statements.

～ F-39 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

(iii) Please refer to Note 6 for the Consolidated Company’s assets, which were pledged to financial institutions as collateral for loans for the years ended in December 31, 2010, 2011 and 2012.

(m) Income tax

(i) According to the revised Income Tax Law announced on June 15, 2010, the statutory income tax rate has been commended to 17% effective January 1, 2010. Therefore, the Company and its domestic consolidated subsidiaries are subject to a statutory income tax rate of 17% all for both the years ended December 31, 2010, 2011 and 2012. The Company and its domestic consolidated subsidiaries also comply with the Basic Income Tax Act when calculating its income tax.
The income tax rate applicable to VMEP, VCFP and Duc Phat is 18%. In the case of SMV, its income tax rate for the first 12 years of operation is 15%, and 28% thereafter. SMV also has a favorable treatment of 3 year tax-exemption since its current operating results are profit and 50% tax free for the following 7 years.
The subsidiaries in Mainland China adopted the Enterprise Income Tax which was approved in 2007 by the People's Republic of China. The income tax rates for 2010, 2011, and 2012 were 22%, 24% and 25%, respectively.
(ii) For the years ended December 31, 2010, 2011 and 2012, the components of income tax expense were as follows:

xpense were as follows:
Current income tax expense Deferred income tax (benefit) expense Prior years’ income tax adjustments 10% surtax on undistributed earnings Income tax expense	For the Year Ended December 31
	2010 NT$ $ 244,608 31,782 - 554 $ 276,944	2011 NT$ 231,296 66,522 20,375 3,611 321,804	2012
			NT$ 134,628 (12,910) 2,151 113,365 237,234	US$
				4,638 (445) 74 3,905
				8,172

Income tax expense	$ 276,944 321,804 237,234 8,172	$ 276,944 321,804 237,234 8,172	$ 276,944 321,804 237,234 8,172	$ 276,944 321,804 237,234 8,172
The components of deferred income Investment tax credits and prior year loss carry-forward Pension expense over the amount limit Loss on foreign investment under equity method Cumulative translation adjustments Increase (Decrease) of valuation on allowance-deferred income tax assets Unrealized exchange gain Others Total	tax (benefit) expense were as follows: For the Year Ended December 31
	2010 NT$ $ 210,918 (10,243) 157,319 (159,519) (174,825) (6,706) 14,838 $ 31,782	2011 NT$ 444,097 (11,460) 48,814 39,586 (382,353) (45,409) (26,753) 66,522	2012
			NT$ 62,418 (13,014) (14,981) (46,896) 1,808 24,066 (26,311) (12,910)	US$
				2,150 (448) (516) (1,615) 62 829 (907)
				(445)

～ F-40 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

(iii) For the years ended December 31, 2010, 2011 and 2012, the income tax calculated at the statuary tax rate on pre-tax income was reconciled with income tax expense as follows:

For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
2010	2011 NT$ 508,483 20,375 3,611 (97,656) (382,353) 39,586 155,719 90,009 (15,970) 321,804	2012
NT$ $ 396,405 - 554 (55,637) (174,825) (159,519) 220,357 (5,939) 55,548 $ 276,944		NT$ 206,122 2,151 113,365 (73,309) 1,808 (46,896) 54,869 (470) (20,406) 237,234	US$
			7,100 74 3,905 (2,525) 62 (1,615) 1,890 (16) (703)
			8,172

(iv) As of December 31, 2010, 2011 and 2012, the temporary differences, loss carry-forward and income tax credits and the related income tax effect thereof resulting in deferred income tax assets (liabilities) were as follows:

		December 31	December 31	December 31	December 31	December 31	December 31
2010		2011		2012
NT$		NT$		NT$		US$
Amount	Income Tax Effect	Amount	Income Tax Effect	Amount	Income Tax Effect	Amount	Income Tax Effect
$ 134,418 125,383 73,827 150,960 104,621 135,516 (192,450)	22,851 21,392 12,551 25,663 17,786 25,262 (32,855)	150,702 153,247 111,995 111,331 142 172,331	25,619 26,052 19,039 18,927 24 31,742 (23,449)	112,911 122,634 163,102 109,985 31 119,921 (66,204)	19,196 20,848 27,727 18,698 5 23,976 (19,800)	3,889 4,224 5,618 3,789 1 4,131 (2,281)	662 718 955 644 - 826 (682)
	92,650		97,954		90,650		3,123
	(32,717)		-		(11,255)		(388)
	(32,717)		-		(11,255)		(388)
	$ 59,933		97,954		79,395		2,735

～ F-41 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

		December 31	December 31	December 31	December 31	December 31	December 31
2010		2011 NT$		2012
NT$				NT$		US$
Amount	Income Tax Effect	Amount	Income Tax Effect	Amount	Income Tax Effect	Amount	Income Tax Effect
$ 1,556,591 14,999 469,582 1,038,509 1,564,820 142,535 (131,415) (3,461,892) -	264,621 2,549 469,582 176,546 266,020 24,540 (423,219)	95,711 41,296 291,298 1,074,630 1,348,777 223,226 (12,336) (3,741,642) (182,157)	16,271 7,020 291,298 182,687 229,291 37,486 (43,387)	38,825 49,220 122,177 1,139,388 1,628,091 305,362 (37,312) (3,681,289) (177,989)	6,600 8,367 122,177 193,696 276,776 57,845 (43,727)	1,337 1,695 4,209 39,249 56,083 10,519 - (1,285) -	227 288 4,209 6,672 9,534 1,992 (1,506)
	780,639		720,666		621,734		21,416
	(22,340) (588,522) -		(2,097) (636,079) (30,966)		(6,343) (625,819) (30,258)		(218) (21,558) (1,042)
	(610,862)		(669,142)		(662,420)		(22,818)
	$ 169,777		51,524		(40,686)		(1,402)

(v) Except for Jin Yang whose income tax returns had been assessed and approved by the Tax Authority for the years through 2009, the Company’s and other domestic subsidiaries’ income tax returns had been assessed and approved by the Tax Authority for the years through 2010. According to the R.O.C. income Tax Act, unused loss carry-forward from ten years previously maybe utilize to offset future income. As of December 31, 2012, the valid unused loss carry-forward were as follows:

Year of occurrence 2003 (assessed) 2004 (assessed) 2007 (assessed) 2009 (assessed) 2010 (assessed) 2012 (expected) Total	Expirationyear 2013 2014 2017 2019 2020 2022	NT$ $ 31,252 7,501 31 15 16 41 $ 38,856	US$
			1,077 258 1 1 1 1
			1,339

(vi) The Company and its domestic subsidiaries are entitled to investment tax credits for investments in automatic equipment, pollution prevention equipment, research and development, employee training expenditures, etc. As of December 31, 2012, according to R.O.C. Income Tax Act, the unused investment tax credits which can to offset against income tax in the future are as follows:

～ F-42 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

Year of Occurrence 2009 2010	Unused Balance NT$ US$ $ 121,885 4,199 (assessed) 292 10 (assessed) $ 122,177 4,209	Expiration Year
	NT$ $ 121,885 292 $ 122,177	2013 2014

(vii) The integrated income tax information was as follows:

December 31 2010 2011 2012 NT$ NT$ NT$ US$ Accumulated earnings in 1998 and thereafter $ 692,450 1,269,284 1,098,837 37,852 Balance of stockholders’ imputation tax credit account (ICA) $ 15,071 28,347 94,746 3,264 For the Year Ended December 31 2009 2010 2011 Expected or actual deductible tax ratio (actual) 20.23% (actual) 5.51% (expected) 3.34%	December 31 2010 2011 2012 NT$ NT$ NT$ US$ Accumulated earnings in 1998 and thereafter $ 692,450 1,269,284 1,098,837 37,852 Balance of stockholders’ imputation tax credit account (ICA) $ 15,071 28,347 94,746 3,264 For the Year Ended December 31 2009 2010 2011 Expected or actual deductible tax ratio (actual) 20.23% (actual) 5.51% (expected) 3.34%	December 31 2010 2011 2012 NT$ NT$ NT$ US$ Accumulated earnings in 1998 and thereafter $ 692,450 1,269,284 1,098,837 37,852 Balance of stockholders’ imputation tax credit account (ICA) $ 15,071 28,347 94,746 3,264 For the Year Ended December 31 2009 2010 2011 Expected or actual deductible tax ratio (actual) 20.23% (actual) 5.51% (expected) 3.34%	December 31 2010 2011 2012 NT$ NT$ NT$ US$ Accumulated earnings in 1998 and thereafter $ 692,450 1,269,284 1,098,837 37,852 Balance of stockholders’ imputation tax credit account (ICA) $ 15,071 28,347 94,746 3,264 For the Year Ended December 31 2009 2010 2011 Expected or actual deductible tax ratio (actual) 20.23% (actual) 5.51% (expected) 3.34%
	2010	2011
	(actual) 5.51%	(expected)	3.34%

(n) Pension plan

(i) Based on the Company and its domestic subsidiaries obtained actuarial pension reports with December 31, 2010, 2011 and 2012, the pension funding status was reconciled with accrued pension liabilities per books as follows:

December 31	December 31	December 31
2011 NT$ (1,861,713) (959,840) (2,821,553) (444,411) (3,265,964) 1,022,682 (2,243,282) 119,290 1,028,129 (747,101) (1,842,964)	2012
	NT$ (2,105,451) (796,127) (2,901,578) (479,610) (3,381,188) 1,057,308 (2,323,880) 51,459 1,096,542 (711,287) (1,887,166)	US$
		(72,527) (27,424)
		(99,951) (16,521)
		(116,472) 36,421
		(80,051) 1,773 37,773 (24,502)
		(65,007)

～ F-43 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

(ii) For the years ended December 31, 2010, 2011 and 2012, the actuarial assumptions adopted to calculate net pension costs and the components of the net periodic pension cost were as follows:

For the Year Ended	For the Year Ended	For the Year Ended
2011 NT$ 2.00% 1.00% 2.00% 63,351 55,279 (11,636) 103,346 - 210,340 51,736	2012
	NT$ 1.75% 1.00% 7.75% 61,420 64,195 (10,074) 98,675 - 214,216 56,220	US$
		1.75% 1.00% 7.75% 2,116 2,211 (347) 3,399 -
		7,379
		1,937

(o) Common stock

As of December 31, 2010, 2011 and 2012, the authorized common shares of stock and outstanding common shares of stocks of the Company amounted to NT$8,500,000, NT$ 8,456,385; NT$9,500,000, NT$8,963,768; and NT$9,500,000, NT$8,963,768, respectively.

(p) Capital surplus

In accordance with the ROC Company Law, as amended in January 2012, realized capital surplus cannot be distributed as dividends in cash or shares unless capital surplus was previously used to offset the deficit. Realized capital surplus included the revenue from donations, and the excess of the issuance price over the par value of the capital stock. In accordance with the Regulations Governing the Offering and Issuance of Securities by Securities Issuers, capital surplus can be capitalized upon approval during the shareholders’ meeting as required in Company Act for the Company, but the total amount of capital surplus that can be capitalized in any one year cannot exceed 10% of the paid-in capital.

(q) Treasury stock

(i) In accordance with Securities and Exchange Act, treasury stock cannot be pledged as collateral. Also, treasury stock does no bear the shareholder’s right prior to being sold to third parties.

～ F-44 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

(ii) In 2012, the Company sold its ownership of 3,120 thousand equity shares of stock in Sheng Mao Investment Corporation, and its entire ownership of equity shares in Hsu Mao Investment Corporation. Consequently, the Company ceased control of these two investee companies. As the 17,602 thousands shares of the Company that were still held by Sheng Mao Investment Corporation and Hsu Mao Investment Corporation can no longer be treated as treasury stock, treasury stock decreased by NT$64,782 as of December 31, 2012.
(iii) As of December 31, 2010, 2011 and 2012, the Company’s shares of stock held by its subsidiaries were as follows:

Name of Subsidiaries 2010(NT$) Hsu Mao Investment Corporation Sheng Mao Investment Corporation Ching Ta Investment Co., Ltd. Nanyang Industry Co., Ltd. 2011(NT$) Hsu Mao Investment Corporation Sheng Mao Investment Corporation Ching Ta Investment Co., Ltd. Nanyang Industry Co., Ltd. 2012 Hsu Mao Investment Corporation Sheng Mao Investment Corporation Ching Ta Investment Co., Ltd. Nanyang Industry Co., Ltd.	Number of Shares of Stock Held(thousands) January 1 December 31 11,845 11,845 4,760 4,760 926 926 4,482 4,482 11,845 12,556 4,760 5,046 926 981 4,482 4,751 12,556 - 5,046 - 981 981 4,751 4,751	Amount	Market Value	Market Value
	January 1 11,845 4,760 926 4,482 11,845 4,760 926 4,482 12,556 5,046 981 4,751
		$ 219,141 $ 88,061 $ 17,130 $ 82,918 $ 206,546 $ 83,007 $ 16,137 $ 78,154 NT$ US$ NT$ $ - - - $ - - - $ 17,364 598 17.70 $ 84,092 2,897 17.70		18.50 18.50 18.50 18.50 16.45 16.45 16.45 16.45 US$ - - 0.61 0.61

(r) Dividend Policy and Appropriation of Earnings

(i) Dividend Policy:
(1) Under the Company’s Article of Incorporation, a 10% legal reserve is set aside from the annual net income after covering the accumulated deficit. In addition, a special reserve is provided in accordance with the relevant laws. The remaining net income, together with the unappropriated earnings of prior years and the reversal from special reserve, which is required by the Regulations Governing the Offering and Issuance of Securities by Securities Issuers, are appropriated in accordance with the distribution proposal submitted by the board of directors to the shareholders for resolution. Distribution of dividends to shareholders shall not be greater than 10% of the current

～ F-45 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

issued capital. The remuneration to directors and supervisors and employees’ bonuses are also distributed at the rate of 2% and 1%, respectively. The residual earnings, if any, may be distributed as shareholders’ bonuses.

(2) In order to bring about stability in the payment of dividends, the Company distributes dividends depending on the level of earnings of each year. The Company is facing a rapidly changing industrial environment. In consideration of the Company’s long-term operating plan and funding needs, the Company adopts a stable dividends policy. Therefore, the Company distributes cash dividends of at least 10% of the aggregate of all dividends, if the distributions include cash dividends.
(ii) Appropriation of Earnings
(1) Under the Regulations of Securities and Futures Bureau Commission, a special reserve is set aside from the current year’s net income and prior year’s unappropriated earnings at an amount equal to the debit balance of contra accounts in the shareholders’ equity such as the unrealized loss on financial instruments and the cumulative translation adjustments. If the debit balance of any of these contra accounts in the shareholders’ equity is reversed, the related special reserve can be reversed.
(2) On May 27, 2011 and December 24, 2012, the shareholders resolved during their meeting to distribute the 2010 and 2011 earnings, respectively. The information related to the distribution of the Company’s earnings is available on the website of the Market Observation Post System. The relevant information of earnings distributed as dividends, employee bonus and remuneration to directors and supervisors was as follows:

For the Year Ended December 31

Common stock dividends per share (dollars)－Cash Common stock dividends per share (dollars)－Stock Employee bonus－Cash Remuneration to directors and supervisors Total	2009 NT$ $ - $ - $ - - $ -	2010 NT$ 0.1 0.6 313 625 938	2011	2011
			NT$ 0.45 - 7,421 14,842 22,263	US$
				0.16
				-
				256 511
				767

For the years ended December 31, 2010, 2011 and 2012, the amounts accrued of the remuneration to directors, supervisors and employee bonus in the financial statements and the actual distribution for the remuneration to directors, supervisors and employee bonus were as follows:

～ F-46 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

Actual Distribution Amount Amount Recognized in Financial Statement Variance	Actual Distribution Amount Amount Recognized in Financial Statement Variance	Actual Distribution Amount Amount Recognized in Financial Statement Variance
For the Year Ended December 31, 2010
$ - 820 (820) - 410 (410) $ - 1,230 (1,230) For the Year Ended December 31, 2011		(820) (410)
		(1,230)
$ 625 2,282 (1,657) 313 1,141 (828) $ 938 3,423 (2,485) For the Year Ended December 31, 2012		(1,657) (828)
		(2,485)
$ 14,842 7,421 $ 22,263	5,345 2,672 8,017	9,497 4,749
		14,246

The differences between the amounts of employee bonus and the remuneration to directors and supervisors approved in the shareholders’ meetings, and the amounts accrued thereon in the financial statements in 2009, 2010 and 2011 were due primarily to changes in accounting estimates and had been adjusted as other income in profit or loss in 2010, 2011 and 2012, respectively.

(3) Based on the resolutions passed by the board of directors, the remuneration of directors and supervisors and the employee bonus are appropriated at the rate of 2% and 1%, respectively, of the net income. The estimated and accrued annual remuneration of directors and supervisors and the employee bonus amounted to NT$2,282, NT$5,345 and NT$1,739; NT$1,141, NT$2,672 and NT$869 for the years ended December 31, 2010, 2011 and 2012, respectively. If bonus shares are resolved for distribution to employees during the meeting of the shareholders of the Company, the number of shares is determined by dividing the amount of bonus by the shares of stock closing price (after considering the effect of cash and stock dividends) on the day immediately preceding the shareholders’ meeting. The differences between the amounts of remuneration of directors and supervisors and the employee bonus approved in the shareholders’ meetings and those recognized in the financial statements, if any, are accounted for as changes in accounting estimates and recognized in profit or loss in the year when earnings are distributed.

～ F-47 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

(s) Earnings per Share (EPS)

For the years ended December 31, 2010, 2011 and 2012, the basic earnings per share were calculated as follows:

		For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
2010		2011		2012
NT$		NT$		NT$		US$
Before Income tax	After Income tax	Before Income tax	After Income tax	Before Income tax	After Income tax	Before Income tax	After Income tax
$ 722,550	692,450	1,316,610	1,238,026	472,295	356,725	16,269	12,288
823,625	823,625	873,042	873,042	877,443	877,443	877,443	877,443
$ 0.88	0.84	1.51	1.42	0.54	0.41	0.02	0.01

(t) Employee stock option

In February 2008, VMEPH, the Company’s sub-subsidiary, had issued employee stock options covering a total number of 20,000 thousands units to the Company in order to attract and retain excellent employees as well as motivate talented employees to grow. Each unit of these stock options entitles the holder to subscribe for one common share of VMEPH’s stock at an exercise price of HK$2.9 per share. In accordance with IFRS 2, VMEPH recognized the compensation cost under fair value method as these employee stock options were issued. These employee stock options are valid within five years, and expiration information regarding these employee stock options were as follows:

Expiration 6 months 1 year 2 years 3 years	Accumulated Exercisable ratio
	20% 45% 70% 100%

The details of the above mentioned employee stock options, issued on February 4, 2008, were as follows:

For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
2010		2011		2012
Quantity of Stock option 16,020 - (2,508) 13,512 9,458	Weighted- average Exercise Price	Quantity of Stock Option 13,512 - (1,638) 11,874 11,874	Weighted- average Exercise Price	Quantity of Stock Option 11,874 - (2,485) 9,389 9,389	Weighted- average Exercise Price
	HK$ 2.9 - HK$ 2.9		HK$ 2.9 - HK$ 2.9		HK$ 2.9 - HK$ 2.9

～ F-48 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

The outstanding and exercisable employee stock options of December 31, 2010, 2011, and 2012 were as follows:

December 31	Granted Date	Share	Option Outstanding Quantity of Stock Option Weighted- average Expected Life 13,512 2.08 11,874 1.08 9,389 0.08	Exercisable Option Outstanding	Exercisable Option Outstanding	Exercisable Option Outstanding
		Exercise Price (HKD)	Quantity of Stock Option	~~Weighted-~~ average Exercise Price (HKD)	Quantity of Stock Option	~~Weighted-~~ average Exercise Price (HKD)
2010 2011 2012	2008.02.04 2008.02.04 2008.02.04	$ 2.9 $ 2.9 $ 2.9	13,512 11,874 9,389	2.9 2.9 2.9	9,458 11,874 9,389	2.9 2.9 2.9

The fair value of the stock options granted is estimated using the binomial option pricing model. The contractual life of these stock options is used as an input into this model. Expectations of early exercise are incorporated into the binomial option pricing model.

Expected volatility Risk free interest rate Option life		December 31
	2010 55.15% 2.06% 2.08 year	2011 55.15% 2.06% 1.08 years	2012
			55.15% 2.06% 0.08 years

(u) Information on financial Instruments

(i) Fair value of financial instruments

The non-derivative short-term financial instruments include cash and cash equivalents, notes and accounts receivable, accounts receivable and account payable from related parties, short-term debt, other payables and accrued expenses payables. The carrying values on the reporting date of these financial instruments approximate their fair values, because of their short maturities.

As of December 31, 2010, 2011 and 2012, except for the financial assets and liabilities described above, the Consolidated Company’s other financial assets and liabilities were as follows:

		December 31	December 31	December 31	December 31	December 31	December 31
2010		2011		2012
NT$		NT$		NT$		US$
Book value	Fair value 1,740 56,998 - 10,000 - - 812,349	Book value	Fair value	Book value	Fair value	Book value	Fair value
$ 1,740 56,998 - 10,000 110,144 20,000 812,349		92,462 17,182 164,204 10,000 70,013 20,000 929,453	92,462 17,182 164,204 10,000 - - 929,453	91,294 25,870 132,744 10,000 55,101 20,000 1,182,959	91,294 25,870 132,744 10,000 - - 1,182,959	3,145 891 4,573 344 1,898 689 40,750	3,145 891 4,573 344 - - 40,750

～ F-49 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

		December 31	December 31	December 31	December 31	December 31	December 31
2010		2011		2012
NT$		NT$		NT$		US$
Book value	Fair value	Book value	Fair value	Book value	Fair value	Book value	Fair value
3,852,080 - 113,233	3,852,080 - 113,233	6,710,765 7,387 -	6,710,765 7,387 -	6,337,314 - 43,493	6,337,314 - 43,493	218,302 - 1,498	218,302 - 1,498

Methods and assumptions used by the Consolidated Company to evaluate the fair value of financial instruments were as follows:

(1) Financial assets reported at fair value through profit or loss, available-for-sale financial assets and held-to-maturity financial assets :
- The fair values are based on their quoted prices in an active market. For those with no quoted market prices, their fair values are determined using valuation techniques incorporating estimates and assumptions consistent with those generally used by other market participants to price financial instruments.
(2) Financial assets carried at cost
- Financial assets carried at cost, are measured at carrying value, as their fair market price is difficult to determine, due to lack of objective evidence, in practice.
(3) The fair value of investment in debt security with no active market is determined by using valuation techniques, under which, the estimates and assumptions used are consistent with the prevailing market conditions.
－
(4) Other financial assets noncurrent, consisted of guaranteed refundable deposits that are indispensable for the ongoing operation of the Consolidated Company and for which it is impossible to estimate the time necessary to accomplish the exchange of assets. Consequently, the fair market value of such financial instruments cannot be established. Therefore, their carrying value is used as the fair market value.
(5) The fair market value of long-term loan is determined by the present value of its future cash flow.
(6) The fair value of the derivative financial instrument is determined by using the valuation techniques, under which, the estimates and assumptions used are consistent with the prevailing market conditions.
(ii) Please refer to Note 6 for financial assets pledged as collateral as of December 31, 2010, 2011 and 2012.

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

(iii) Information on financial risks

As of December 31, 2010, 2011 and 2012, the Consolidated Company’s financial risks were as follows:

(1) Market risk

As of December 31, 2010, 2011 and 2012, the Company’s financial assets all of NT$30,000 were exposed to interest rate fluctuation risk, as the interest rates for bond are fixed. The fair value of these investments may be influenced by the fluctuation of the market’s interest rate. One percentage decline in loan prime rate will cause the fair value of bond investments to decline by approximately NT$300.

(2) Credit Market
Credit risk represents the potential loss that would be incurred by the Consolidated Company if the counter-parties breach the contracts. The counter-parties are domestic reputable financial institutions. Therefore, management does not expect those currentparties to default. The primary implicit credit risk of the Consolidated Company arises from cash, cash equivalents, and accounts receivable. Cash and cash equivalents are deposited in various financial institutions. The Consolidated Company further controls its credit risk from the possibility of being exposed to each financial institution, and believes that there is no significant concentration of credit risk.
Since the clients of the motorcycle departments of the Consolidated Company are well-diversified, there is no concentration of transactions with any single client. In order to reduce its credit risk, the Consolidated Company continually evaluates the financial position of the clients, any indication of impairment of accounts receivable, as well as the credit risk features (in separate and groups), and requests for collateral from certain clients, if necessary.
(3) Liquidity risk

The capital and operating funds of the Consolidated Company are sufficient to meet all current contractual obligations. Therefore, management believes its liquidity risk is minimal.

(4) Cash flow risk arising from fluctuations of interest rates As of December 31, 2010, 2011 and 2012, the financial liabilities exposed to the cash flow risk amounted to NT$13,100,829, NT$12,548,989 and NT$11,818,875, respectively. Considering that the Consolidated Company’s short-term and long-term loans bear floating interest rates, the effective rate changes along with the fluctuations of market interest rate will influence future cash flow.

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

(iv) Risk control, hedge strategies and activities

The Consolidated Company entered into derivative contracts to manage the exposures from the fluctuations of exchange rate in operating and financial activities. In accordance with the Consolidated Company’s risk management, the holding of derivative financial assets for hedging is intended to manage risk. As these derivatives are ineffective as hedging instruments, they were recognized as held for trading financial assets or liabilities.

As of December 31, 2010, 2011 and 2012, the Consolidated Company adopted the fair value hedge accounting and applied it on its foreign currency loans for purchases of raw materials, which could be influenced by the risk arising from the fluctuations of the exchange rate. As the risk evaluated by the Consolidated Company for these loans may be significant, forward exchange contract thereon was purchased for hedging purposes. Please refer to Note 4(b) for details of the derivative financial instruments designated for hedging as of December 31, 2010, 2011 and 2012.

(v) Others

The Consolidated Company's significant financial assets and liabilities denominated in foreign currency were as follows:

December 31, 2011	December 31, 2011	December 31, 2011	December 31, 2012	December 31, 2012	December 31, 2012
Foreign Currency 139,476 8,185 87,214 7 291,119 1,363,765,504 332,306 19,153,756 54,538 2,262 193,312	Exchange Rate 30.2700 39.2000 0.3903 3.8950 4.8295 0.0014 4.8295 0.0014 30.2700 39.2000 4.8295	NTD	Foreign Currency 99,424 8,251 66,807 2 230,399 1,414,398,475 410,278 19,400,000 98,622 868 125,343	Exchange Rate	NTD
		4,221,939 320,852 34,040 27 1,405,959 1,909,272 1,604,881 26,769 1,650,865 88,670 933,600		29.0300 38.4800 0.3362 3.7770 4.6372 0.0014 4.6372 0.0014 29.0300 38.4800 4.6372	2,886,279 317,498 22,461 8 1,068,406 1,980,158 1,902,542 27,160 2,862,997 33,401 581,241

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

5. RELATED-PARTY TRANSACTIONS

(a) Names of related parties and relationship with the Consolidated Company

Name of Related Party Relationship with the Consolidated Company Zoeng Chang Industry Co., Ltd. (Zoeng Chang) Subsidiary’s investee company under equity method King Long United Automotive Industry Co., Ltd. (Xiamen King Long) " Chongqing Kuayue Sanyang Co., Ltd.(Chongqing Kuayue) " Chinlead Co., Ltd. (Chinlead) Same chairman Chinfon Global Co., Ltd. (Chinfon) " Fang Ta Trading Co., Ltd. (Fang Ta) " Henchun Industrial Co., Ltd. (Henchun Industrial) " Teamworld Industry Co., Ltd. (Teamworld) Its director is the chairman of the Company Nanyang Insurance Proxy Co., Ltd. (Nanyang Insurance) " Guangzhou Ching Jung Co., Ltd. (Guangzhou Ching Jung) Its main shareholder is the director of the Company Yi Qian Corporation (Yi Qian) " Xiang Xin Industrial Co., Ltd. (Xiang Xin) Its director is also the director of Chao Cin Taiwan Keihin Carburetor Co., Ltd. (Taiwan Keihin) Its juridical director is the Company Hsu Yang Technology Co., Ltd. (Hsu Yang Technology) Its director is same as the vice chairman of Nanyang Its chairman is the same as the vice chairman of Chao Cin Industrial Co., Ltd. (Chao Cin) Nanyang King Zone Co., Ltd. (King Zone) Its supervisor is the same as the director of Ching Ta King Profit Enterprises Limited (King Profit) Affiliated company of the Company Affiliated company of the Company (Disposed on Hangzhou Sanyang Trading Co., Ltd. (Hangzhou Sanyang) October 5, 2011) All directors, supervisors, general managers and vice general managers The Consolidated Company’s key management

(b) Significant transactions with related parties

(i) Sales

(1) The significant sales transactions with the related parties for the years 2010, 2011 and 2012 were as follows:

For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
2010 % of NT$ Net Sales $ 209,774 1 - - 544 - 196 - 950 - 23,610 - 42 - $ 235,116 1	2011 % of NT$ Net Sales 232,471 1 - - 1,078 - 587 - 401 - 6 - 280 - 234,823 1		2012
NT$ $ 209,774 - 544 196 950 23,610 42 $ 235,116	NT$ 232,471 - 1,078 587 401 6 280 234,823	NT$ 213,677 2,704 1,617 352 96 - 61 218,507	US$ 7,361 93 56 12 3 - 2 7,527	% of Net Sales
				1 - - - - -
				1

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

The collection period for the Consolidated Company’s related parties ranges from 15 to 45 days after the shipment is made. In addition, the related parties are charged interest for overdue payment, which is calculated based on the average interest rates on loans of the Consolidated Company, plus an additional interest rate of 0.25%.

(2) Services Revenue

The revenues from technical and consulting services provided to related parties in 2010, 2011 and 2012 were as follows:

For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
2010 % of Technical NT$ Service Revenue $ 17,939 5 3,448 1 2,657 - - - 153 - $ 24,197 6	2011 % of Technical NT$ Service Revenue 19,996 2 3,626 1 2,623 - 1,226 - - - 27,471 3		2012
NT$ $ 17,939 3,448 2,657 - 153 $ 24,197	NT$ 19,996 3,626 2,623 1,226 - 27,471	NT$	US$ 677 133 87 28 - 925	% of Technical Service Revenue 2 1 - - - 3
		19,639 3,876 2,525 820 -
		26,860

(3) As of December 31, 2010, 2011 and 2012, the notes and accounts receivable arising from

the sales transactions and the technical service with the related parties were as follows:

		December 31	December 31
2010	% 53 35 26 14 3 131 (31) 100	2011			2012
NT$ $ 53,916 35,797 26,071 14,031 3,493 133,308 (31,898) $ 101,410		NT$ 35,004 - 28,289 14,031 4,485 81,809 (42,320) 39,489	%	NT$ 53,239 - 27,481 - 2,264 82,984 (27,481) 55,503	US$ 1,834 947 78 2,859 (947) 1,912	%
			89 - 72 36 10			96 - 50 - 4
			207 (107)			150 (50)
			100			100

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

(ii) Purchases

(1) For the years 2010, 2011 and 2012, purchases from related parties were as follows:

	For the Year Ended December 31	For the Year Ended December 31
2010 % of Net NT$ Purchases $ 333,269 2 212,045 1 163,454 1 89,737 - 43,492 - 70,426 - 18,674 - 35,063 - 4,851 - $ 971,011 4	2011 % of Net NT$ Purchases 496,534 2 214,589 1 175,574 1 118,345 - 59,248 - 76,576 - 12,156 - 2,731 - 3,807 - 1,159,560 4		2012
NT$	NT$ 496,534 214,589 175,574 118,345 59,248 76,576 12,156 2,731 3,807 1,159,560	NT$ 620,803 236,910 223,333 131,803 83,201 76,164 21,150 545 4 1,393,913	US$ 21,385 8,161 7,693 4,540 2,866 2,624 729 19 - 48,017	% of Net Purchases
$ 333,269 212,045 163,454 89,737 43,492 70,426 18,674 35,063 4,851				2 1 1 1 - - - - -
$ 971,011				5

The payment term of the Consolidated Company’s purchase transactions with the related parties is 45 days after the delivery of goods, and the purchase prices are based on the market price with no significant difference from the general suppliers.

(2) As of December 31, 2010, 2011 and 2012, the notes and accounts payable arising from the purchase transactions with the related parties were as follows:

Name of Related Party Taiwan Keihin Xiang Xin Zoeng Chang Chinfong Chinlead King Zone Fong Ta Others Total			December 31	December 31	December 31	% 56 14 11 11 3 3 1 1 100
	2010	% 18 32 10 21 8 4 4 3 100	2011	% 48 19 11 13 3 3 2 1 100	2012 NT$ US$ 138,632 4,775 34,006 1,171 27,142 935 26,466 912 8,735 301 8,093 279 1,301 45 2,145 74 246,520 8,492
	NT$ $ 16,856 30,149 9,197 19,570 8,067 3,970 3,848 3,385 $ 95,042		NT$ 95,736 37,680 21,532 26,157 6,984 6,149 3,371 2,062 199,671		NT$ 138,632 34,006 27,142 26,466 8,735 8,093 1,301 2,145 246,520

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

(iii) Others

	December 31	December 31
2010 NT$ % $ 1,516 - 1,962 - - - 4,903 1 1,858 - 10,239 1 (7,363) $ 2,876	2011 NT$ % 761 - 3,224 - - - 4,903 1 1,858 - 10,746 1 (6,761) 3,985		2012
NT$ $ 1,516 1,962 - 4,903 1,858 10,239 (7,363) $ 2,876	NT$ 761 3,224 - 4,903 1,858 10,746 (6,761) 3,985	NT$	US$ 70 14 1 - -	%
		2,033 421 22 - - 2,476 - 2,476		- - - - -
			85	-

(iv) Service income and fee

(1) For the years 2010, 2011 and 2012, the service incomes and fees derived from the related parties were as follows:

	December 31	December 31	December 31
2010 NT$ $ 17,201 14,833 644 $ 32,678 2,575 - 2,523 96 $ 5,194 $ 13,766	2011 NT$ 27,285 19,439 14 46,738 2,308 2,400 - 465 5,173 17,937	2012
		NT$	US$
		32,903 27,371 323	1,133 943 11
		60,597	2,087
		1,830 - - -	63 - - -
		1,830	63
		11,686	403

(2) In 2010, 2011 and 2012, the Company signed a service contract with Guangzhou Ching Jung to collect information on investments, technologies, and the other related aspects of the market environment in mainland China with total contract price of CNY$2,680, CNY$2,000, and CNY$300, respectively. As of December 31, 2010, 2011 and 2012, the Company had fully paid the contract amounts.

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

(v) Lease of real estate

(1) The Consolidated Company leased a portion of its land and buildings to the related parties as automobile repair shops, and received rental fees thereon monthly. For the years 2010, 2011 and 2012, the rental income thereon were as follows:

For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
2010 NT$ $ 207 1,207 $ 1,414	2011 NT$ 215 1,334 1,549	2012
		NT$ 69 989 1,058	US$
			2 34
			36

(2) For the years 2010, 2011 and 2012, the subsidiaries’ monthly rental expenses for renting land and building for operating activities from the related parties amounted to NT$136, NT$126 and NT$69, respectively.
(vi) Property transactions
(1) For the years 2010, 2011 and 2012, the Consolidated Company purchased machinery and miscellaneous equipment from the related parties as follows:

For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
2010 NT$ $ 95 648 - 289 - $ 1,032	2011 NT$ 1,760 - 7,885 2,380 3,899 15,924	2012
		NT$ 2,094 1,644 1,394 290 - 5,422	US$
			72 56 48 10 -
			186

(2) On October 16, 2012, the Company sold for NT$55,723 and NT$139,285 its ownership of 3,120 thousands and 7,825 thousands equity shares in Sheng Mao Investment Corporation and Hsu Mao Investment Corporation, respectively, to its related party, Yi Qian Corporation. The payment for the disposal of those shares was received on October 22, 2012. Such disposal resulted in disposal losses totaling NT$939, and a charge to capital surplus – treasury stock transactions of NT$138,733.

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

(vii) Others

(1) As of December 31, 2010 and 2011, the Company’s receivable for advertising subsidies and warranty from King Long amounted to NT$2,645 and NT$139, －
respectively, which was recognized as other financial assets current.
(2) In 2012, the Company worked in cooperation with King Long. As of December 31, 2012, the Company deposited NT$1,622 with King Long, which was accounted for as －
other financial assets current, regarding this cooperation.

(3) Rewards Income

For the years ended December 31, 2010, 2011 and 2012, the subsidiary, Nanchen received rewards income by purchasing from Xiang Xin spare parts for automobile of NT$2,205, NT$2,252 and NT$2,427, respectively. This income was offset against operating cost.

For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
2010 NT$ $ 62,236 31,576 78 2,496 $ 96,386	2011 NT$ 52,968 29,885 355 121 83,329	2012
		NT$ 56,073 23,508 2,604 84 82,269	US$
			1,932 810 90 3
			2,835

The above mentioned compensation costs include the estimated directors’ and supervisors’ remuneration and employee bonus, whose amounts were estimated using the policy described in the stockholders’ equity section of the notes to the consolidated financial statements.

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

6. PLEDGED ASSETS

. PLEDGED ASSETS
Accounts Notes receivables Other financial assets－current Inventory Inventory-construction in progress Other financial assets－ noncurrent Other financial assets－ noncurrent " Property, plant and equipment Assets held for lease Land leasehold rights Idle assets Other assets Total	Pledged to Secure		December 31
		2010 NT$ $ 64,717 911,905 - - 474,901 251,595 100 6,971,434 812,548 137,409 176,573 153,177 $9,954,359	2011 NT$ 95,790 1,205,665 62,645 22,741 582,278 302,142 - 8,255,497 1,367,940 153,828 64,480 234,265 12,347,271	2012
				NT$ 87,664 893,438 52,837 - 483,819 648,096 - 8,035,112 1,369,603 135,355 64,480 275,154 12,045,558	US$
	Short-term loans Security deposit, short-term and long-term loans " " Letter of credit on financing guarantee, security deposit, and long-term and short-term loans for grand sub-subsidiaries-Xia Shing and Qingzhou Engineering Security deposit for custom clearance and arms purchase from National Defense Department Collateral lodged in the court and security deposit for the Motor Vehicles Office Short-term and long-term loans " " " "				3,020 30,776 1,820 - 16,666 22,325 - 276,786 47,179 4,663 2,221 9,478
					414,934

7. SIGNIFICANT COMMITMENTS AND CONTINGENCIES

(a) As of December 31, 2010, 2011 and 2012, the Company and Nanyang Industry had unused letters of credit of US$16,181, US$12,839 and US$22,390, respectively.
(b) As of December 31, 2010, 2011 and 2012, the Consolidated Company’s unpaid portion of the total contract price for the equipment purchase contracts, construction in progress—equipment , and software purchase contracts amounted to NT$16,058, NT$73,258, and NT$7,926, respectively.
(c) As of December 31, 2010, 2011 and 2012, the promissory notes issued by the Consolidated Company for finance guarantee amounted to NT$20,325, NT$21,951 and NT$17,520, respectively.

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

(d) As of December 31, 2010, 2011 and 2012, the Consolidated Company issued promissory and installment notes for loans which amounted to NT$100,000, NT$16,654, and NT$22,854, respectively.
(e) As of December 31, 2010, 2011 and 2012, Nova Design had entered into several project contracts with its clients, with aggregate contract price of NT$105,321, NT$128,683, and NT$84,274, respectively, and the unearned revenues thereon amounted to NT$66,935, NT$54,171, and NT$28,944, respectively.
(f) As of December 31, 2012, the Consolidated Company’s rent payable maturing in the next five years is as follow:

Periods 2013.01.01~2013.12.31 2014.01.01~2014.12.31 2015.01.01~2015.12.31 2016.01.01~2016.12.31 2017.01.01~2017.12.31 2018.01.01and thereafter	NT$ $ 141,575 94,830 76,623 54,378 32,075 303,168 $ 702,649	US$
		4,877 3,267 2,639 1,873 1,105 10,443
		24,204

As of December 31, 2010, 2011 and 2012, the installment notes payable of Nanchen Industry from its rental contracts amounted to NT$6,513, NT$3,123 and NT$15,066, respectively. Nanyang Industry’s refundable deposits for renting service factories and business sites amounted to NT$20,912, NT$22,779, and NT$23,287, respectively, which were recognized as other － financial assets noncurrent.

(g) In June 2009, the Company acquired a contract from the Armaments Procurement Bureau under the Ministry of National Defense (PCAB) for producing Light Tactical Vehicles, with a total contract price of NT$4,851,903. As of December 31, 2011 and 2012, the Company’s sales revenue received in advance were both NT$77,500, and the performance bond and advance payment for this bond applied from the bank were NT$242,595 and NT$77,500, respectively. The Company deposited $320,096 and $101,800, respectively, in a bank as guarantee for the above bonds. Under this contract, the Company is required to deliver vehicle samples for testing in advance, and the vehicles must be delivered in batches within 15, 19 and 23 months after the contract is signed. If there is a batch-delivery delay, 0.1 ‰ of total amount of the batch is accumulated daily as a penalty for the delay. The maximum amount of the penalty is equal to 20% of the contract price.

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

Based on the contract, all vehicles are considered unqualified if the performance or the specification of any one of them fails. The whole batch of vehicles must meet all the qualifications or the standards set by PCAB. Otherwise, the Company should improve, remove, remanufacture, or replace the defective parts of the vehicles. Only after meeting all the requirements can the Company request for a re-testing that is limited to two times within seven days after being informed by PCAB. The Company may only mass produce if the inspection is completed and the reports concerning quality control have been approved by the respective divisions of the testing center.

The Company delivered the Light Tactical Vehicle samples for testing on December 1, 2009 as promised. However, during the testing period, there was a dispute between the Company and PCAB regarding the low beam headlights’ aiming angle, so the Company requested for mediation from the Public Construction Commission (PCC). Thereafter, on January 6, 2012, PCC had indicated that the reason why the performance testing of the vehicle samples did not pass was because the samples were tested immediately without any preparations for adjustment regarding the low beam lights, and requested the Company to readjust the samples and have them retested by PCAB within seven days after the mediation is settled. Both the Company and PCAB agreed with PCC’s suggestion and proceeded with the testing procedure on August 14, 2012. The samples passed the visual inspection.

For the lighting inspection, PCAB requested the samples to be delivered to the Automobile Research and Testing Center (ARTC). ARTC insisted that PCAB was the assignor of the performance testing and that the Company should not continue to make any preparations for adjustment using the laboratory of ARTC without the approval of PCAB. However, the vehicle sample had gone through the performance testing many times before without the permission from PCAB. Also, each application form that needed to be filled out and submitted by the Company for testing were all approved by ARTC. Nevertheless, ARTC insisted that the Company is only the payer and not the assignor. Therefore, ARTC would not allow the Company to use its laboratory for adjustment. On the other hand, the Company claimed that the assertion of ARTC is unreasonable and hence, cannot accept it. As a result, the Company requested for mediation from PCC on September 3, 2012.

As the Company believed that the accuracy of the low beam headlights’ aiming angle does not affect the design and structure of the vehicle samples, it proceeded mass producing the Light Tactical Vehicles in order to meet the timetable stated in the contract. In return, PCAB responded by writing a letter to the Company stating that it refused to continue with the next procedure by counting, visual inspecting, and random sampling of the first batch of Light Tactical Vehicles due to the failure in meeting the requirements set by PCAB, under which, the

～ F-61 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

contractor is only allowed to mass produce when all the items pass the inspection. Therefore, the Company again requested for mediation from PCC concerning this matter on October 9, 2012. As of December 31, 2012, the inventories of the Light Tactical Vehicles amounted to NT$4,024,539.

Presently, the case concerning the Light Tactical Vehicles is still under negotiation. PCAB also claimed that there was a delay of 372 days regarding the delivery of the first batch, which should be used to calculate the penalty. However, according to the attorney’s evaluation on the contract, the testing period should not be included in the performance period. Therefore, it is reasonable that the actual performance period should not be the same as the one shown in the contract. Based on the principle of conservatism, the Company recognized in 2012 an estimated contingency loss of $9,727 for the possible penalty from vehicle delivery delay.

(h) Regarding the investigation on tariff evasion of the Company’s subsidiary, Xia Shing Motorcycle Co., Ltd., the local government decided on January 10, 2011 that the tariff and the value-added tax, which amounted to NT$320,304 (CNY$71,965) must be paid. The case was closed after Xia Shing Motorcycle paid the tax on time.
(i) The Company’ shareholders, Wan Xiang Investing LLC (Wan Xiang) and Mr. Tian, filed common pleas to the Hsinchu District Court in order to annul the resolutions agreed upon at the shareholders’ meeting on June 6, 2012. Those resolutions included the modification of Rules of Procedure for the Company’s Shareholders Meetings. Also included were the amendment to the articles of incorporation and the procedures for the acquisition and disposal of assets. On February 5, 2013, the Hsinchu District Court rejected the appeal. In addition, the Company was also notified by the Hsinchu District Court that Wan Xiang filed other common pleas against the Company about the resolutions that were approved at the shareholders’ meeting on December 24, 2012. However, the outcome of this lawsuit is not expected to cause any financial gain or loss to the Company based on the attorney’s evaluation.
(j) In September 2012, the Company’s shareholder Mr. Fang filed common pleas against the Company at the Taipei District Court. Mr. Fang requested to confirm that Da Feng Investing Co., Ltd. (Da Feng) and Mr. Chiu are not the supervisors of the Company, and if they really are, he would appeal to the Taipei District court to temporarily terminate their position and authority before the lawsuit is settled. However, the Taipei District Court rejected Mr. Fang’s petition because it did not meet the requirements of the provisional seizure. The outcome of this lawsuit is not expected to any financial gain or loss to the Company based on the attorney’s evaluation.
(k) In March, 2012, Taipei Revenue Service indicated that the preferential tax rate for parking lots is no longer applied to Shan Young Asset’s six parcels of land which are located at 3rd Subsection

～ F-62 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

of Tanmei Section. Instead, the normal tax rate will be applied to the said parcels of land starting 2011 based on the inspection result of the land usage, and the total tax amounted to NT$40,741. However, Shan Young applied for a petition and deposited NT$40,853 as a guarantee in conformity with the law, but the petition was rejected by Taipei City Government on January 8, 2013. Because the Company was reluctant to accept the rejection, it applied for an administrative litigation on January 28, 2013. As of December 31, 2012, the land value tax payable amounted to NT$40,741, which was accounted for as part of accrued expenses.

(l) On November 17, 2011, Taipei Revenue Service (Neihu Branch) sent a letter to the Company’s subsidiary, Shan Young Asset Management Co., Ltd., claiming that, the Company’s real estate and the relative business were spun off from the Company to Shan Young for efficient asset management which was approved by the board of directors on June 24, 2004. Thereafter, on November 5, 2004, the Company reported the current land value to the tax authority, and the unpaid land value increment tax was registered under Shan Young Asset which was approved by Letter No.09360911600. However, the land Nos. 323, 324, 345 and 346, which are located at 3th Subsection Tanmei Section, Neihu District, Taipei City, was settled as trust registration to TC Bank Co., Ltd. on May 6, 2011. Because of the trust registration, Taipei Revenue Service insisted that it should be treated as a transfer transaction. Therefore, the Company should pay the land value increment tax amounting NT$697,882 for the land according to the Article 34 of the Business Mergers and Acquisitions Act. On the other hand, the Company claimed that the nature of the trust registration was not the same as the transfer transaction. Therefore, the Company applied for a petition and deposited NT$348,941 as a guarantee in conformity with the law, but the petition was rejected by the Taipei City Government on January 8, 2013. Because the Company was reluctant to accept the rejection, it applied for an administrative litigation on January 28, 2013.
(m) On October 5, 2012, in order to protect the shareholders’ rights and interests, the board of directors of the Company resolved to reevaluate Shan Young Asset’s share of the coconstruction of the luxurious buildings with Meifu Construction Co., Ltd. (Meifu) . In January 2008, Shan Young Asset provided to Meifu a piece of land (the Land) located in Tanmei Section of Neihu District, Taipei City for the construction of the buildings. Under the building coconstruction agreement, Meifu holds 54% and Shan Young Asset shares 46% equity interest on the buildings. As the Company is contemplating of increasing its equity interest on the buildings, it advised its attorney to find all the possible means and ways to negotiate with Meifu. As of December 31, 2012, Shan Young Asset applied for a land trust registration in order to successfully complete the construction project:

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Item Six parcels of land No. 323, etc, located at 3rd Subsection of Tanmei Section	Trustee Ta Chong Bank	Trust Period Note	Area of Trust
			Land Trust

Note: The period of the land trust registration started from April 25, 2011 and will end until all of the following conditions are met:
- (1) When the construction project and the ownership registration of the building (which is applied for the first time) are completed.
- (2) When the land trust registration is cancelled and the distribution of the earnings is completed. In addition, the buildings appropriated to Shan Young Asset should be pledged to Ta Chong Bank as top priority when the restricted right of the land appropriated to Meifu Construction is cancelled.
(n) The Company’s sub-subsidiaries, Plassen International Limited, and Cosmos System Inc. and its investee companies, Xia Shing Motorcycles Co., Ltd., Qingzhou Engineering Co., Ltd. and Xia Shing Motorcycle Sales Co., Ltd., had been in a poor financial situation for the years ended December 31, 2010, 2011 and 2012, thus, the Company’s subsidiary, SY International Ltd., had committed to provide financial support to those companies.
(o) On 25 January 2011, the Board of Directors of VMEPH (a sub-subsidiary of the Company) resolved to relocate one of its factories from Ha Tay province to a new location in Hanoi, because VMEPH has been informed that the Vietnamese government intends to redevelop Ha Tay province. The relocation is expected to be completed by the end of September 2012. The approved budget for the relocation and construction of the new factory is US$17,000 (net of budgeted land leasehold rights US$5,000). The authorized amount is an initial estimate that will be subject to a regular review by VMEPH’s board of directors.

As of December 31, 2012, the conditions of relocation project were as follows:

Contracted Approved but not contracted	NT$ $ 12,187 479,746 $ 491,933	US$
		420 16,526
		16,946

8. SIGNIFICANT CATASTROPHIC LOSSES: None.

9. SIGNIFICANT SUBSEQUENT EVENTS: None.

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

10. OTHERS:

(a) The employment, depreciation, depletion and amortization expenses categorized by function were as follows:

Categorized as Nature	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
	2010			2011			2012
	NT$			NT$			NT$			US$
	Operating Cost	Operating Expense	Total	Operating Cost	Operating Expense	Total	Operating Cost	Operating Expense	Total	Operating Cost	Operating Expense	Total
Employee expense Salary expense Labor and health insurance Expense Pension expense Other employee expense Depreciation expense Depletion expense Amortization expense	$1,130,657 76,964 124,021 68,956 713,642 - 27,272	1,924,997 106,558 130,926 73,003 560,988 - 55,607	3,055,654 183,522 254,947 141,959 1,274,630 - 82,879	1,256,237 85,203 127,726 77,820 687,305 - 31,709	2,415,205 149,525 139,821 95,462 519,071 - 58,852	3,671,442 234,728 267,547 173,282 1,206,376 - 90,561	1,225,632 92,436 131,184 83,269 719,880 - 50,183	2,101,435 129,766 146,050 92,401 478,677 - 39,412	3,327,067 222,202 277,234 175,670 1,198,557 - 89,595	42,219 3,184 4,519 2,868 24,798 - 1,729	72,388 4,470 5,031 3,183 16,489 - 1,358	114,608 7,654 9,550 6,051 41,287 - 3,086

Note: For the years ended December 31, 2010, 2011 and 2012 the depreciation of idle assets amounted to NT$29,964, NT$30,929, and NT$250, respectively, recognized as non－operating expense. The depreciation of assets held for lease amounted to NT$3,398, NT$3,229 and NT$3,102, respectively, recognized as a reduction of rental income.

(b) Reclassifications

In order to conform to the presentation of the consolidated financial statements for the year ended December 31, 2012, certain items in the consolidated financial statements for the year ended December 31, 2010 and 2011 have been reclassified. Such reclassifications have no significant effect on the presentation of the consolidated financial statements.

(c) Under the order No. 0990004943 issued by the Financial Supervisory Commission Executive Yuan on February 2, 2010, starting 2013, the Consolidated Company is required to prepare the Consolidated financial report in conformity with the International Financial Reporting Standards (IFRSs), the International Accounting Standards (IASs), the International Financial Reporting Interpretations Committee (IFRICs), and Standing Interpretation Committee (SICs) endorsed by the Financial Supervisory Commission. According to these adjustments, the Consolidated Company had established an ad hoc group which is in charge of developing the plan for adopting IFRSs, IFRICs, and SICs, that is being led by the supervisor of the Finance Group. The content of the plan, the expected completion date, and the status of implementation are as follows:

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

Content of the Plan 1. Evaluation Phase (from January 1, 2010 to December 31, 2011)  Setting up a plan relative to the Consolidated Company’s transition to IFRSs and formation of an IFRSs group  Proceeding the first phase of employees’ internal training  Identification of the differences between current accounting policies and IFRSs  Assessment of adjustments of the current accounting policies  Assessment of the impact of each exemption and option of the Consolidated Company under IFRS 1 – First-time Adoption of International Financial Reporting Standards  Assessment of changes required in the information systems and internal controls related to adoption of IFRSs 2. Preparing Phase (from January 1, 2011 to December 31, 2012)  Decision to adjust current accounting policies to IFRSs  Decision to adopt IFRS 1 – First-time Adoption of International Financial Reporting Standards  Adjustments of information systems and internal controls related  Proceeding the second phase of employees’ internal training 3. Practicing Phase (from January 1, 2012 to December 31, 2013)  Testing the operating status of related information system  Preparation of opening date statement of financial position and comparative financial information under IFRSs  Preparation of financial statements under IFRSs	Implementation Units Accounting Division Human Resource Division Accounting Division Accounting Division Accounting Division Internal Control Division and Information Division Accounting Division Accounting Division Internal Control Division and Information Division Human Resource Division Information Division Accounting Division Accounting Division	Implementation Situation
		Completed Completed Completed Completed Completed Completed Completed Completed Completed In Progress Completed In Progress In Progress

(d) As of December 31, 2012, the potential significant differences between current accounting policies and IFRSs for preparing IFRSs financial statements as evaluated by the Consolidated Company are as follows:

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

(i) GAAP reconciliation for consolidated balance sheet, starting January 1, 2012:

Item		NT$
	R.O.C. GAAP $ 1,255,326 8,254,313 1,713,026 97,954 9,170,380 2,896,359 13,151,591 111,726 486,145 - - 961,854 173,103 51,524 399,728 $ 38,723,029 $ 11,271,240 6,111,081 1,902,130 1,842,964 - - 404,223 21,531,638 8,963,768 2,205,179 4,026,300 (1,338,489) (562,205) (110,410) 1,583,058 (102,363) 2,526,553 17,191,391 $ 38,723,029	Adjustments - - - (97,954) - - - (111,726) (486,145) 486,145 1,134,957 (961,854) (173,103) 767,096 - 557,416 85,365 - (1,902,130) 478,183 1,902,130 669,142 - 1,232,690 - (717,959) 1,397,866 - 562,205 - (1,583,058) (282,228) (52,100) (675,274) 557,416	IFRSs
Other financial assets－current Inventories Notes and accounts receivable, net (including related parties) Deferred income tax assets－current (Note 1) Other current assets Financial assets－noncurrent and long-term investments Property, plant and equipment Deferred pension costs (Note 2) Land leasehold right (Note 3) Lease prepayment (Note 3) Investment property (Note 4) Assets held for lease (Note 4) Idle assets (Note 4) Deferred income tax assets－noncurrent (Note 1) Other assets Total assets Other current liabilities (Note 5) Long-term liabilities Accrued liabilities for land value increment tax (Note 6) Accrued pension liabilities (Note 2) Deferred income tax liabilities－land tax revaluation increment (Note 6) Deferred income tax liabilities－noncurrent (Note 1) Other liabilities Total liabilities Common stock Capital surplus (Note 7) Unappropriated earnings (Note 9 and 10) Cumulative translation adjustments Unrecognized loss on pension cost (Note 2) Unrealized loss on financial in assets Unrealized revaluation increments (Note 6) Treasury stock (Note 8) Minority interest (Note 9) Total stockholders’ equity and minority interest Total liabilities and stockholders’ equity			1,255,326 8,254,313 1,713,026 - 9,170,380 2,896,359 13,151,591 - - 486,145 1,134,957 - - 818,620 399,728
			39,280,445
			11,356,605 6,111,081 - 2,321,147 1,902,130 669,142 404,223
			22,764,328
			8,963,768 1,487,220 5,424,166 (1,338,489) - (110,410) - (384,591) 2,474,453
			16,516,117
			39,280,445

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

Item		US$
	R.O.C. GAAP $ 43,242 284,337 59,009 3,374 315,893 99,771 453,034 3,849 16,746 - - 33,133 5,963 1,775 13,770 $ 1,333,897 $ 388,262 210,509 65,523 63,485 - - 13,924 741,703 308,776 75,962 138,694 (46,107) (19,366) (3,803) 54,532 (3,526) 87,032 592,194 $ 1,333,897	Adjustments - - - (3,374) - - - (3,849) (16,746) 16,746 39,096 (33,133) (5,963) 26,424 - 19,201 2,940 - (65,523) 16,472 65,523 23,050 - 42,462 - (24,732) 48,153 - 19,366 - (54,532) (9,722) (1,794) (23,261) 19,201	IFRSs
Other financial assets－current Inventories Notes and accounts receivable, net (including related parties) Deferred income tax assets－current (Note 1) Other current assets Financial assets－noncurrent and long-term investments Property, plant and equipment Deferred pension costs (Note 2) Land leasehold right (Note 3) Lease prepayment (Note 3) Investment property (Note 4) Assets held for lease (Note 4) Idle assets (Note 4) Deferred income tax assets－noncurrent (Note 1) Other assets Total assets Other current liabilities (Note 5) Long-term liabilities Accrued liabilities for land value increment tax(Note 6) Accrued pension liabilities (Note 2) Deferred income tax liabilities－land tax revaluation increment (Note 6) Deferred income tax liabilities－noncurrent (Note 1) Other liabilities Total liabilities Common stock Capital surplus (Note 7) Unappropriated earnings (Note 9 and 10) Cumulative translation adjustments Unrecognized loss on pension cost (Note 2) Unrealized loss on financial in assets Unrealized revaluation increments (Note 6) Treasury stock (Note 8) Minority interest (Note 9) Total stockholders’ equity and minority interest Total liabilities and stockholders’ equity			43,242 284,337 59,009 - 315,893 99,771 453,035 - - 16,746 39,096 - - 28,199 13,770
			1,353,098
			391,202 210,509 - 79,957 65,523 23,050 13,924
			784,165
			308,776 51,230 186,847 (46,107) - (3,803) - (13,248) 85,238
			568,933
			1,353,098

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

(ii) GAAP reconciliation for consolidated balance sheet, as of December 31, 2012:

Item		NT$
	R.O.C. GAAP $ 1,580,871 8,568,305 1,561,990 79,395 7,823,454 3,621,845 12,624,545 43,406 427,113 - - 987,826 166,916 - 415,265 $ 37,900,931 $ 11,204,835 5,587,067 1,902,130 1,887,166 - 40,686 609,851 21,231,735 8,963,768 2,360,537 1,755,683 1,125,135 1,098,837 (1,663,438) (590,097) (122,068) 1,583,058 (37,581) 2,195,362 16,669,196 $ 37,900,931	Adjustments - - - (79,395) - - - (43,406) (427,113) 427,113 1,154,742 (987,826) (166,916) 712,384 - 589,583 86,564 - (1,902,130) 515,463 1,902,130 632,989 - 1,235,016 - (717,959) - 1,397,866 (164,418) - 590,097 - (1,583,058) (103,997) (63,964) (645,433) 589,583	IFRSs
Other financial assets－current Inventories Notes and accounts receivable, net (including related parties) Deferred income tax assets－current (Note 1) Other current assets Financial assets－noncurrent and long-term investments Property, plant and Equipment Deferred pension costs (Note 2) Land leasehold right (Note 3) Lease prepayment (Note 3) Investment property (Note 4) Assets held for lease (Note 4) Idle assets (Note 4) Deferred income tax assets－noncurrent (Note 1) Other assets Total assets Other current liabilities (Note 5) Long-term liabilities Accrued liabilities for land value increment tax(Note 6) Accrued pension liabilities (Note 2) Deferred income tax liabilities－land tax revaluation increment (Note 6) Deferred income tax liabilities－noncurrent (Note 1) Other liabilities Total liabilities Common stock Capital surplus (Note 7) Legal reserve Special reserve (Note 10) Unappropriated earnings (Note 2, 9 and 10) Cumulative translation adjustments Unrecognized loss on pension cost (Note 2) Unrealized loss on financial assets Unrealized revaluation increments (Note 6) Treasury stock (Note 8) Minority interest (Note 2 and 9) Total stockholders’ equity and minority interest Total liabilities and stockholders’ equity			1,580,871 8,568,305 1,561,990 - 7,823,454 3,621,845 12,624,545 - - 427,113 1,154,742 - - 712,384 415,265
			38,490,514
			11,291,399 5,587,067 - 2,402,629 1,902,130 673,675 609,851
			22,466,751
			8,963,768 1,642,578 1,755,683 2,523,001 934,419 (1,663,438) - (122,068) - (141,578) 2,131,398
			16,023,763
			38,490,514

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

Item		US$
	R.O.C. GAAP $ 54,456 295,153 53,806 2,735 269,495 124,762 434,879 1,495 14,713 - - 34,028 5,750 - 14,306 $ 1,305,578 $ 385,974 192,458 65,523 65,007 - 1,402 21,008 731,372 308,776 81,314 60,478 38,758 37,852 (57,301) (20,327) (4,205) 54,532 (1,295) 75,624 574,206 $ 1,305,578	Adjustments - - - (2,735) - - - (1,495) (14,713) 14,713 39,778 (34,028) (5,750) 24,539 - 20,309 2,982 - (65,523) 17,756 65,523 21,805 - 42,543 - (24,732) - 48,152 (5,664) - 20,327 - (54,532) (3,582) (2,203) (22,233) 20,309	IFRSs
Other financial assets－current Inventories Notes and accounts receivable, net (including related parties) Deferred income tax assets－current (Note 1) Other current assets Financial assets－noncurrent and long-term investments Property, plant and Equipment Deferred pension costs (Note 2) Land leasehold right (Note 3) Lease prepayment (Note 3) Investment property (Note 4) Assets held for lease (Note 4) Idle assets (Note 4) Deferred income tax assets－noncurrent (Note 1) Other assets Total assets Other current liabilities (Note 5) Long-term liabilities Accrued liabilities for land value increment tax(Note 6) Accrued pension liabilities (Note 2) Deferred income tax liabilities－land tax revaluation increment (Nnote 6) Deferred income tax liabilities－noncurrent (Note 1) Other liabilities Total liabilities Common stock Capital surplus (Note 7) Legal reserve Special reserve (Note 10) Unappropriated earnings (Note 2, 9 and 10) Cumulative translation adjustments Unrecognized loss on pension cost (Note 2) Unrealized loss on financial assets Unrealized revaluation increments (Note 6) Treasury stock (Note 8) Minority interest (Note 2 and 9) Total stockholders’ equity and minority interest Total liabilities and stockholders’ equity			54,456 295,153 53,806 - 269,495 124,762 434,879 - - 14,713 39,778 - - 24,539 14,306
			1,325,887
			388,956 192,458 - 82,764 65,523 23,206 21,008
			773,915
			308,776 56,582 60,478 86,910 32,188 (57,301) - (4,205) - (4,877) 73,421
			551,972
			1,325,887

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

(iii) GAAP reconciliation for income statement for the year ended December 31, 2012:

	NT$			US$
R.O.C. GAAP	Adjustments	IFRSs	R.O.C. GAAP	Adjustments	IFRSs
$ 34,408,944 26,845,865	- -	34,408,944 26,845,865	1,185,289 924,763	- -	1,185,289 924,763
7,563,079 7,391,870	- (108,573)	7,563,079 7,283,297	260,526 254,629	- (3,740)	260,526 250,889
171,209 989,347 492,411	108,573 - -	279,782 989,347 492,411	5,897 34,080 16,962	3,740 - -	9,637 34,080 16,962
668,145 237,234	108,573 -	776,718 237,234	23,015 8,172	3,740 -	26,755 8,172
430,911	108,573	539,484	14,843	3,740	18,583
356,725 74,186	105,880 2,693	462,605 76,879	12,288 2,555	3,647 93	15,935 2,648
$ 430,911	108,573	539,484	14,843	3,740	18,583

(iv) Notes to the reconciliation:
(1) Deferred income tax assets

Under IFRSs, deferred income tax assets and liabilities are classified as noncurrent assets and liabilities and the right to a statutory tax offset is considered. The deferred income tax assets and liabilities of NT$97,954 and zero, and NT$90,650 and NT$11,255, respectively, were reclassified from current assets and liabilities to noncurrent assets and liabilities as of January 1 and December 31, 2012. In addition, the Consolidated Company is allowed to offset deferred income tax assets against deferred income tax liabilities if the Consolidated Company has a legally enforceable right to set off current tax assets against current tax liabilities and conforms to other related requirements. As of January 1 and December 31, 2012, the Consolidated Company reversed the deferred income tax assets and liabilities which were settled on a net basis under R.O.C. GAAP, － and increased the deferred income tax liabilities and assets noncurrent amounted to NT$669,142 and NT$621,734, respectively.

－
(2) Employee benefits post-employment defined benefit pension plan

The Consolidated Company provide a defined benefit pension plan in which the postretirement benefit obligations are measured using the actuarial techniques. Under R.O.C. GAAP, the actuarial gains or losses arising from the adjustment out of experience

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and the changes in actuarial assumptions are recognized as profit or loss and are amortized over the remaining employee’s service period. Under IFRS No. 1 “ First-time Adoption of International Financial Reporting Standards”(“IFRS 1”), the Consolidated Company elected the exemption from the provisions, and immediately recognized the actuarial gains or losses as retained earnings. Under IFRSs, as of January 1 and December 31, 2012, the reserve for pension plan both increased by NT$1,152,114 and the retained earnings both decreased by NT$1,152,114, respectively. Because of these adjustments under IFRSs, the accrued pension liabilities and the pension expense both decreased by NT$109,772.

Under R.O.C. GAAP, pension actuarial gain and loss is recognized as current pension cost by corridor approach in the income statement. Under IFRSs, the above mentioned gain or loss is recognized as other comprehensive income in the statement of comprehensive income, in accordance with IAS No. 19, “Employee Benefits.” Under IFRSs, adjustments are made to decrease comprehensive income by NT$106,624 and increase the reserve for pension plan by NT$106,624 in 2012.

Moreover, under the R.O.C. GAAP, unlike IFRSs, there are no provisions for the amortization the actuarial gains or losses. Therefore, under IFRSs, adjustments are made, as of January 1and December 31, 2012, to increase the unrecognized loss on pension cost by NT$562,205 and NT$590,097, and to decrease the deferred pension costs and the reserve for pension plan by NT$111,726, NT$43,406, NT$673,931 and NT$633,503, respectively.

(3) Land leasehold right

Under IFRSs, the land leasehold rights which were originally classified as intangible assets amounted to NT$486,145 and NT$427,113, respectively, were reclassified as long-term lease prepayment as of January 1 and December 31, 2012.

(4) Investment property

Under R.O.C. GAAP, the Consolidated Company’s property that is leased to others is classified as ‘Assets held for lease’. In accordance with the “Rules Governing the Preparation of Financial Statements by Securities Issuers”, idle assets are accounted for as other assets-idle assets. Under IFRSs, particularly IAS 40, “Investment Property”, property that meets the definition of investment property is classified and accounted for as ‘Investment property’. Therefore, under IFRSs, as of January 1 and December 31, 2012, reclassifying entries were made to reclassify the assets held for lease amounting to NT$961,854 and NT$987,826 and from the idle assets amounting to NT$173,103 and

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

NT$166,916 to investment property of NT$1,134,957 and NT$1,154,742, respectively.

－
(5) Employee benefits compensated absences

Under ROC GAAP, there are no specific provisions or guidance for accounting of accumulated compensated absences. Under IFRSs, if employees’ vacation rights arise from accumulated compensated absences, the expected cost of accumulated compensated absences is recognized when the employees render service and thus increasing future compensated absence rights, in accordance with IAS No. 19, “Employee Benefits.” Under IFRSs, as of January 1 and December 31, 2012, adjustments are made to increase the Consolidated Company’s accrued liabilities by NT$85,365 and NT$86,564, respectively. In addition, adjustments will be made, under IFRSs, to decrease the retained earnings by NT$85,365 and salary expense by NT$86,564 in 2013.

(6) Accrued liabilities for land value increment tax

The Consolidated Company revalued its land based on the related laws and regulations, which requires it to estimate the land value incremental tax on the revaluation date. Under R.O.C. GAAP, such tax is treated as a reserve and presented as “Accrued liabilities for land value increment tax” under long-term liabilities. Under IFRSs, particularly IAS 12 “Income Taxes”, such estimated future tax is treated as deferred tax and presented as “Deferred income tax liabilities”. Under IFRSs, reclassifying entry is made to reclassify the land value incremental reserve of NT$1,902,130 to the deferred income tax liabilities － land value increment tax at the conversion date.

(7) Capital surplus -long-term equity investments

Under the R.O.C. GAAP, the proportion of share equity arising from additional share issued by the affiliated companies in which the original shareholders acquire new shares un-proportionately will be adjusted as additional paid-in capital or retained earnings. However, in accordance with IAS 28, “Investments in Associates”, an increase in investment percentage is accounted for as an acquisition of investment; while, decrease in investment percentage is accounted for as a disposal of investment and any related disposal gain or loss is recognized. Under IFRS, the Consolidated Company elected the exemption of business combination and did not retrospectively apply IFRSs to its investment transactions before January 1, 2012. Under IFRSs, reclassifying entries are made to reclassify “Retained earnings” of NT$717,959 to “Capital surplus-long-term equity investments” due to changes in shareholding percentage of equity method investees.

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

(8) Treasury stock

Under the R.O.C. GAAP, the Consolidated Company’s shares held by its subsidiaries are recognized as treasury stock and stated at carrying amount. Under IFRS, particularly IAS 32, such treasury stock is recognized at original acquisition cost of the subsidiaries. Under IFRSs, as of January 1 and December 31, 2012, adjustments are made to increase treasury stock and the retained earnings both by NT$282,228 and NT$103,997, respectively.

(9) Under IFRSs, adjustments were made to “Retained earnings” and the “Minority interest” as of January 1and December 31, 2012 as follows:

January 1, 2012 NT$ Employee benefits－post-employment defined benefit pension plan Employee benefits－compensated absences Capital surplus－long-term equity investments Unrealized revaluation increments Treasury stock Total December 31, 2012 NT$ Employee benefits－post-employment defined benefit pension plan Employee benefits－compensated absences Capital surplus－long-term equity investments Unrealized revaluation increments Treasury stock Total	Retained Earnings $ (1,103,058) (82,321) 717,959 1,583,058 282,228 $ 1,397,866 $ (1,088,541) (83,025) 717,959 1,583,058 103,997 $ 1,233,448	Minority Interest (49,056) (3,044) - - - (52,100) (60,425) (3,539) - - - (63,964)	Total
			(1,152,114) (85,365) 717,959 1,583,058 282,228
			1,345,766
			(1,148,966) (86,564) 717,959 1,583,058 103,997
			1,169,484

(10) Under the order No.1010012865 issued by Financial Supervisory Commission Executive Yuan on April 6, 2012, the Consolidated Company set aside a special reserve which amounted to NT$1,397,866 because it selected to reclassify the transition differences of item 9 above to the “retained earnings” account.
(f) The Consolidated Company conducted the evaluation above in accordance with IFRSs, the IASs, the IFRICs interpretations ,and SICs, all of which have been endorsed by the FSC, and the revised “Guidelines Governing the Preparation of Financial Reports by Securities Issuers.” The preliminary estimates of the aforementioned assessments are all based on the current environment and circumstances of the Consolidated Company, and are subject to future IFRSs amendments and potential regulation revisions made by authorities.

～ F-74 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

11. BUSINESS SEGMENT FINANCIAL INFORMATION

(a) General Information

The two reportable segments which are included in the consolidated financial statements are the automobile and motorcycle segment, and they conform to the Statement of Financial Accounting Standards (SFAS) of the Republic of China No. 41 “Operating Segments.”

The business activities of the Consolidated Company are to manufacture, sell, maintain, and provide technical and consulting service of automobiles, motorcycles, and related parts.

In order to decide for the distribution of segment resource and evaluate the performance, all operating segments results are periodically submitted to the Consolidated Company’s operating decision maker for review.

The Consolidated Company’s segment revenue is the operating revenue from external customers, and it does not include other revenues which are not related to the segment and the investment income under the equity method.

Segment profit or loss is the difference between the segment revenue and the segment expense. The segment expense is the expense required to incur in order to produce revenue. If the segment expense cannot be directly classified into the corresponding segment, it will be apportioned into every segment by the percentage of operating revenue.

(b) Disclosures of Industrial Financial Information

The Consolidated Company’s segment financial information for the years ended December 31, 2010, 2011 and 2012 was as follows:

December 31, 2010(NT$) Revenue External revenue Interest expense Depreciation and amortization Segment profit (loss) Assets Long-term investments under the equity method Capital expenditure－noncurrent asset Segment total assets Segment liabilities	Automobile Segment $ 8,489,457 $ 30,306 402,101 $ 25,313 $ 1,258,126 206,312 $ 8,869,185 $ 1,843,279	Motorcycle Segment 21,963,127 53,651 921,730 1,118,509 248,871 875,253 24,231,064 5,889,013	Others 1,388,308 35,557 67,040 (156,874) - 330,493 4,483,041 14,219,142	Total
				31,840,892
				319,514 1,390,871
				986,948
				1,506,997 1,412,058
				37,583,290
				21,951,434

～ F-75 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

December 31, 2011(NT$) Revenue External revenue Interest expense Depreciation and amortization Segment profit (loss) Assets Long-term investments under the equity method Capital expenditure－noncurrent asset Segment total assets Segment liabilities December 31, 2012(NT$) Revenue External revenue Interest expense Depreciation and amortization Segment profit (loss) Assets Long-term investments under the equity method Capital expenditure－noncurrent asset Segment total assets Segment liabilities December 31, 2012(US$) Revenue External revenue Interest expense Depreciation and amortization Segment profit (loss) Assets Long-term investments under the equity method Capital expenditure－noncurrent asset Segment total assets Segment liabilities	Automobile Segment $ 12,166,058 $ 35,792 249,911 $ 695,548 $ 1,604,881 287,932 $ 9,551,014 $ 2,157,147 $ 13,364,180 $ 25,734 248,730 $ 498,114 $ 1,902,542 327,796 $ 9,001,046 $ 2,122,557 $ 460,358 $ 886 8,568 $ 17,159 $ 65,537 11,292 $310,060 $ 73,116	Motorcycle Segment 23,611,629 64,680 883,050 622,221 262,012 1,151,218 24,380,122 8,503,522 19,986,486 64,198 837,385 (268,961) 267,260 424,208 15,169,852 5,241,637 688,477 2,211 28,846 (9,265) 9,206 14,613 522,558 180,559	Others 1,047,901 250,923 198,134 127,538 - 358,206 4,791,893 10,870,969 1,058,278 246,320 205,389 201,758 183,983 133,733 13,730,033 13,867,541 36,455 8,485 7,075 6,950 6,338 4,607 472,960 477,697	Total
				36,825,588
				351,395 1,331,095
				1,445,307
				1,866,893 1,797,356
				38,723,029
				21,531,638
				34,408,944
				336,252 1,291,504
				430,911
				2,353,785 885,737
				37,900,931
				21,231,735
				1,185,289
				11,583 44,489
				14,844
				81,081 30,511
				1,305,578
				731,372

～ F-76 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL SIATEMENTS (Cont’d)

(c) Business Information

(1) Geographical Information

Revenue is classified by customers’ geographical locations, and noncurrent assets are classified by their current locations. The Consolidated Company’s geographical information was as follows:

For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
2010 NT$ $ 16,064,800 7,229,945 1,362,531 1,052,323 75,117 508,964 921,964 4,625,248 $ 31,840,892	2011 NT$ 20,353,312 7,310,568 1,674,670 810,323 256,558 524,234 737,437 5,158,486 36,825,588	2012
		NT$ 19,895,457 4,374,892 1,655,533 616,525 599,206 561,360 506,348 6,199,623 34,408,944	US$
			685,341 150,702 57,028 21,238 20,641 19,337 17,442 213,559
			1,185,288

	December 31	December 31	December 31
2010 NT$ $ 10,252,191 2,772,456 1,647,961 14,527 $ 14,687,135	2011 NT$ 11,906,376 1,616,117 1,630,943 18,985 15,172,421	2012
		NT$ 11,803,516 1,489,914 1,315,797 12,438 14,621,665	US$
			406,597 51,323 45,325 428
			503,674

(2) Major Customers

The customer whose accounts exceeded more than 10% of the Consolidated Company’s operating revenues for the years ended December 31, 2010, 2011, and 2012: None.

～ F-77 ～

Audit Report of Independent Accountants

To the Board of Directors of Sanyang Industry Co., Ltd.

We have audited the accompanying balance sheets of Sanyang Industry Co., Ltd. (the “Company”) as of December 31, 2010, 2011 and 2012, and the related statements of income, changes in stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sanyang Industry Co., Ltd. as of December 31, 2010, 2011 and 2012, and the results of its operations and its cash flows for the years then ended, in conformity with Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the Republic of the China.

～ F-78 ～

As described in Note 7(j) of the financial statements, SY International Ltd. (a subsidiary held 100% by Sanyang Industry Co., Ltd.) decided to financially support its ultimate subsidiaries namely, Xiamen Xia Shing Motorcycle Sales Co., Ltd. and Xiamen Xia Shing Motorcycle Co., Ltd., which are the immediate subsidiaries of Plassen International Ltd. and Qingzhou Engineering Co., Ltd., which is also an immediate subsidiary of Cosmos System Inc. as they were going through financial difficulties.

The accompanying financial statements as of and for the year ended December 31, 2012, have been translated into United States dollars solely for the convenience of the readers. We have audited the translation, and in our opinion, the financial statements expressed in New Taiwan dollars have been translated into United Stated dollars on the basis set forth in note 2(aa) of the notes to the accompanying financial statements.

KPMG Taipei, Taiwan, R.O.C. November 13, 2013

Note to Readers

The accompanying financial statements are intended only to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in the Republic of China.

～ F-79 ～

SANYANG INDUSTRY CO., LTD.

Balance Sheets

December 31, 2010, 2011 and 2012

(All Amounts Expressed in Thousands of Dollars)

	December 31	December 31	December 31
2010 NT$ $ 1,786,428 - 315,140 787,643 47,376 4,804,285 139,631 27,433 7,907,936 12,213,531 10,000 98,580 20,000 251,006 12,593,117 406,728 2,487,552 9,273,839 948,175 610,353 2,721,506 16,448,153 (11,106,116) (92,604) 65,157 13,250 5,327,840 120,129 751,146 229,257 94,678 166,453 1,241,534 $ 27,190,556	2011 NT$ 1,436,862 7,387 584,848 492,482 28,863 5,476,824 213,898 75,910 8,317,074 13,345,592 10,000 58,580 20,000 314,342 13,748,514 404,378 2,502,685 9,549,344 950,581 637,085 2,708,448 16,752,521 (11,512,742) (56,353) 86,049 81,559 5,351,034 60,066 882,486 109,951 94,508 65,199 1,152,144 28,628,832	2012
		NT$ 1,016,737 - 671,738 1,136,998 368,497 6,014,623 135,843 56,193 9,400,629 13,135,210 10,000 43,896 20,000 662,397 13,871,503 404,378 2,533,722 9,759,197 961,027 635,802 2,708,448 17,002,574 (11,795,944) (60,263) 65,607 29,545 5,241,519 - 879,402 109,951 68,221 - 1,057,574 29,571,225	US$
			35,024 - 23,139 39,166 12,694 207,187 4,679 1,936
			323,825
			452,470 344 1,512 689 22,818
			477,833
			13,930 87,279 336,176 33,105 21,902 93,298
			585,690 (406,336) (2,076) 2,260 1,017
			180,555
			-
			30,293 3,788 2,350 -
			36,431
			1,018,644

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

～ F-80 ～

SANYANG INDUSTRY CO., LTD.

Balance Sheets (Cont’d)

December 31, 2010, 2011 and 2012

(All Amounts Expressed in Thousands of Dollars)

	December 31	December 31	December 31
2010 NT$ $ 6,309,750 748,260 262,079 733,083 - 113,233 - 243,470 1,455,000 92,106 9,956,981 1,210,000 1,145,658 1,506,044 35,125 - 39,425 1,580,594 13,893,233 8,456,385 61,892 2,115,080 2,176,972 1,562,636 1,125,135 692,450 3,380,221 (1,561,633) (582,829) (68,374) 1,598,944 (102,363) (716,255) 13,297,323 $ 27,190,556	2011 NT$ 3,087,511 647,708 314,632 928,952 - - 4,350 347,012 290,000 176,363 5,796,528 5,420,000 1,145,658 1,504,135 41,257 - 56,416 1,601,808 13,963,994 8,963,768 63,334 2,141,845 2,205,179 1,631,881 1,125,135 1,269,284 4,026,300 (1,338,489) (562,205) (110,410) 1,583,058 (102,363) (530,409) 14,664,838 28,628,832	2012
		NT$ 3,196,085 692,373 417,572 925,064 833,742 43,493 408,764 135,459 290,000 222,795 7,165,347 5,130,000 1,145,658 1,518,059 41,990 30,260 66,077 1,656,386 15,097,391 8,963,768 204,402 2,156,135 2,360,537 1,755,683 1,125,135 1,098,837 3,979,655 (1,663,438) (590,097) (122,068) 1,583,058 (37,581) (830,126) 14,473,834 29,571,225	US$
			110,096 23,850 14,384 31,866 28,720 1,498 14,081 4,666 9,990 7,675
			246,826
			176,714
			39,465
			52,293 1,446 1,042 2,276
			57,057
			520,062
			308,776
			7,041 74,273
			81,314
			60,478 38,758 37,852
			137,088
			(57,301) (20,327) (4,205) 54,532 (1,295)
			(28,596)
			498,582
			1,018,644

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

～ F-81 ～

SANYANG INDUSTRY CO., LTD.

Statements of Income

For the Years Ended December 31, 2010, 2011 and 2012

(All Amounts Expressed in Thousands of Dollars, Except for per Share Information)

For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
2010 NT$ $ 19,279,905 (235) (303,337) 18,976,333 295,819 19,272,152 15,301,340 15,333 15,316,673 3,955,479 28,163 3,983,642 918,629 1,738,295 757,494 881,933 4,296,351 (312,709) 15,734 1,167,666 2,162 - 109,782 23,804 - - 50,221 1,369,369 200,290 2,380 - - 110,901 20,539 334,110 722,550 30,100 $ 692,450 $ 0.88 $ 0.84	2011 NT$ 23,398,830 (1,002) (278,575) 23,119,253 334,254 23,453,507 18,314,130 30,035 18,344,165 5,109,342 (16,991) 5,092,351 921,835 2,129,957 737,750 912,142 4,701,684 390,667 10,679 1,032,019 11,603 - 33,806 24,740 40,000 7,387 35,423 1,195,657 222,711 1,927 - 40,000 - 5,076 269,714 1,316,610 78,584 1,238,026 1.51 1.42	2012
		NT$ 23,600,793 (84) (175,923) 23,424,786 235,830 23,660,616 18,765,212 27,339 18,792,551 4,868,065 (9,660) 4,858,405 1,002,424 2,297,992 663,094 867,327 4,830,837 27,568 19,488 534,754 47,941 5,126 78,842 23,705 - - 31,456 741,312 222,906 - 896 14,684 43,493 14,606 296,585 472,295 115,570 356,725 0.54 0.41	US$
			812,979 (3) (6,060)
			806,916 8,124
			815,040
			646,407 942
			647,349
			167,691 (333)
			167,358
			34,530 79,159 22,842 29,877
			166,408
			950
			671 18,421 1,651 176 2,716 817 - - 1,084
			25,536
			7,679 - 31 506 1,498 503
			10,217
			16,269 3,981
			12,288
			0.019
			0.014

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

～ F-82 ～

SANYANG INDUSTRY CO., LTD.

Statements of Changes in Stockholders' Equity For the Years Ended December 31, 2010, 2011 and 2012

(All Amounts Expressed in Thousands of Dollars)

NT$ Balance, January 1, 2010 Appropriation of 2009 earnings: Legal reserve Special reserve Unrecognized pension cost Cumulative translation adjustments Adjustment arising from long-term equity investments Net income for the year ended December 31, 2010 Balance, December 31, 2010 Appropriation of 2010 earnings: Legal reserve Cash dividends Stock dividends Unrecognized pension cost Cumulative translation adjustments Adjustment arising from long-term equity investments Net income for the year ended December 31, 2011 Balance, December 31, 2011 Appropriation of 2011 earnings: Legal reserve Cash dividends Disposal of long-term equity investments Adjustment arising from long-term equity investments Unrecognized pension cost Cumulative translation adjustments Net income for the year ended December 31, 2012 Balance, December 31, 2012 US$ Balance, December 31, 2012	Common Stock $ 8,456,385 - - - - - - 8,456,385 - - 507,383 - - - - 8,963,768 - - - - - - - $ 8,963,768 $ 308,776	Capital Surplus 2,170,824 - - - - 6,148 - 2,176,972 - - - - - 28,207 - 2,205,179 - - 138,733 16,625 - - - 2,360,537 81,314	Retained Earning Legal Reserve Special Reserve Unappropriated Earnings 1,548,171 720,949 418,651 14,465 - (14,465) - 404,186 (404,186) - - - - - - - - - - - 692,450 1,562,636 1,125,135 692,450 69,245 - (69,245) - - (84,564) - - (507,383) - - - - - - - - - - - 1,238,026 1,631,881 1,125,135 1,269,284 123,802 - (123,802) - - (403,370) - - - - - - - - - - - - - - 356,725 1,755,683 1,125,135 1,098,837 60,478 38,758 37,852	Retained Earning Legal Reserve Special Reserve Unappropriated Earnings 1,548,171 720,949 418,651 14,465 - (14,465) - 404,186 (404,186) - - - - - - - - - - - 692,450 1,562,636 1,125,135 692,450 69,245 - (69,245) - - (84,564) - - (507,383) - - - - - - - - - - - 1,238,026 1,631,881 1,125,135 1,269,284 123,802 - (123,802) - - (403,370) - - - - - - - - - - - - - - 356,725 1,755,683 1,125,135 1,098,837 60,478 38,758 37,852	Cumulative Translation Adjustments (632,836) - - - (928,797) - - (1,561,633) - - - - 223,144 - - (1,338,489) - - - - - (324,949) - (1,663,438) (57,301)	Unrecognized Loss on PensionCost (433,364) - - (100,273) - (49,192) - (582,829) - - - 14,778 - 5,846 - (562,205) - - - (18,627) (9,265) - - (590,097) (20,327)	Unrealized Loss on Financial assets (72,598) - - - - 4,224 - (68,374) - - - - - (42,036) - (110,410) - - - (11,658) - - - (122,068) `(4,205)`	Unrealized Revaluation Increments 1,598,944 - - - - - - 1,598,944 - - - - - (15,886) - 1,583,058 - - - - - - - 1,583,058 54,532	Treasury Stock (102,363) - - - - - - (102,363) - - - - - - - (102,363) - - 64,782 - - - - (37,581) (1,295)	Total 13,672,763 - - (100,273) (928,797) (38,820) 692,450 13,297,323 - (84,564) - 14,778 223,144 (23,869) 1,238,026 14,664,838 - (403,370) 203,515 (13,660) (9,265) (324,949) 356,725 14,473,834 498,582
			Legal Reserve 1,548,171 14,465 - - - - - 1,562,636 69,245 - - - - - - 1,631,881 123,802 - - - - - - 1,755,683 60,478	Special Reserve 720,949 - 404,186 - - - - 1,125,135 - - - - - - - 1,125,135 - - - - - - - 1,125,135 38,758

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

SANYANG INDUSTRY CO., LTD.

Statements of Cash Flows

For the Years Ended December 31, 2010, 2011 and 2012

(All Amounts Expressed in Thousands of Dollars)

For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
2010 NT$ $ 692,450 668,957 37,588 3,088 276 13,469 - (1,167,666) 2,380 - 110,901 - (28,163) - 1,186,657 207,774 (3,611,210) 189,757 54,860 35,399 (114,585) (155,651) 79,617 - (84,529) (209,911) 54,377 (2,034,165)	2011 NT$ 1,238,026 574,410 36,847 6,052 90 105,611 (40,000) (1,032,019) 1,927 - (7,387) 40,000 16,991 - (269,708) 295,161 (678,681) (74,029) 18,513 52,776 (100,552) 52,553 195,869 - 103,542 88,607 72,932 697,531	2012
		NT$ 356,725 573,258 38,179 27,653 185 421,259 - (534,754) (5,126) 896 43,493 14,684 9,660 9,727 (86,890) (644,516) (558,215) 78,505 (339,634) 115,176 44,665 102,940 (13,615) 1,044 (211,553) 46,432 64,725 (445,097)	US$
			12,288 19,747 1,315 953 6 14,511 - (18,421) (177) 31 1,498 506 333 336 (2,993) (22,202) (19,229) 2,704 (11,699) 3,967 1,539 3,546 (469) 36 (7,287) 1,599 2,230
			(15,332)

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

～ F-84 ～

SANYANG INDUSTRY CO., LTD.

Statements of Cash Flows (Cont’d)

For the Years Ended December 31, 2010, 2011 and 2012

(All Amounts Expressed in Thousands of Dollars)

For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
2010 NT$ (335,356) 40,000 (322,482) 23,408 (53,403) 262,698 (385,135) 2,341,468 - - (133,330) 260 - 2,208,398 (210,902) 1,997,330 $ 1,786,428 $198,631 $ 11,390 $ 1,455,000 $- $-	2011	2012
	NT$	NT$	US$
	(6,378) - (587,489) 15,687 (36,677) (63,336)	- 187,888 (474,625) 11,220 (11,892) (348,055)	- 6,472 (16,349) 386 (410) (11,989)
	(678,193)	(635,464)	(21,890)
	(3,335,472) - 4,500,000 (1,455,000) 6,132 (84,564)	115,961 833,742 - (290,000) 733 -	3,995 28,720 - (9,990) 25 -
	(368,904)	660,436	22,750
	(349,566) 1,786,428	(420,125) 1,436,862	(14,472) 49,496
	1,436,862	1,016,737	35,024
	218,992	217,231	7,483
	492	31,456	1,084
	290,000	290,000	9,990
	-	7,422	256
	-	403,370	13,895

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

～ F-85 ～

SANYANG INDUSTRY CO., LTD.

Notes to Financial Statements DECEMBER 31, 2010, 2011 AND 2012

(All Amount Expressed in Thousands of New Taiwan Dollars and United States Dollars, Except for Per Share Information and Unless Otherwise Stated)

1. ORGANIZATION AND BUSINESS

Sanyang Industry Co., Ltd. (the “Company”) was incorporated in September 1961, under the laws of the Republic of China. The Company is engaged primarily in the manufacture and sale of automobiles, motorcycles, and related automotive parts, and in providing manufacturingrelated technical and consulting services. The headquarters of the Company was moved to the Hsinchu Industrial Park during December 1999 and successfully integrated with its main factories. The Company started to enter the motorcycle market in Mainland China and Vietnam by investing in 2000.

As of December 31, 2010, 2011 and 2012, the Company had 2,181, 2,198 and 2,326 employees, respectively.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company’s financial statements were prepared in accordance with Guidelines Governing the Preparation of Financial Report by Securities Issuers and generally accepted accounting principles of the Republic of China. The significant accounting policies and their measurement basis are as follows:

(a) Foreign currency transactions and financial report translation

The Company records its transactions in New Taiwan dollars. Non-derivative foreign currency transactions are recorded at the exchange rates prevailing on the transaction date. On the balance sheet date, monetary assets and liabilities denominated in foreign currencies are translated into New Taiwan Dollars using the exchange rates on that date, and the resulting unrealized exchange gains or losses from such translations are reflected in the accompanying statements of income. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the reporting currency at the foreign exchange using the foreign exchange rates at the balance sheet date. If the non-monetary assets or liabilities are measured at fair value through profit or loss, the resulting unrealized exchange gains or losses from such translation are reflected in the accompanying statements of income. If the non-monetary assets or liabilities are measured at fair value through stockholders’ equity, the resulting unrealized exchange gains or losses from such translation are recorded as a separate component of stockholders’ equity.

～ F-86 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

(b) Use of estimates

The preparation of the accompanying financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates.

Unrestricted cash, cash equivalents, assets held for trading, or other assets that the Company will convert to cash or use within in a relatively short period of time - one year or one operating cycle, whichever is longer - are classified as current assets; other assets are classified as non-current assets. Debts due within one year or one operating cycle, whichever is longer, are classified as current liabilities; other liabilities are classified as noncurrent liabilities.

(d) Asset impairment

Effective January 1, 2005, the Company adopted Statement of Financial Accounting Standards No. 35 (SFAS 35) “Accounting for Asset Impairment.” In accordance with SFAS 35, the Company assesses at each balance sheet date whether there is any indication that an asset (individual asset or cash-generating unit) other than goodwill may have been impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. The Company recognizes impairment loss for an asset whose carrying value is higher than the recoverable amount.

The Company reverses any impairment loss recognized in prior periods for assets other than goodwill if there is any indication that the impairment loss recognized no longer exists or has decreased. The carrying value after the reversal should not exceed the recoverable amount or the depreciated or amortized balance of the assets assuming no impairment loss was recognized in prior periods.

～ F-87 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

The Company assesses the cash-generating unit to which goodwill is allocated on an annual basis and recognizes an impairment loss on the excess of carrying value over the recoverable amount for an asset (individual asset or cash-generating unit) other than goodwill.

(e) Cash and cash equivalents

(f) Financial assets reported at fair value through profit or loss

(g) Available-for-sale financial assets

～ F-88 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

(h) Held-to-maturity financial assets

Held-to-maturity financial assets are financial instruments that the Company has the positive intention and ability to hold to maturity. At initial recognition, held-to-maturity financial assets are initially measured at fair value plus transaction costs that are directly attributable to the acquisition. Subsequent to initial recognition, held-to-maturity financial assets are carried at amortized cost. Profit or loss is recognized when these financial assets are derecognized, impaired, or amortized. Acquisition or sale of these financial assets is measured using trade-date accounting.

(i) Hedge accounting

i. Fair value hedges
Changes in the fair value of a hedging instrument designated as a fair value hedge are recognized in profit or loss. The hedged item also is stated at fair value in respect of the risk being hedged, with any gain or loss being recognized in profit or loss.
ii. Cash flow hedges

iii. Hedge of net investment in foreign operation
- Changes in the fair value of the hedging instrument are recognized directly in equity. The gain or loss on the hedging instrument relating to the effective portion of the hedge that has been recognized directly in equity is recognized in profit or loss on disposal of the foreign operation.
(j) Financial assets carried at cost

Financial assets with no quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost. If objective evidence of impairment exists, impairment loss is recognized thereon, which is not reversed in subsequent periods, unless the assets are sold.

～ F-89 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

(k) Investment in Debt Security with No Active Market

(l) Notes and Account receivables, and other receivables

Notes and accounts receivable are rights resulting from the sale of goods or rendering of services. Other receivables are receivables arising from non-operating activities.

The Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment.

～ F-90 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

(m) Inventories

(n) Long-term equity investments

Long-term investments in which the Company, directly or indirectly, owns 20% or more of the investee companies’ voting shares, or own less than 20% of the investee companies’ voting shares but has significant influence on the investee companies, is accounted for by the equity method. Starting from January 1, 2006, differences between investment cost and investee’s net equity determined at fair value are accounted for as follows:

(i) If the cause of the difference is attributable to a specific transaction, the difference is accounted for using the original accounting treatment. However, goodwill is no longer amortized and the amortization expense recognized in previous years is not reversed.
(ii) If the difference is related to a difference that is originally amortized for a certain period, the unamortized portion relating to the excess of investment cost over the investee’s net equity is accounted for as goodwill.
(iii) Long-term equity investment credit is amortized over the remaining period previously used for the amortization.

Unrealized gains and losses resulting from transactions between the Company and its investee companies and among investee companies are deferred. Gains and losses arising from transactions relating to depreciable or amortizable assets are recognized over their useful lives. Gains and losses from transactions relating to other assets are recognized when realized.

～ F-91 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

When investee companies issue common stock and the Company does not purchase the equity shares in accordance with their ownership holding ratio, the Company adjusts its capital surplus based on the net changes in the capital surplus and long-term equity investments. If the capital surplus arising from long-term investment accounted for under the equity method is insufficient, the deficiency is debited to retained earnings.

If the Company has the power to control an investee company and the investee’s equity becomes negative and other shareholders have no obligation or are unable to provide funds to cover the loss, the Company recognizes the loss in full. The excess of recognized investment loss over the related long-term equity investment is accounted for as long-term equity investment credits and, after offsetting against the receivables from related parties, is reflected as a liability in the accompanying consolidated balance sheets.

(o) Property, plant and equipment, assets held for lease, idle assets and depreciation

Property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Interest expense related to the purchase and construction of property and equipment is capitalized and included in the cost of the related assets. Significant additions, improvements and replacements are capitalized. Maintenance and repair costs are expensed in the period incurred. Gains or losses upon the disposal of property, plant and equipment are accounted for as non-operating income or expense currently.

The Company account for the removal and recovery costs for fixed assets that are accrued during the period when they are not used in operations as costs of fixed assets. If a component of fixed assets is a significant part of the total cost, such component is depreciated individually.

Machinery and equipment 3-15 years

Utilities and transportation equipment 3-10 years

Furniture and office equipment 3-5 years

The residual useful lives, the depreciation method, and the residual value are evaluated at each financial year-end and changes thereof are accounted for as changes in accounting estimates.

～ F-92 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

Property, plant and equipment leased to other parties through operating lease arrangements are classified as assets held for lease. Depreciation expenses of rental assets are recorded as a reduction of rental income.

Because of changes in markets and in product design, property, plant and equipment not currently used in operation are reclassified as idle assets and are stated at the lower of carrying value or net realizable value. Depreciation expenses of idle assets are recorded as non-operating expenses and losses. The Company assess whether objective evidence of impairment exists for its property, plant and equipment, assets held for lease, and idle assets, at each balance sheet date in accordance with SFAS 35.

(p) Intangible assets

Computer software cost 2 to 5 years

(q) Pension plan

The Company established non-contributory employee defined benefit retirement plans (the “Plans”) covering full-time employees. In accordance with the Plans, employees are eligible for retirement or are required to retire after meeting certain age or service requirements. Payments of retirement benefits are based on an employee’s average monthly salary of the six months before the employee’s retirement and the number of points accumulated by the employee according to his/her years of service. Each employee receives 2 points or two months’ salary for each service year from year 1 to year 15, and 1 point or one month salary thereafter. According to the employee severance benefit plan, employees with more than five years but less than twenty-five years of service are entitled to receive severance

～ F-93 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

benefits. Payments of employee severance benefits are based on the length of service and a certain proportion (20%~110%) of the final monthly salary. A lump-sum retirement benefit is paid through the retirement fund. Under this retirement plan, the Company and its domestic subsidiaries are responsible for making the entire pension payment. Starting from July 1, 2005, the enforcement rules of the newly enacted Labor Pension Act (the “New Act”) require the following categories of employees to adopt the New Act’s defined contribution plan:

(i) employees covered by the original Plans who opted to be subject to the pension mechanism under the New Act; and
(ii) employees who commenced working after the enforcement date of the New Act.

In accordance with the New Act, the Company contributes monthly at the rate of not lower than 6% of the worker’s monthly wages to the employee’s individual pension fund account at the ROC Bureau of Labor Insurance.

The Company adopted ROC SFAS No. 18, “Accounting for Pensions”, for their defined benefit retirement plans. SFAS No. 18 requires a company to have an actuarial calculation of its pension liability using the balance sheet date as the measurement date. The excess of accumulated benefit obligation over the fair value of pension plan assets is deemed to be the minimum pension liability and is recognized as accrued pension liability.

(r) Earnings per share

Earnings per share of common stock is determined based on net income available to common stockholders divided by the weighted-average number of outstanding shares of common stock. The effect on earnings per share from an increase in capital stock through the distribution of stock dividends from inappropriate earnings, capital surplus, or employee stock bonuses approved in the annual stockholders’ meetings held before and in 2008 is computed retroactively.

(s) Employee bonuses and directors’ and supervisors’ remuneration

Employee bonuses and directors’ and supervisors’ remuneration appropriated effective January 1, 2008, are accounted for based on Interpretation (96) 052 issued by the Accounting Research and Development Foundation. Under this interpretation, the Company estimates and recognizes the employee bonuses and directors’ and supervisors’ remuneration as expenses in the year employees’ services are rendered. Differences between the amounts approved in the shareholders’ meeting and recognized in the financial statements, if any, are treated as changes in accounting estimates and recognized in profit or loss.

～ F-94 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

(t) Stock-based Payment transaction

(i) An equity-settled share-based payment transaction is measured based on the fair value of the award at grant date, and recognized as expenses over the vesting period with a corresponding increase in equity. The vesting period is estimated based on the vesting conditions under the share-based payment arrangement. Vesting conditions include service conditions and performance conditions (including market conditions). In estimating the fair value of an equity-settled share-based award, only the effect of market conditions is taken into consideration.
(ii) A cash-settled shared-based payment transaction is measured at the balance sheet date and the settlement date based on the fair value of the award as of those dates and is recorded as a liability incurred for the goods and services received. Changes in fair values are recognized in profit or loss.
(iii) The fair value of employee share options and similar instruments at grant date is estimated using the Black-Scholes option-pricing model, taking into account the exercise price, the current market price of the underlying shares, management’s best estimation of the expected term, expected volatility, expected dividends, and risk-free interest rate.
(iv) According to SFAS No. 39 “Share-based Payment”, the Company did not need to apply SFAS No. 39 retroactively to the share-based payments that were granted before January 1, 2008; however, the pro forma net income and net income per share should be disclosed.

(u) Treasury stock

As the Company purchased its outstanding shares, the Company adopted Financial Accounting Standard No. 30 ”Accounting for Treasury Stock” in the accounting of treasury shares of stock, which are stated at cost. When treasury stock is sold, the excess of the proceeds from sale over the book value of treasury stock is recorded as capital surplustreasury stock transaction. If the disposal price is lower than the book value, the difference is offset against capital surplus resulting from other treasury stock transactions, and any deficiency is debited to retained earnings. The carrying amount of treasury stock is

～ F-95 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

calculated by using the weighted-average method according to the same class of treasury stock.

In accordance with Financial Accounting Standard No. 30 “Accounting for Treasury Stock,” the Company’s shares of stock held by its subsidiaries are deemed as treasury stock when recognizing investment income (loss) and when preparing the financial statements.

(v) Recognition of revenue

Revenue is recognized when title to the product and the risks and rewards of ownership are transferred to the customer. Also, allowances for sales returns and discounts are estimated based on historical experience. Such allowances are recognized in the same period when sales are made.

(w) Technical service and cost

Technical service revenues include consulting service revenues, technical development revenues from assisting foreign companies to develop new motorcycle products, and royalties based on the number of motorcycles sold by foreign sales agents. Consulting service revenues, technical development revenues, and related costs are recognized when services are rendered. Technical service costs refer to the remuneration both for the employees providing consulting service and for the technical development assistance.

(x) Income tax

In accordance with Statement of Financial Accounting Standards No. 22 (SFAS 22) “Income Taxes,” income taxes are accounted for using the asset and liability method. The income tax effects resulting from taxable temporary differences are recognized as deferred income tax liabilities. The income tax effects resulting from deductible temporary differences, loss carry forwards and investment tax credits are recognized as deferred income tax assets. The realization of the deferred income tax assets is evaluated, and if it is considered more likely than not that the deferred tax assets will not be realized, a valuation allowance is recognized accordingly. The Company recalculates deferred income tax liabilities and deferred income tax assets based on newly modified effective tax rate, and report the difference between newly calculated amount and the originally calculated one as current expense or benefit when the new tax rate is announced. Adjustments to prior years’ income taxes are reported as current income taxes. Deferred income tax assets or liabilities are classified as current and non-current in accordance with the nature of the related assets and liabilities or the length of time to their reversal.

～ F-96 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

Income taxes credits from purchase of equipment, technical research and development, and personnel training are recognized by the flow-through method.

The 10% surtax on undistributed earnings of the Company is reported as current expense on the date when the stockholders declared not to distribute the earnings during their annual meeting.

(y) Commitments and Contingencies

(z) Operating Segments

Segment information is disclosed in the consolidated financial statements, and need not be presented in the individual or stand-alone financial statements.

(aa) Convenience Translation into U.S. Dollars

The financial statements are stated in New Taiwan dollars. A translation of the December 31, 2012 New Taiwan dollar financial statements into U.S. dollar is included solely for the convenience of the readers, using the spot rate of Taiwan Business Bank on December 31, 2012, of NT$29.03 to US$1 uniformly for all the financial statement accounts. The convenience translations should not be construed as representations that the New Taiwan dollar amounts have been, could have been, or could in the future be, converted into U.S. dollars at this rate or any other rate of exchange.

3. REASONS FOR AND EFFECTS OF ACCOUNTING CHANGES

Effective from January 1, 2011, the Company adopted the third revision of SFAS No. 34 “Financial Instrument Recognition and Measurement” on the recognition, subsequent measurement and impairment testing of originated loans and receivables and on trouble debt restructuring and modification of debt agreement commencing from January 1, 2011. The adoption of this amended accounting principle disclosed no significant influences on the net income for the years ended December 31, 2011.

Effective from January 1, 2011, the Company adopted SFAS No. 41 “Operating Segments”. In accordance with SFAS No. 41, information is disclosed to enable users of the Company’s financial statements to evaluate the nature and financial effects of the business activities in which the Company engages and the economic environment in which it operates. Accordingly,

～ F-97 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

the Company determines and presents operating segments based on the information that internally is provided to the chief operating decision maker. This new accounting standard superseded SFAS No. 20 “Segment Reporting”. The adoption of this accounting standard did not have any cumulative effect for the years ended December 31, 2011.

4. SUMMARY OF MAJOR ACCOUNTS

(a) Cash and cash equivalents

Cash and cash equivalents
December 31 2010 2011 2012 NT$ NT$ NT$ US$ Cash on hand $1,150 900 900 31 Cash in banks Demand deposits 1,695,271 1,385,709 1,015,509 34,981 Checking accounts 141 20 20 1 Time deposits - 308 308 11 Sub-total 1,695,412 1,386,037 1,015,837 34,993 Securities notes with repurchase agreement 89,866 49,925 - - Total $1,786,428 1,436,862 1,016,737 35,024 Financial assets December 31 2010 2011 2012 NT$ NT$ NT$ US$ Derivative financial assets for hedging－current Forward exchange agreement $ - 7,387 - - Available -for-sale financial assets－noncurrent Bank debentures $ 10,000 10,000 10,000 344 Financial assets carried at cost－noncurrent Stock investments $ 98,580 98,580 98,580 3,396 Less: Accumulative impairment - (40,000) (54,684) (1,884) Net Value $ 98,580 58,580 43,896 1,512 Investments in debt security with no active market－noncurrent Bank debentures $ 20,000 20,000 20,000 689 Derivative financial liabilities for hedging－current Forward exchange agreement $ 113,233 - 43,493 1,498		December 31
	2010 NT$ $1,150 1,695,271 141 - 1,695,412 89,866 $1,786,428	2011 2012 NT$ NT$ US$ 900 900 31 1,385,709 1,015,509 34,981 20 20 1 308 308 11 1,386,037 1,015,837 34,993 49,925 - - 1,436,862 1,016,737 35,024 December 31	2012
				US$
				31
				34,981 1 11
				34,993
				-
				35,024

			2012
			NT$ - 10,000 98,580 (54,684) 43,896 20,000 43,493	US$
				-
				344
				3,396 (1,884)
				1,512
				689
				1,498

(b) Financial assets

～ F-98 ～

SANYANG INDUSTRY CO., LTD.

Notes to Financial Statements (Cont’d)

(i) As of December 31, 2010, 2011 and 2012, the interest rates of the bank debentures with no active market held by the Company were all 5.5%.
(ii) For the years ended December 31, 2010, 2011 and 2012, the Company recognized a net loss amounting to NT$ 110,901, a net gain amounting to NT$ 7,387 and a net loss amounting to NT$43,493, respectively, on valuation of the derivative financial liabilities and assets intended for hedging.
(iii) Due to the accumulated deficit of LICO Technology Corporation, the Company recognized provision for impairment loss on financial assets carried at cost of NT$54,684 as of December 31, 2012.
(iv) The Company entered into derivative contracts to manage the exposures due to the fluctuations of exchange rate in financing activities. These transactions meet the criteria for fair value hedge accounting. As of December 31, 2010, 2011 and 2012, the details of the derivative financial liabilities and assets intended for hedging were as follows:

Buying USD/ Selling NTD	December 31, 2010 Notional Principal (USD thousands) Maturity Date /Contract Period $ 79,203 2011.01.07~ 2011.07.29	December 31,2011	December 31,2012	December 31,2012
	Notional Principal (USD thousands) $ 79,203	Notional Principal (USD thousands) Maturity Date /Contract Period 22,439 2012.02.27~ 2012.06.19	Notional Principal (USD thousands) 65,723	Maturity Date /Contract Period
				2013.01.09~ 2013.06.10

－ (c) Notes and accounts receivable non-related parities, net

	December 31	December 31	December 31
2010 NT$ $ 432 359,618 360,050 (44,910) $ 315,140	2011 NT$ 15,333 569,515 584,848 - 584,848	2012
		NT$ 12,536 659,202 671,738 - 671,738	US$
			432 22,707
			23,139 -
			23,139

～ F-99 ～

SANYANG INDUSTRY CO., LTD.

Notes to Financial Statements (Cont’d)

(d) Inventories

d) Inventories
Finished goods Less: Allowance for inventory market price decline and obsolescence Sub-total Work in process Less: Allowance for inventory market price decline and obsolescence Sub-total Raw materials and supplies Less: Allowance for inventory market price decline and obsolescence Sub-total Inventory in transit		December 31
	2010 NT$ $ 532,550 (1,049) 531,501 1,712,457 - 1,712,457 2,539,963 (79,268) 2,460,695 99,632 $ 4,804,285	2011 NT$ 707,454 (549) 706,905 3,519,321 - 3,519,321 1,166,510 (48,872) 1,117,638 132,960 5,476,824	2012
			NT$ 2,305,988 (585) 2,305,403 1,778,058 - 1,778,058 1,827,063 (48,252) 1,778,811 152,351 6,014,623	US$
				79,434 (20)
				79,414
				61,249 -
				61,249
				62,937 (1,662)
				61,275
				5,249
				207,187

(i) For the years ended December 31, 2010, 2011 and 2012, the components of the cost of goods sold were as follows:

For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
2010 NT$ $ 15,332,861 (34,885) 276 - 3,088 $ 15,301,340	2011 NT$ 18,363,889 (55,901) 90 36,589 (30,537) 18,314,130	2012
		NT$ 18,791,424 (54,050) 185 28,237 (584) 18,765,212	US$
			647,311 (1,862) 6 973 (20)
			646,408

(ii) As of December 31, 2010, 2011 and 2012, the inventories of Light Tactical Vehicle amounted to NT$3,267,915, NT$3,807,718 and NT$4,024,539, respectively, please refer to Note 7(d) about the testing of the Light Tactical Vehicle samples and the dispute regarding the performance of the contract with the Armaments Procurement Bureau under the Ministry of National Defense (PCAB).

(e) Long-term investments under the equity method

(i) The investment income (loss) and the cumulative translation adjustments for the years ended December 31, 2010, 2011 and 2012, were recognized based on the investees’ audited financial statements for the same period as the Company’s. The investment income (loss) and the cumulative translation adjustments recognized under the equity method were as follows:

～ F-100 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

						Cumulative
	Original	Equity		Ending	Investment	Translation
Name of Investee Company	Investment	Holding %		Balance	Income (Loss)	Adjustments credit (debit)
NT$	December 31, 2010				For the	Year 2010
Shan Young Assets Management Co., Ltd.	$ 643,889	100.00		1,967,929	(15,833)	-
Youth Taisun Co., Ltd.	158,745	89.39		187,579	18,662	-
Jin Yang Motorcycles Co., Ltd.	29,000	100.00		30,175	5,663	-
Hsu Mao Investment Corporation	76,225	49.50		7,466	(19)	-
Nanyang Industry Co., Ltd.	833,136	89.58		1,129,194	187,792	(29,715)
Nanchen Industry Co., Ltd.	6,501	19.85		7,826	1,333	-
Nova Design Co., Ltd.	108,399	59.16		119,573	2,099	(2,821)
Sheng Mao Investment Corporation	69,714	77.00		4,308	(86)	-
Chao Yang Car Leasing Co., Ltd.	35,178	16.27		44,013	5,177	-
Ching Ta Investment Corporation	530,267	94.73		675,862	41,125	(26,827)
Profit Source Investment Ltd. (Samoa)	867,759	100.00		1,417,915	215,806	(88,693)
Sanyang Deutschland GmbH	122,713	100.00		139,097	560	(25,454)
Sun Goal Ltd.	316,389	100.00		288,560	(6,398)	(13,806)
SY International Ltd.	3,662,860	100.00		6,056,574	724,194	(715,007)
Sanyang Italia S.r.l	174,915	100.00		137,460	(12,409)	(26,474)
Total			$	12,213,531	1,167,666	(928,797)
NT$	December 31, 2011				For the	Year 2011
Shan Young Assets Management Co., Ltd.	$ 643,889	100.00		1,927,383	(40,546)	-
Youth Taisun Co., Ltd.	158,745	89.39		186,196	15,091	-
Jin Yang Motorcycles Co., Ltd.	29,000	100.00		30,954	1,620	-
Hsu Mao Investment Corporation	76,225	49.50		8,052	-	-
Nanyang Industry Co., Ltd.	833,136	89.58		1,529,919	398,552	21,847
Nanchen Industry Co., Ltd.	6,501	19.85		15,240	7,414	-
Nova Design Co., Ltd.	114,778	62.26		138,829	11,486	2,906
Sheng Mao Investment Corporation	69,714	77.00		4,629	(46)	-
Chao Yang Car Leasing Co., Ltd.	35,178	16.27		49,580	5,567	-
Ching Ta Investment Corporation	530,267	94.73		747,202	56,356	19,154
Profit Source Investment Ltd. (Samoa)	867,759	100.00		1,741,304	244,689	124,790
Sanyang Deutschland GmbH	122,713	100.00		142,449	2,503	849
Sun Goal Ltd.	316,389	100.00		295,047	(17,124)	23,611
SY International Ltd.	3,662,860	100.00		6,382,896	338,595	29,397
Sanyang Italia S.r.l	174,915	100.00		145,912	7,862	590
Total			$	13,345,592	1,032,019	223,144

～ F-101 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

Name of Investee Company	December 31, 2012 Original Investment Equity Holding % Bending Balance December 31, 2012 $ 643,889 100.00 1,885,987 158,745 89.39 184,609 29,000 100.00 34,357 - - - 833,136 89.58 1,413,310 6,501 19.85 22,288 114,778 62.26 134,544 22,635 25.00 24,367 35,178 16.27 55,931 530,267 94.73 740,795 867,759 100.00 2,068,812 122,713 100.00 141,467 316,389 100.00 275,367 3,662,860 100.00 6,024,838 174,915 100.00 128,538 $ 13,135,210 $ 22,180 100.00 64,967 5,468 89.39 6,359 999 100.00 1,183 - - - 28,699 89.58 48,684 224 19.85 768 3,954 62.26 4,635 780 25.00 839 1,212 16.27 1,927 18,266 94.73 25,518 29,892 100.00 71,265 4,227 100.00 4,873 10,899 100.00 9,486 126,175 100.00 207,538 6,025 100.00 4,428 $ 452,470	December 31, 2012 Original Investment Equity Holding % Bending Balance December 31, 2012 $ 643,889 100.00 1,885,987 158,745 89.39 184,609 29,000 100.00 34,357 - - - 833,136 89.58 1,413,310 6,501 19.85 22,288 114,778 62.26 134,544 22,635 25.00 24,367 35,178 16.27 55,931 530,267 94.73 740,795 867,759 100.00 2,068,812 122,713 100.00 141,467 316,389 100.00 275,367 3,662,860 100.00 6,024,838 174,915 100.00 128,538 $ 13,135,210 $ 22,180 100.00 64,967 5,468 89.39 6,359 999 100.00 1,183 - - - 28,699 89.58 48,684 224 19.85 768 3,954 62.26 4,635 780 25.00 839 1,212 16.27 1,927 18,266 94.73 25,518 29,892 100.00 71,265 4,227 100.00 4,873 10,899 100.00 9,486 126,175 100.00 207,538 6,025 100.00 4,428 $ 452,470	For the Year 2012	For the Year 2012
	Original Investment	Equity Holding %	Investment Income (Loss)	Cumulative Translation Adjustments credit (debit)
NT$
Shan Young Assets Management Co., Ltd. Youth Taisun Co., Ltd. Jin Yang Motorcycles Co., Ltd. Hsu Mao Investment Corporation Nanyang Industry Co., Ltd. Nanchen Industry Co., Ltd. Nova Design Co., Ltd. Sheng Mao Investment Corporation Chao Yang Car Leasing Co., Ltd. Ching Ta Investment Corporation Profit Source Investment Ltd. (Samoa) Sanyang Deutschland GmbH Sun Goal Ltd. SY International Ltd. Sanyang Italia S.r.l Total US$	$ 643,889 100.00 158,745 89.39 29,000 100.00 - - 833,136 89.58 6,501 19.85 114,778 62.26 22,635 25.00 35,178 16.27 530,267 94.73 867,759 100.00 122,713 100.00 316,389 100.00 3,662,860 100.00 174,915 100.00 $ 22,180 100.00 5,468 89.39 999 100.00 - - 28,699 89.58 224 19.85 3,954 62.26 780 25.00 1,212 16.27 18,266 94.73 29,892 100.00 4,227 100.00 10,899 100.00 126,175 100.00 6,025 100.00		(41,396) 14,190 4,870 24 268,360 7,598 7,679 525 6,351 49,024 367,183 1,619 (11,316) (125,399) (14,558)	- - - - (10,130) - (1,718) - - (14,793) (55,851) (2,601) (8,364) (228,676) (2,816)
			534,754	(324,949)
			(1,426) 489 168 1 9,244 262 265 18 219 1,689 12,648 56 (390) (4,320) (502)	- - - - (349) - (59) - - (510) (1,924) (90) (288) (7,877) (98)
Shan Young Assets Management Co., Ltd. Youth Taisun Co., Ltd. Jin Yang Motorcycles Co., Ltd. Hsu Mao Investment Corporation Nanyang Industry Co., Ltd. Nanchen Industry Co., Ltd. Nova Design Co., Ltd. Sheng Mao Investment Corporation Chao Yang Car Leasing Co., Ltd. Ching Ta Investment Corporation Profit Source Investment Ltd. (Samoa) Sanyang Deutschland GmbH Sun Goal Ltd. SY International Ltd. Sanyang Italia S.r.l Total
			18,421	(11,195)

～ F-102 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

(ii) In 2010, 2011 and 2012, the Company had received cash dividends from some of its investees and eliminated against its long-term investments under the equity method. The related information was as follows:

Investee Nanyang Industry Co., Ltd. Ching Ta Investment Co., Ltd. Youth Taisun Co., Ltd Nova Design Co., Ltd. Jin Yang Motorcycles Co., Ltd. Nanchen Industry Co., Ltd. Hsu Mao Investment Corporation Profit Source Investment Ltd. (Samoa) Total	2010 NT$ $ - - 11,981 1,488 - - - - $13,469	2011 NT$ 10,331 5,588 16,474 1,514 841 - - 70,863 105,611	2012	2012
			NT$	US$
			361,374 32,490 14,976 9,861 1,467 586 505 -	12,448 1,119 516 340 51 20 17 -
			421,259	14,511

(iii) In order to maintain its worldwide investment framework, the Company increased its investments for some long-term investments under the equity method in 2010 and 2011 as follows:

Name of Investee Company 2010 Nova Design Co., Ltd. 2011 Nova Design Co., Ltd.	For the	Year Ended December 31	Year Ended December 31
	Purchase Price $ 981 $ 6,378	Number of Stock 85 558	Equity Holding
			0.48% 3.10%

(iv) On February 3, 2010, the Board of Directors of the Company resolved to increase its investment in Xiamen King Long United Automotive Industry Co., Ltd. by US$389 (NT$12,350) in cash, and likewise increase its equity investment in Profit Source Investment Ltd. by US$3,287 from the capitalization of earnings of Profit Source Investment Ltd., for the purpose of expanding the automobile business in Mainland China. These investments were registered in the same year. In addition, the Company increased in 2011 its equity investment in Xiamen King Long United Automotive Industry Co., Ltd. by US$3,909 from the capitalization of earnings of this investee.
(v) On April 23, 2010, the Board of Directors of the Company resolved to increase its investment in Jiyang Machinery Industry Co., Ltd. by US$7,000 in cash, and likewise increase its equity investment in Sun Goal Ltd. for the purpose of expanding the wheel drive business in Mainland China.

～ F-103 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

(vi) In 2010, San Young Assets Management Co., Ltd. increased its capital of NT$100,000 in cash and was fully acquired by the Company, so that the shareholder’s equity was remained steady.
(vii) On October 16, 2012, the Company sold for NT$55,723 and NT$132,165, its ownership of 3,120 thousands and 7,425 thousands equity shares in Sheng Mao Investment Corporation and Hsu Mao Investment Corporation, respectively. The payment for the disposal of those shares was received on October 22, 2012. Such disposal resulted in disposal losses totaling NT$896, and a charge to capital surplus – treasury stock transactions of NT$138,733.
(viii) For the years ended December 31, 2010, 2011 and 2012, the difference between the acquired cost and the net value of the underlying equity of the investee on the acquired date were as follows:

Difference between Investment Cost and Net Value of Equity Nova Design Co., Ltd -Negative Goodwill December 31, 2010 NT$ December 31, 2011 NT$ December 31, 2012 NT$ US$	Original Investment (5,325) (5,325) (5,325) (184)	Amortized Amount (4,038) (4,571) (5,103) (176)	Unamortized Amount
			(1,287)
			(754)
			(222)
			(8)

(ix) In 2010, 2011 and 2012, some of the subsidiaries of the Company had received cash dividends from the Company, which were eliminated against the long-term investments under the equity method. The related information was as follows:

Name of Investee Company	2010	2011 Stock Dividends Cash Dividends NT$ NT$ 269 448 56 93 710 1,185 286 476 - - - - 1,321 2,202	2012 Cash Dividends NT$ US$ 2,138 74 442 15 - - - - - - - - 2,580 89
	Cash Dividends	Stock Dividends
	NT$	NT$ 269 56 710 286 - - 1,321	NT$ 2,138 442 - - - - 2,580
Nanyang Industry Co., Ltd. Ching Ta Investment Co., Ltd. Hsu Mao Investment Corporation Sheng Mao Investment Corporation Youth Taisun Co., Ltd. Nova Design Co., Ltd Total	$ - - - - - -
	$ -

For the years ended December 31, 2010, 2011 and 2012, cash dividends received by the subsidiaries, those had the Company’s stocks, as “Investment Income” in their income statements, amounted to zero, NT$1,442 and NT$2,334, respectively, which were accounted for as “Investment Income” in the books of these subsidiaries. As these subsidiaries held ownership of Company shares of stock, the Company adjusted those

～ F-104 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

dividends income through equity-method by increasing its “Capital Surplus-Treasury stock transactions”.

(x) As of December 31, 2010, 2011, and 2012, except for Sheng Mao and Hsu Mao Investment Corporation, which ceased to be controlled by the Company effective October 1, 2012, the Company has the power to control the aforementioned investees. Therefore, these investees were accounted for using the equity method in the Company’s stand-alone financial statements and were, likewise included in the consolidated financial statements of the Company.

(f) Property, plant and equipment

operty, plant and equipment
Items December 31, 2010 NT$ Land Buildings Machinery and equipment Utilities and transportation equipment Office equipment Construction in progress Prepayments for equipment Total Less: Accumulated impairment Net Book Value December 31, 2011 NT$ Land Buildings Machinery and equipment Utilities and transportation equipment Office equipment Construction in progress Prepayments for equipment Total Less: Accumulated impairment Net Book Value	Cost $ 406,728 2,487,552 9,273,839 948,175 610,353 65,157 13,250 $13,805,054 $ 404,378 2,502,685 9,549,344 950,581 637,085 86,049 81,559 $14,211,681	Revaluation Increment 2,718,671 2 2,653 155 25 - - 2,721,506 2,705,760 2 2,519 155 12 - - 2,708,448	Total 3,125,399 2,487,554 9,276,492 948,330 610,378 65,157 13,250 16,526,560 3,110,138 2,502,687 9,551,863 950,736 637,097 86,049 81,559 16,920,129	Accumulated Depreciation - 1,617,172 8,136,836 839,339 512,769 - - 11,106,116 - 1,674,091 8,448,949 858,745 530,957 - - 11,512,742	Net Book Value
					3,125,399 870,382 1,139,656 108,991 97,609 65,157 13,250
					5,420,444 (92,604)
					$ 5,327,840
					3,110,138 828,596 1,102,914 91,991 106,140 86,049 81,559
					5,407,387 (56,353)
					$ 5,351,034

～ F-105 ～

SANYANG INDUSTRY CO., LTD.

Notes to Financial Statements (Cont’d)

Items December 31, 2012 NT$ Land Buildings Machinery and equipment Utilities and transportation equipment Office equipment Construction in progress Prepayments for equipment Total Less: Accumulated impairment Net Book Value December 31, 2012 US$ Land Buildings Machinery and equipment Utilities and transportation equipment Office equipment Construction in progress Prepayments for equipment Total Less: Accumulated impairment Net Book Value	Cost $ 404,378 2,533,722 9,759,197 961,027 635,802 65,607 29,545 $14,389,278 $ 13,930 87,279 336,176 33,105 21,902 2,260 1,017 $ 495,669	Revaluation Increment 2,705,760 2 2,519 155 12 - - 2,708,448 93,206 - 87 5 - - - 93,298	Total 3,110,138 2,533,724 9,761,716 961,182 635,814 65,607 29,545 17,097,726 107,136 87,279 336,263 33,110 21,902 2,260 1,017 588,967	Accumulated Depreciation - 1,731,126 8,662,790 866,829 535,199 - - 11,795,944 - 59,632 298,408 29,860 18,436 - - 406,336	Net Book Value
					3,110,138 802,598 1,098,926 94,353 100,615 65,607 29,545
					5,301,782 (60,263)
					$ 5,241,519
					107,136 27,647 37,855 3,250 3,466 2,260 1,017
					182,631 (2,076)
					$ 180,555

(i) For the years ended December 31, 2010, 2011 and 2012, the capitalized interest amounted to NT$321, NT$340 and NT$1,510, respectively, and the interest rates used in computing the capitalized interest were 3.113%, 2.998% and 2.980%, respectively.
(ii) In 2011, based on the results of its evaluation of the recoverability of the property, plant and equipment, the Company recognized a gain on recovery from assets impairment loss of NT$40,000.
(iii) Please refer to Note 6 for property, plant and equipment, which were pledged to financial institutions as collateral for loans as of December 31, 2010, 2011 and 2012.

～ F-106 ～

SANYANG INDUSTRY CO., LTD.

Notes to Financial Statements (Cont’d)

(g) Assets held for lease

Assets held for lease
Items December 31, 2010 NT$ Land Buildings Machinery and equipment Other equipment Total Less: Accumulated impairment Net Book Value December 31, 2011 NT$ Land Buildings Machinery and equipment Other equipment Total Less: Accumulated impairment Net Book Value December 31, 2012 NT$ Land Buildings Machinery and equipment Other equipment Total Less: Accumulated impairment Net Book Value December 31, 2012 US$ Land Buildings Machinery and equipment Other equipment Total Less: Accumulated impairment Net Book Value	Cost	Revaluation Increment 647,405 - - - 647,405 767,773 - - - 767,773 767,773 - - - 767,773 26,448 - - - 26,448	Total 718,690 177,006 389 19,290 915,375 853,260 177,006 389 19,268 1,049,923 853,260 177,006 389 17,879 1,048,534 29,392 6,097 13 616 36,119	Accumulated Depreciation 103,873 389 19,154 123,416 - 106,967 389 19,268 126,624 - 110,051 389 17,879 128,319 - 3,791 13 616 4,420	Net Book Value
	$ 71,285 177,006 389 19,290				718,690 73,133 136
	$ 267,970				791,959 (40,813)
	$ 85,487 177,006 389 19,268
					$ 751,146
					853,260 70,039 - -
	$ 282,150				923,299 (40,813)
	$ 85,487 177,006 389 17,879
					$ 882,486
					853,260 66,955 - -
	$ 280,761				920,215 (40,813)
	$ 2,945 6,097 13 616
					$ 879,402
					29,392 2,306 - -
	$ 9,671				31,699 (1,406)

					$ 30,293

Please refer to Note 6 for assets held for lease which were pledged to financial institutions as collateral for loans as of December 31, 2010, 2011 and 2012.

～ F-107 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

(h) Idle assets

Idle assets
Items December 31, 2010 NT$ Land Machinery and equipment Other equipment Net Book Value December 31, 2011 NT$ Land Machinery and equipment Other equipment Net Book Value December 31, 2012 NT$ Land Machinery and equipment Other equipment Net Book Value December 31, 2012US$ Land Machinery and equipment Other equipment Net Book Value	Cost $ 76,812 1,214,720 22,828 $ 1,314,360 $ 64,961 844,739 22,771 $ 932,471 $ 64,961 917,855 22,771 $ 1,005,587 $ 2,238 31,617 784 $ 34,639	Revaluation Increment 152,445 - - 152,445 44,990 - - 44,990 44,990 - - 44,990 1,550 - - 1,550	Accumulated Depreciation - 1,207,558 22,206 1,229,764 - 841,077 22,398 863,475 - 917,855 22,647 940,502 - 31,617 780 32,397	Accumulated Impairment - 7,162 622 7,784 - 3,662 373 4,035 - - 124 124 - - 4 4	Net Book Value
					229,257 - -
					229,257
					109,951 - -
					109,951
					109,951 - -
					109,951
					3,788 - -
					3,788

Please refer to Note 6 for idle assets which were pledged to financial institutions as collateral for loans as of December 31, 2010, 2011 and 2012.

(i) Short-term loans

Short-term loans
Items Material purchase loans Collateralized loans		December 31
	2010 NT$ $ 3,329,750 2,980,000 $ 6,309,750	2011 NT$ 1,697,511 1,390,000 3,087,511	2012
			NT$ 1,996,085 1,200,000 3,196,085	US$
				68,759 41,337
				110,096

All of the short-term loans have maturities within one year. For the years ended December 31, 2010, 2011 and 2012, interest rates were 0.95% ~ 3.25%, 1.03% ~3.09% and 1.07%~2.76%, respectively.

～ F-108 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

(j) Long-term loans

Financial Institution		December 31	December 31	December 31
	2010	2011	2012
	NT$	NT$	NT$	US$ 31,691 120,565 34,447 - -
Land Bank and 5 other banks Land Bank, TC Bank and 6 other banks Land Bank, TC Bank and 11 other banks Total Less: current	$ 1,500,000 - - 690,000 475,000	1,210,000 3,500,000 1,000,000 - -	920,000 3,500,000 1,000,000 - -
	2,665,000 (1,455,000)	5,710,000 (290,000)	5,420,000 (290,000)	186,703 (9,990)
	$ 1,210,000	5,420,000	5,130,000	176,713

(i) In February 2010, the Company signed a five-year syndicated loan with Taiwan Land Bank and five other banks for the purpose of paying off the existing loans from all the financial institutions and maintaining medium-term working capital. The Company was also offered a new nonrevolving credit line of NT$1.5 million by Taiwan Land Bank and five other banks.

～ F-109 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

(ii) In June 2011, the Company signed a four-year syndicated loan with Land Bank, TC Bank and six other banks for purposes of paying off the existing loans from all the financial institutions and maintaining medium-term working capital. Also, the Company was offered a new credit line of NT$4.5 million, of which NT$1 million could be revolving and the NT$3.5 million could be nonrevolving credit facility.
(iii) According to the syndicated loan agreements , one with Land Bank, and another one with TC bank together with Land Bank, the Company is required to comply with certain financial ratios or limitations as described under item (iv) below , based on its annual and semi-annual consolidated financial statements audited by the independent auditors. If the Company breaches its financial covenants based on its semi-annual and annual consolidated financial statements, it is allowed to cure the breach within five months starting from October 1st of the audit year and May 1st of the subsequent year, respectively. Also, it is required to provide an independent auditor ’ s report on those financial statements. Otherwise, the Company will have to pay interest based on the original interest rate indicated in the contract plus 0.25%, and the penalty which is determined on the remaining balance of the syndicated loan at the rate of 0.05%. However, if the Company ’ s breach of financial covenants described under items (iv) below, is caused by preparing the Company ’ s financial statements in accordance with TaiwanIFRSs effective in 2013, such breach will not be considered as a breach of financial covenants and the Company could renegotiate those financial covenants with the banks concerned .
(iv) According to the syndicated loan agreements identified as A and B of the table above, the Company is required to maintain certain financial ratios based on its annual and semiannual consolidated financial statements as follows:
(1) With Land Bank and five other banks Current ratio ≧100%
- Debt ratio ≦180%
- Times Interest Earned (Earnings after tax and before interest + depreciation and amortization expense/ interest expense) ≧ 2
- Stockholders’ equity ＞ $10 million
(2) With Land Bank together with TC Bank and six other banks Current ratio ≧100%
- Debt ratio ≦ 200%

～ F-110 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

Times Interest Earned (Earnings after tax and before interest + depreciation and amortization expense/ interest expense) ≧ 2

Stockholders’ equity ＞ $10 million

(v) For the years ended December 31, 2010, 2011 and 2012, the average interest rate of the loans as mentioned above ranged from 1.963% ~ 3.814%, 1.963% ~ 3.480%, and 2.664% ~ 3.250%, respectively.
(vi) As of December 31, 2010, 2011 and 2012, the Company was in compliance with its financial covenants based on its annual consolidated financial statements.
(vii) Please refer to Note 6 for the assets, which were pledged for aforesaid loans as collateral as of December 31, 2010, 2011 and 2012.

(k) Income Tax

(i) According to the revised Income Tax Law announced on June 15, 2010, the statutory income tax rate has been amended to 17% effective January 1, 2010. Therefore, the Company was subject to a statutory income tax rate of 17% all for the years ended December 31, 2010, 2011 and 2012. The Company also complied with the Basic Income Tax Act when calculating its income tax.
(ii) For the years ended December 31, 2010, 2011 and 2012, the components of income tax expense were as follows:

For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
2010	2011	2012
NT$	NT$	NT$	US$
$ - - 35,399 (5,299)	11,065 3,126 52,776 11,617	7,142 111,422 3,754 (6,748)	246 3,838 129 (232)
$ 30,100	78,584	115,570	3,981

～ F-111 ～

SANYANG INDUSTRY CO., LTD.

Notes to Financial Statements (Cont’d)

The components of deferred income tax expense were as follows:

For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
2010 NT$ $ (43,570) 220,357 (11,634) 35,522 156,698 (157,896) (126,355) (37,723) $ 35,399	2011 NT$ 199,869 170,543 (10,608) (46,138) 47,557 33,676 (322,620) (19,503) 52,776	2012
		NT$	US$
		- 54,869 (11,003) 24,676 (10,260) (44,974) - (9,554)	- 1,890 (379) 850 (353) (1,549) - (329)
		3,754	$129

(iii) For the years ended December 31, 2010, 2011and 2012, the income tax calculated at the statuary tax rate on pre-tax income was reconciled with income tax expense as follows:

For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
2010 NT$ $ 122,834 - (5,299) (41,805) (126,355) (13,281) (157,896) 220,357 - 31,545 $ 30,100	2011 NT$ 223,823 3,126 11,617 (76,285) (322,620) - 33,676 154,166 90,898 (39,817) 78,584	2012 NT$ 80,290 111,422 (6,748) (53,928) - - (44,974) 54,869 - (25,361) 115,570	2012
			US$
			2,766 3,838 (232) (1,858) - - (1,549) 1,890 - (874)
			3,981

～ F-112 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

(iv) As of December 31, 2010, 2011 and 2012, the temporary differences, loss carryforward, income tax credits and the related income tax effect thereof resulting in deferred income tax assets (liabilities) were as follows:

December 31	December 31	December 31
2011			2012
NT$	NT$	NT$	NT$	US$	US$
Amount	Income Tax Effect	Amount	Income Tax Effect	Amount	Income Tax Effect
153,247 56,416 108,495 49,421 8,259 78,950 - 286,641 946,645 1,363,536 141,201 9,824 (12,336) (3,741,642)	26,052 9,591 18,444 8,402 1,404 13,420 (1,403)	122,634 66,077 159,202 48,837 8,259 - (66,204) - 120,350 1,011,371 1,628,091 155,885 9,824 - (3,681,289)	20,848 11,233 27,064 8,303 1,404 - (1,404)	4,224 2,276 5,484 1,682 284 -	718 387 932 286 48 - (48)
	75,910		67,448		2,323
	-		(11,255)	(2,281)	(388)
	-		(11,255)		(388)
	75,910		56,193		1,936
	- 286,641 160,930 231,800 24,004 1,670 (1,670)		- 120,350 171,933 276,776 26,500 1,670 (1,670)	- 4,146 34,839 56,083 5,370 338 (126,810)	- 4,146 5,923 9,534 913 58 (58)
	703,375		595,559		20,515
	(2,097)		-
	(636,079)		(625,819)		(21,558)
	(638,176)		(625,819)		(21,558)
	65,199		(30,260)		(1,042)

(v) The Company’s income tax returns had been assessed and approved by the Tax Authority for the years through 2010.
(vi) The Company is entitled to investment tax credits for investing in automatic equipment, pollution prevention equipment, research and development, employee training expenditures, etc. As of December 31, 2012, according to R.O.C. Income Tax Act, the

～ F-113 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

unused investment tax credits which may be applied to offset against income tax in the future and its expiration year are as follows:

uture and its expiration year	are as follows:
Year of occurrence	Unused balance $ 120,350(approved)	Expirationyear
2009		2013

(vii) The integrated income tax information was as follows:

	December 31	December 31	December 31
2010 NT$ $ 692,450 $ 15,071	2011	2012 NT$ US$ 1,098,837 37,852 94,746 3,264
	NT$		US$
	1,269,284		37,852
	28,460		3,264

Expected or actual deductible tax ratio	For the Years Ended December 31	For the Years Ended December 31	For the Years Ended December 31
	2009 15.45% (actual)	2010	2011
		5.51% (actual)	3.34% (expected)

(l) Pension plan

(i) Based on the Company obtained actuarial pension reports with December 31, 2010, 2011 and 2012, as the measurement dates, the pension funding status was reconciled with accrued pension liabilities per books as follows:

For the Years Ended December 31	For the Years Ended December 31	For the Years Ended December 31	For the Years Ended December 31
2010 NT$ $ (1,566,221) (745,107) (2,311,328) (333,207) (2,644,535) 805,284 (1,839,251) 120,129 889,435 (676,357) $ (1,506,044)	2011 NT$ (1,705,137) (661,828) (2,366,965) (316,266) (2,683,231) 862,830 (1,820,401) 60,066 857,716 (601,516) (1,504,135)	2012
		NT$ (1,911,276) (502,276) (2,413,552) (334,153) (2,747,705) 895,493 (1,852,212) - 884,868 (550,715) (1,518,059)	US$
			(65,838) (17,302)
			(83,140) (11,511)
			(94,651) 30,847
			(63,803) - 30,481 (18,971)
			(52,293)

As of December 31, 2010, 2011 and 2012, the vested benefit under the pension plan amounted to NT$2,285,932, NT$2,493,256 and NT$2,662,916 respectively.

～ F-114 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

(ii) For the years ended December 31, 2010, 2011 and 2012, the actuarial assumptions adopted to calculate the net periodic pension costs and the components of the net periodic pension cost were as follows:

Discount rate Future salary increase rate Expected rate of return on pension plan assets Service cost Interest cost Return on pension fund assets Amortization Net periodic pension cost	2010 1.75% 1.00% 1.75% $ 54,373 53,316 (9,362) 84,714 $ 183,041	2011 2.00% 1.00% 2.00% 51,555 45,510 (9,779) 92,364 179,650	2012 1.75% 1.00% 1.75% 49,761 52,770 (8,519) 87,937 181,949

For the years ended December 31, 2010, 2011 and 2012, under the defined contribution plan, the Company had recognized pension costs of NT$29,368, NT$30,400 and NT$32,777 respectively, and had contributed to an individual labor pension fund account at the Bureau of Labor Insurance.

(m) Common stock

As of December 31, 2010, 2011 and 2012, the authorized common shares of stock and outstanding common shares of stock of the Company both amounted to NT$8,500,000, NT$8,456,385; NT$9,500,000, NT$8,963,768 and NT$9,500,000,NT$8,963,768, respectively.

(n) Capital surplus

In accordance with the ROC Company Law, as amended in January 2012, the realized capital surplus cannot be distributed as dividends in cash or shares unless the capital surplus was previously used to offset the deficit. Realized capital surplus included the revenue from donations, and the excess of the issuance price over the par value of the capital stock. In accordance with the Regulations Governing the Offering and Issuance of Securities by Securities Issuers, the capital surplus can be capitalized upon approval during the shareholders’ meeting as required in Company Act for the Company but the total amount of capital surplus that can be capitalized in any one year cannot exceed 10% of the paid-in capital.

(o) Treasury Stock

(i) In accordance with Securities and Exchange Act, treasury stock cannot be pledged as collateral. Also, treasury stock does no bear the shareholder’s right prior to being sold to third parties.

～ F-115 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

(ii) In 2012, the Company sold its ownership of 3,120 thousand equity shares of stock in Sheng Mao Investment Corporation, and its entire ownership of equity shares in Hsu Mao Investment Corporation. Consequently, the Company ceased control of these two investee companies. As the 17,602 thousands shares of the Company that were still held by Sheng Mao Investment Corporation and Hsu Mao Investment Corporation can no longer be treated as treasury stock, treasury stock decreased by NT$64,782 as of December 31 2012.
(iii) As of December 31, 2010, 2011 and 2012, the Company’s shares held by its subsidiaries were 22,013, 23,334 and 5,732 thousand shares, with market value of approximately NT$407,250, NT$383,844, and NT$101,456, respectively.

(p) Dividend Policy and Appropriation of Earnings

(i) Dividend Policy:
(1) Under the Company’s Article of Incorporation, a 10% legal reserve is set aside from the annual net income after covering the accumulated deficit. In addition, a special reserve is provided in accordance with the relevant laws. The remaining net income, together with the unappropriated earnings of prior years and the reversal from special reserve, which is required by the Regulations Governing the Offering and Issuance of Securities by Securities Issuers, are appropriated in accordance with the distribution proposal submitted by the board of directors to the shareholders for resolution. Distribution of dividends to shareholders shall not be greater than 10% of the current issued capital. The remuneration to directors and supervisors and employees’ bonuses are also distributed at the rate of 2% and 1%, respectively. The residual earnings, if any, may be distributed as shareholders’ bonuses.
(2) In order to bring about stability in the payment of dividends, the Company distributes dividends depending on the level of earnings of each year. The Company is facing a rapidly changing industrial environment. In consideration of the Company’s longterm operating plan and funding needs, the Company adopts a stable dividends policy. Therefore, the Company distributes cash dividends of at least 10% of the aggregate of all dividends, if the distributions include cash dividends.
(ii) Appropriation of Earnings
(1) Under the Regulations of Securities and Futures Bureau Commission, a special reserve is set aside from the current year’s net income and prior year’s unappropriated earnings at an amount equal to the debit balance of contra accounts in the

～ F-116 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

shareholders’ equity such as the unrealized loss on financial instruments and the cumulative translation adjustments. If the debit balance of any of these contra accounts in the shareholders’ equity is reversed, the related special reserve can be reversed.

(2) On May 27, 2011 and December 24, 2012, the shareholders resolved during their meeting to distribute the 2010 and 2011 earnings, respectively. The information related to the distribution of the Company’s earnings is available on the website of the Market Observation Post System. The relevant information of earnings distributed as dividends, employee bonus and remuneration to directors and supervisors was as follows:

Common stock dividends per share (dollars)－Cash Common stock dividends per share (dollars)－Stock Employee bonus－Cash Remuneration to directors and supervisors Total	For the Year Ended December 31	For the Year Ended December 31
	2010 $0.1 $0.6 $ 13 625 $ 938	2011
		0.45
		-
		7,421 14,842
		22,263

For the years ended December 31, 2010, 2011 and 2012, the remuneration to directors, and supervisors and employee bonus accrued in the financial statements and the actual distributions thereof were as follows:

Actual Distribution Amount Amount Recognized in Financial Statement Variance For the Year Ended December 31, 2010	Actual Distribution Amount Amount Recognized in Financial Statement Variance For the Year Ended December 31, 2010	Variance
$ - 820 (820) - 410 (410) $ - 1,230 (1,230) For the Year Ended December 31, 2011		(820) (410)
		(1,230)
$ 625 2,282 (1,657) 313 1,141 (828) $ 938 3,423 (2,485) For the Year Ended December 31, 2012		(1,657) (828)
		(2,485)
$ 14,842 7,421 $ 22,263	5,345 2,672 8,017	9,497 4,749
		14,246

～ F-117 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

(3) Based on the resolutions passed by the board of directors, the remuneration of directors and supervisors and the employee bonus are appropriated at the rate of 2% and 1%, respectively, of the net income. The estimated and accrued annual remuneration of directors and supervisors and the employee bonus amounted to NT$2,282, NT$5,345, NT$1,739, NT$1,141, NT$2,672 and NT$869 for the years ended December 31, 2010, 2011 and 2012, respectively. If bonus shares are resolved for distribution to employees during the meeting of shareholders’ of the Company, the number of shares is determined by dividing the amount of bonus by the shares of stock closing price (after considering the effect of cash and stock dividends) on the day immediately preceding the shareholders’ meeting. The differences between the amounts of remuneration of directors and supervisors and the employee bonus approved in the shareholders’ meetings and those recognized in the financial statements, if any, are accounted for as changes in accounting estimates and recognized in profit or loss in the year when earnings are distributed.

(q) Earnings per Share (EPS)

For the years ended December 31, 2010, 2011and 2012, the basic earnings per share were calculated as follows:

calculated as follows:
Net income Weighted-average common shares outstanding (in thousands) Basic earnings per share (in dollars)			For the Year Ended December 31
	2010		2011		2012
	NT$		NT$		NT$		US$
	~~Before~~ Income tax	~~After~~ Income tax	~~Before~~ Income tax	~~After~~ Income tax	~~Before~~ Income tax	~~After~~ Income tax	~~Before~~ Income tax	~~After~~ Income tax
	$ 722,550	692,450	1,316,610	1,238,026	472,295	356,725	16,269	12,288
	823,625	823,625	873,042	873,042	877,443	877,443	877,443	877,443
	$ 0.88	0.84	1.51	1.42	0.54	0.41	0.02	0.01

(r) Information on financial Instruments

(i) Fair value of financial instruments

～ F-118 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

As of December 31, 2010, 2011 and 2012, except for the financial assets and liabilities described above, the Company’s other financial assets and liabilities were as follows:

		December 31	December 31	December 31	December 31	December 31	December 31
2010		2011		2012
NT$		NT$		NT$		US$
Book value	Fair value	Book value	Fair value	Book value	Fair value	Book value	Fair value
$ 10,000 98,580 20,000 251,006 2,665,000 - 113,233	10,000 - - 251,006 2,665,000 - 113,233	10,000 58,580 20,000 314,342 5,710,000 7,387 -	10,000 - - 314,342 5,710,000 7,387 -	10,000 43,896 20,000 662,397 5,420,000 - 43,493	10,000 - - 662,397 5,420,000 - 43,493	344 1,512 689 22,818 186,703 - 1,498	344 - - 22,818 186,703 - 1,498

Methods and assumptions used by the Company to evaluate the fair value of financial instruments were as follows:

(1) Available-for-sale financial assets:

The fair values are based on their quoted prices in an active market. For those with no quoted market prices, their fair values are determined using valuation techniques incorporating estimates and assumptions consistent with those generally used by other market participants to price financial instruments, and the information is obtainable by the Company.

(2) Financial assets carried at cost

Financial assets carried at cost, are measured at carrying value, as their fair market price is difficult to determine, due to lack of objective evidence, in practice.

(3) The fair value of investment in debt security with no active market is determined by using valuation techniques, under which, the estimates and assumptions used are consistent with the prevailing market conditions.
－
(4) Other financial assets noncurrent consisted of guaranteed refundable deposits that are indispensable for the ongoing operation of the Company and for which it is impossible to estimate the time necessary to accomplish the exchange of assets. Consequently, the fair market value of such financial instruments cannot be established. Therefore, their carrying value is used as the fair market value.
(5) The fair market value of long-term loan is determined by the present value of its future cash flow.

～ F-119 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

(6) The fair value of the derivative financial instrument is determined by using the valuation techniques, under which, the estimates and assumptions used are consistent with the prevailing market conditions.
(ii) Please refer to Note 6 for financial assets pledged to financial institutions as collateral for loans as of December 31, 2010, 2011 and 2012.
(iii) Information on financial risks

As of December 31, 2010, 2011 and 2012, the Company’s financial risks were as follows:

(1) Market risk
As of December 31, 2010, 2011 and 2012, the Company’s financial assets of NT$10,000, NT$30,000 and NT$30,000, respectively, are exposed to interest rate fluctuation risk as the interest rates for bond are fixed. The fair value of these investments may be influenced by the fluctuation of the market’s interest rate. One percentage decline in loan prime rate will cause the fair value of bond investments to decline by approximately NT$100, NT$300 and NT$300, respectively. As of December 31, 2010, 2011and 2012, f financial assets all of NT$30,000 held by the Company is exposed to interest rate fluctuation risk, as the interest rates for bonds are fixed. The fair value of these investments may be influenced by the fluctuation of the market’s interest rate. One percentage decline in loan prime rate will cause the fair value of bond investments to decline by approximately NT$300.
(2) Credit Market

Credit risk represents the potential loss that would be incurred by the Company if the counter-parties breach the contracts. The counter-parties are domestic reputable financial institutions. Therefore, management does not expect those counterparties to default. The primary implicit credit risk of the Company arises from cash, cash equivalents, and accounts receivable. Cash and cash equivalents are deposited in various financial institutions. The Company further controls its credit risk from the possibility of being exposed to each financial institution, and believes that there is no significant concentration of credit risk.

As the clients of the motorcycle departments of the Company are well-diversified, there is no concentration of transactions with any single client. In order to reduce its credit risk, the Company continually evaluates the financial position of the clients, any indication of impairment of accounts receivable, as well as the credit risk features (in separate and groups), and requests for collateral from certain clients, if necessary.

～ F-120 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

(3) Liquidity risk

The capital and operating funds of the Company are sufficient to meet all current contractual obligations. Therefore, management believes its liquidity risk is minimal.

(4) Cash flow risk arising from fluctuation in interest rates

As of December 31, 2010, 2011 and 2012, the financial liabilities exposed to the cash flow risk amounted to NT$8,974,750, NT$8,797,511 and NT$8,616,085, respectively. Considering that the Company’s short-term and long-term loans bear floating interest rates, the effective rate changes along with the fluctuation of market interest rate will influence future cash flow.

(iv) Risk control, hedge strategies and activities

The Company entered into derivative contracts to manage the exposures from the fluctuations of exchange rates in operating and financial activities. In accordance with the Company’s risk management policy, derivative financial assets are held to hedge the risk. As these derivatives are ineffective as hedging instruments, they were recognized as held for trading financial assets or liabilities.

As of December 31, 2010, 2011 and 2012, the Company adopted the fair value hedge accounting and applied it on its foreign currency loans for purchases of raw materials, which could be influenced by the risk arising from the fluctuations of the exchange rate. As the risk evaluated by the Company for these loans may be significant, forward exchange contract thereon was purchased for hedging purposes. Please refer to Note 4(b) for details of the derivative financial instruments designated for hedging as of December 31, 2010, 2011 and 2012.

(s) Others

The Company's significant foreign currency denominated financial assets and liabilities were as follows:

Financial Assets				December 31	December 31
		2010			2011			2012
	Foreign Currency	Exchange Rate	NT$	Foreign Currency	Exchange Rate	NT$	Foreign Currency	Exchange Rate	NT$
		29.135 38.930 0.358 29.135 38.930 29.135	517,446 368,833 30,288 7,770,625 276,559 477,174	21,876 4,832 87,214 278,169 7,356 25,154	30.27 39.20 0.390 30.27 39.20 30.27	662,187 189,414 34,013 8,419,247 288,361 761,412	27,136 4,088 66,807 288,305 7,017 72,204	29.03 38.48 0.336 29.03 38.48 29.03	787,747 157,290 22,447 8,369,017 270,005 2,097,787
USD 266,711 EUR 7,104 Financial Liabilities Monetary Items USD 85,024

～ F-121 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

5. RELATED-PARTY TRANSACTIONS

(a) Names of related parties and relationship with the Company

Related Party

Relationship with the Company

Shan Young Assets Management Co., Ltd.(Shan Young)
Youth Taisun Co., Ltd. (Youth Taisun)
Jin Yang Motorcycles Co., Ltd. (Jin Yang)
Nanyang Industries Co., Ltd. (Nanyang)

Nanchen Industries Co., Ltd. (Nanchen)
Nova Design Co., Ltd. (Nova)
Sanyang Deutschland GmbH (SYDE)
SY International Ltd. (SYI)
SY Italia S.r.l (SYIT)
Three Brothers Machinery Industrial Co., Ltd. (TBM)

Yi Yang Motorcycles Co., Ltd.(Yi Yang)
Chin Jiun Motor Co., Ltd. (Chin Jiun)
Vietnam Manufacturing and Export Processing (Holdings)Ltd.(VMEPH)
Sanyang Motor Vietnam Co., Ltd. (SMV)
Chin Zong Trading Co., Ltd. (Chin Zong)

Sanyang Global (Xiamen) Co., Ltd.(Sanyang Global)
Qingzhou Engineering Co., Ltd.(Qingzhou Engineering)
Xiamen Xia Shing Motorcycle Co., Ltd. (Xia Shing)
Vietnam Manufacturing and Export Processing Co., Ltd.(VMEP)
Vietnam Casting Forge Precision Ltd. (VCFP)

Duc Phat Molds Incorporation (Duc Phat)
PT. Sanyang Industrial Indonesia (SY Indonesia)
Chinlead Co., Ltd. (Chinlead)

Fong Ta Trading Co., Ltd. (Fong Ta)
Han Chung Co., Ltd. (Han Chung)
Teamworld Industries Co., Ltd. (Teamworld)

Guangzhou Ching Jung Co., Ltd. (Guangzhou Ching Jung)

Yi Qian Corporation (Yi Qian)
Taiwan Keihin Carburetor Co., Ltd.(Taiwan Keihin)

Xiamen King Long United Automotive Industry Co., Ltd.
(Xiamen King Long)

Zoeng Chang Industry Co., Ltd. (Zoeng Chang)

Chongqing Kuayue Sanyang Co., Ltd.(Chongqing Kuayue)
King Zone Corp., Ltd. (King Zone)

Subsidiary
"
"
Subsidiary
"
"
"
"
"
Sub-subsidiary
"
"
"
"
Grand sub-subsidiary
"
"
"

"
Substantially related subsidiary
"
"
Same chairman
"
"
Its director is the chairman of the Company
Its main shareholder is the director of the
Company
"
Its juridical director is the Company
Sub-subsidiary ‘s investee company under
equity method
Subsidiary’s investee company under equity
method
"
Zoeng Chang’s investee company under
equity method

All directors, supervisors, general managers and vice general managers

The Company’s key management

～ F-122 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

(b) Significant transactions with related parties

(i) Sales

(1) The significant sales transactions with the related parties for the years 2010, 2011 and 2012 were as follows:

		For the Years Ended December 31	For the Years Ended December 31	For the Years Ended December 31
2010	% of Net Sales 28 5 2 1 3 1 1 1 - - - - - - 42	2011	% of Net Sales 33 5 3 1 2 1 1 1 - - - - - - 47	2012
Amount NT$ $ 5,379,182 852,419 292,531 224,837 515,662 262,165 179,901 96,093 74,184 9,395 - 54,220 33,112 4,234 $ 7,977,935		Amount NT$ 7,726,019 1,260,218 640,434 255,786 348,004 133,564 201,486 128,352 99,286 19,330 318 34,595 - 8,679 10,856,071		Amount NT$ US$ 8,346,223 287,503 1,358,381 46,792 385,278 13,272 381,158 13,130 280,750 9,671 221,703 7,637 182,354 6,282 123,884 4,268 86,900 2,993 15,157 522 14,714 507 3,225 111 - - 5,052 174 11,404,779 392,862	% of Net Sales
				NT$ 8,346,223 1,358,381 385,278 381,158 280,750 221,703 182,354 123,884 86,900 15,157 14,714 3,225 - 5,052 11,404,779
					36 6 2 2 1 1 1 - - - - - - -
					49

The Company sells cars to its automobile distributors Nanyang and Nanchen, in accordance with the Company’s pricing policy. The selling prices of the related automotive engine parts to its subsidiaries are marked up 11% ~ 14% of cost. There are no significant differences in pricing on the sales of motorcycles and the related automotive parts with other non-related parties. The Company had extended certain amount of credit to Nanyang and Nanchen for which Nanyang and Nanchen can choose to pay immediately, or pay within 90 days after the delivery of cars. However, they will be charged for interest for those receivables beyond 90 days, and the cars will still be delivered as if the credit line of each related party is not exceeded. As of December 31, 2010, 2011 and 2012, the amounts of credits extended to Nanyang and Nanchen were NT$800,000, NT$100,000 and NT$800,000, respectively. The collection period for VMEP and the Company’s subsidiaries ranges from 45 to 90 days after the shipment is made, and for Jin Yang, the collection period is six months after

～ F-123 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

the shipment is made; the collection period for SYIT and SYDE is 120 days after the shipment is made. However, the collections of these related party receivables were considered with the operating results and cash flows of those subsidiaries. The collection period for the Company’s related parties ranges from 15 to 45 days after the shipment is made. In addition, the related parties are charged interest for overdue payment, which is calculated based on the average interest rates on loans of the Company, plus an additional interest rate of 0.25%.

Based on the Company’s credit policy, Nanyang deposited NT$400,000, NT$400,000 and NT$800,000 as collateral for the years ended December 31, 2010, 2011 and 2012, respectively.

(2) Advertising fees and subsidies

As of December 31, 2010, 2011 and 2012, the Company paid advertising fees and subsidies to Jin Yang which amounted to NT$23,381, NT$18,341 and NT$17,054, respectively.

(3) Services revenue

The revenues from technical and consulting services provided to related parties in 2010, 2011 and 2012 were as follows:

For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
2010 Amount % of Technical NT$ Service Revenue $ 220,782 75 17,939 6 5,590 2 2,219 1 3,448 1 3,278 1 4,003 2 - - 2,657 1 919 - 2,071 - $ 262,906 89	2011 Amount % of Technical NT$ Service Revenue 233,613 70 19,996 6 5,924 2 4,065 1 3,626 1 3,342 1 3,534 1 3,428 1 2,623 1 4,304 1 2,457 1 286,912 86	2012
Amount	Amount	Amount NT$ US$ 160,737 5,537 19,639 677 5,601 193 4,833 166 3,876 134 3,391 117 3,120 107 3,021 104 2,525 87 763 26 948 33 208,454 7,181	% of Technical Service Revenue
NT$	NT$	NT$
$ 220,782 17,939 5,590 2,219 3,448 3,278 4,003 - 2,657 919 2,071	233,613 19,996 5,924 4,065 3,626 3,342 3,534 3,428 2,623 4,304 2,457	160,737 19,639 5,601 4,833 3,876 3,391 3,120 3,021 2,525 763 948	68 8 3 2 2 2 1 1 1 - -
$ 262,906	286,912	208,454	88

～ F-124 ～

SANYANG INDUSTRY CO., LTD.

Notes to Financial Statements (Cont’d)

(4) As of December 31, 2010, 2011 and 2012, the notes and accounts receivable arising from the sales transactions and the technical service with the related parties were as follows:

		December 31	December 31	December 31
2010	% 23 2 13 25 5 - 28 2 4 - - 1 103 (3) 100	2011	2012
Amount		Amount % NT$ 170,283 35 14,439 3 151,338 31 29,442 6 26,163 5 9,620 2 78,430 16 19,224 4 3,261 1 2,508 - 3,266 1 3,732 - 511,706 104 (19,224) (4) 492,482 100	Amount		%
NT$			NT$	US$
$ 178,030 11,421 105,052 192,752 43,307 237 219,282 19,224 32,265 3,631 8 9,007			628,743 160,284 153,289 92,537 43,416 24,560 23,417 19,224 3,391 2,410 2,357 2,594	21,658 5,521 5,280 3,187 1,496 846 807 662 117 83 81 89	56 14 14 8 4 2 2 2 - - - -
814,216 (26,573)			1,156,222 (19,224)	39,829 (662)	102 (2)
$ 787,643			1,136,998	39,166	100

(ii) Purchases

(1) For the years 2010, 2011 and 2012, purchases from related parties were as follows:

For the Year Ended December 31

Name of Related Party	2010	2010	2011 Amount % of Net NT$ Purchases 1,134,286 7 980,049 6 496,534 3 309,617 2 175,574 1 144,156 1 329,149 2 59,248 - 75,473 - 20,863 - 15,048 - 18,356 - 2,826 - 4,222 - 3,765,401 22	2012
	Amount	% of Net Purchases	Amount NT$ 1,134,286 980,049 496,534 309,617 175,574 144,156 329,149 59,248 75,473 20,863 15,048 18,356 2,826 4,222 3,765,401	Amount NT$ US$ 1,235,591 42,563 913,260 31,459 620,803 21,385 314,212 10,824 223,333 7,693 135,856 4,680 127,259 4,384 83,201 2,866 75,445 2,599 21,066 722 14,831 511 7,863 271 545 19 982 34 3,774,247 130,012	% of Net Purchases
	NT$			NT$
Xia Shing Chin Jiun Taiwan Keihin TBM Zoeng Chang Youth Taisun Qingzhou King Zone Chinlead Fong Ta Sanyang Global VMEP Xiamen King Long Others Total	- $ 886,716 333,269 275,720 163,454 129,852 251,994 43,492 68,406 18,630 1,172,724 22,160 35,063 4,924	- 5 2 2 1 1 1 1 - - 7 - - -		1,235,591 913,260 620,803 314,212 223,333 135,856 127,259 83,201 75,445 21,066 14,831 7,863 545 982	7 5 4 2 1 1 1 1 - - - - - -
	$ 3,406,404	20		3,774,247	22

～ F-125 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

The payment term of the Company’s purchase transactions with VMEP is 45 days after the examination, and the purchase price is based on certain mark up of cost. The payment term is a partial cash advance for Xia Shing, Sanyang Global and Qingzhou Engineering, and the purchase price is based on certain markup of cost. The payment term of the Company’s purchase transactions with the related parties is 45 days after the delivery of goods, and the purchase prices are based on market price with no significant difference from those of the general suppliers.

(2) As of December 31, 2010, 2011 and 2012, the notes and accounts payable arising from the purchase transactions with the related parties were as follows:

		December 31	December 31	December 31
2010	% 6 47 - 3 13 3 3 2 8 2 13 100	2011			2012
NT$		NT$ 95,736 117,449 13,328 21,532 33,787 15,300 6,879 6,149 - 3,296 1,176 314,632	%	NT$	US$ 4,775 4,421 2,303 935 635 505 298 279 115 44 74 14,384	%
$ 16,856 123,572 - 9,197 35,637 7,001 7,804 3,970 20,204 3,831 34,007			31 37 4 7 11 5 2 2 - 1 -	138,632 128,356 66,839 27,142 18,437 14,667 8,643 8,093 3,334 1,284 2,145		33 31 16 7 5 4 2 2 - -
$ 262,079			100	417,572		100

(3) As of December 31, 2010, 2011 and 2012, the prepayments for purchase of automobiles’ spare parts from related parties amounted to NT$9,424, NT$87,857 and NT$69,289, respectively.
(iii) Service income and fee
(1) For the years 2010, 2011 and 2012, the service income and fees derived from the related parties were as follows:

related parties	were as follows:
Nature	Related party	For the Year Ended December 31
		2010 NT$ $ 20,064 - 13,766 - 131 $ 33,961	2011	2012
			NT$	NT$ 40,474 14,318 11,686 4,343 132 70,953	US$
Maintenance and warranty	Nanyang SYIT Teamworld SYDE Others Total		12,132 11,121 17,937 3,355 133		1,394 493 403 150 4
			44,678		2,444

～ F-126 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

Nature	Related party	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2010 NT$ $ 79,692 - 54,195 $ 133,887	2011	2012
			NT$	NT$ 74,892 - - 74,892	US$
Design services	Nova Xia Shing Sanyang Global Total		99,705 10,214 3,251		2,580 - -
			113,170		2,580

As of December 31, 2010, 2011 and 2012, accrued expenses arising from services provided by the related parties amounted to NT$15,661, NT$15,586 and NT$22,707 respectively.

(2) In 2010, 2011 and 2012, the Company signed a service contract with Guangzhou Ching Jung to collect information on investments, technologies, and other related aspects of the market environment in mainland China with total contract price of CNY$2,680, CNY$2,000 and CNY$300 respectively. As of December 31, 2010, 2011 and 2012, the Company had fully paid the contract price.

(iv) Interest for overdue payment

As of December 31, 2010, 2011 and 2012, the interest income received from the related parties resulting from overdue payments was as follows:

For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
2010 NT$ $ 7,783 1,527 2 $ 9,312	2011 NT$ 3,604 449 156 4,209	2012
		NT$ 11,469 8 - 11,477	US$
			395 - -
			395

As of December 31, 2010, 2011 and 2012, interest receivable arising from the related parties’ overdue payments amounted to NT$606, NT$309 and NT$1,098, respectively, － which was accounted for as other financial assets current.

(v) Lease of real estates

The Company leased a portion of its land and buildings to related parties as automobile repair shops, and received rental fees thereon monthly. For the years 2010, 2011 and 2012, the rental income thereon was as follows:

For the Years Ended December 31	For the Years Ended December 31	For the Years Ended December 31	For the Years Ended December 31
2010 NT$ $ 10,048 652 $ 10,700	2011 NT$ 10,048 707 10,755	2012
		NT$	US$ 346 38 384
		10,030 1,118
		11,148

～ F-127 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

As of December 31, 2010, 2011 and 2012, Nanyang paid the Company for rental deposit of NT$2,020 for renting automobile repair shops.

(vi) Property transactions

(1) For the years 2010, 2011 and 2012, the Company purchased machinery and miscellaneous equipment from the related parties as follows:

For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
2010 NT$ $ 16,384 1,253 5,379 95 - - 289 - - 13,462 - 1,312 - $ 38,174	2011 NT$ 14,556 2,864 1,951 1,760 - 7,885 2,380 - 3,899 2,939 - - 320 38,554	2012
		NT$	US$
		14,655 4,055 3,137 2,094 1,644 1,394 290 200 - - - - -	504 140 108 72 57 48 10 7 - - - - -
		27,469	946

(2) For the years 2010, 2011 and 2012, the Company sold machinery and miscellaneous equipment to related parties, details of which were as follows:

Name of Related Party	2010 Sales Price Gain on Disposal $ 6,900 4,380 - - $ 6,900 4,380	2011	2011
	Sales Price $ 6,900 - $ 6,900	Sales Price - 4,400 4,400	Gain on Disposal
Qingzhou Engineering Xia Shing Total			- 1,862
			1,862

(3) On October 16, 2012, the Company sold for NT$55,723 and NT$132,165, its ownership of 3,120 thousands and 7,425 thousands equity shares in Sheng Mao Investment Corporation and Hsu Mao Investment Corporation, respectively, to its related party, Yi Qian Corporation. The payment for the disposal of those shares was received on October 22, 2012. Such disposal resulted in disposal losses totaling NT$896, and a charge to capital surplus – treasury stock transactions of NT$138,733.

～ F-128 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

(vii) Financing

As of December 31, 2012, the details of the financing provided by a related party to the Company were as follows (recognized as other accounts payable-related parties):

December 31, 2012	December 31, 2012	December 31, 2012
Ending Balance 833,742 28,720	Maximum Balance 857,845 29,550	Interest Rate (%) - -	Interest Expense
			-
			-

(viii)Others

(1) As of December 31, 2010, 2011 and 2012, Shan Young pledged its land as collateral for the Company’s loans which amounted to NT$3,283,750, NT$5,400,000 and NT$5,400,000, respectively.
(2) On February 4, 2008, VMEPH (the Company’s sub-subsidiary) issued 8,017 thousand units of stocks options to the qualified employees of the Company. These employee stock options are valid within five years, (February 2008 ~ January 2013) and bear an exercise price of HK $2.9 per share.
(3) As of December 31, 2010, 2011 and 2012, the Company’s receivables for advertising subsidies and warranty from King Long amounted to NT$2,506 , －
NT$139 and NT$0, respectively, which was recognized as other financial assets current.
(4) In 2012, the Company worked in cooperation with Xiamen King Long for a project of low-floor bus development. As of December 31, 2012, the Company deposited NT$1,622 with King Long, which was accounted for as other financial －
assets current, regarding this cooperation.

(c) Key management compensation costs

2010	2011	2012	2012
NT$	NT$	NT$	US$
$ 31,331 20,648 74 -	48,289 20,325 96 18	48,624 19,262 178 -	1,675 664 6 -
$ 52,053	68,728	68,064	2,345

～ F-129 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

6. PLEDGED ASSETS

6. PLEDGED ASSETS
Assets	Pledge to Secure	December 31
		2010	2011	2012
Property, plant and equipment – land and buildings Assets held for lease – land and buildings Idle assets – land and buildings Guarantee deposits paid – Time deposits Guarantee deposits paid – Time deposits Total	Short-term and long-term loans Short-term loans " Security deposit for legal litigation Security deposit for custom clearance and arms purchases from National Defense Department	$3,556,407 735,951 176,573 - 239,099	3,780,027 768,739 64,480 302,142	3,749,654 766,876 64,480 348,941 648,096
		$4,708,030	4,915,388	5,578,047

7. SIGNIFICANT COMMITMENTS AND CONTINGENCIES

(a) As of December 31, 2010, 2011 and 2012, the Company had unused letters of credit of US$21,854, US$12,458 and US$22,116, respectively.
(b) As of December 31, 2010, 2011 and 2012, the unpaid portion of the total contract price for the equipment purchase contracts, construction in progress—equipment and software purchase contracts amounted to NT$16,058, NT$31,421 and NT$7,926, respectively.
(c) As of December 31, 2010, 2011 and 2012, the promissory notes issued by the Company for finance guarantee amounted to NT$20,325 and NT$21,951 and NT$17,520, respectively.
(d) In June 2009, the Company acquired a contract from the Armaments Procurement Bureau under the Ministry of National Defense (PCAB) for producing Light Tactical Vehicles, with a total contract price of NT$4,851,903. As of December 31, 2012 and 2011, the Company’s sales revenue received in advance were both NT$77,500 thousands, and the performance bond and advance payment for this bond applied from the bank were NT$242,595 and NT$77,500, respectively. The Company deposited NT$320,096 and NT$101,800, respectively, in a bank as guarantee for the above bonds. Under this contract, the Company is required to deliver vehicle samples for testing in advance, and the vehicles must be delivered in batches ~~w~~ ithin 15, 19 and 23 months after the contract is signed. If there is a batch-delivery delay, 0.1 ‰ of total amount of the batch is accumulated daily as a penalty for the delay. The maximum amount of the penalty is equal to 20% of the contract price.
Based on the contract, all vehicles are considered unqualified if the performance or the specification of any one of them fails. The whole batch of vehicles must meet all the qualifications or the standards set by PCAB. Otherwise, the Company should improve,

～ F-130 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

remove, remanufacture, or replace the defective parts of the vehicles. Only after meeting all the requirements can the Company request for a re-testing that is limited to two times within seven days after being informed by PCAB. The Company may only mass produce if the inspection is completed and the reports concerning quality control have been approved by the respective divisions of the testing center.

～ F-131 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

October 9, 2012. As of December 31, 2012, the inventories of the Light Tactical Vehicles amounted to NT$4,024,539.

Presently, the case concerning the Light Tactical Vehicles is still under negotiation. PCAB also claimed that there was a delay of 372 days regarding the delivery of the first batch, which should be used to calculate the penalty. However, according to the attorney’s evaluation on the contract, the testing period should not be included in the performance period. Therefore, it is reasonable that the actual performance period should not be the same as the one shown in the contract. Based on the principle of conservatism, the Company recognized in 2012 an estimated contingency loss of NT$9,727 for the possible penalty from vehicle delivery delay.

(e) The Company’ shareholders, Wan Xiang Investing LLC (Wan Xiang) and Mr. Tian, filed common pleas to the Hsinchu District Court in order to annul the resolutions agreed upon at the shareholders’ meeting on June 6, 2012. Those resolutions included the modification of Rules of Procedure for the Company’s Shareholders Meetings. Also included were the amendment to the articles of incorporation and the procedures for the acquisition and disposal of assets. On February 5, 2013, the Hsinchu District Court rejected the appeal. In addition, the Company was also notified by the Hsinchu District Court that Wan Xiang filed other common pleas against the Company about the resolutions that were approved at the shareholders’ meeting on December 24, 2012. However, the outcome of this lawsuit is not expected to cause any financial gain or loss to the Company based on the attorney’s evaluation.
(f) In September 2012, the Company’s shareholder, Mr. Fang, filed common pleas against the Company at the Taipei District Court. Mr. Fang requested the Court to confirm that both Da Feng Investing Co., Ltd. (Da Feng) and Mr. Chiu are not the supervisors of the Company, and if they really are, he would appeal to the Taipei District court to temporarily terminate their position and authority before the lawsuit is settled. However, the Taipei District Court rejected Mr. Fang’s petition because it did not meet the requirements of the provisional seizure. The outcome of this lawsuit is not expected to cause any financial gain or loss to the Company based on the attorney’s evaluation.
(h) On November 17, 2011, Taipei Revenue Service (Neihu Branch) sent a letter to the Company’s subsidiary, Shan Young Asset Management Co., Ltd., claiming that, the Company’s real estate and the relative business were spun off the Company to Shan Young for efficient asset management which was approved by the board of directors on June 24, 2004. Thereafter, on November 5, 2004, the Company reported the current land value to the ～ F-132 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

tax authority, and the unpaid land value increment tax was registered under Shan Young Asset, which was approved by Taipei Revenue Service (Neihu Branch) through a Taiwan Tax Letter No.09360911600 issued by a Department of Ministry of Finance -Neihu Branch. On May 6, 2011, however, Shan Young Asset resisted against TC Bank Co., Ltd. for having a lien on the parcels of land held by Shan Young Asset numbered 323, 324, 345 and 346, located at 3rd Subsection Tanmei Section (the Land) , Neihu District, Taipei City, for purposes of financing the building construction on the Land. Taipei Revenue Service (Neihu Branch) insisted that the said lien should be treated as a ”sale of land”. Therefore, the Company is being required by Taipei Revenue Service (Neihu Branch) to pay the land value increment tax of NT$697,882, in view of segmented and land trust registered above, according to the Article 34 of the Business Mergers and Acquisitions Act. On the other hand, the Company claimed that the nature of the land trust registration was not as a sale. Therefore, the Company had applied for a petition at Taipei City Government Administrative Appeals Commission (AAC) and deposited NT$ 348,941 as a guarantee required under the rules for applying for petition, but the petition was rejected by the AAC on January 8, 2013. The Company was dissatisfied with the rejection, and applied for litigation at the High Court on January 28, 2013.

(i) Based on the result of the local government’s tariff evasion investigation of Xia Shing Motorcycle Co., Ltd., the Company’s sub-subsidiary, Xia Shing was ruled to pay additional tariff plus value-added tax of o NT$320,304 (CNY$71,965)on January 10, 2011. This case was closed after Xia Shing Motorcycle paid these additional tariff and tax on time.
(j) On October 5, 2012, in order to protect the shareholders’ rights and interests, the board of directors of the Company resolved to reevaluate Shan Young Asset’s share of the coconstruction of the luxurious buildings with Meifu Construction Co., Ltd. (Meifu). In January 2008, Shan Young Asset provided to Meifu a piece of land located in Tanmei Section of Neihu District, Taipei City for the construction of the buildings. Under the building co-construction agreement, Meifu holds 54% and Shan Young Asset shares 46% equity interest on the buildings. As the Company is contemplating of increasing its equity interest on the buildings, it advised its attorney to find all the possible means and ways to negotiate with Meifu.
(k) The Company’s sub-subsidiaries, Xia Shing Motorcycles Co., Ltd., Qingzhou Engineering Co., Ltd. and Xia Shing Motorcycle Sales Co., Ltd., which are the immediate subsidiaries of Plassen International Limited, and Cosmos System Inc., had all been in a poor financial situation for the years ended December 31, 2010, 2011, and 2012. Thus, SY International

～ F-133 ～

SANYANG INDUSTRY CO., LTD. Notes to Financial Statements (Cont’d)

Ltd., the Company’s subsidiary, had committed to provide financial support to those companies.

8. SIGNIFICANT CATASTROPHIC LOSSES: NONE.

9. SIGNIFICANT SUBSEQUENT EVENTS: NONE.

10. OTHER

(a) The employment, depreciation, depletion and amortization expenses categorized by function, were as follows:

Categorized as Nature	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
	2010			2011			2012
	NT$			NT$			NT$			US$
	Operating Cost	Operating Expense	Total	Operating Cost	Operating Expense	Total	Operating Cost	Operating Expense	Total	Operating Cost	Operating Expense	Total
Employee expense Salary expense Labor and health insurance Expense Pension expense Other employee expense Depreciation expense Depletion expense Amortization expense	$ 751,372 59,715 113,280 51,100 490,840 - 22,547	826,061 56,713 94,927 48,283 168,820 - 15,041	1,577,433 116,428 208,207 99,383 659,660 - 37,588	829,179 64,631 114,067 55,597 429,123 - 24,487	917,793 61,976 95,982 62,240 138,548 - 12,360	1,746,972 126,607 210,049 117,837 567,671 - 36,847	818,628 70,063 117,655 62,556 441,874 - 26,331	854,383 63,579 97,071 56,414 128,050 - 11,848	1,673,011 133,642 214,726 118,970 569,924 - 38,179	28,199 2,413 4,053 2,155 15,221 - 907	29,431 2,190 3,344 1,943 4,411 - 408	57,630 4,603 7,397 4,098 19,632 - 1,315

Note: For the years ended December 31, 2010, 2011 and 2012, the depreciation of the idle

assets amounted to NT$5,899, NT$3,510 and NT$250, respectively, recognized as non－operating expense. The depreciation of the assets held for lease amounted to NT$3,398, NT$3,229 and NT$3,084, respectively, recognized as a reduction of rental income.

(b) Reclassifications

In order to conform to the presentation of the consolidated financial statements for the year ended December 31, 2012, certain items in the consolidated financial statements for the years ended December 31, 2011 and 2010 have been reclassified. Such reclassifications have no significant effect on the presentation of the consolidated financial statements.

11. BUSINESS SEGMENT FINANCIAL INFORMATION :

As the Company had already disclosed its business segment financial information in Note 11(b) of its annual consolidated financial statements, such information was no longer repeated in the Company’s stand-alone financial statements.

～ F-134 ～

Independent Auditors’ Review Report

To the Board of Directors of Sanyang Industry Co., Ltd.

Introduction

We have reviewed the accompanying consolidated balance sheets of Sanyang Industry Corporation (the “Company”) and its subsidiaries (the “Consolidated Company”) as of January 1, 2012, September 30, 2012, December 31, 2012 and September 30, 2013, and the related consolidated statements of comprehensive income for the three months ended September 30, 2012 and 2013 and nine months ended September 30, 2012 and 2013, and changes in equity and cash flows for the nine months period then ended September 30, 2012 and 2013, and a summary of significant accounting policies and other explanatory notes. Management is responsible for the preparation and fair presentation of this interim financial information in accordance with International Accounting Standards No. 34 Interim Financial Reporting . Our responsibility is to express a conclusion on this interim financial information based on our reviews.

Scope of Review

We conducted our reviews in accordance with Statement of Auditing Standards No. 36 “Engagements to Review Financial Statements.” A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit in accordance with the generally accepted auditing standards, and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be indentified in an audit. Accordingly, we do not express such an opinion.

Conclusion

Based on our reviews, nothing has come to our attention that causes us to believe that the accompanying consolidated interim financial statements referred to the first paragraph are not prepared, in all material respects, in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and guidelines of International Financial Reporting Standards No. 1 “First-time Adoption of International Financial Reporting Statements” and International Accounting Standards No. 34 “Interim Financial Reporting” which are endorsed by the Financial Supervisory Commission in the Republic of China (R.O.C.).

～ F-135 ～

The accompanying consolidated financial statements as of and for the nine months ended September 30, 2013, have been translated into United States dollars solely for the convenience of the readers. We have reviewed the translation, and based on our review, we are not aware of any material modifications that should be made to such translation for it to be conformity with the basis set forth in Note 4(3) to the consolidated financial statements.

KPMG

Taipei, Taiwan, R.O.C November 13, 2013

Note to Readers

The accompanying consolidated financial statements are intended only to present the financial position, results of operations and cash flows in accordance with the accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to review such financial statements are those generally accepted and applied in the Republic of China.

～ F-136 ～

Reviewed only, not audited in accordance with generally accepted auditing standards. SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

JANUARY 1, 2012, SEPTEMBER 30, 2012, DECEMBER 31, 2012 AND SEPTEMBER 30, 2013 (All Amounts Expressed in Thousands of Dollars)

ASSETS	January 1 2012	September 30 2012	December 31 2012	September 30 2013	September 30 2013
	NT$	NT$	NT$	NT$	US$
Current Assets: Cash and cash equivalents (Note 6(1) ) Financial assets at fair value through profit or loss－current (Note6(2)) Available-for-sale financial assets－current (Note 6(2)) Held-to-maturity financial assets－current (Note 6(2)) Derivative financial assets for hedging－current(Note 6(2)) Notes and receivable, net (Note 6(3)、(20) and 8)) Accounts receivable, net－Related parties (Note 7) Other receivables, net (Note 6(3)、(20) and 7)) Inventories (Note 6(4) and 8)) Prepayments Other financial assets－current (Note 8) Other current assets Non-current assets: Available-for-sale financial assets－noncurrent (Note 6(2)) Financial assets carried at cost－noncurrent (Note 6(2)) Debt investments without active market - non current (Note 6(2)) Long-term investment under equity method (Note 6(5)) Property, plant and equipment (Note 6(6) and 8) Investment property, net (Note 6(7) and 8) Deferred tax assets (Note 6(15)) Long- Term Lease payments Receivable (Note 6(3) and (20)) Other financial assets－noncurrent (Note 8) Long-term prepaid rents (Note 6(8) and 8)) Other non-current assets－other TOTAL ASSETS	$ 7,209,004 92,462 17,182 164,204 7,387 1,673,537 39,489 296,855 8,254,313 629,870 2,049,504 73,764	6,312,289 89,128 16,637 265,050 - 2,373,392 48,301 326,043 9,499,835 677,782 1,622,229 195,883	5,540,992 91,294 25,870 132,744 - 1,506,487 55,503 279,188 8,568,305 381,359 2,940,962 62,460	3,950,916 93,644 15,985 - - 2,006,416 64,695 483,979 8,393,046 466,503 4,401,677 85,641	133,590 3,166 540 - - 67,842 2,187 16,364 283,789 15,774 148,831 2,896
	20,507,571	21,426,569	19,585,164	19,962,502	674,979
	10,000 70,013 20,000 1,866,893 13,020,065 1,151,957 818,620 234,265 929,453 486,145 165,463	10,000 69,785 20,000 2,089,061 12,718,007 1,140,545 686,982 249,930 1,131,296 427,053 181,626	10,000 55,101 20,000 2,353,785 12,553,062 1,175,681 712,384 247,910 1,182,959 427,113 167,355	10,000 56,081 20,000 2,814,729 12,282,497 1,173,419 612,827 230,452 1,160,543 430,923 345,042	338 1,896 676 95,173 415,300 39,676 20,721 7,792 39,241 14,571 11,666
	18,772,874	18,724,285	18,905,350	19,136,513	647,050
	$ 39,280,445	40,150,854	38,490,514	39,099,015	1,322,029

The accompanying notes are an integral part of the consolidated financial statements. (With KPMG review report dated November 13, 2013)

Reviewed only, not audited in accordance with generally accepted auditing standards.

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CON’T)

JANUARY 1, 2012, SEPTEMBER 30, 2012, DECEMBER 31, 2012 AND SEPTEMBER 30, 2013

(All Amounts Expressed in Thousands of Dollars)

Liabilities and Equity	January 1 2012	September 30 2012	December 31 2012	September 30 2013	September 30 2013
	NT$	NT$	NT$	NT$	US$
Current Liabilities: Short-term loans (Note 6(10)) Short-term notes and bills payable (Note 6(9)) Derivative financial liability for hedging－current(Note 6(2)) Notes and accounts payable Accounts payable－Related parties (Note 7) Other payables (Note 7) Current tax liabilities (Note 6(15)) Employee benefit provisions－current Estimated short-term warranty liabilities provisions (Note 6(12)) Unearned receipts Current portion of long-term bank loans (Note 6(11)) Other current liabilities－other Non-current liabilities: Long-term loans (Note 6(11)) Deferred tax liabilities (Note 6(15)) Provisions－noncurrent (Note 6(12)) Accrued pension cost (Note 6(14)) Deposits received Other noncurrent liabilities－other Total Liabilities Equity Attributable to shareholders of the parent (Note 6(16)) Share capital Capital surplus Retained earnings Other equity interest: Treasury stock Equity attributable to owners of the Company Non-controlling interests Total Equity Total Liabilities and Equity	$ 5,091,477 746,747 - 2,048,675 199,671 1,653,162 67,573 85,365 121,000 480,113 599,684 313,379	5,176,009 907,925 38,335 3,175,406 268,162 1,526,436 13,177 85,365 125,024 345,478 667,279 262,066	4,714,610 766,951 43,493 1,940,152 246,520 2,104,060 38,114 86,564 171,068 267,345 750,247 212,920	4,953,343 1,016,387 8,699 2,464,890 181,985 1,768,652 14,080 86,564 164,466 460,468 498,093 270,930	167,484 34,366 294 83,344 6,153 59,802 476 2,927 5,561 15,570 16,842 9,161
	11,406,846	12,590,662	11,342,044	11,888,557	401,980
	6,111,081 2,571,272 52,323 2,241,301 211,577 140,323	5,752,490 2,546,040 80,016 2,196,199 254,211 121,849	5,587,067 2,575,805 75,769 2,317,092 248,790 285,292	5,385,115 2,517,375 103,948 2,296,999 277,051 63,761	182,083 85,118 3,515 77,667 9,368 2,156
	11,327,877	10,950,805	11,089,815	10,644,249	359,907
	22,734,723	23,541,467	22,431,859	22,532,806	761,887
	8,963,768 1,487,220 5,424,166 (1,448,899) (384,591)	8,963,768 1,489,755 6,003,688 (1,713,790) (384,591)	8,963,768 1,642,578 5,213,103 (1,785,506) (141,578)	8,963,768 1,642,578 4,935,733 (909,260) (141,578)	303,086 55,539 166,889 (30,744) (4,787)
	14,041,664 2,504,058	14,358,830 2,250,557	13,892,365 2,166,290	14,491,241 2,074,968	489,983 70,159
	16,545,722	16,609,387	16,058,655	16,566,209	560,142
	$ 39,280,445	$40,150,854	38,490,514	39,099,015	1,322,029

The accompanying notes are an integral part of the consolidated financial statements. (With KPMG review report dated November 13, 2013)

Reviewed only, not audited in accordance with generally accepted auditing standards. SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED AND THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2013 (All Amounts Expressed in Thousands of Dollars, Except for Share Data)

For the Three Months Ended September 30 2012 2013 NT$ NT$ US$ $ 9,824,622 8,376,465 283,228 8,428,927 7,073,007 239,155 1,395,695 1,303,458 44,073 881,606 1,068,537 31,397 290,791 279,389 14,180 171,276 134,499 4,547 1,343,673 1,482,425 50,124 52,022 (178,967) (6,051) 62,178 103,738 3,508 109,386 90,060 3,045 (135,321) (127,452) (4,309) 132,310 59,902 2,025 168,553 126,248 4,269 220,575 (52,719) (1,782) (1,020) (22,399) (757) $ 221,595 (30,320) (1,025) (143,572) 215,163 7,275 (13,121) 196,720 6,652 (156,693) 411,883 13,927 $ 64,902 381,563 12,902 $ 203,538 (14,938) (505) 18,057 (15,382) (520) $ 221,595 (30,320) (1,025) $80,642 477,106 16,132 (15,740) (95,543) (3,230) $ 64,902 381,563 12,902 $ 0.23 (0.02) 0.006	For the Three Months Ended September 30 2012 2013 NT$ NT$ US$ $ 9,824,622 8,376,465 283,228 8,428,927 7,073,007 239,155 1,395,695 1,303,458 44,073 881,606 1,068,537 31,397 290,791 279,389 14,180 171,276 134,499 4,547 1,343,673 1,482,425 50,124 52,022 (178,967) (6,051) 62,178 103,738 3,508 109,386 90,060 3,045 (135,321) (127,452) (4,309) 132,310 59,902 2,025 168,553 126,248 4,269 220,575 (52,719) (1,782) (1,020) (22,399) (757) $ 221,595 (30,320) (1,025) (143,572) 215,163 7,275 (13,121) 196,720 6,652 (156,693) 411,883 13,927 $ 64,902 381,563 12,902 $ 203,538 (14,938) (505) 18,057 (15,382) (520) $ 221,595 (30,320) (1,025) $80,642 477,106 16,132 (15,740) (95,543) (3,230) $ 64,902 381,563 12,902 $ 0.23 (0.02) 0.006	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
2012 NT$ $ 9,824,622 8,428,927 1,395,695 881,606 290,791 171,276 1,343,673 52,022 62,178 109,386 (135,321) 132,310 168,553 220,575 (1,020) $ 221,595 (143,572) (13,121) (156,693) $ 64,902 $ 203,538 18,057 $ 221,595 $80,642 (15,740) $ 64,902 $ 0.23		2012 NT$ 26,792,150 22,587,759 4,204,391 2,119,176 1,082,956 559,414 3,761,546 442,845 261,863 165,317 (293,491) 220,943 354,632 797,477 170,271 627,206 (307,433) - (307,433) 319,773 579,522 47,684 627,206 314,631 5,142 319,773 0.66	2013
	NT$ 8,376,465 7,073,007 1,303,458 1,068,537 279,389 134,499 1,482,425 (178,967) 103,738 90,060 (127,452) 59,902 126,248 (52,719) (22,399) (30,320) 215,163 196,720 411,883 381,563 (14,938) (15,382) (30,320) 477,106 (95,543) 381,563 (0.02)		NT$ 25,046,256 21,233,119 3,813,137 2,414,370 1,136,455 530,601 4,081,426 (268,289) 383,386 154,729 (259,053) 118,403 397,465 129,176 35,466 93,710 578,332 282,428 860,760	US$
				846,872 717,941
				128,931
				81,636 38,426 17,940
				138,002
				(9,071)
				12,963 5,232 (8,759) 4,003
				13,439
				4,368 1,199
				3,169
				19,554 9,550
				29,104
			954,470 126,000 (32,290) 93,710 1,002,246 (47,776) 954,470 0.14	32,273
				4,260 (1,091)
				3,169
				33,888 (1,615)
				32,273
				0.005

The accompanying notes are an integral part of the consolidated financial statements. (With KPMG review report dated November 13, 2013)

Reviewed only, not audited in accordance with generally accepted auditing standards. SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE THREE MONTHS ENDED AND THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2013 (All Amount Expressed in Thousands of Dollars)

	NT$	Common stock	Capital surplus		Retained	earnings		Other adjustments to equity	Other adjustments to equity	Other adjustments to equity	Treasury stock	Total equity attributable to owners of the Company	Total equity
								Foreign currency translation differences	Unrealized gains(losses) on available-for- sale-financial assets	Total
				Legal reserve	Special reserve	Retained earnings	Total
	Balance, January 1, 2012 Profit for the period Other comprehensive income for the period Total comprehensive income for the period Difference between consideration and carrying amount of subsidiaries acquired or disposed Changes in non-controlling interests Balance, September 30, 2012 Balance, January 1, 2013 Profit for the period Other comprehensive income for the period Total comprehensive income for the period Appropriations of earnings: Legal reserve Cash dividends Changes in non-controlling interests Balance, September 30, 2013 US$	$ 8,963,768 - -	1,487,220 - -	1,631,881 - -	1,125,135 - -	2,667,150 579,522 -	5,424,166 579,522 -	(1,338,489) - (264,891)	(110,410) - -	(1,448,899) - (264,891)	(384,591) - -	14,041,664 579,522 (264,891)	16,545,722 627,206 (307,433)
~F-140~
		-	-	-	-	579,522	579,522	(264,891)	-	(264,891)	-	314,631	319,773
		- -	2,535 -	- -	- -	- -	- -	- -	- -	- -	- -	2,535 -	2,535 (258,643)

		$ 8,963,768	1,489,755	1,631,881	1,125,135	3,246,672	6,003,688	(1,603,380)	(110,410)	(1,713,790)	(384,591)	14,358,830	16,609,387
		$ 8,963,768 - -	1,642,578 - -	1,755,683 - -	2,523,001 - -	934,419 126,000 -	5,213,103 126,000 -	(1,663,438) - 593,818	(122,068) - 282,428	(1,785,506) - 876,246	(141,578) - -	13,892,365 126,000 876,246	16,058,655 93,710 860,760
		-	-	-	-	126,000	126,000	593,818	282,428	876,246	-	1,002,246	954,470
		- - -	- - -	35,673 - -	- - -	(35,673) (403,370) -	- (403,370) -	- - -	- - -	- - -	- - -	- (403,370) -	- (403,370) (43,546)
		$ 8,963,768	1,642,578	1,791,356	2,523,001	621,376	4,935,733	(1,069,620)	160,360	(909,260)	(141,578)	14,491,241	16,566,209
		$ 303,086	55,539	60,570	85,309	21,010	166,889	(36,166)	5,422	(30,744)	(4,787)	489,983	560,142
	Balance, September 30, 2013

The accompanying notes are an integral part of the consolidated financial statements. (With KPMG review report dated November 13, 2013)

Reviewed only, not audited in accordance with generally accepted auditing standards. SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2013 (All Amount Expressed in Thousands of Dollars)

For the Nine	Months Ended September 30	Months Ended September 30
2012 NT$ $ 797,477 919,403 64,170 49,414 38,335 255,156 (213,708) (220,943) (29,671) 79,850 942,006 (753,019) (8,135) (29,332) (1,263,658) (47,912) (122,119) 427,275 (1,796,900) 694,013 68,491 (213,158) 49,853 (134,635) 34,052 (45,102) 453,514 (1,343,386) (401,380) 396,097 213,852 (254,089) (118,261) 237,599	2013
	NT$ 129,176 865,213 67,574 16,249 (8,511) 230,112 (238,882) (118,403) (46,951) (24,865) 741,536 (515,608) (9,065) (207,656) 170,759 (121,455) (22,929) (1,455,760) (2,161,714) 525,441 (64,968) (420,341) 108,180 193,246 57,067 (20,093) 378,532 (1,783,182) (1,041,646) (912,470) 241,654 (230,450) (116,183) (1,017,449)	US$
		4,368 29,255 2,285 549 (288) 7,781 (8,077) (4,003) (1,588) (841)
		25,073
		(17,434) (307) (7,021) 5,774 (4,107) (775) (49,223)
		(73,093)
		17,766 (2,197) (14,213) 3,658 6,534 1,930 (679)
		12,799
		(60,294)
		(35,221)
		(30,853) 8,171 (7,792) (3,928)
		(34,402)

The accompanying notes are an integral part of the consolidated financial statements. (With KPMG review report dated November 13, 2013)

～ F-141 ～

Reviewed only, not audited in accordance with generally accepted auditing standards. SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CON’T) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2013 (All Amount Expressed in Thousands of Dollars)

For the Nine	Months Ended September 30	Months Ended September 30
2012 NT$ 3,334 - (100,846) - - 228 (759,378) 51,035 (15,665) (201,843) (16,163) (12,735) 44,061 (1,007,972) 4,836,302 (4,751,770) 161,178 174,764 (465,760) 42,634 (18,474) - - (21,126) (105,216) (896,715) 7,209,004 $ 6,312,289	2013 NT$ US$ 6,168 209 9,886 334 - - 132,296 4,473 (1,110) (38) 130 4 (537,421) (18,171) 158,996 5,376 17,458 590 22,206 751 (85,249) (2,882) (65,035) (2,199) 61,477 2,079 (280,198) (9,474) 4,470,973 151,174 (4,232,240) (143,102) 214,417 7,250 158,778 5,369 (612,884) (20,723) 28,252 955 20,726 701 (403,370) (13,639) (43,546) (1,473) (398,894) (13,488) 106,465 3,600 (1,590,076) (53,764) 5,540,992 187,354 3,950,916 133,590
		US$
		209 334 - 4,473 (38) 4 (18,171) 5,376 590 751 (2,882) (2,199) 2,079
		(9,474)
		151,174 (143,102) 7,250 5,369 (20,723) 955 701 (13,639) (1,473)
		(13,488)
		3,600
		(53,764) 187,354
		133,590

The accompanying notes are an integral part of the consolidated financial statements. (With KPMG review report dated November 13, 2013)

～ F-142 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012 and 2013

(Amounts Expressed in Thousands of New Taiwan Dollars and United States Dollars,

Except Per Share Information and Unless Otherwise Stated)

1. ORGANIZATION AND BUSINESS

Sanyang Industry Co., Ltd. (the “Company”) was incorporated in September 1961, under the laws of the Republic of China and the Company moved its headquarters to the Hsinchu Industrial Park in 1999 and successfully integrated with its main factory. The Company’s registered office address is located at No.3, Zhonghua Rd., Hukou Township, Hsinchu County. In 2000, the Company commenced investing in the motorcycle market in Mainland China and Vietnam.

The consolidated financial statements of the Consolidated Company comprised the Company and its subsidiaries (the Consolidated Company) and the Consolidated Company’s interest in associates and jointly controlled entities.

The Consolidated Company is primarily involved in the manufacture and sale of automobiles, motorcycles, and related automotive parts, and in providing manufacturing-related technical and consulting services.

2. APPROVAL DATE AND PROCEDURES OF THE CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements of the Consolidated Company for the nine-month periods ended September 30, 2012 and 2013 were authorized for issue in accordance with a resolution of the Board of Directors’ meeting on November 13, 2013.

3. NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED

Except for new standards and interpretations mentioned below, whose effective dates have not yet been announced, the Consolidated Company complies to all the standards, amendments and interpretations consistently with those disclosed in Note 3 to 2013 first quarter consolidated financial statements of the Consolidated Company

The following are the new standards and amendments issued recently by the International Accounting Standards Board (“IASB”) that may have impacts on the consolidated financial statements, but whose effective dates have not yet been announced by the Financial Supervisory Commission R.O.C. (“FSC”) as of the reporting date:

Issue Date May 20, 2013	New Standards and Amendments IFRIC 21 Levies	Description Identifies the obligating event for the recognition of a liability as the activity that triggers the payment of the levy in accordance with the relevant legislation. The Interpretation clarifies that 'economic compulsion' and the going concern principle do not create or imply that an obligating event has occurred.	Effective Date per IASB
			January 1, 2014

～ F-143 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)

Issue Date May 29, 2013 June 27, 2013	New Standards and Amendments Amended IAS 36 Impairment of Assets Amended IAS 39 Financial Instruments	Description Based on the standard issued on January 1, 2013, when the amount of goodwill of an entity or intangible assets with uncertain useful life is significant, the entity shall disclose the recoverable amount of impaired assets using fair value less cost of disposal. The standard has been revised requiring financial statements disclosure if an impairment loss is recognized or reversed. Also, the level of fair valu~~e~~ ~~a~~nd key assumptions of valuation (for Level 2 and 3) are required to be disclosed if the recoverable amount is calculated through fair value less selling costs. Recognition and measurement provides an exception to the requirement to discontinue hedge accounting in situations where over-the-counter (OTC) derivatives designated in hedging relationships are directly or indirectly, novated to a central counterparty (CCP) as a consequence of laws or regulations, or the introduction of laws or regulations.	Effective Date per IASB
			January 1, 2014 Early adoption ispermitted. January 1, 2014 Early adoption is permitted.

As the new accounting standards and amendments discussed above and disclosed in Note 3 to the consolidated financial statements as of and for the three months ended March 31, 2013 have not been endorsed by the FSC, the Consolidated Company is still assessing the impact thereof to the consolidated financial statements if and when they are adopted.

4. SIGNIFICANT ACCOUNTING POLICIES

(1) Statement of compliance

The accompanying interim consolidated financial statements have been prepared in accordance with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers (the Guidelines), and IAS 34 “Interim Financial Reporting” as endorsed by the FSC. These interim consolidated financial statements do not present full disclosures required by the Guidelines and IFRSs, IASs, IFRIC Interpretations and SIC Interpretations (collectively, “Taiwan-IFRSs” endorsed by the FSC ) for annual consolidated financial statements.

The accompanying interim consolidated financial statements are included in the period of the first annual consolidated financial statements, according to the Guidelines and Taiwan-IFRSs. Its reporting periods covered by these interim consolidated financial statements included the three months ended September 30, 2012 and 2013 and the nine months ended September 30, 2012 and 2013 in compliance with IFRS 1 “First-time Adoption of International Financial Reporting Standards”. An explanation of how the transition to IFRSs has affected the reported financial

～ F-144 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)

position, financial performance, and cash flows of the Consolidated Company is provided in Note 14.

The following significant accounting policies have been applied consistently to all periods presented in the consolidated financial statements, and have been applied consistently to the consolidated balance sheet as of January 1, 2012 under IFRS as approved by FSC.

(2) Basis of consolidation

The accounting principle for consolidation that serves as the basis for preparing the accompanying interim consolidated financial statements has been applied consistently with that of the 2013 first quarter consolidated financial statements. Please refer to Note 4(3) of the 2013 first quarter consolidated financial statements of the Consolidated Company.

A. List of subsidiaries included in the consolidated financial statements

Investor	Subsidiary	Nature of business	Shareholding ratio	Shareholding ratio	Shareholding ratio	Shareholding ratio	Notes
			January 1 2012	September 30 2012	December 31 2012	September 30 2013
The Company	Shan Young Assets Management Co.,Ltd.(Shan Young)	Lease, sale and development of real estate	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% bythe Company
The Company	Youth Taisun Co., Ltd. (Youth Taisun)	Manufacture of motorcycle parts	89.39%	89.39%	89.39%	89.39%	Investee company held 99.39% bythe Consolidated Company
The Company	Jin Yang Motorcycles Co., Ltd. (Jin Yang)	Sale of cars, motorcycles and relatedparts	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% bythe Company
The Company	Hsu Mao Investment Corporation (Hsu Mao)	Investing activities	49.50%	- %	- %	- %	Note (i)
The Company	Nanyang Industry Co., Ltd. (Nanyang)	Sale, repair and maintenance of cars and relatedparts	89.58%	89.58%	89.58%	89.58%	Investee company directly held over 50% bythe Company
The Company	Nanchen Industry Co., Ltd. (Nanchen)	Sale of cars	19.85%	19.85%	19.85%	19.85%	Investee company held 89.90% bythe Consolidated Company
The Company	Nova Design Co., Ltd. (Nova Design)	Design of products	62.26%	62.26%	62.26%	62.26%	Investee company held 92.34% bythe Consolidated Company
The Company	Sheng Mao Investment Corporation (ShengMao)	Investing activities	77.00%	- %	- %	- %	Note (ii)
The Company	Chao Yang Car Leasing Co., Ltd. (Chao Yang)	Rental of cars	16.27%	16.27%	16.27%	16.27%	Investee company held 98.85% bythe Consolidated Company
The Company	Ching Ta Investment Corporation (ChingTa)	Investing activities	94.73%	94.73%	94.73%	94.73%	Investee company directly held over 50% bythe Company
The Company	Profit Source Investment Ltd. (Profit Source)	Holding Company	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% bythe Company
The Company	Sanyang Deutschland GmbH (SYDE)	Sale of motorcycles and relatedparts	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% bythe Company
The Company	Sun Goal Ltd. (Sun Goal)	Holding Company	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% bythe Company
The Company	SY International Ltd. (SYI)	Holding Company	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% bythe Company
The Company	Sanyang Italia S.r.l (SYIT)	Sale of motorcycles and relatedparts	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% bythe Company
Nanyang	Nanchen Industry Co., Ltd. (Nanchen)	Sale of cars	70.05%	70.05%	70.05%	70.05%	Investee company held 89.90% bythe Consolidated Company
Nanyang	Li Yang Industry Ltd. (Li Yang)	Repair of cars and sale of relatedparts	51.00%	51.00%	51.00%	51.00%	Investee company directly held over 50% bythe subsidiary

～ F-145 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)

Investor	Subsidiary	Nature of business		Shareholding ratio	Shareholding ratio	Shareholding ratio	Notes
			January 1 2012	September 30 2012	December 31 2012	September 30 2013
Nanyang	Star & Sun Investment Corporation (Star & Sun Investment)	Investing activities	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% bythe subsidiary
Nanyang	Nanyang Holding Co., Ltd. (NY Samoa)	Holding Company	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% bythe subsidiary
Nanyang	Chao Yang Car Leasing Co., Ltd. (Chao Yang)	Rental of cars	61.46%	61.46%	61.46%	61.46%	Investee company held 98.85% bythe Consolidated Company
Ching Ta	Three Brothers Machinery Industrial Co.,Ltd.(TBM)	Manufacture of motorcycles and relatedparts	50.00%	50.00%	50.00%	50.00%	Investee company directly held over 50% bythe subsidiary
Ching Ta	Yi Yang Motorcycles Co., Ltd (Yi Yang)	Sale of motorcycles and relatedparts	68.92%	68.92%	68.92%	68.92%	Investee company directly held over 50% bythe subsidiary
Ching Ta	Ching Jiun Co., Ltd. (Ching Jiun)	Metal machinery, iron materials manufacturing, processingand sale	64.38%	64.38%	64.38%	64.38%	Investee company directly held over 50% by the subsidiary
Ching Ta	Ching Zhao Investment Co., Ltd. (ChingZhao)	Investing activities	37.98%	- %	- %	- %	Note (iii)
Ching Ta	Youth Taisun Co., Ltd. (Youth Taisun)	Manufacture of motorcycle parts	10.00%	10.00%	10.00%	10.00%	Investee company directly held over 50% bythe Company
Ching Ta	Chao Yang Car Leasing Co., Ltd. (Chao Yang)	Rental of cars	21.12%	21.12.%	21.12%	21.12%	Investee company directly held over 50% bythe subsidiary
Ching Ta	Nova Design Co., Ltd. (Nova Design)	Design of products	30.08%	30.08%	30.08%	30.08%	Investee company directly held over 50% bythe Company
Ching Ta	Nova LLC (Nova LLC)	Holding Company	57.70%	57.70%	57.70%	57.70%	Investee company directly held over 50% bythe subsidiary
Profit Source	Chong Hing International Limited (ChongHing)	Holding Company	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% bythe subsidiary
Sun Goal	Jiyang Machinery Industry Co., Ltd. (Jiyang)	Manufacture of automobile parts	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% bythe subsidiary
SYI	Billion Ally Ltd. (Billion)	Investing activities	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% bythe subsidiary
SYI	Cosmos System Inc. (Cosmos)	Holding Company	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% bythe subsidiary
SYI	New Path Trading Ltd. (New Path)	Holding Company	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% bythe subsidiary
SYI	Plassen International Ltd. (PIL)	Holding Company	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% bythe subsidiary
SYI	Sanyang Motor Vietnam Co., Ltd. (SMV)	Production of engine and parts of cars; under 3.5 ton transport vehicle and 6-9 seats cars	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% by the subsidiary
SYI	Vietnam Manufacturing and Export Processing (Holdings) Ltd. (VMEPH)	Holding Company	67.07%	67.07%	67.07%	67.07%	Investee company directly held over 50% by the subsidiary
SYI	Shinny Way Ltd. (Shinny Way)	Holding Company	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% bythe subsidiary
Chao Yang	Jau Ryh Leasing Co., Ltd. (Jau Ryh)	Rental of cars	65.00%	65.00%	65.00%	65.00%	Majority seats of the board of directors held bythe subsidiary
NY Samoa	Suzhou Hui Ying Automobile Sale and Service Co., Ltd (Suzhou Hui Ying)	Sale of cars and related parts	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% by the subsidiary
NY Samoa	Changzhou Nanyang Automobile Sale and Service Co., Ltd. (Changzhou Nanyang)	Sale of cars and related parts	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% by the subsidiary
Nova Design	Nova LLC (Nova LLC)	Holding Company	42.30%	42.30%	42.30%	42.30%	Investee company directly held over 50% bythe subsidiary

～ F-146 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)

Investor	Subsidiary	Nature of business		Shareholding ratio	Shareholding ratio	Shareholding ratio	Notes
			January 1 2012	September 30 2012	December 31 2012	September 30 2013
NOVA LLC	Shanghai Nova Design Co., Ltd. (Shanghai Nova)	Design of products	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% bythe subsidiary
NOVA LLC	Nova Design Europe, SRL (ItalyNova)	Design of products	90.00%	90.00%	90.00%	90.00%	Investee company directly held over 50% bythe subsidiary
TBM	Vietnam Three Brothers Machinery Industrial Co.,Ltd.(VTBM)	Manufacture of motorcycles and relatedparts	69.00%	69.00%	69.00%	69.00%	Investee company directly held over 50% bythe subsidiary
TBM	Three Brothers Machinery Industrial (BVI)Co.,Ltd.(TBM BVI)	Holding Company	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% bythe subsidiary
TBM	Full Ta Co., Ltd. (Full Ta)	Holding Company	51.00%	51.00%	51.00%	51.00%	Investee company directly held over 50% bythe subsidiary
Cosmos	Qingzhou Engineering Co., Ltd. (Qingzhou Engineering)	Manufacture and sale of motorcycleparts	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% bythe subsidiary
New Path	Sanyang Global (Xiamen) Co., Ltd. (Sanyang Global)	Manufacture, research and development of motorcycles and relatedparts	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% by the subsidiary
VMEPH	Chin Zong Trading Co., Ltd. (Chin Zong)	Sale of motorcycles and relatedparts	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% bythe subsidiary
VMEPH	Vietnam Manufacturing and Export ProcessingCo.,Ltd.(VMEP)	Manufacture of cars, motor- cycles and relatedparts	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% bythe subsidiary
VMEPH	PT. Sanyang Industri Indonesia. (SY Indonesia)	Manufacture of motorcycles and relatedparts	99.00%	99.00%	99.00%	99.00%	Investee company directly held over 50% bythe subsidiary
Ching Zong	PT. Sanyang Industri Indonesia. (SY Indonesia)	Manufacture of motorcycles and relatedparts	1.00%	1.00%	1.00%	1.00%	Investee company directly held over 50% bythe subsidiary
PIL	Xiamen Xia Shing Motorcycle Co., Ltd.(Xia Shing)	Manufacture of motorcycles and relatedparts	76.67%	76.67%	76.67%	76.67%	Investee company directly held over 50% bythe subsidiary
TBM (BVI)	Xiamen Three Brothers Machinery Industrial Co.,Ltd.(XTBM)	Manufacture of motorcycles and relatedparts	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% bythe subsidiary
TBM (BVI)	Guangzhou Three Brothers Machinery Industrial Co., Ltd. (GTBM)	Manufacture of motorcycles and related parts	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% by the subsidiary
Xia Shing	Xiamen Xia Shing Motorcycle Sales Co.,Ltd.(Xia ShingSales)	Sale of motorcycles and relatedparts	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% bythe subsidiary
VMEP	Duc Phat Molds Inc. (Duc Phat)	Production of model	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% bythe subsidiary
VMEP	Vietnam Casting Forge Precision Ltd.(VCFP)	Manufacture of motorcycles and relatedparts	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% bythe subsidiary
VMEP	Vietnam Three Brothers Machinery Industrial Co.,Ltd.(VTBM)	Manufacture of motorcycles and relatedparts	31.00%	31.00%	31.00%	31.00%	Investee company directly held over 50% bythe subsidiary
Shinny Way	Hangzhou Xia Shing Sanyang Electric Vehicle Co., Ltd. (Hangzhou Xia Shing)	Sale of electric vehicles	72.00%	72.00%	- %	- %	Investee company directly held over 50% by the subsidiary Note(iv)
Ching Zhao	Sunny Mind High Technology Inc. (SunnyMind)	Holding Company	100.00%	- %	- %	- %	Note (iii)
Sunny Mind	Yang Run Hotel and Construction Co., Ltd. (Yang Run Hotel)	Hotel development, real development, lease, sale and logistic management	100.00%	- %	- %	- %	Note (iii)
Suzhou Hui Ying	Shanghai Hui Ying Automobile Sale and Service Co., Ltd. (Shanghai Hui Ying)	Sale of cars and related parts	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% by the subsidiary
Suzhou Hui Ying	Changzhou Hui Ying Automobile Sale and Service Co., Ltd. (Changzhou Hui Ying)	Sale of cars and related parts	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% by the subsidiary
Full Ta	Ha Noi Full Ta Precision Co., Ltd. (Vietnam Full Ta)	Manufacture of motorcycles and relatedparts	100.00%	100.00%	100.00%	100.00%	Investee company directly held over 50% bythe subsidiary

～ F-147 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)

(i) In 2012, the Company disposed 52.17% of its invested shares in Hsu Mao so that its shareholding of Hsu Mao decreased to 32.83%. Therefore, Hsu Mao was not included in the Consolidated Company’s consolidated financial statements in 2012.
(ii) In 2012, the Company disposed 52% of its invested shares in Sheng Mao so that its shareholding of Sheng Mao decreased to 48%. Therefore, Sheng Mao was not included in the Consolidated Company’s consolidated financial statements in 2012.
(iii) In 2010, Ching Ta had ~~m~~ ajority seats in the board of directors of Ching Zhao so that Ching Zhao was included in the Company’s consolidated financial statements in the same year. On July 28, 2011, Ching Ta converted its ownership of the preferred shares of stock of Ching Zhao into its common stock. Thus, Ching Ta’s equity holding ratio had changed to 37.98%. As Ching Ta did not win the majority of the directors in the by-election of the directors of Ching Zhao; Ching Ta ceased control of Ching Zhao. Therefore, Ching Zhao was not included in the Company’s consolidated financial statements in 2012.
(iv) In order to improve the Consolidated Company’s overall operations, the subsidiary was put into liquidation in 2012.

B. Subsidiaries excluded from consolidation quarterly: None.

(3) Convenience Translation into U.S. Dollars

The consolidated financial statements are stated in New Taiwan dollars. A translation of the September 30, 2013, New Taiwan dollar consolidated financial statements in U.S. dollar is included solely for the convenience of the readers, using the spot rate of Taiwan Business Bank on September 30, 2013, of NT$29.575 to US$1. This spot rate is applied uniformly for the translation of all the financial statement accounts. This convenience translation should not be construed as representations that the New Taiwan dollar amounts have been, could have been, or could in the future be, converted into U.S. dollars at this rate or any other rate of exchange.

5. MAJOR SOURCES OF ACCOUNTING ASSUMPTIONS, JUDGMENTS AND ESTIMATION UNCERTAINTY

The preparation of the accompanying interim consolidated financial statements in accordance with IAS 34 “Interim financial reporting” as endorsed by the FSC requires management to make judgments, estimates and assumptions that affect the application of the accounting policies and the reported amount of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Judgments and estimates, used in preparing the accompanying interim consolidated financial statements, are assumed and expected to have no significant difference with those used in the annual consolidated financial statements prepared in conformity with Taiwan-IFRSs (as endorsed by FSC).

～ F-148 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)

6. EXPLANATIONS TO SIGNIFICANT ACCOUNTS

Except as described in the following, the explanations to significant accounts are consistent with those consolidated financial statements as of and for the three months ended March 31, 2013. Please refer to Note 6 of the consolidated financial statements for the three months ended March 31, 2013 for the related information.

(1) Cash and cash equivalents

	2012	2013	2013
January 1 NT$ $ 54,407 5,385,828 1,618,735 150,034 $ 7,209,004	September 30 NT$ 3,758 4,784,998 1,210,961 312,572 6,312,289	September 30
		NT$ 5,258 1,946,348 1,612,038 387,272 3,950,916	US$
			178 65,811 54,507 13,094
			133,590

Time deposits with maturity dates of less than three months which can be converted into cash and whose risk of volatility is low are classified as cash and cash equivalents .As of January 1, 2012, September 30, 2012, December 31, 2012 and September 30, 2013, time deposits of NT$1,368,338, NT$1,227,318, NT$1,899,313, and NT$3,396,138, respectively, with maturity － dates of over three months were classified as other financial assets current.

(2) Investment in financial assets and liabilities
A. The components of financial assets were as follows:

	2012		2013	2013
January 1	September 30	December 31	September 30
NT$	NT$	NT$	NT$	US$
$ 1,198 91,264	1,198 87,930	1,432 89,862	1,620 92,024	55 3,111
$ 92,462	89,128	91,294	93,644	3,166
17,182 -	16,637 -	15,691 10,179	15,985 -	540 -
$ 17,182	16,637	25,870	15,985	540
$ 164,204	265,050	132,744	-	-

～ F-149 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)

	2012		2013	2013
January 1	September 30	December 31 NT$ -	September 30
NT$	NT$		NT$	US$ -
$ 7,387	-		-
$ 10,000	10,000	10,000	10,000	338
$ 70,013	69,785	55,101	56,081	1,896
$ 20,000	20,000	20,000	20,000	676
$ -	38,335	43,493	8,699	294

B. Please refer to Note 6(19) for the gains or losses from re-measurement at fair value of items
((i), (ii) and (iv)) above, which are all recognized in profit or loss and other comprehensive income .
C. The investments under item ((iii)) above are measured at cost less impairment loss at each financial reporting date, as the Consolidated Company management determines that they have no reliable fair value information.
D. The Company entered into derivative contracts to manage the exposure due to the fluctuations of exchange rate in financing activities. These transactions meet the criteria for hedge accounting, and were accounted for as derivative financial liabilities and assets intended for hedging– current. Information for derivative contracts were as follows:

January 1, 2012 Notional Principal (US$) Maturity Date /Contract Period $ 22,4392012.02.27~2012.06.19 September 30, 2012 Notional Principal (US$) Maturity Date /Contract Period $ 91,8492012.10.01~2013.03.15	December 31, 2012	December 31, 2012
	Notional Principal (US$) Maturity Date /Contract Period 65,7232013.01.09~2013.06.10 September 30, 2013	Maturity Date /Contract Period
Notional Principal (US$) $ 91,849	Notional Principal (US$) 40,414	Maturity Date /Contract Period
		2013.10.11~2014.03.28

～ F-150 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)

(3) Notes、accounts and other accounts receivable

	2012		2013	2013
January 1	September 30	December 31	September 30
NT$	NT$	NT$	NT$ 133,668 46,297 (2,136) 177,829 1,868,242 74,485 (9,310) 1,933,417 448,147 (31,371) 416,776 483,979 3,012,001 (291,154) 2,720,847 2,490,395 230,452 2,720,847	US$
$ 93,903 28,236 (2,144)	161,996 22,698 (2,140)	73,745 28,183 (2,140)		4,520 1,565 (72)
119,995	182,554	99,788		6,013
1,632,466 90,805 (12,196)	2,054,148 76,319 (9,494)	1,480,962 89,966 (12,084)		63,170 2,519 (315)
1,711,075	2,120,973	1,558,844		65,374
406,660 (32,644)	453,544 (34,031)	460,792 (33,841)		15,153 (1,061)
374,016	419,513	426,951		14,092
304,879	575,973	289,824		16,364
2,509,965 (305,308)	3,299,013 (349,648)	2,375,407 (341,822)		101,843 (9,845)
$ 2,204,657	2,949,365	2,033,585		91,998
1,970,392 234,265	2,699,435 249,930	1,785,675 247,910		84,206 7,792
$ 2,204,657	2,949,365	2,033,585		91,998

(i) Please refer to Note (8) for the aforesaid notes receivable which were pledged to financial institutions as collateral for loans as of January 1, 2012, September 30, 2012, December 31, 2012 and September 30, 2013.

(ii) Movements of allowance for doubtful receivables for the nine months ended September 30, 2012 and 2013 were as follows:

For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
2012		2013
Individually assessed impairment loss	Collective Assessed impairment loss	Individually assessed impairment loss		Collective Assessed impairment loss
NT$	NT$	NT$	US$	NT$	US$
$ 59,425 9,430 - 85 (2,101)	245,883 39,984 - - (3,058)	91,635 10,874 - - 2,772	3,098 368 - - 94	250,187 5,375 (4,066) (60,221) (5,402)	8,459 182 (137) (2,036) (183)
$ 66,839	282,809	105,281	3,560	185,873	6,285

～ F-151 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)

(4) Inventories

Inventories
Raw materials and supplies Work in process Finished goods Construction in progress Inventory in transit		2012		2013
	January 1	September 30	December 31	September 30
	NT$	NT$	NT$	NT$	US$
	$ 2,354,722 3,726,273 1,705,379 270,624 197,315	2,718,752 1,946,488 4,249,572 - 585,023	2,672,355 1,930,282 3,775,098 - 190,570	1,677,951 2,089,196 4,571,197 - 54,702	56,735 70,641 154,563 - 1,850
	$ 8,254,313	9,499,835	8,568,305	8,393,046	283,789

A. For the nine months ended September 30, 2012 and 2013, the components of cost of goods sold were as follows:

For the Three Months Ended September 30	For the Three Months Ended September 30	For the Three Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
2012	2013		2012	2013
NT$	NT$	US$	NT$	NT$	US$
$ 8,212,287 (14,222) 5,666 139 (6,523) 231,580	6,665,516 (1,823) 53 95 13,869 395,297	225,377 (62) 2 3 469 13,366	22,115,970 (43,003) 21,935 139 (20,547) 513,265	20,563,235 (23,078) 11,640 95 1,002 680,225	695,291 (780) 393 3 34 23,000
$ 8,428,927	7,073,007	239,155	22,587,759	21,233,119	717,941

B. As of September 30, 2012 and 2013, the inventories of Light Tactical Vehicle amounted to NT$4,021,564 and NT$4,020,005 respectively. Please refer to Note 9(2) for the testing of the Light Tactical Vehicle samples and the dispute regarding the performance of contract acquired from the Armaments Procurement Bureau under the Ministry of National Defense (PCAB).
C. Please refer to Note 8 about the inventories pledged to financial institutions as collateral for loans.
(5) Long-term investment under equity method

The Consolidated Company’s financial information for long-term investment under equity method at reporting date is as follows:

	2012	2013	2013
January 1 NT$ $ 1,866,893	September 30 NT$ 2,089,061	September 30
		NT$ 2,814,729	US$
			95,173

～ F-152 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)

For the three months and the nine months ended September 30, 2012 and 2013, the Consolidated Company’s shares of the net income of associates were as follows:

For the Three Months Ended September 30	For the Three Months Ended September 30	For the Three Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
2012	2013		2012	2013
NT$	NT$	US$	NT$	NT$	US$
$ 132,310	59,902	2,025	220,943	118,403	4,003

(6) Property, plant and equipment

The cost, depreciation, and impairment of the property, plant and equipment of the Consolidated Company for the nine months ended September 30, 2012 and 2013 were as follows:

NT$	Land	Office equipment	Lease assets	Construction inprogress	Accumulated impairment	Total
Cost or deemed cost: Balance as of 1 January 2012 Additions Disposals and obsolescence Transfer form construction in progress Transfer from prepayments for equipment Reclassifications Effect of movements in exchange rates Balance as of September 30, 2012 Balance as of January 1, 2013 Additions Disposals and obsolescence Transfer from inventories Transfer from construction in progress Transfer from prepayments for equipment Reclassification Effect of movements in exchange rates Balance as of September 30, 2013 NT$	$ 7,081,744 - - - - - -	1,442,317 55,441 (9,930) 180 1,712 (8,811) (12,811)	926,174 127,758 (104,731) - - - -	168,786 41,764 - (39,834) - - (2,302)	- - - - - - -	31,456,370 759,378 (520,723) - 91,331 - (176,686)
	$ 7,081,744	1,468,098	949,201	168,414	-	31,609,670
	$ 7,081,744 - (31) - - - - -	1,484,523 55,428 (41,115) 3,679 - 1,586 (100,158) 29,414	940,674 180,558 (179,418) - - - - -	85,439 46,862 (576) - (22,155) 208 (2,033) 421	- - - - - - - -	31,761,818 537,421 (416,490) 4,141 - 36,038 (2,041) 155,105
	$ 7,081,713	1,433,357	941,814	108,166	-	32,075,992
	$ - - - - - -	986,045 101,940 - (9,571) (21,134) (1,943)	357,757 113,103 - (87,081) - -	- - - - - -	320,029 - 58,578 - - (5,873)	18,436,305 916,761 58,578 (499,359) - (20,622)
Depreciation and impairment loss： Balance as of January 1, 2012 Depreciation for the period Impairment loss Disposals and obsolescence Reclassifications Effect of movements in exchange rates Balance as of September 30, 2012 Balance as of January 1, 2013 Depreciation for the period Gain on reversal of impairment loss Disposals and obsolescence Reclassifications Effect of movements in exchange rates Balance as of September 30, 2013 Carrying amounts： Balance as of January 1, 2012 Balance as of September 30, 2012 Balance as of January 1, 2013 Balance as of September 30, 2013
	$ -	1,055,337	383,779	-	372,734	18,891,663
	$ - - - - - -	1,149,071 93,088 - (32,283) (136,344) 12,477	398,434 111,806 - (126,905) (1,395) -	- - - - - -	386,804 - (24,865) - - 7,714	19,208,756 862,443 (24,865) (305,319) (691) 53,171
	$ -	1,086,009	381,940	-	369,653	19,793,495
	$ 7,081,744	456,272	568,417	168,786	(320,029)	13,020,065
	$ 7,081,744	412,761	565,422	168,414	(372,734)	12,718,007
	$ 7,081,744	335,452	542,240	85,439	(386,804)	12,553,062
	$ 7,081,713	347,348	559,874	108,166	(369,653)	12,282,497

～ F-153 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)

US$	Land	Buildings	Office equipment	Lease assets	Construction inprogress	Accumulated impairment	Total
Cost or deemed cost: Balance as of 1 January 2012 Additions Disposals and obsolescence Transfer form construction in progress Transfer from prepayments for equipment Reclassifications Effect of movements in exchange rates Balance as of September 30, 2012 Balance as of January 1, 2013 Additions Disposals and obsolescence Transfer from inventories Transfer from construction in progress Transfer from prepayments for equipment Reclassification Effect of movements in exchange rates Balance as of September 30, 2013 Depreciation and impairment loss： Balance as of January 1, 2012 Depreciation for the period Impairment loss Disposals and obsolescence Reclassifications Effect of movements in exchange rates Balance as of September 30, 2012 Balance as of January 1, 2013 Depreciation for the period Gain on reversal of impairment loss Disposals and obsolescence Reclassifications Effect of movements in exchange rates Balance as of September 30, 2013 Carrying amounts： Balance as of January 1, 2012 Balance as of September 30, 2012 Balance as of January 1, 2013 Balance as of September 30, 2013	$ 239,450 - - - - - -	170,537 1,227 (2,436) 670 - (1,232) (1,287)	48,768 1,875 (336) 6 58 (298) (433)	31,316 4,320 (3,541) - - - -	5,707 1,412 - (1,347) - - (78)	- - - - - - -	1,063,614 25,677 (17,607) - 3,089 - (5,976)
	$ 239,450	167,479	49,640	32,095	5,694	-	1,068,797
	$ 239,450 - (1) - - - - -	172,006 840 (1,910) - - - - 1,366	50,195 1,874 (1,390) 124 - 54 (3,387) 995	31,806 6,106 (6,067) - - - - -	2,889 1,585 (19) - (749) 7 (69) 13	- - - - - - - -	1,073,940 18,173 (14,083) 140 - 1,219 (70) 5,245
	$ 239,449	172,302	48,465	31,845	3,657	-	1,084,564
	$ - - - - - -	91,484 4,828 - (2,322) (88) (149)	33,340 3,447 - (324) (715) (65)	12,097 3,824 - (2,945) - -	- - - - - -	10,821 - 1,981 - - (199)	623,375 30,998 1,981 (16,885) - (698)
	$ -	93,753	35,683	12,976	-	12,603	638,771
	$ - - - - - -	95,763 3,879 - (629) (14) 109	38,853 3,148 - (1,092) (4,610) 422	13,472 3,780 - (4,291) (47) -	- - - - - -	13,079 - (841) - - 261	649,493 29,161 (841) (10,324) (23) 1,798
	$ -	99,108	36,721	12,914	-	12,499	669,264
	$ 239,450	79,053	15,428	19,219	5,707	(10,821)	440,239
	$ 239,450	73,726	13,957	19,119	5,694	(12,603)	430,026
	$ 239,450	76,243	11,342	18,334	2,889	(13,079)	424,447
	$ 239,449	73,194	11,744	18,931	3,657	(12,499)	415,300

A. In order to protect the shareholders’ rights and interests, the board of directors of the Company resolved to reevaluate the portion regarding the co-construction of the luxurious buildings with Meifu Construction Co., Ltd. (Meifu). In January 2008, Shan Young Asset provided a piece of land to Meifu to construct the buildings in Tanmei Section of Neihu District, Taipei City. Regarding the equity interest of the two parties concerning the buildings, Meifu holds 54% and Shan Young Asset holds 46%. On March 5, 2013, the board of directors of the Company resolved to negotiate with Meifu for a new equity interest because of the land’s continuing appreciate recently. However, the shareholders’ had annulled the board of directors’ resolved during their meeting on May 20, 2013. Furthermore, the land trust was registered with Ta Chong Bank by Shan Young Asset.
B. Please refer to Note 8 for details of the property, plant and equipment pledged to financial institutions as collateral for loan .

～ F-154 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)

(7) Investment property

	NT$			US$
Land	Buildings	Total	Land	Buildings 7,452 1,020 (31) - (1) 8,440 8,458 - - - - 1 8,459 4,706 89 (30) 13 - - 4,778 4,862 94 - - - - 4,956 2,746 3,662 3,596 3,503	Total
$ 1,070,766 810 (38,492) - (848)	220,389 30,155 (899) - (22)	1,291,155 30,965 (39,391) - (870)	36,205 27 (1,301) - (29)		43,657 1,047 (1,332) - (30)
$ 1,032,236	249,623	1,281,859	34,902		43,342
$ 1,069,329 - - - (874) 1,367	250,139 - - - - 29	1,319,468 - - - (874) 1,396	36,156 - - - (29) 46		44,614 - - - (29) 47
$ 1,069,822	250,168	1,319,990	36,173		44,632
$- - - - - -	139,198 2,642 (899) 384 - (11)	139,198 2,642 (899) 384 - (11)	- - - - - -		4,706 89 (30) 13 - -
$ -	141,314	141,314	-		4,778
$ - - - - - -	143,787 2,770 - - - 14	143,787 2,770 - - - 14	- - - - - -		4,862 94 - - - -
$ -	146,571	146,571	-		4,956
$ 1,070,766	81,191	1,151,957	36,205		38,951
$ 1,032,236	108,309	1,140,545	34,902		38,564
$ 1,069,329	106,352	1,175,681	36,156		39,752
$ 1,069,822	103,597	1,173,419	36,173		39,676

The fair value of the above investment property as of September 30, 2013 did not differ significantly with that of as of March 31, 2013, please refer to the Note 6(7) of the notes to the first quarter 2013 consolidated financial statements of the Consolidated Company.

Please refer to Note 8 for details of the aforesaid investment properties pledged to financial institutions as collateral for loans.

～ F-155 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)

(8) Long-term prepaid rentals

The long-term prepaid rentals consisted of the land leasehold rights and related costs, and its components were as follows:

	2012		2013	2013
January 1	September 30	December 31	September 30
NT$	NT$	NT$	NT$ 430,923	US$
$ 486,145	427,053	427,113		14,571

Please refer to Note 8 for the details of the land leasehold rights pledged to financial institutions as collateral for loans.

(9) Short-term notes and bills payable

	2012		2013	2013
January 1	September 30	December 31	September 30
NT$	NT$	NT$	NT$ 220,000 796,387 1,016,387	US$
$ 48,135 698,612	43,150 864,775	38,351 728,600		7,438 26,928
$ 746,747	907,925	766,951		34,366

The short-term notes and bills payable are without reissuing, repurchasing or repayment from for the nine months ended September 30, 2013. Information regarding interest expenses, please refer to Note 6(19); and for other relevant information, please refer to Note 6(9) of the 2013 first quarter consolidated financial report of the Consolidated Company.

(10) Short-term loans

Information regarding the short-term loans was as follows:

	2012	2013	2013
January 1 NT$ $ 1,710,995 129,468 3,251,014 $ 5,091,477 1.03%~8.65%	September 30 NT$ 3,374,005 135,094 1,666,910 5,176,009 1.03%~7.61%	September 30
		NT$	US$
		2,405,408 191,787 2,356,148	81,332 6,485 79,667
		4,953,343	167,484

A. For the nine months ended September 30 2012 and 2013, total loan drawings amounted to NT$4,836,302 and NT$4,470,973 respectively; interests rates ranged from 1.12%~9.98% and 1.026%~7.02%, respectively; total loan repayments amounted to NT$4,751,770 and NT$4,232,240 respectively and the loan maturity dates were September 2013 and September 2014, respectively loans.

～ F-156 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)

B. Collateral for bank loans

The Consolidated Company has provided some assets as collaterals for its short-term borrowings, details of which were disclosed in Note 8.

(11) Long-term loans

Secured bank loans Material purchase loans Syndicated loans Short-term notes and bills payable Less: current portion of long term loans Total Annual Interest rate		2012	December 31 NT$ 845,584 41,730 5,420,000 30,000 (750,247) 5,587,067 2.08%~7.11%	2013 September 30 NT$ US$ 753,208 25,468 - - 5,130,000 173,457 - - (498,093) (16,842) 5,385,115 182,083 2.08%~6.31%
	January 1 NT$ $ 814,897 146,028 5,710,000 39,840 (599,684) $ 6,111,081 1.963%~8.53%	September 30 NT$ 829,353 128,715 5,420,000 41,701 (667,279) 5,752,490 2.08%~7.11%

The other information of the long-term loans was as follows:

A. Issuance and repayment of borrowing

For the nine months ended September 30, 2012 and 2013, total loan drawings amounted to NT$174,764 and NT$158,778, respectively; interests rates ranged from 2.08%~3.3% and 2.08%~3.15%, respectively; total loan repayments amounted to NT$465,760 and NT$612,884 respectively and the loan maturity dates were both February 2015.

B. Collateral for bank loans

The Consolidated Company has provided some assets as collaterals for its short-term borrowings, details of which were disclosed in Note 8.

C. Outstanding credit limit

	2012	2013	2013
January 1 NT$ $ 488,497 2,617,226 $ 3,105,723	September 30 NT$ 739,780 1,636,957 2,376,737	September 30
		NT$ 1,198,103 1,652,363 2,850,466	US$
			40,511 55,870
			96,381

D. Breach of loan covenants

As of December 31, 2012 and June 30, 2013, the Consolidated Company was in compliance with certain financial covenants based on the 2012 audited annual and 2013 H1 semi-annual consolidated financial statements.

～ F-157 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)

(12) Provisions

Balance as of January 1 Provisions made during the period Provisions use during the period Provisions reversed during the period Effect of movements in exchange rates Balance as of September 30 Current Non-current Total	2012 NT$ $ 173,323 144,357 (107,948) (4,366) (326) $ 205,040 125,024 80,016 $ 205,040	2013	2013
		NT$ 246,837 141,762 (118,089) (2,057) (39) 268,414 164,466 103,948 268,414	US$
			8,346 4,793 (3,993) (69) (1)
			9,076
			5,561 3,515
			9,076

For the nine months ended September 30, 2012 and 2013, there were no significant changes in provisions as compared with those of the Consolidated Company’s 2013 first quarter consolidated financial reports. Please refer to Note 6(10) of the 2013 first quarter consolidated financial reports of the Consolidated Company for further details.

(13) Operating leases

As of September 30, 2013, the Consolidated Company’s operating leases did not differ significantly from those of as of March 31, 2013. Please refer to Note 6(11) of the 2013 first quarter consolidated financial reports of the Consolidated Company.

(14) Employee benefits

(i) Defined benefit plans

As there was no significant volatility or any significant reimbursement, settlement or other one-time event in prior fiscal year, pension cost in the interim financial statements is measured and disclosed in accordance with paragraph B9 of IAS 34 “Interim Financial Reporting.”

Related expenses under the defined benefit plans were as follows:

Operating cost Selling expenses Administrative expenses Research and development expenses Total	For the Three Months Ended September 30 2012 2013 NT$ NT$ US$ $ 10,234 10,625 359 4,477 3,377 114 3,836 9,230 312 2,801 2,882 98 $ 21,348 26,114 883	For the Three Months Ended September 30 2012 2013 NT$ NT$ US$ $ 10,234 10,625 359 4,477 3,377 114 3,836 9,230 312 2,801 2,882 98 $ 21,348 26,114 883	For the Nine Months Ended September 30 2012 2013 NT$ NT$ US$ 38,372 39,613 1,340 13,614 11,566 391 15,116 15,236 515 10,429 12,364 418 77,531 78,779 2,664	For the Nine Months Ended September 30 2012 2013 NT$ NT$ US$ 38,372 39,613 1,340 13,614 11,566 391 15,116 15,236 515 10,429 12,364 418 77,531 78,779 2,664
	2012 NT$ $ 10,234 4,477 3,836 2,801 $ 21,348		2012 NT$ 38,372 13,614 15,116 10,429 77,531
		NT$ 10,625 3,377 9,230 2,882 26,114		NT$ 39,613 11,566 15,236 12,364 78,779

～ F-158 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)

(ii) Defined contribution plans

The pension costs under the defined contribution pension plan, which were contributed to the Bureau of Labor Insurance were as follows:

Operating cost Selling expenses Administrative expenses Research and development expenses Total	For the Three Months Ended September 30 2012 2013 NT$ NT$ US$ $ 4,181 4,199 142 4,034 5,375 182 4,474 4,193 142 2,383 2,536 85 $ 15,072 16,303 551	For the Three Months Ended September 30 2012 2013 NT$ NT$ US$ $ 4,181 4,199 142 4,034 5,375 182 4,474 4,193 142 2,383 2,536 85 $ 15,072 16,303 551	For the Nine Months Ended September 30 2012 2013 NT$ NT$ US$ 12,154 12,597 426 15,048 16,550 560 14,040 14,919 504 7,180 7,496 253 48,422 51,562 1,743	For the Nine Months Ended September 30 2012 2013 NT$ NT$ US$ 12,154 12,597 426 15,048 16,550 560 14,040 14,919 504 7,180 7,496 253 48,422 51,562 1,743
	2012 NT$ $ 4,181 4,034 4,474 2,383 $ 15,072		2012 NT$ 12,154 15,048 14,040 7,180 48,422
		NT$ 4,199 5,375 4,193 2,536 16,303		NT$ 12,597 16,550 14,919 7,496 51,562

(iii) In 2013, as a long-term stimulation and motivating mechanism, the Company signed an agreement with its employees to set up an “Employee Stock Ownership Trust” under which the Company is committed to allow Employee Shares Ownership of Sanyang Industry Co., Ltd.. Under this agreement, the Company contribute an amount monthly as employees’ own savings, in Particular Trust Account and such contribution is recognized as current cost or expense. For the three months and nine months ended September 30, 2013, the contributions recognized as current cost or expense amounted to NT$55,455 and NT$112,089 respectively.

(15) Income taxes

A. Income tax expense for the year is best estimated by multiplying pretax income for the interim reporting period by the effective annual tax rate as forecasted by the consolidated company.
B. The components of income tax expense were as follows:

For the Three Months Ended September 30	For the Three Months Ended September 30	For the Three Months Ended September 30	For the Nine Months Ended September 30 2012 2013 NT$ NT$ US$ 84,531 66,773 2,258 123,803 1,482 50 3,195 23,921 809 211,529 92,176 3,117 (41,258) (56,710) (1,918) (41,258) (56,710) (1,918) 170,271 35,466 1,199	For the Nine Months Ended September 30 2012 2013 NT$ NT$ US$ 84,531 66,773 2,258 123,803 1,482 50 3,195 23,921 809 211,529 92,176 3,117 (41,258) (56,710) (1,918) (41,258) (56,710) (1,918) 170,271 35,466 1,199	For the Nine Months Ended September 30 2012 2013 NT$ NT$ US$ 84,531 66,773 2,258 123,803 1,482 50 3,195 23,921 809 211,529 92,176 3,117 (41,258) (56,710) (1,918) (41,258) (56,710) (1,918) 170,271 35,466 1,199
2012	2013			2013
NT$	NT$	US$	NT$	NT$	US$
$ 25,270 - 61	26,298 - (27)	889 - (1)	84,531 123,803 3,195	66,773 1,482 23,921	2,258 50 809
25,331	26,271	888	211,529	92,176	3,117
(26,351)	(48,670)	(1,646)	(41,258)	(56,710)	(1,918)
(26,351)	(48,670)	(1,646)	(41,258)	(56,710)	(1,918)
$(1,020)	(22,399)	(758)	170,271	35,466	1,199

～ F-159 ～

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)

C. The income tax recognized in other comprehensive income for the nine months ended September 30, 2012 and 2013 were zero and NT$100,284 respectively.
D. Reconciliation of effective tax rate:

For the Nine Months Ended September 30 Income before tax Tax at the Company’s tax rate Effect of different tax rate applied to other activities Non deductible expenses Previously unrecognized deferred tax assets Prior years’ income tax adjustments 10% surtax on undistributed earnings Others	2012	2013 NT$ US$ 129,176 4,368 21,960 742 52,808 1,785 (20,355) (688) (56,710) (1,917) 23,921 809 1,482 50 12,360 418 35,466 1,199
	NT$	NT$
	$ 797,477	129,176
	135,571 12,115 (8,186) (41,258) 3,195 123,803 (54,969)	21,960 52,808 (20,355) (56,710) 23,921 1,482 12,360
	$ 170,271	35,466

E. Except for Jin Yang and the Company, whose income tax returns had been assessed and approved by the Tax Authority for the years through 2009 and 2011, respectively, the other domestic subsidiaries’ income tax returns have been assessed and approved by the Tax Authority for the year 2010.
F. The Company and its domestic subsidiaries are entitled to investment tax credits for investments in automatic equipment, pollution prevention equipment, research and development, employee training expenditures, etc. As of September 30, 2013, the unused investment tax credits which can be used to offset against income tax in the future are as follows:

Unused Balance Expiration Year NT$ US$ $ 121,885 4,121 2013 292 10 2014 $ 122,177 4,131 the integrated income tax related information was as follows: 2012 2013 January 1 September 30 December 31 September 30 NT$ NT$ NT$ NT$ US$ $ 2,667,150 3,246,672 934,419 621,376 21,010 $ 28,460 88,158 86,107 102,476 3,465	Unused Balance Expiration Year NT$ US$ $ 121,885 4,121 2013 292 10 2014 $ 122,177 4,131 the integrated income tax related information was as follows: 2012 2013 January 1 September 30 December 31 September 30 NT$ NT$ NT$ NT$ US$ $ 2,667,150 3,246,672 934,419 621,376 21,010 $ 28,460 88,158 86,107 102,476 3,465	Expiration Year	Expiration Year
		2013 2014 was as follows: 2013
January 1 NT$ $ 2,667,150 $ 28,460	September 30 NT$ 3,246,672 88,158	September 30
		NT$ 621,376 102,476	US$
			21,010
			3,465

G. As of September 30, 2013, the integrated income tax related information was as follows:

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)

Expected or actual deductible tax ratio	2011 (Actual) 7.45%	2012 (Estimated)
		9.32%

The integrated income tax related information as shown above has been prepared in accordance with Taiwan fiscal Letter No.10204562810 issued by a Department of the Ministry of Finance on October 14, 2013.

(16) Shareholders' equity

Except for the followings, there were no significant changes in shareholders' equity for the nine months ended September 30, 2012 and 2013. Please refer to Note 6(14) of the 2013 first quarter consolidated financial statements of the Consolidated Company for further details.

A. Capital

On August 28, 2013, the Board of Directors of the Company has resolved to issue convertible Zero Coupon European Convertible Bonds; with a total amount of US$55,000 and with a 5-year maturity period.

B. Appropriation of earnings

The estimated and accrued annual bonuses to employees amounted to NT$166 and zero respectively, for the three months ended September 30, 2012 and 2013, respectively, and NT$314 and NT$85 for the nine months ended September 30, 2012 and 2013, respectively. The estimated remuneration to directors amounts were NT$333 and zero, respectively, for the three months ended September 30, 2012 and 2013, respectively, and NT$628 and NT$170 for the nine months ended of September 30, 2012 and 2013, respectively. In accordance with the Articles of Incorporation of the Company, the remuneration of directors and supervisors and employee bonus are appropriated at the rates of 2% and 1%, respectively, of the Company's net income available for appropriation and recognized as costs or expenses in the year earnings are incurred.

If bonus shares are resolved for distribution to employees during the meeting of shareholders of the Company, the number of shares is determined by dividing the amount of bonus shares of stock closing price (after considering the effect of cash and stock dividends) of the shares on the day immediately preceding the shareholders’ meeting. The differences between the amounts of remuneration of directors and supervisors and the employee bonus approved in the shareholders’ meetings and those recognized in the financial statements, if any, are accounted for as changes in accounting estimates and recognized in profit or loss in the year when the earnings is distributed.

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On December 24, and 2012, May 20, 2013, the shareholders resolved during their meeting the appropriation of 2011 and 2012 earnings, respectively. The information related to the distribution of the Company’s earnings is available on the website of the Market Observation Post System. The relevant information of earnings distributed as dividends, employee bonus and remuneration to directors and supervisors was as follows:

Common stock dividends per share－Cash	2011 Amount per share Total Amount (in NT dollar) $ 0.45 403,370	2012	2012
	Amount per share (in NT dollar) $ 0.45	Amount per share (in NT dollar) 0.45	Total Amount
			403,370

C. Other equity accounts

Exchange differences on translation of foreign financial statements 2012 2013 NT$ NT$ US$ $ (1,338,489) (1,663,438) (56,245) (271,767) 558,396 18,881 6,876 35,422 1,198 - - - - - - $(1,603,380) (1,069,620) (36,166)	Exchange differences on translation of foreign financial statements 2012 2013 NT$ NT$ US$ $ (1,338,489) (1,663,438) (56,245) (271,767) 558,396 18,881 6,876 35,422 1,198 - - - - - - $(1,603,380) (1,069,620) (36,166)	Unrealized gains (losses) on available-for-sale investment	Unrealized gains (losses) on available-for-sale investment	Unrealized gains (losses) on available-for-sale investment
2012		2012	2013
NT$	NT$ (1,663,438) 558,396 35,422 - - (1,069,620)	NT$	NT$	US$
$ (1,338,489) (271,767) 6,876 - -		(110,410) - - - -	(122,068) - - - 282,428	(4,127) - - - 9,550
$(1,603,380)		(110,410)	160,360	5,423

D. Treasury stock
(a) In accordance with Securities and Exchange Act, treasury stock cannot be pledged as collateral. Also, treasury stock does not bear the shareholder’s right prior to being sold to third parties.
(b) In 2012, the Company sold its ownership of 3,120 thousand equity shares of stock in Sheng Mao Investment Corporation numbers, and its entire ownership of equity shares of Hsu Mao Investment Corporation. Therefore, the Company ceased control of these two investee companies. As there were still 17,602 thousand shares in the Company being held by Sheng Mao Investment Corporation and Hsu Mao Investment Corporation, those shares of stock can no longer be treated as treasury stock.
(c) As of September 30, 2012 and 2013, the Company’s shares held by its subsidiaries were 23,334 thousands shares and 5,732 thousands shares, with carrying value of NT$470,187 and NT$243,916 respectively, details of which were as follows:

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)

Number of Shares of Stock Held	Amount	Amount
2012	September 30 2013
January 1 September 30 12,556 12,556 5,046 5,046 981 981 4,751 4,751	NT$	US$
	- - 37,498 104,080	- - 1,268 3,519
	141,578	4,787

(17) Share-based payment

For the nine months ended September 30, 2012 and 2013, there were no significant changes in share-based payment. For other related information, please refer to Note 6(16) of the 2013 first quarter consolidated financial statements of the Consolidated Company.

(18) Earnings per share

Number of ordinary shares, January 1 Less: Company shares of stock held by the Company’s subsidiaries Number of ordinary shares, September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
	2012 896,376 (23,334) 873,042	2013 896,376 (5,732) 890,644

The basic earnings per share and diluted earnings per share were calculated as follows:

For the Three Months Ended September 30 2012 2013 NT$ NT$ US$ $ 203,538(14,938) (505) 873,042 890,644 890,644 $ 0.23 (0.02) 0.006	For the Three Months Ended September 30 2012 2013 NT$ NT$ US$ $ 203,538(14,938) (505) 873,042 890,644 890,644 $ 0.23 (0.02) 0.006	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
2012 NT$ $ 203,538 873,042 $ 0.23		2012 NT$ 579,522 873,042 0.66	2013
	NT$ (14,938) 890,644 (0.02)		NT$ 126,000 890,644 0.14	US$
				4,260
				890,644
				0.005

(19) Non-operating income and expenses

A. Other income

As of September 30, 2012 and 2013, the components of other income were as follows:

For the Three Months Ended September 30 2012 2013 NT$ NT$ US$ $ 62,178 78,968 2,670 - - - - 24,770 838 $ 62,178 103,738 3,508	For the Three Months Ended September 30 2012 2013 NT$ NT$ US$ $ 62,178 78,968 2,670 - - - - 24,770 838 $ 62,178 103,738 3,508	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
2012		2012	2013 NT$ US$ 238,882 8,077 119,734 4,048 24,770 838 383,386 12,963
NT$	NT$ 78,968 - 24,770 103,738	NT$		US$
$ 62,178 - -		213,708 48,155 -		8,077 4,048 838
$ 62,178		261,863		12,963

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)

B. Other gains and losses

As of September 30, 2012 and 2013, the components of other gains and losses were as follows:

For the Three Months Ended September 30	For the Three Months Ended September 30	For the Three Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
2012	2013		2012	2013 NT$ US$ 60,599 2,049 46,951 1,588 24,865 841 22,314 754 154,729 5,232
NT$	NT$	US$	NT$		US$
$ 69,679 7,344 - 32,363	43,367 44,056 24,865 (22,228)	1,466 1,490 840 (751)	90,173 29,671 (58,578) 104,051		2,049 1,588 841 754
$109,386	90,060	3,045	165,317		5,232

C. Finance costs

As of September 30, 2012 and 2013, the components of financial costs were as follows:

For the Three Months Ended September 30 2012 2013 NT$ NT$ US$ $ (83,168) (97,065) (3,282) (52,153) (30,387) (1,027) $ (135,321) (127,452) (4,309)	For the Three Months Ended September 30 2012 2013 NT$ NT$ US$ $ (83,168) (97,065) (3,282) (52,153) (30,387) (1,027) $ (135,321) (127,452) (4,309)	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
2012 NT$ $ (83,168) (52,153) $ (135,321)		2012 NT$ (255,156) (38,335) (293,491)	2013
	NT$ (97,065) (30,387) (127,452)		NT$ (250,542) (8,511) (259,053)	US$
				(8,471) (288)
				8,759

(20) Financial instruments

For the nine months ended September 30, 2012 and 2013, there were no significant changes in

fair value of financial instrument, and credit risk, liquidity risk and market risk, except for the followings:

A. Credit risk

Aging analysis of the receivables on the balance sheet date was as follows:

		2012	2012			2013	2013	2013	2013
January 1		September 30		December 31		September 30,
NT$		NT$		NT$		NT$		US$
Total amount	Impairment	Total amount	Impairment	Total amount	Impairment	Total amount	Impairment	Total amount	Impairment - (583) (76) (9,186) (9,845)
$1,889,349 277,753 12,883 369,469	- (29,975) (3,581) (271,752)	2,595,791 366,097 53,119 332,307	- (29,938) (9,788) (309,922)	1,527,761 396,528 102,336 404,285	- (4,928) (5,490) (331,404)	1,952,467 477,457 431,489 215,283	- (17,241) (2,247) (271,666)	66,017 16,144 14,590 7,279
$ 2,549,454	(305,308)	3,347,314	(349,648)	2,430,910	(341,822)	3,076,696	(291,154)	104,030

B. Currency risk

(i) Currency risk exposure

The Consolidated Company’s exposures to significant currency risk were those from its foreign currency denominated financial assets and liabilities as follows:

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)

Financial assets	Foreign Currency Exchange Rage NT$ January 1, 2012 $ 47,086 30.2700 1,425,293 3,529 39.2000 138,337 31,401 4.8295 151,651 87,214 0.3903 34,040 $ 64,496 30.2700 1,952,294 December 31, 2012 $ 50,273 29.0300 1,459,425 4,087 38.4800 157,268 95,051 4.6372 440,770 66,807 0.3362 22,461 $ 115,710 29.0300 3,359,061	(unit: Foreign currency/NT$ in Thousands) Foreign Currency Exchange Rage NT$ September 30, 2012
		48,584 29.31 1,423,997 3,787 37.93 143,641 95,865 4.6949 450,077 48,369 0.3799 18,375 143,114 29.31 4,194,671 September 30, 2013
Monetary items
USD EUR CNY JPY Financial liabilities
Monetary items
USD Financial assets
		64,484 29.575 1,907,114 2,332 39.29 93,093 105,105 4.8644 511,273 80,046 0.302 24,174 80,012 29.575 2,366,355
Monetary items
USD EUR CNY JPY Financial liabilities
Monetary items
USD

Currency risk for the Company and its domestic subsidiaries arises mainly from foreign currency denominated cash and cash equivalents, accounts receivable and other receivable, available-for-sale financial assets, others, loans, accounts and other accounts payable. If the foreign exchange rate for NT dollars will increase or decrease by 1%, the profit or loss of the Consolidated Company will decrease NT$21,574 or increase NT$1,641, respectively, as of September 30, 2013.

C. Fair value of financial instruments
(a) Fair value and carrying amount

The Consolidated Company considers the carrying amounts of its financial assets and financial liabilities measured at amortized cost as a reasonable approximation of fair value, as management believes that there were no significant difference between effective interest rate and market interest rate.

(b) Fair value hierarchy

The table below analyses financial instruments carried at fair value, by the levels in the fair value hierarchy. The different levels have been defined as follows:

Level 1: fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: fair value measurements are those derived from valuation techniques that

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)

include inputs for those assets or liabilities that are not based on observable market data (unobservable inputs).

January 1, 2012 Available-for-sale financial assets Financial assets designated as at fair value through profit or loss Hedging derivative financial assets September 30, 2012 Available-for-sale financial assets Financial assets designated as at fair value through profit or loss Hedging derivative financial assets December 31, 2012 Available-for-sale financial assets Financial assets designated as at fair value through profit or loss Hedging derivative financial assets September 30, 2013 Available-for-sale financial assets Financial assets designated as at fair value through profit or loss Hedging derivative financial assets September 30, 2013 Available-for-sale financial assets Financial assets designated as at fair value through profit or loss Hedging derivative financial assets	Level 1 NT$ $ 17,182 - - $ 17,182 $ 16,637 - - $ 16,637 $ 25,870 - - $ 25,870 $ 15,985 - - $ 15,985 US$ $ 540 - - $ 540	Level 2 NT$ 10,000 92,462 7,387 109,849 10,000 89,128 (38,335) 60,793 10,000 91,294 (43,493) 57,801 10,000 93,644 (8,699) 94,945 US$ 338 3,166 (294) 3,210	Level 3 NT$ - - - - - - - - - - - - - - - - US$ - - - -	Total
				NT$
				27,182 92,462 7,387
				127,031
				26,637 89,128 (38,335)
				77,430
				35,870 91,294 (43,493)
				83,671
				25,985 93,644 (8,699)
				110,930
				US$
				878 3,166 (294)
				3,750

made among the different classification. For the nine months ended September 30, 2012 and 2013, there were no reclassifications made among the different classifications for financial instruments for financial instruments.

(21) Financial risk management

The strategies and approach to manage the financial risk for the Consolidated Company is the same as those disclosed in the Note 6(20) of the 2013 first quarter consolidated financial statements of the Consolidated Company.

(22) Capital management

Management believes there are no significant changes in the policies and approaches for the Consolidated Company’s capital management as they were disclosed in Note 6(21) of the 2013 first quarter consolidated financial statements of the Consolidated Company.

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7. RELATED PARTY TRANSATIONS

(1) Key management personnel compensation

For the Three Months Ended September 30	For the Three Months Ended September 30	For the Three Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
2012	2013		2012	2013
NT$	NT$	US$	NT$	NT$	US$
$17,272	15,548	526	43,445	39,837	1,347

(2) Other Related Party Transactions
A. Sale of goods, technical and consulting services to related parties

The significant transactions relating to sales and technical and consulting services to related parties and the outstanding receivable balances were as follows:

Sales

For the three months ended September 30 2012 2013 NT$ NT$ US$ $ 2,816 992 33 63,368 83,390 2,820 $ 66,184 84,382 2,853	For the three months ended September 30 2012 2013 NT$ NT$ US$ $ 2,816 992 33 63,368 83,390 2,820 $ 66,184 84,382 2,853	For the nine months ended September 30	For the nine months ended September 30	For the nine months ended September 30
2013		2012	2013
NT$ 992 83,390 84,382	US$	NT$	NT$	US$
	33 2,820	417 172,159	3,517 228,269	119 7,718
	2,853	172,576	231,786	7,837

	Receivables from Related Parties	Receivables from Related Parties	Receivables from Related Parties	Receivables from Related Parties
	2012		2013
January 1 NT$ $ 992 38,497 $ 39,489	September 30 NT$ 389 47,912 48,301	December 31	September 30
		NT$	NT$ 417 64,278 64,695	US$
		392 55,111		14 2,173
		55,503		2,187

Prices for sales transactions with related parties were not significantly different from those of non-related parties. The average sales term for notes and accounts receivables pertaining to such sales transactions ranges from 15 to 45 days. Delayed payments are subject to interest based on the Company’s average interest rate of borrowings, plus another 0.25% interest. The collections of receivables for related parties were taken according to their sales and operating terms, and without any interest charged. Receivables from related parties were not secured with collaterals, and require no provisions for bad debts.

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B. Purchase of Goods from Related Parties

The significant purchase transactions and outstanding payable balances with related parties were as follows:

Purchase	Purchase	Purchase	Purchase	Purchase	Purchase
For the three months ended September 30			For the nine months ended September 30
2012	2013		2012	2013
NT$	NT$	US$	NT$	NT$ 158,838 814,960 973,798	US$
$ 73,856 334,481	57,312 268,869	1,938 9,091	178,402 837,059		5,370 27,556
$ 408,337	326,181	11,029	1,015,461		32,926

	Payables to Related Parties	Payables to Related Parties	Payables to Related Parties	Payables to Related Parties
	2012		2013
January 1	September 30	December 31	September 30
NT$	NT$	NT$	NT$	US$
$ 21,532 178,139	46,486 221,676	27,142 219,378	38,387 143,598	1,298 4,855
$ 199,671	268,162	246,520	181,985	6,153

There were no significant differences in the terms or pricing of purchase between the related

parties and those of other non-related party vendors. The average payment period for notes and accounts payable arising from such purchase transactions ranged from one to two months, which was similar to that of other non-related party vendors.

C. Property transactions

The Consolidated Company purchased machinery and miscellaneous equipment from related parties as follows:

Description	For the three months ended September 30	For the three months ended September 30	For the three months ended September 30	For the nine months ended September 30 2012 2013 NT$ NT$ US$ 1,319 1,335 45 2,880 - - 4,199 1,335 45	For the nine months ended September 30 2012 2013 NT$ NT$ US$ 1,319 1,335 45 2,880 - - 4,199 1,335 45
	2012	2013		2012
	NT$	NT$	US$	NT$	NT$
Machinery and mold 〃	$ 839 460	995 -	34 -	1,319 2,880	1,335 -
	$ 1,299	995	34	4,199	1,335

D. Operating lease

a. Lessor

For the three months ended and nine months ended September 30, 2012 and 2013, the Consolidated Company leased a portion of its land and buildings to the other related parties as automobile repair shops, and received rental revenue of NT$264 and NT$267 and NT$792 and NT$801 respectively.

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b. Lessee

For the three months ended and the nine months ended September 30, 2012 and 2013, the Consolidated Company incurred rental expenses both of NT$17 and NT$51 respectively, for renting land and building for operating activities from the other related parties.

E. Other

a. As of January 1 and September 30, 2012, the Consolidated Company’s receivable for advertising subsidies and warranty from associate amounted to NT$139 and NT$137 respectively, which were recognized as other receivables.
b. Rewards Income
For the three months ended and nine months ended September 30, 2012 and 2013, the Consolidated Company received rewards income from related parties of NT$287, zero, NT$974 and NT$239 respectively, by purchasing spare parts of automobiles from other related parties.
c. As of January 1, September 30 and December 31, 2012, and September 30, 2013, the Consolidated Company deposited zero, NT$1,622, NT$1,622 and NT$1,622 respectively, for the low-floor bus development project in cooperation with related party.
d. Service income and fee

d. Service income and fee
Consulting and other expense Other related parties Maintenance and warranty Other related parties Consulting, commission and other income Other related parties	For the Three Months Ended September 30 2012 2013 NT$ NT$ US$ $ 474 446 15 $ 2,996 3,274 111 $ 7,723 18,858 638		For the Nine Months Ended September 30
	2012 NT$ $ 474 $ 2,996 $ 7,723		2012	2013
		NT$ 446 3,274 18,858	NT$	NT$	US$
			3,769	1,340	45
			7,627	7,827	265
			26,912	32,210	1,089

e. On October 16, 2012, the Company sold for NT$55,723 its ownership of 3,120 thousands shares in Sheng Mao Investment Corporation and likewise sold for NT$139,285 its ownership of 7,825 thousand shares in Hsu Mao Investment Corporation to its other related parties. The payment for the disposal of those shares was received on October 22, 2012. Such disposals resulted in losses on disposal of NT$939 and a charge to Capital Surplus – Treasury stock transactions of NT$138,733.
f. In 2012, the Consolidated Company signed a service contract with other related parties to collect information on investments, technologies, and the other related aspects of the market environment in mainland China, with a total contract price of CNY$300. As of September 30, 2012, the Consolidated Company had fully paid contract price.

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8. Pledged Assets

The details of pledged assets of the Consolidated Company were as follows:

Description		2012		2013	2013
	January 1	September 30	December 31	September 30
Short-term loans " " " Letter of credit on financing guarantee, sub-subsidiaries-Xia Shing and Qingzhou Engineering Security deposit for custom clearance and arms purchasing from National Defense Department Short-term and long-term loans " " "	NT$	NT$	NT$	NT$	US$
	$ 95,790 1,205,665 62,645 22,741 582,278 302,142 8,255,497 1,151,957 153,828 234,265	87,295 598,803 60,899 - 458,545 648,096 8,637,916 1,140,545 136,590 249,930	114,908 893,438 52,837 - 483,819 648,096 8,035,112 1,175,681 135,355 247,910	24,160 1,108,728 64,094 - 472,522 648,096 8,358,057 1,173,419 137,991 230,452	817 37,489 2,167 - 15,977 21,914 282,605 39,676 4,666 7,792
	$ 12,066,808	12,018,619	11,787,156	12,217,519	413,103

9. Significant Commitments And Contingencies

(1) Major commitments and contingencies were as follows:
A. As of January 1, September 30 and December 31, 2012, and September 30, 2013, the Consolidated Company unused letters of credit amounted to US$12,839, US$15,492, US$22,390 and US$37,183, respectively.
B. As of January 1 and September 30 and December 31, 2012, and September 30, 2013, the unpaid portion of the Consolidated Company’s contracts from purchase of the equipment, the construction in process—equipment, and the software purchase contracts amounted to NT$73,258, NT$22,520, NT$7,926 and NT$40,828, respectively.
C. As of January 1 and September 30 and December 31, 2012, and September 30, 2013, Nova Design had entered into several project contracts with its clients, with aggregate contract price of NT$128,683, NT$81,671, NT$84,274 and NT$240,337, respectively, and the unearned revenues thereon amounted to NT$54,171, NT$28,113, NT$28,944 and NT$85,747, respectively.

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D. On 25 January 2011, the Board of Directors of VMEPH (an indirectsubsidiary of the Company) resolved to relocate one of its factories from Ha Tay province to a new location in Hanoi, because VMEPH has been informed that the Vietnamese government intends to redevelop Ha Tay province. The budget for the relocation and construction of the new factory, amounted to US$ 17,000 (net of budgeted land leasehold rights US$5,000), which was approved by the board of directors of VHEPH. This approved budget amount is an initial estimate that will be subject to a regular review by VMEPH’s board of directors. As of September 31, 2012 and 2013, the contracted and non-contracted amounts of the approved budget were follows:

budget were follows:
Contracted Approved but not contracted		2012		2013 September 30 NT$ US$ 7,769 263 483,204 16,338 490,973 16,601
	January 1	September 30	December 31
	NT$	NT$	NT$	NT$
	$ 18,401 667,990	16,198 660,237	12,187 479,933	7,769 483,204
	$ 686,391	676,435	492,120	490,973

(2) Contingent Liabilities
A. In June 2009, the Company acquired a contract from the Armaments Procurement Bureau under the Ministry of National Defense (PCAB) for producing Light Tactical Vehicles, with a total contract price of NT$4,851,903. As of January 1, September 30, December 31, 2012 and September 30, 2013, the Company’s sales revenue received in advance were both NT$77,500 and the performance bond and advance payment for this bond applied from the bank were NT$242,595 and NT$77,500, respectively. The Company deposited NT$320,096 and NT$101,800, respectively, in a bank as guarantee for the above bonds. Under this contract, the Company is required to deliver vehicle samples for testing in advance, and the vehicles must be delivered in batches within 15, 19 and 23 months after the contract is signed. If there is a batch-delivery delay, 0.1 ‰ of total amount of the batch is accumulated daily as a penalty for the delay. The maximum amount of the penalty is equal to 20% of the contract price.

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The Company delivered the Light Tactical Vehicle samples for testing on December 1, 2009 as promised. However, during the testing period, there was a dispute between the Company and PCAB regarding the low beam headlights’ aiming angle, so the Company requested for mediation from the Public Construction Commission (PCC). Thereafter, on January 6, 2012, PCC suggested that the reason why the performance testing of the vehicle samples did not pass was because the samples were tested immediately without any preparations for adjustment regarding the low beam lights, and requested the Company to readjust the samples and have them retested by PCAB within seven days after the mediation is settled. Both the Company and PCAB agreed with PCC’s suggestion and proceeded with the testing procedure on August 14, 2012. The samples passed the visual inspection.

For the lighting inspection, PCAB requested the samples to be delivered to the Automobile Research and Testing Center (ARTC). ARTC insisted that PCAB was the assignor of the performance testing and that the Company should not continue to make any preparations for adjustment using the laboratory of ARTC without the approval of PCAB. However, the vehicle sample had gone through the performance testing for many times before without the permission from PB. Plus, each application form that needed to be filled out and submitted by the Company for testing were all approved by ARTC. Nevertheless, ARTC insisted that the Company is only the payer and not the assignor. Therefore, ARTC would not allow the Company to use its laboratory for adjustment. On the other hand, the Company claimed that the assertion of ARTC is unreasonable and hence, cannot accept it. As a result, the Company requested for mediation from PCC on September 3, 2012.

Since the Company believed that the accuracy of the low beam headlights’ aiming angle does not affect the design and structure of the vehicle samples, it proceeded to mass produce the Light Tactical Vehicles in order to meet the timetable for the batch-delivery of the vehicles as stated in the contract. In return, PB responded by writing a letter to the Company stating that it refused to continue with the next procedure by counting, visual inspecting, and random sampling of the first batch of Light Tactical Vehicles due to the failure in meeting the requirements set by PCAB, which allows the contractor to mass produce when all the items pass for inspection. On October 9, 2012, the Company again requested for mediation from PCC concerning this matter. As of September 30, 2013, the inventories of the Light Tactical Vehicles amounted to NT$4,020,005.

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In order to simplify the mediation of this case and show the Company’s respect for PCC, the Company agreed to revoke the mediation request on October 9, 2012. On June 26, 2013, PCC also proposed certain new amendments to the Company’s September 3, 2012 mediation request. On July 21, 2013, PCAB and the Company both agreed to the proposed amendments to the mediation process. On September 26, 2013, the Company was notified by PCAB to deliver the Light Tactical Vehicle samples for re-testing according to the contract but based on the new schedule.

In 2012, the Company recognized an estimated contingency loss of NT$9,727 for the batch-delivery delay .However, according to the Company attorney’s evaluation of the contract, the testing period should not be included as part of the performance period, and the actual performance period should be reasonable so that it should not necessarily be the same as the one indicated in the contract. Therefore, Management believed that there were no significant financial influences to the Company.

B. The Consolidated Company’s subsidiaries, Plassen International Limited, and Cosmos System Inc. and its investee companies, Xia Shing Motorcycles Co., Ltd., Qingzhou Engineering Co., Ltd. and Xia Shing Motorcycle Sales Co., Ltd., had been in a poor financial situation as of September 30, 2012 and 2013, so that the Company’s subsidiary, SY International Ltd., had committed to provide financial support to those companies.

10. LOSSES DUE TO MAJOR DISASTERS: None.

11. SUBSEQUENT EVENTS: None

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12. OTHER

(1) The employee benefits, depreciation, depletion and amortization expenses categorized by function, were as follows:

September 30, 2012	For the Three Months Ended	For the Three Months Ended	For the Three Months Ended	For the Nine Months Ended	For the Nine Months Ended	For the Nine Months Ended
	NT$			NT$
By item	Operating Cost	Operating expense	Total	Operating Cost	Operating expense	Total
Employee benefit Salary Health and labor insurance Pension Others Depreciation Depletion Amortization	$ 453,882 44,177 9,639 53,787 217,929 - 2,232	258,753 44,554 26,781 39,518 117,421 - 11,330	712,635 88,731 36,420 93,305 335,350 - 13,562	1,014,288 90,446 51,610 94,061 597,476 - 26,183	1,221,434 108,916 74,343 81,837 321,927 - 37,987	2,235,722 199,362 125,953 175,898 919,403 - 64,170

September 30, 2013	For the Three Months Ended	For the Three Months Ended	For the Three Months Ended	For the Three Months Ended	For the Three Months Ended	For the Three Months Ended	US$ For the Nine Months Ended	US$ For the Nine Months Ended	US$ For the Nine Months Ended	US$ For the Nine Months Ended	US$ For the Nine Months Ended	US$ For the Nine Months Ended
	NT$			US$			NT$			US$
By item	Operating Cost	Operating expense	Total	Operating Cost	Operating expense	Total	Operating Cost	Operating expense	Total	Operating Cost	Operating expense	Total
Employee benefit Salary Health and labor insurance Pension Others Depreciation Depletion Amortization	$366,475 34,382 14,055 33,089 176,338 - 8,225	477,708 38,343 28,361 33,628 97,077 - 8,758	844,183 72,725 42,416 66,717 273,415 - 16,983	12,391 1,163 475 1,119 5,963 - 278	16,153 1,296 959 1,137 3,282 - 296	28,544 2,459 1,434 2,256 9,245 - 574	1,066,890 95,558 52,210 93,478 558,570 - 24,916	1,433,708 123,240 78,131 81,999 306,643 - 42,658	2,500,598 218,798 130,341 175,477 865,213 - 67,574	36,074 3,231 1,765 3,161 18,887 - 843	48,477 4,167 2,642 2,772 10,368 - 1,442	84,551 7,398 4,407 5,933 29,255 - 2,285

(2) As of September 30, 2013, the Consolidated Company had the following lawsuits. However, based on the attorney’s evaluation, the outcome of these lawsuits may not result in any financial gain or loss to the Company.
A. The Company filed a lawsuit at the Hsinchu District Court against Mr. Wu and six other shareholders for breach of trust. However, in March 2013, the court decided to acquit the accused parties. The Company was dissatisfied with the district court’s decision. Therefore, the Company appealed to the High Court where the case is still being litigated.
B. Mr. Wu announced through the media defending his innocence saying that it was the Company who violated the rules. The Company denied his accusation and filed another lawsuit at the Hsinchu District Court against Mr. Wu for damaging the Company’s reputation. In March 2013, the court found Mr. Wu not guilty. As the Company believes that the district court’s decision is unacceptable, it appealed to the High Court where this case is still pending.

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C. The Company’ shareholders, Wan Xiang Investing LLC and Mr. Tian, filed common pleas to the Hsinchu District Court in order to annul the resolutions agreed upon at the shareholders’ meeting on June 6, 2012. Those resolutions approved during the shareholders’ meeting included the modification of Rules. Also included were the amendment to the articles of incorporation and the procedures for the acquisition and disposal of assets. The Hsinchu District Court rejected the appeal on February 5, 2013.
D. In September 2012 the Company’s shareholder, Mr. Fang, filed common pleas against the Company at the Taipei District Court. Mr. Fang requested the Court to confirm that Da Feng Investing Co., Ltd. and Mr. Chiu are not the supervisors of the Company, and to confirm that Mr. Fang is the Supervisor of the Company. On February 5, 2013, the Taipei District Court rejected Mr. Fang’s request. . Therefore, Mr. Fang has filed an appeal at the High Court.
E. Mr. Kao, Li Chuan the Company’s shareholder and director had formally requested the Hsinchu District Court to annul the discussion of handling of stock affairs by the Company instead of their stock broker service agents, and the modification of Rules of internal control for the Company at the board of directors’ meeting of the Company on September 28, 2012.. This case is still pending investigation at Hsinchu District Court.
F. The Company’s shareholder, Wan Xiang, filed common pleas against the Company for the adjournment resolve during the Company’s shareholders’ meeting at the Hsinchu District Court about the resolutions that were approved at the shareholders’ meeting on December 24, 2012. Wan Xiang also appealed to annul the Company’s approves for the 2011 financial statements and the appropriations of 2011 earnings during the Company’s shareholders’ meeting. However, the outcome of the lawsuit is not expected to bring any financial gain or loss based on the attorney’s evaluation.
G. The Company’s shareholder, Mr.Chang, filed a lawsuit against Mr. Huang and other directors (except Mr. Chou) of the Company for breach of trust at Hsinchu District Court. It said that The board of directors has annul Mr. Chang’s agendas of “The eliminate from the prohibition of unfair competitive for the 23th annual directors” for the shareholders’ meeting on April 26, 2012, and of” The discharge of director Shen Mao Investment Co.,Ltd., and its representatives, Mr. Huang and Mr. Chiang”, ” The discharge of director Hsu Mao Investment Co.,Ltd., and its representatives, Mr. Huang, Mr. Huang, ang Mr, Chu”, and ” The discharge of director Chinfon Global Corp., and its representative, Mr. Pai” for the shareholders’ meeting on November 12, 2012, respectively, of the Company. Presently, this case is still pending investigation at Hsinchu District Court.

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13. SEGMENT INFORMATION

SEGMENT INFORMATION	SEGMENT INFORMATION
NT$ For the Three Months Ended September 30, 2012		Automobile		Motors		Others	Total
		$ 3,514,051		6,126,006		184,565	9,824,622
Revenue： Revenue from external customers Reportable segment profit or loss For the Three Months Ended September 30, 2013
		$ 187,706		34,730		(1,861)	220,575
		$ 3,268,223		4,953,563		154,679	8,376,465
Revenue： Revenue from external customers Reportable segment profit or loss For the Nine Months Ended September 30, 2012
		$ 97,993		(87,446)		(63,266)	(52,719)
		$9,915,839		16,290,627		585,684	26,792,150
Revenue： Revenue from external customers Reportable segment profit or loss For the Nine Months Ended September 30, 2013
		$ 650,181		99,479		47,817	797,477
		$9,792,713		14,752,747		500,796	25,046,256
Revenue： Revenue from external customers Reportable segment profit or loss US$ For the Three Months Ended September 30, 2013
		$ 373,936		(192,826)		(51,934)	129,176
		$ 110,506			167,492	5230	283,228
Revenue： Revenue from external customers Reportable segment profit or loss For the Nine Months Ended September 30, 2013
		$ 3,313			(2,957)	(2,139)	(1,783)
		$ 331,115			498,825	16,933	846,873
Revenue from external customers Reportable segment profit or loss Reportable segment assets January 1,2012 NT$ September 30,2012 NT$ December 31,2012 NT$ September 30,2013 NT$ September 30,2013 US$	Automobile
		$ 12,644			(6,520)	(1,756)	(4,368)
			Motors		Others 13,010,398 12,350,528 13,981,074 9,779,852 330,679
	$ 9,746,130		16,523,917
	$ 10,632,903		17,167,423
	$ 9,184,111		15,325,329
	$ 8,001,892		21,317,271
	$ 270,563		720,787

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON’T)

14. FIRST-TIME ADOPTION OF IFRS

The consolidated financial statements as of December 31, 2012 were prepared in conformity with generally accepted accounting principles of the Republic of China as mentioned in Note 4(1).

The accounting policies discussed in Note 4 have been applied to comparative consolidated interim financial statements for the nine months ended September 30, 2012, consolidated balance sheets as of December 31 and the IFRSs consolidated balance sheets as of January 1, 2012, first IFRSs adoption date.

For purposes of preparing the first financial reports in 2012 under IFRS, the Consolidated Company regarded the amounts in the financial reports under R.O.C. GAAP as the initial point for adjustments. An explanation of how the transition to IFRS has affected the reported financial position, financial performance, and cash flows of the Consolidated Company is provided in the following statements and notes. Please refer to note 15 of the first quarter 2013 consolidated financial statements for the consolidated balance sheet reconciliation between R.O.C. GAAP and IFRS as of December 31 and January 1, 2012 and consolidated statement of comprehensive income reconciliation between R.O.C.GAAP and IFRSs for the periods then ended.

(1) GAAP reconciliation for balance sheet

September 30,2012	September 30,2012
ROC GAAP $ 7,539,607 370,815 2,747,736 9,499,835 677,782 394,911 66,172 195,883 21,492,741 99,785 2,089,061 12,718,007 - - 1,131,296 111,726 427,053 - 1,572,101 18,149,029 $ 39,641,770	Adjustments (1,227,318) - - - - 1,227,318 (66,172) - (66,172) - - - 1,140,545 686,982 - (111,726) (427,053) 427,053 (1,140,545) 575,256 509,084	IFRSs
		6,312,289 370,815 2,747,736 9,499,835 677,782 1,622,229 - 195,883
		21,426,569
		99,785 2,089,061 12,718,007 1,140,545 686,982 1,131,296 - - 427,053 431,556
		18,724,285
		40,150,854

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September 30,2012	September 30,2012
ROC GAAP $ 6,083,934 4,970,004 13,177 125,024 1,313,158 12,505,297 5,752,490 23,100 1,902,130 80,016 1,829,940 376,060 9,963,736 22,469,033 8,963,768 2,207,714 4,523,503 (562,205) 1,583,058 (1,713,790) (102,363) 14,899,685 2,273,052 17,172,737 $ 39,641,770	Adjustments - - - 85,365 - 85,365 - 2,522,940 (1,902,130) - 366,259 - 987,069 1,072,434 - (717,959) 1,480,185 562,205 (1,583,058) - (282,228) (540,855) (22,495) (563,350) 509,084	IFRSs
		6,083,934 4,970,004 13,177 210,389 1,313,158
		12,590,662
		5,752,490 2,546,040 - 80,016 2,196,199 376,060
		10,950,805
		23,541,467
		8,963,768 1,489,755 6,003,688 - - (1,713,790) (384,591)
		14,358,830
		2,250,557
		16,609,387
		40,150,854

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(2) GAAP reconciliation for statement of comprehensive income

For the Three Months Ended September 30, 2013 ROC GAAP Adjustments IFRSs $9,824,622 - 9,824,622 (8,428,927) - (8,428,927) 1,395,695 - 1,395,695 (881,606) - (881,606) (315,862) 25,071 (290,791) (171,276) - (171,276) (1,368,744) 25,071 (1,343,673) 26,951 25,071 52,022 62,178 - 62,178 109,386 - 109,386 (135,321) - (135,321) 132,310 - 132,310 195,504 25,071 220,575 1,020 - 1,020 196,524 25,071 221,595 - (143,572) (143,572) - (13,121) (13,121) - (156,693) (156,693) $ 196,524 (131,622) 64,902 $ 174,518 29,020 203,538 22,006 (3,949) 18,057 $ 196,524 25,071 221,595 $ 174,518 (93,876) 80,642 22,006 (37,746) (15,740) $ 196,524 (131,622) 64,902 $ 0.20 0.03 0.23	For the Three Months Ended September 30, 2013 ROC GAAP Adjustments IFRSs $9,824,622 - 9,824,622 (8,428,927) - (8,428,927) 1,395,695 - 1,395,695 (881,606) - (881,606) (315,862) 25,071 (290,791) (171,276) - (171,276) (1,368,744) 25,071 (1,343,673) 26,951 25,071 52,022 62,178 - 62,178 109,386 - 109,386 (135,321) - (135,321) 132,310 - 132,310 195,504 25,071 220,575 1,020 - 1,020 196,524 25,071 221,595 - (143,572) (143,572) - (13,121) (13,121) - (156,693) (156,693) $ 196,524 (131,622) 64,902 $ 174,518 29,020 203,538 22,006 (3,949) 18,057 $ 196,524 25,071 221,595 $ 174,518 (93,876) 80,642 22,006 (37,746) (15,740) $ 196,524 (131,622) 64,902 $ 0.20 0.03 0.23	For the Nine Months Ended September 30, 2013	For the Nine Months Ended September 30, 2013	For the Nine Months Ended September 30, 2013
ROC GAAP	Adjustments - - - - 25,071 - 25,071 25,071 - - - - 25,071 - 25,071 (143,572) (13,121) (156,693) (131,622) 29,020 (3,949) 25,071 (93,876) (37,746) (131,622) 0.03	ROC GAAP	Adjustments	IFRSs
$9,824,622 (8,428,927)		26,792,150 (22,587,759)	- -	26,792,150 (22,587,759)
1,395,695		4,204,391	-	4,204,391
(881,606) (315,862) (171,276)		(2,119,176) (1,162,905) (559,414)	- 79,949 -	(2,119,176) (1,082,956) (559,414)
(1,368,744)		(3,841,495)	79,949	(3,761,546)
26,951		362,896	79,949	442,845
62,178 109,386 (135,321) 132,310		261,863 165,317 (293,491) 220,943	- - - -	261,863 165,317 (293,491) 220,943
195,504 1,020		717,528 (170,271)	79,949 -	797,477 (170,271)
196,524		547,257	79,949	627,206
- -		- -	(307,433) -	(307,433) -
-		-	(307,433)	(307,433)
$ 196,524		547,257	(227,484)	319,773
$ 174,518 22,006		497,203 50,054	82,319 (2,370)	579,522 47,684
$ 196,524		547,257	79,949	627,206
$ 174,518 22,006		497,203 50,054	(182,572) (44,912)	314,631 5,142
$ 196,524		547,257	(227,484)	319,773
$ 0.20		0.57	0.09	0.66

(3) Significant GAAP reconciliation for cash flows statement

As of September 30, 2012, the Consolidated Company prepared consolidated cash flow statement in accordance with R.O.C. GAAP, under which interest income, dividend income and interest expenses were included as part of cash flows from operating activities, but were not required to be disclosed individually in the said cash flows from operating activities. Therefore, under IAS 7 “Statement Of Cash Flows”, the Consolidated Company reclassified to disclose

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individually in the cash flows from operating activities the interest income and interest expense of NT$213,852 and NT$254,089, respectively, for the nine months ended September 30, 2012, respectively.

Except for the GAAP difference mentioned above, there was no other significant difference in the Consolidated Company’s consolidated statement of cash flows prepared between IFRSs (endorsed by the FSC) and R.O.C. GAAP.

(4) Notes to significant reconciliation
A. Under ROC GAAP, time deposits with maturity dates exceeding three months but could be freed freely before its maturity are classified as cash and cash equivalents. Under IFRSs, these time deposits are accounted for as other financial assets-current. Under IFRSs, therefore, time deposit amounting to NT$1,227,318 as of September 30, 2012 was classified as other financial assets-current.
B. Under IFRSs, deferred income tax assets and liabilities are classified as noncurrent assets and liabilities and the right to a statutory tax offset is considered if the Consolidated Company has a legally enforceable right to set off current tax assets against current tax liabilities and conforms to other related requirements. As of September 30, 2012, according to IAS12, deferred income tax assets and liabilities of NT$66,172 were reclassified from current assets and liabilities to noncurrent assets and liabilities; and the deferred income tax assets and liabilities amounted to NT$620,810, which were settled on a net basis under R.O.C. GAAP, －
was increased both to deferred income tax liabilities noncurrent and deferred income tax －
assets noncurrent amounted by the Consolidated Company.
C. Under R.O.C. GAAP, the Consolidated Company’s property that is leased to others is classified as ‘Assets held for lease’. In accordance with the “Rules Governing the Preparation of Financial Statements by Securities Issuers”, idle assets are accounted for as other assets-idle assets. Under IFRSs, particularly IAS 40, “Investment Property”, property that meets the definition of investment property is classified and accounted for as ‘Investment property’. Therefore, under IFRSs, as of September 30, 2012, reclassifying entries were made to reclassify the assets held for lease amounting to NT$1,140,545 from the idle assets.
D. Under IFRSs, the land leasehold rights of NT$427,053 which were originally classified as intangible assets were reclassified as long-term lease prepayment as of September 30, 2012.
E. The Consolidated Company revalued its land based on the related laws and regulations, which requires it to estimate the land value incremental tax on the revaluation date. Under R.O.C. GAAP, such tax is treated as a reserve and presented as “Accrued liabilities for land value increment tax” under long-term liabilities. Under IFRSs, particularly IAS 12 “Income Taxes”,

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such estimated future tax is treated as deferred tax and presented as “Deferred income tax liabilities”. Under IFRSs, reclassifying entry is made to reclassify the land value incremental － reserve of NT$1,583,058 to the deferred income tax liabilities land value increment tax at the conversion date.

The effects of this GAAP difference were as follows:

Consolidated balance sheets Unrealized revaluation Reserve for land value increment tax Deferred tax liabilities Retained earnings adjustments	September 30, 2012
	$ 1,583,058 (1,902,130) 1,902,130
	$ 1,583,058

F. Under ROC GAAP, there are no specific provisions or guidance for accounting of accumulated compensated absences. Under IFRSs, if employees’ vacation rights arise from accumulated compensated absences, the expected cost of accumulated compensated absences is recognized when the employees render service in accordance with IAS No. 19, “Employee Benefits.”

The effects of this GAAP difference were as follows:

Consolidated balance sheets Employee benefit liabilities Less: the effect of non-controlling interests Retained earnings adjustments	September 30,2012
	$ 85,365 3,044
	$ 82,321

G. The Consolidated Company provide a defined benefit pension plan in which the post retirement benefit obligations are measured using the actuarial techniques. Unde ~~r R~~ .O.C. GAAP, the adjustments for actuarial gains or losses arising from the experience and the changes in actuarial assumptions are recognized in profit or loss and are amortized over the remaining employee’s service period. Under IFRS No. 1 “ First-time Adoption of International Financial Reporting Standards”(“IFRS 1”), the Consolidated Company availed of the exemption allowed in IFRS 1, and immediately charged the actuarial gains or losses to retained earnings and the transitional net assets in stockholders’ equity as of January 1, 2012, which was the first time Taiwan-IFRSs adoption date.

The effects of this GAAP difference were as follows:

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For the Three Months Ended September 30 Consolidated statements of comprehensive income Administrative expenses $ (25,071) Adjustments before tax $(25,071) Consolidated balance sheets Deferred pension cost Accrued pension cost Defined benefit plan actuarial losses Net loss not yet recognized as net pension cost Less: the effect of non-controlling interests Retained earnings adjustments	For the Nine Months Ended September 30
	(79,949)
	(79,949)
	September 30,2012
	$ (111,726) (366,259) - (562,205) (19,451)
	$(1,020,739)

H. Under R.O.C. GAAP, the change in the carrying value of long-term equity investment as a result of not increasing or decreasing the investment in proportion to the investor’s shareholding ratio is adjusted against capital surplus. As of September 30, 2012, the capital surplus arising from the changes in percentage of ownership of investees amounted NT$717,959was decreased to the capital surplus and an increased to retained earnings of the Company.
I. Under the R.O.C. GAAP, the Consolidated Company’s shares held by its subsidiaries are recognized as treasury stock and are stated at carrying amount. Under IFRS, particularly IAS 32, such treasury stock is recognized at original acquisition cost of the subsidiaries. Under IFRSs, as of September 30, 2012, adjustments are made to increase treasury stock and the retained earnings both by NT$282,228..
J. The effects to retained earnings of the GAAP differences described above were as follows :

Accrued pension cost Employee benefits liabilities Defined benefit plan actuarial gains and losses Unrealized revaluation Capital surplus Treasury stock Increase in retained earnings	September 30, 2012
	$ (1,020,739) (82,321) - 1,583,058 717,959 282,228
	$ 1,480,185

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(5) According to IFRS 1, except for the optional exemptions and mandatory exceptions, first-time adopters of IFRSs should prepare their financial statements in accordance with currently effective IFRSs and make retrospective adjustments accordingly. The Consolidated Company elected to use the following optional exemptions::
(A) Regarding the acquisition of subsidiaries and affiliated companies which occurred before December 31, 2011, the Consolidated Company did not retrospectively restate them.
(B) The postretirement benefit obligations of the defined benefit pension plan are measured using actuarial techniques. Also if the actuarial gains or losses arise from both the adjustment based on experience and changes in actuarial assumptions, they should not be retroactively adjusted. Such actuarial gains and losses should be immediately recognized in stockholders’ equity on the conversion date.
(C) The Consolidated Company issued employee stock options and other share based payment transactions before the first time Taiwan-IFRSs adoption date so that the Consolidated Company did not recalculate retrospectively the compensation cost thereon. Also, the said options had been settled or vested as of December 31, 2011.

～ F-183 ～

HEAD OFFICE OF THE COMPANY

Sanyang Industry Co., Ltd. No. 3, Zhonghua Rd. Hukou Township, Hsinchu County, Taiwan ROC

LEAD MANAGER

President Securities (Hong Kong) Ltd.

Unit 2603-6, 26/F Infinitus Plaza 199 Des Voeux Road Central Hong Kong

TRUSTEE AND PRINCIPAL PAYING AND CONVERSION AGENT

The Bank of New York Mellon, London Branch

One Canada Square 40th Floor London E14 5AL United Kingdom

REGISTRAR, PAYING, TRANSFER AND CONVERSION AGENT AND LUXEMBOURG LISTING AGENT

The Bank of New York Mellon (Luxembourg) S.A. Vertigo Building - Polaris 2-4 rue Eugène Ruppert L-2453 Luxembourg

LEGAL ADVISERS

To the Trustee (as to New York law)

To the Lead Manager

Mayer Brown JSM LCS & PARTNERS 16th-19th Floors 5th Floor Prince's Building No. 8, Sec. 5, Xinyi Road 10 Chater Road Taipei, Taiwan Central ROC Hong Kong

To the Company

Tsar & Tsai Law Firm 8th Fl., 245 DunHua S. Rd., Sec. 1 Taipei, Taiwan ROC

AUDITORS

KPMG

68F, Taipei 101 Tower No. 7, Sec. 5, Xinyi Road Taipei, Taiwan ROC

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SANYANG INDUSTRY CO., LTD.

AI assistant

SYM — Capital/Financing Update 2014

51980_rns_2014-08-18_79b1e6a7-8c8e-4961-80fb-5cce77f0fff5.pdf

SANYANG INDUSTRY CO., LTD.

US$55,000,000 Zero Coupon Convertible Bonds due 2019

Issue Price: 100 percent

" " Investing in the Bonds involves certain risks. See the section on Risk Factors .

ENFORCEABILITY OF FOREIGN JUDGMENTS IN THE ROC

TABLE OF CONTENTS

SUMMARY

Business of the Company

Corporate and Other Information

Summary of the Offering

USE OF PROCEEDS

RISK FACTORS

RISKS RELATING TO BUSINESS

The Company operates in a highly competitive environment and its business will be harmed if it cannot compete successfully.

The automobile and motorbike industries are volatile.

The Company's production depends on access to raw materials and its profit margin is highly dependent on cost of raw materials, parts and components

The Company may be unable to manage its growth effectively

The Company may face potential liability with respect to product defects

The Company's operations are subject to manufacturing risks; occurrence of any such risks may result in delivery delays or material product defects, which will harm the Company's operating results and reputation.

The Company's automobile business is highly dependent on Hyundai Motor Company.

The Company's insurance may be inadequate

The Company's business is subject to stringent environmental regulations

The Company's operating results vary significantly

fluctuations include:

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

The Company is exposed to risks of currency exchange rate fluctuations

If the Company fails to successfully manage its exposure to financial markets risks through derivative contracts that it enters or may enter into, its operating results could suffer

A high percentage of the Shares held by the directors are pledged.

held by the Company's directors is pledged.

The Huang family and non-Huang family directors may have a significant voice in decisions affecting the Company.

The Company's investments in other companies may not be successful.

The Company might suffer certain losses due to contract dispute.

The Company has been asked by the Financial Supervisory Commission to evaluate whether it is required to consolidate two companies invested by the Company.

The Taipei District Court has recently approved Hua Nan Commercial Bank's petition for involuntary bankruptcy of the Company's Chairman Shi H. Huang.

RISKS RELATING TO ROC

Economic developments in Taiwan have a significant Impact on the Company's business.

The value of the Bonds and the Shares may be adversely affected by the volatility and manipulations of the ROC securities market.

The Company's business and the price of the Shares may be adversely affected by political risks.

The Company's assets in Taiwan are vulnerable to a variety of natural disasters.

RISKS RELATING TO THE BONDS

An active trading market for the Bonds may not develop.

Holders of the Bonds will bear the risk of fluctuations in the price of the Shares.

Fluctuations in the exchange rates between NT dollars and US dollars may have a material adverse effect on the value of the Bonds in US dollar terms.

Non-ROC holders of the Bonds will be required to register with the Taiwan Stock Exchange and appoint local agents in Taiwan if they convert the Bonds and become Shareholders of the Company

There are limitations on the exercise of the conversion rights of the Bonds.

The Company has limited liquidity and may be unable to redeem the Bonds or other outstanding debt securities when requested by holders.

Holders of the Bonds will have no rights as shareholders until they acquire Shares upon conversion of the Bonds.

A holder of the Bonds or its designee requesting the conversion of the Bonds into the Shares may be required to provide certain information to the Company, and failure to provide such information may result in a delay of the conversion.

RISKS RELATING TO THE SHARES AND THE CONTROL OF THE SHARES

Sales of a significant portion of the Shares may adversely affect the price of the Shares.

Fighting of control over the Company may cause instability of the Company

The Company's Articles of Incorporation contain an article that places a restriction on making investments and disposals by the Company

CAPITALIZATION

BUSINESS OF THE COMPANY

INTRODUCTION

Industry Overview

Motorbikes

Automobiles

COMPANY STRATEGY

Expand into new markets

Increase research and development capability

Expand product line

Invest into the Company's SYM brand

Automobile strategy

Financial restructuring

Products; Production

Motorbikes

Automobiles

Die and Machinery

Components, Raw Materials and Suppliers

Motorbikes

Automobiles

Quality Control

Research and Development

Customers, Sales and Marketing

COMPETITION

Motorbikes

SYM Capital/Financing Update 2014