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YGG Annual Report 2017

Jul 19, 2017

51871_rns_2017-07-19_341721c4-848a-4682-a8b8-3c8c7aa41481.pdf

Annual Report

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Stock Code: 1589

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Yeong Guan Energy Technology Group Co., Ltd.

2016

ANNUAL REPORT

Taiwan Stock Exchange Market Observation System http://mops.twse.com.tw/ This annual report is available at http://www.ygget.com/ Printed on May 5, 2017

I. Spokesperson and Deputy Spokesperson:

Spokesperson Deputy Spokesperson Name: Tsai, Shu-Ken Name: Chang, Wen-Lung Title: Vice Chairman Title: Director and Executive Vice President Tel: (86)574-8622-8866 Tel: (886)3-483-9216 E-mail address: [email protected] E-mail address: [email protected] II. Headquarters and branches (contact information)

(a) Company information: Name: Yeong Guan Energy Technology Group Co., Ltd. Address: Cricket Square, Hutchins Drive, PO Box 2681, Tel: (86)574-8622-8866 Grand Cayman, KY1-1111, Cayman Islands

(b) Corporate HQ: Address: No.95, Huanghai Rd., Beilun Dist., Ningbo City, Zhejiang Province, China Tel: (86)574-8622-8866

  • (c) Subsidiaries:

  • BVI Subsidiary

Name: Yeong Guan Energy Holdings Co., Ltd. Tel: (86)574-8622-8866 Address: OMC Chambers, Wickhams Cay 1, Road Town, Tortola, British Virgin Islands Taiwan Branch Address: 4F, No.89, Xinhu 1[st] Rd., Neihu Dist., Taipei City Tel: (886)27198-7198 Name: Shin Shang Trade Co., Ltd. Tel: (86)574-8622-8866 Address: OMC Chambers, P.O. Box 3152, Road Town, Tortola, British Virgin Islands Taiwan Branch Address: 4F, No.87, Xinhu 1[st] Rd., Neihu Dist., Taipei City Tel: (886)27198-7198

  1. Taiwan Subsidiary

Name: Yeong Chen Asia Pacific Co., Ltd. Tel: (886)3-483-9216 Address: No.502, Chenggong 1[st] Rd. Guanyin Township, Taoyuan County Name: Yeong Chen Asia Pacific Co., Ltd., Taichung Branch Tel: (886)3-483-9216 Address: 2F, No. 288, Zhonger Rd., Wuqi District, Taichung City Name: New Power Team Tecnhology Co., Ltd. Tel: (886)3-386-7671 Address: No. 9, Minquan Rd., Dayuan District, Taoyuan City

  1. Hong Kong Subsidiary

Name: Yeong Guan Energy International Co., Ltd. Tel: (86)574-8622-8866 Address: 1004 AXA Centre, 151 Gloucester Road, Wan Chai, Hong Kong

  1. Mainland China Subsidiaries

Name: Dongguan Yeong Guan Mould Factory Co., Ltd. Tel: (86)769-8773-9480 Address: Yinquan Industrial Zone, Qingxi Town, Dongguan City, Guangdong Province, China Name: Ningbo Yeong Shang Casting Iron Co., Ltd. Tel: (86)574-8622-9800 Address: No. 1, Gangkou Rd., Beilun Dist., Ningbo City, Zhejiang Province, China Name: Ningbo Lu Lin Machine Tool Foundry Co., Ltd. Tel: (86)574-8627-5777 Address: No. 28, Dinghai Rd., Economic and Technology Development Zone, Zhenhai Dist., Ningbo City, Zhejiang Province, China Name: Ningbo Yeong Chia Mei Trade Co., Ltd. Tel: (86)574-8622-8866 Address: No.95, Huanghai Rd., Beilun Dist., Ningbo City, Zhejiang Province, China Name: Jiangsu Bright Steel Fine Machinery Co., Ltd. Tel: (86)519-8089-5588 Address: No.9, Yueming Rd., Tianmuhu Industrial Zone, Liyang City, Jiangsu Province, China Name: Shanghai No.1 Machine Tool Foundry (Suzhou) Co., Ltd. Tel: (86)512-8287-0666 Address: No.999 Laixiu Road, Fen Lake Economic Development Zone,

Wujiang Name: Shanghai No. 1 Foundry Trading Co., Ltd. Tel: (86)21-61252095 Address: Room No.312, Haiboxin Building, No. 829, Yishan Rd., Xuhui District, Shanghai

Name: Ningbo New Power Team Technology Co., Ltd. Tel: (86) 574-8682-8108 Address: No. 647, Xin Qi Bo Hai Rd., Beilun District, Ningpo City, Zhejiang Province, China

  1. Thailand Subsidiary

Name: Yeong Guan Heavy Industry (Thailand) Co., Ltd. Tel: (81)2-437-9337 Address: 622/15 Rama II Road, Samaedam sub-District Bangkoontien District, Bangkok.

  1. Samoa Subsidiary

Name: LIZHANLIMITED Tel: (886)3-386-7671 Address: Offshore Chambers, P.O. Box 217, Apia, Samoa

III. Contact information of Litigation/Non-litigation Agent in the Republic of China:

Name: Chang, Wen-Lung Title: Director and Executive Vice President Tel: (886)3-483-9216

E-mail address: [email protected]

IV. Stock Transfer Agent:

Name: Capital Securities Corp., Registrar Agency Department Tel: (886)2-2702-3999 Address: B2, No.97, Dunhua South Rd., Daan Dist., Taipei City Website: http://agency.capital.com.tw

  • V. Contact information of CPA for the latest Annual Financial Report:

Accountant name: Li, Tung-Feng, Kung, Che-Li Name of Accounting Firm: Deloitte & Touche Tel: (886)2-2545-9988 Address: 12F, No.156, Sec.3, Minsheng East Rd., Taipei City Website: http://www.deloitte.com.tw

VI. Overseas Securities Exchange Name and Query Method: NA VII. Corporate Website: http://www.ygget.com/ VIII. List of board members:

Title
Chairman of
the board
Board director
Board director
Board director
Board director
Board director
Board director
Independent
director
Independent
director
Independent
director		 Name
Chang, Hsien-Ming
Tsai, Shu-Ken
Chang, Cheng-Chung
Chang, Wen-Lung
Chen, Wu-Chi
Gong, Xing-Yuan
Huang, Wen-Hung
Chen, Ching-Hung
Chang, Cheng-Lung
Wei, Chia-Min		 Nationality
ROC
ROC
ROC
ROC
ROC
ROC
ROC
ROC
ROC
ROC		 May 5, 2017
Professional Background
Chairman of Yeong Guan Energy
Technology Group Co., Ltd.
President of Shieh Yih Machinery Industry
Co., Ltd.
Chairman of San Ho Electric Machinery
Industry Co., Ltd.
President of Yeong Guan Mould Factory Co.,
Ltd.
Vice President of Yeong Guan Mould
Factory Co., Ltd.
Vice President of Suzhou Liangchi Motor
Co., Ltd.
Vice Director of Marketing & Sales
Department, Chi Mei Optoelectronics
Corporation and Director of Global Sales
Support Service Department
President of Radium Life Tech Co., Ltd.
Chairman of Li You Da Investment Co., Ltd.
Vice President of Metal Industries Research
& Development Center

Table of Contents

I. Letter to Shareholders .................................................................................................... 6
II. Company Profile ............................................................................................................. 8
1. Company and Group Profile .................................................................................. 8
2. Company history ...................................................................................................... 9
III. Corporate Governance Report .................................................................................... 12
1. Organization ........................................................................................................... 12
2. Data on directors, supervisors, presidents, vice presidents, associate
general managers, and executives of all departments and branch
organizations .......................................................................................................... 14
3. Implementation of Corporate Governance ......................................................... 26
4. Professional fees of CPAs ...................................................................................... 48
5. Replacement of CPAs ............................................................................................ 48
6. The Chairman, President, or executives in charge of finance or
accounting affairs were employed in the accounting firm the CPAs are
part of or related businesses in the most recent fiscal year ............................... 48
7. Transfer of stocks or changes in pledged shares of directors, supervisors,
and executives, and shareholders holding over 10% of the total shares
in the most recent fiscal year up to the publication date of the annual
report ...................................................................................................................... 48
8. Information Disclosing the Relationship or Spousal or Kinship
Relationships within the Second Degree between any of the Company’s
Top Ten Shareholders ............................................................................................ 51
9. Number of shares held and consolidated shareholding ratio of the
company, directors, supervisors, executives, and businesses directly or
indirectly controlled by the company in the same joint venture business ........ 52
IV. Capital Overview .......................................................................................................... 53
1. Capital and shares ................................................................................................. 53
2. Current Status of Company Bonds ...................................................................... 60
3. Preferred shares ..................................................................................................... 61
4. Overseas depositary receipts ................................................................................ 61
5. Employee stock option certificates ....................................................................... 61
6. Restricted Employee Shares Compensation ........................................................ 62
7. Status of New Shares Issuance in Connection with Mergers and
Acquisitions ............................................................................................................ 62
8. Implementation of fund utilization plans ............................................................ 62
V. Operations Overview .................................................................................................... 63
1. Business activities .................................................................................................. 63
2. Market and sales overview .................................................................................... 93
3. Number, average years of service, average age, and level of education of
employees engaged in different fields in the two most recent fiscal years
up to the publication date of the annual report ................................................. 114
4. Environmental protection expenses .................................................................... 114
5. Labor-Management Relationship ....................................................................... 114
6. Critical Contracts ................................................................................................. 116
VI. Financial Summary .................................................................................................... 122
1. Summarized balance sheets and consolidated income statements for the
last five years ........................................................................................................ 122
2. Financial analysis for the last five years ............................................................ 125
3. Audit Committee’s Review Report over the Latest Year Financial
Statements ............................................................................................................ 129
4. The Latest Year Financial Statement audited and attested by CPAs ............. 130
5. Latest individual financial statements audited and attested by CPAs ............ 130
6. In the latest year and as of the date when annual report was published,
occurrence of financial difficulty which poses influences over the
Company’s financial situation ............................................................................ 130
VII. Financial Status and Financial Performance Analysis and Risk Issues ................ 131
1. Financial Status .................................................................................................... 131
2. Financial Performance ........................................................................................ 132
3. Cash Flow ............................................................................................................. 133
4. Influence on finance business from major capital expenditure in the
latest year .............................................................................................................. 133
5. Investment strategy for the latest year, main reason(s) for gain or loss,
improvement plan and investment plan for the upcoming year ..................... 133
6. Risk Analysis and Assessment ............................................................................ 136
7. Other Critical Matters......................................................................................... 143
VIII. Special Matters Documented ......................................................................................... 1
1. Subsidiary Related Information ............................................................................. 1
2. In the latest year and as of the date when this annual report was
published, any cases of securities private placement ............................................ 4
3. In the latest year and as of the date when this annual report was
published, cases of subsidiary holding or disposing the Company’s
shares ........................................................................................................................ 4
4. Other necessary supplementary explanation ........................................................ 4
5. Explanation of major differences from ROC shareholder equity
protection regulations .............................................................................................. 4
IX. In the latest year and as of the date when annual report was published,
occurrence of events with significant effect on shareholder’s equity or
securities prices as prescribed in Clause 2, Paragraph 2, Article 36 of
Securities & Exchange Law ........................................................................................... 7

I. Letter to Shareholders

Allow me to take this opportunity to welcome you to the 2017 Annual Shareholders Meeting and express my deep gratitude for your continued support and engagement. Our business operations in 2016 may be summarized as follows:

  1. Operating performance in 2016

  2. (1) Business plan implementation results:

    • In 2016, the consolidated revenue of Yeong guan Group amounted to NT$ 7.374 billion, which represents a decrease by 9.2% compared to the previous year. The output volume declined by 1% to 150,853 tons. The revenue ratios of the four main product categories (energy, injection molding machines, industrial machinery, and medical equipment) equaled 52.8%, 25.3%, 19.3%, and 2.6%, respectively. The gross profit margin of 32.8% is comparable to last year. Income decreased by 9% due to the impact of product mix changes and RMB depreciation, while the expense ratio rose from 14.2% to 17.3% as a result of plant expansion costs generated by the acquisition of Shanghai No.1 Machine Tool Foundry Co., Ltd. in 2016. To sum up, consolidated net income after tax amounted to NT$ 997,419,000, which marks a decrease by NT$ 351,704,000 compared to the previous year, while EPS dropped by NT$ 3.74 to NT$ 8.5.

  3. (2) Budget implementation:

    • The projected net income after tax for 2016 was NT$ 1,118,500,000 and the actual net income amounted to NT$ 1,008,298,000, which represents a budget achievement rate of 90.15%.

  4. (3) Analysis of revenues and expenditures and profitability:

    • Please refer to the Consolidated Comprehensive Income Statement

  5. (4) Research and development status: R&D investments in 2016 accounted for 2.54% of the net operating revenue. We will continue our efforts in the research and upgrade of manufacturing technologies, the shortening of product development periods, and the reduction of rejection rates in this field with the goal of a gradual enhancement of product development capabilities and technologies

  6. Overview of the 2017 Business Plan:

Yeong Guan is the principal global castings supplier for major manufacturers of wind turbines, injection molding machines, and industrial machinery. The company

6

possesses advanced process technologies and has a firm grasp of metallurgy and engineering technologies with high-tech content. Due to its supreme product quality and stable delivery times, the company has earned the loyalty and trust of its clients. Our core competitive edge lies in our industry-leading production scope, casting techniques with meticulous attention to detail, and vertical integration capability. At the same time, we are firmly committed to pursuing revenue and profit growth superior to our competitors and the whole industry.

The projected output target for 2017 is 140,000-160,000 tons, 50% of which is expected to be energy sector castings. As for production capacity expansion, Shanghai No.1 Machine Tool Foundry Co., Ltd. already conducted trial production in 2017 and the production capacity is expected to gradually rise starting in the second half of the year. On the other hand, the fab. 1 of Jiangsu Bright Steel Fine Machinery Co., Ltd. will be expanded in the first half of 2017 to alleviate the lack of large-scale production capacities within the group. In addition, contract renewal has been completed for the current stage of the Taichung Harbor plant construction project and actual construction operations have already been initiated.

In the face of a projected growth of high-end products, Yeong Guan will continue to expand its customer base, strive to access new markets, develop new process facilities, and enhance its competitiveness. The company also aims to gain a firm grasp of long-term trends of gradually growing proportions of outsourcing with the goal of securing a leadership position in pursuit of stable growth in the ductile iron industry which is still characterized by a decentralized market structure.

Chairman: President: Chief Accountant:

7

II. Company Profile

1. Company and Group Profile

  • (a) Date of incorporation and group profile

Yeong Guan Energy Technology Group Co., Ltd. (hereinafter referred to as “the company” or “Yeong Guan Group”) was registered and incorporated on the Cayman Islands on January 22, 2008. The group’s operations mainly focus on the manufacture and sale of spheroidal graphite cast iron and gray cast iron including hubs and bases for wind turbines, thermal power generation exhaust hoods, injection molding machine components, and castings for machine tools and other industrial machinery,

  • (b) Organizational framework of the group (May 9, 2017)

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8

2. Company history Date Milestones

June 1995 Establishment of Dongguan Yeong Guan Mould Factory Co., Ltd.

January 1998 Establishment of Shin Shang Trade Co., Ltd. December 2000 Establishment of Ningbo Yeong Shang Casting Iron Co., Ltd.

October 2001 Establishment of Ningbo Yeong He Xing Machinery Industry Co., Ltd.

July 2002 Establishment of Yeong Fa Trade Co., Ltd. September 2007 Investment in Jiangsu Bright Steel Fine Machinery Co., Ltd.

November 2007 Establishment of Yeong Guan International Co., Ltd. and Yeong Guan Holdings Co., Ltd.

December 2007 Incorporation of Yeong Fa Trade Co., Ltd. into the group January 2008 Establishment of Yeong Guan Group February 2008 Investment in Ningbo Lu Lin Machine Tool Foundry Co., Ltd.

February 2008 Investment in Ningbo Youtian Renewable Resources Co., Ltd.

February 2008 Incorporation of Ningbo Lu Lin Machine Tool Foundry Co., Ltd. and Ningbo Youtian Renewable Resources Co., Ltd. into the group

March 2008 Incorporation of Ningbo Yeong Shang Casting Iron Co., Ltd. and Ningbo Yeong He Xing Machinery Industry Co., Ltd. into the group

  • April 2008 Incorporation of Jiangsu Bright Steel Fine Machinery Co., Ltd. and Shin Shang Trade Co., Ltd. into the group

  • April 2008 Acquisition and incorporation of Ningbo Yeong Guan Heavy Industrial Machinery Co., Ltd.

  • May 2008 Incorporation of Dongguan Yeong Guan Mould Factory Co., Ltd. into the group

  • June 2008 Establishment and incorporation of Yeong Chen Asia Pacific Co., Ltd. into the group

  • October 2008 Reorganization of the group completed May 2009 First cash capital increase by a total of US$ 16.23 million August 2009 Second cash capital increase and investments by external investors of US$ 30 million

9

  • November 2009 Establishment and incorporation of Ningbo Yeong Chia Mei Trade Co., Ltd. into the group

  • March 2010 Disposal of Ningbo Yeong Guan Heavy Industrial Machinery Co., Ltd. complete

  • August 2011 Yeong Chen Asia Pacific Co., Ltd. acquires a portion of the assets and operating rights of Taiwan Yeong Guan Mould Factory Co, Ltd.

  • April 2012 First listing of stocks on TWSE April 2012 Third cash capital increase by a total of NT$ 471.177 million

  • September 2012 Capitalization of earnings (NT$ 120 million) November 2013 Merger of Shin Shang Trade Co., Ltd. (continues to exist) and Yeong Fa Trade Co., Ltd.

  • April 2014 Merger of Ningbo Yeong Shang Casting Iron Co., Ltd. (continues to exist) and Ningbo Yeong He Xing Machinery Industry Co., Ltd.

  • June 2014 First issuance of convertible corporate bonds in the Republic of China (a total of NT$ 1.5 billion raised)

  • July 2014 Investment in Yeong Guan Heavy Industry (Thailand) Co., Ltd.

  • August 2014 Fourth cash capital increase by a total of NT$ 472 million September 2014 Ningbo Lu Lin Machine Tool Foundry Co., Ltd. (continues to exist) absorbs Ningbo Youtian Renewable Resources Co., Ltd.

  • December 2014 Yeong Guan Holdings Co., Ltd. establishes a branch in Taiwan named Yeong Guan Holdings Co., Limited Taiwan Branch

  • April 2015 Shin Shang Trade Co., Ltd. establishes a branch in Taiwan named Shin Shang Trade Co., Ltd. Taiwan Branch

  • July 2015 Yeong Guan Holdings Co., Limited Taiwan Branch signs lease for land in the Taichung Harbor area

  • August 2015 Second issuance of convertible corporate bonds in the Republic of China (a total of NT$ 2.5 billion raised)

  • October 2015 Fifth cash capital increase by a total of NT$ 840 million

  • January 2016 Investment in Shanghai No. Machine Tool Foundry (Su Zhou) Co., Ltd.

  • Investment in New Power Team Technology Co., Ltd.

  • New Power Team Technology Co., Ltd. Investment in

10

Lizhan Limited

May 2016 Yeong Chen Asia Pacific Co., Ltd. establishes a branch in Taichung

  • July 2016 Lizhan Limited invests in Ningbo New Power Team Technology Co., Ltd.

  • December 2016 Yeong Guan Holding Co., Limited Taiwan Branch completes contract exchange for land lease in the Taichung Harbo area

  • February 2017 Capital increase in Shanghai No. 1 Machine Tool Foundry (Su Zhou) Co., Ltd. by Yeong Guan International Co., Limited and Dongguan Yeong Guan Mould Factory Co., Ltd.

  • March 2017 Capital increase by Yeong Guan International Co., Limited in Shanghai No. 1 Machine Tool Foundry (Su Zhou) Co., Ltd.

11

III. Corporate Governance Report

1. Organization

  • (a) Organization Chart

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----- Start of picture text -----

Shareholders’
Meeting
Board of Audit
Directors Committee
Audit Office
Remuneration
Chairman
Committee
General
Manager
Business Supply IT Production
Division Department Department Units
Technical Finance HR
Division Division Department
----- End of picture text -----

(b) Major Corporate Functions

Department Functions
GM’s Office Comprehensive strategic planning and supervision and
authorization of operations
Manufacturing Division Carrying out of production tasks upon receipt of internal
orders by the business division as well as quality assurance,
prototype development, inventory management, health and
safety controls, maintenance of plants and facilities, internal
HR, general affairs,and occupational safety
HR Department Overall management of HR, documents, general affairs, legal
matters, public relations,and health and safetyrelated matters

12

for the wholegroup
Technical Division Overall management of production program controls,
prototype process monitoring, production program and
product data safekeeping and records, external
communications with regard to production technologies for
the wholegroup
Sales Division Planning and implementation of product, price, market, and
sales channel strategies; compilation and analysis of
customer and market data; formulation and implementation
of business goals; market and customer development , sales,
and services; building and maintenance of customer
relationships and strategic partnerships; firm grasp of
customer dynamics; guarantee of order sources and accounts
receivable; establishment of sales channels and understanding
of customer demands; effective customer services;
determination and coordination of prices and delivery times
of soldproducts
Financial Division Overall management of accounting and tax affairs, financial
budgets,capital movements,and cashier related matters
Procurement
Department		 Overall management of raw material and equipment
procurement, maintenance project price inquiries and
negotiations andprocurement for the wholegroup
IT Department Overall management of information system planning,
establishment,and maintenance for the wholegroup
Audit Room Overall management and establishment of internal audit,
control, and other management systems, execution of internal
audits and trackingof improvements for the wholegroup

13

2. Data on directors, supervisors, presidents, vice presidents, associate general managers, and executives of all departments and branch organizations.

(a) Directors and supervisors (the company has not established supervisor positions) 1. Director data

1. Director data 1. Director data 1. Director data 1. Director data 1. Director data 1. Director data
April 15 2017;Unit: Shares
Title Nationality
or domicile		 Name Election date Term Date first
elected		 Shareholding when elected Current shareholding Shareholding of spouse or
minor children		 Shareholding by
Nominee Arrangement		 Professional background
(Education)		 Concurrent positions at this or
other companies		 Executives, Directors or Supervisors who
are spouses or within two degrees of
kinship
Number of
shares		 Shareholding
ratio
Number of
shares		 Shareholding
ratio
Number of
shares		 Shareholding
ratio		 Number
of
shares
Shareholding
ratio		 Title Name Relation
Chairman ROC Chang, Hsien-Ming 2016.06.07 4 2008.1.22 17,487,540 14.72% 12,788,540 10.76% 3,120 0.0000% - - Graduation from Xihu High
School of Industry and
Commerce, Electronics
Department
Chairman, Yeong Guan Mould
Factory Co., Ltd.
President, Yeong Guan Mould
Factory Co., Ltd.
Chairman, Shin Shang Special
Industry Co., Ltd.
President, Shin Shang Special
Industry Co., Ltd.
Sales Manager, Shin Shang
Special Industry Co., Ltd.		 Director, Yeong Guan Energy
Holdings Co., Ltd.
Director, Yeong Guan Energy
International Co., Ltd.
Director, Shin Shang Trade Co.,
Ltd.
Director, Yeong Chen Asia Pacific
Co., Ltd.
Chairman, Dongguan Yeong Guan
Mould Factory Co., Ltd.
Chairman, Ningbo Yeong Shang
Casting Iron Co., Ltd.
Chairman, Ningbo Lu Lin
Machine Tool Foundry Co., Ltd.
Chairman, Jiangsu Bright Steel
Fine Machinery Co., Ltd.
Supervisor, Ningbo Yeong Chia
Mei Trade Co., Ltd.
Supervisor, Taipin Corporation
Limited
Chairman, Yeong Guan Heavy
Industry (Thailand) Co., Ltd.
Director, Shanghai No.1 Machine
Tool Foundry (Suzhou)Co.,Ltd.		 Director
Director		 Chang,
Wen-Lung
Chang,
Chih-Kai		 Brother
Son
Director ROC Chang, Cheng-Chung 2016.06.07 4 2009.5.29 4,844,408 4.08% 3,794,408 3.19% 2,562,261 2.16% - - Oriental Institute of Technology,
Electrical Engineering
Department
Chairman, San Ho Electric
Machinery Industry Co., Ltd.
Manager, Five Powers Electric
Machinery MFG Co., Ltd.
Chairman, San Ho Electric
Machinery Industry Co., Ltd.
Director, Dongguan Yeong Guan
Mould Factory Co., Ltd.
Director, Ningbo Yeong Shang
Casting Iron Co., Ltd.
Director, Ningbo Lu Lin Machine
Tool Foundry Co., Ltd.
Supervisor, Jiangsu Bright Steel
Fine Machinery Co., Ltd.
Director, Yeong Guan Heavy
Industry (Thailand) Co., Ltd.
Director, Yeong Guan Heavy
Industry (Thailand)Co.,Ltd.

14

Title Nationality
or domicile		 Name Election date Term Date first
elected		 Shareholding when elected Shareholding when elected Current shareholding Current shareholding Shareholding of spouse or
minor children		 Shareholding of spouse or
minor children		 Shareholding by
Nominee Arrangement		 Shareholding by
Nominee Arrangement		 Professional background
(Education)		 Concurrent positions at this or
other companies		 Executives, Directors or Supervisors who
are spouses or within two degrees of
kinship		 Executives, Directors or Supervisors who
are spouses or within two degrees of
kinship		 Executives, Directors or Supervisors who
are spouses or within two degrees of
kinship
Number of
shares		 Shareholding
ratio
Number of
shares		 Shareholding
ratio
Number of
shares		 Shareholding
ratio		 Number
of
shares
Shareholding
ratio		 Title Name Relation
Director ROC Chang, Wen-Lung 2016.06.07 4 2008.1.22 8,009,313 6.74% 5,806,313 4.89% 2,127,832 1.79% - - NTU Department of Law
President, Yeong Guan Mould
Factory Co., Ltd.		 Director, Yeong Guan Energy
Holdings Co., Ltd.
Director, Yeong Guan Energy
International Co., Ltd.
Director, Shin Shang Trade Co.,
Ltd.
Chairman and President, Yeong
Chen Asia Pacific Co., Ltd.
Director, Dongguan Yeong Guan
Mould Factory Co., Ltd.
Director, Ningbo Yeong Shang
Casting Iron Co., Ltd.
Director, Ningbo Lu Lin Machine
Tool Foundry Co., Ltd.
Vice Chairman, Jiangsu Bright
Steel Fine Machinery Co., Ltd.
Executive Director, Ningbo Yeong
Chia Mei Trade Co., Ltd.
Director, Yeong Guan Heavy
Industry (Thailand) Co., Ltd.
Supervisor, New Power Team
TechnologyCo.,Ltd.		 Director Chang, Hsien-
Ming
Brother
Director ROC Tsai, Shu-Ken 2016.06.07 4 2009.5.29 840,156 0.66% 780,156 0.66% - - - - EMBA, National Taiwan
University of Science and
Technology
Senior Engineer and Director,
Metal Industries R&D Center
President, Shieh Yih Machinery
Industry Co., Ltd.
Director, Jiangsu Bright Steel Fine
Machinery Co., Ltd.
Director, Dongguan Yeong Guan
Mould Factory Co., Ltd.
Director, Ningbo Lu Lin Machine
Tool Foundry Co., Ltd.
Director, Yeong Guan Heavy
Industry (Thailand) Co., Ltd.
Director, Shanghai No.1 Machine
Tool Foundry (Suzhou) Co., Ltd.
Director, New Power Team
TechnologyCo.,Ltd.
-		 - -
Director ROC Chen, Wu-Chi 2016.06.07 4 2009.5.29 1,814,263 1.53% 1,614,263 1.36% 975,944 0.82% - - Vice President, Yeong Guan
Mould Factory Co., Ltd.		 Director and President, Dongguan
Yeong Guan Mould Factory Co.,
Ltd.
Director, Ningbo Yeong Shang
Casting Iron Co., Ltd.
Director, Ningbo Lu Lin Machine
Tool Foundry Co., Ltd.
Director, Yeong Guan Heavy
Industry (Thailand) Co., Ltd.
Director, Shanghai No.1 Machine
Tool Foundry (Suzhou) Co., Ltd.
Director, New Power Team
TechnologyCo.,Ltd.		 - - -
Director ROC Kung, Hsing-Yuan 2016.06.07 4 2016.06.07 - - - - - - - - Farm Machinery Department of
National Taiwan University
Vice President of Suzhou
Liangchi Motor Co., Ltd.
Vice President of Suzhou TECO
Electric & MachineryCo.,Ltd.		 Executive Vice President, - - -

15

Title Nationality
or domicile		 Name Election date Term Date first
elected		 Shareholding when elected Shareholding when elected Current shareholding Current shareholding Shareholding of spouse or
minor children		 Shareholding of spouse or
minor children		 Shareholding by
Nominee Arrangement		 Shareholding by
Nominee Arrangement		 Professional background
(Education)		 Concurrent positions at this or
other companies		 Executives, Directors or Supervisors who
are spouses or within two degrees of
kinship		 Executives, Directors or Supervisors who
are spouses or within two degrees of
kinship		 Executives, Directors or Supervisors who
are spouses or within two degrees of
kinship
Number of
shares		 Shareholding
ratio
Number of
shares		 Shareholding
ratio
Number of
shares		 Shareholding
ratio		 Number
of
shares
Shareholding
ratio		 Title Name Relation
Director ROC Huang, Wen-Hung 2016.06.07 4 2016.06.07 9,000 0.01% 12,000 0.01% - - - - Master of Business
Administraion in
ExecutiveManagement Royal
Roads University
Master, Department of Industrial
and Business Management,
China Industrial & Commercial
Research Institute
COO, Taiwan Express Co.,
LTD.
President, Chimei Logistics
Vice Director, Marketing &
Sales Department, Chi Mei
Optoelectronics Corporation and
Director of Global Sales
Support Service Department

President, Jiangsu Bright Steel
Fine Machinery Co., Ltd.
Director, Shanghai No. 1 Machine
Tool Foundry (Su Zhou) Co., Ltd.		 - - -
Director ROC Chang, Chih-Kai 2016.06.07 4 2013.6.17 104,115 0.01%- 34,115 0.03% 771 0.0000% - - Special Assistant to the
Chairman, Jiangsu Bright Steel
Fine MachineryCo.,Ltd.		 Special Assistant to the Chairman,
Jiangsu Bright Steel Fine
MachineryCo.,Ltd.		 Director Chang,
Hsien-Ming		 Father
Independent
director		 ROC Chen, Ching-Hung 2016.06.07 4 2010.3.19 - - - - - - - - NTU Department of Law
EMBA, NCCU
President, Radium Life Tech
Co., Ltd.
President, Sinyi Development
Inc.
President, Dajia Construction
Presidnet, Shanghai Shangtou
Investment Management Co.,
Ltd.
President, Sinyi Real Estate
(Shanghai) Limited		 President, Sinyi Development Inc.
Presidnet and Representative of
juridical person director, Sinyi
Real Estate (Shanghai) Limited		 - - -
Independent
director		 ROC Chang, Cheng-Lung 2016.06.07 4 2010.3.19 - - - - - - - - BA in Commerce, Tamkang
University
Mini MBA,Stanford University		 - - - -
Independent
director		 ROC Wei, Chia-Min 2016.06.07 4 2013.6.17 - - - - - - - - PhD, Graduate Institute of
Resource Engineering, National
Cheng Kung University
Vice President, Metal Industries
R&D Center		 Vice President, Metal Industries
R&D Center
Director, Edeex Enterprise Co.,
Ltd.
Representative of juridical person
director, Everstrong Iron&Steel
Foundry&MFG. Corp.
Supervisor, Honley Auto Parts
Co.,Ltd.		 - - -

Note: Director Chang, Chih-Kai was dismissed on April 17, 2017

  1. Supervisors: The Company established an audit committee on March 19, 2010 but has not established any supervisor positions

  2. Main shareholders of juridical person directors: All directors of the company are natural persons. No juridical person directors have been elected.

16

4. Professional qualifications and independence analysis of directors:

Criteria
Name		 Meet One of the Following Professional Qualification Requirements in
addition to at Least Five Years Work Experience		 Meet One of the Following Professional Qualification Requirements in
addition to at Least Five Years Work Experience		 Meet One of the Following Professional Qualification Requirements in
addition to at Least Five Years Work Experience		 Independence criteria (Note 1) Independence criteria (Note 1) Independence criteria (Note 1) Independence criteria (Note 1) Independence criteria (Note 1) Independence criteria (Note 1) Independence criteria (Note 1) Independence criteria (Note 1) Independence criteria (Note 1) Independence criteria (Note 1) Number of Other
Public
Companies in
Which the
Individual is
Concurrently
Serving as an
Independent
Director
An Instructor or Higher
Position in a
Department of
Commerce, Law,
Finance, Accounting, or
Other Academic
Department Related to
the Business Needs of
the Company in a
Public or Private Junior
College, College or
University


A Judge, Public Prosecutor,
Attorney, Certified Public
Accountant, or Other
Professional or Technical
Specialist Who has Passed a
National Examination and
been Awarded a Certificate
in a Profession Necessary
for the Business of the
Company
Work Experience
in the Areas of
Commerce, Law,
Finance, or
Accounting, or
Otherwise
Necessary for the
Business of the
Company		 1 2 3 4 5 6 7 8 9 10
Chang,Hsien-Ming 0
Chang,Cheng-Chung 0
Chang,Wen-Lung 0
Tsai,Shu-Ken 0
Chen,Wu-Chi 0
Kung,Hsing-Yuan 0
Huang,Wen-Hung 0
Chen,Ching-Hung 0
Chang,Cheng-Lung 0
Wei,Chia-Min 0

Note: If directors and supervisors meet one or several of the following criteria within two years before election or during their terms of office, please place a check in the column with the corresponding number

  • (1) Not an employee of the Company or any of its affiliates.

  • (2) Not a director or supervisor of the Company or any of its affiliates. The same does not apply, however, in cases where the person is an independent director of the Company, its parent company, or any subsidiary in which the Company holds, directly or indirectly, more than 50% of the voting shares.

  • (3) Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate amount of 1% or more of the total number of issued shares of the Company or ranking in the top 10 in holdings.

  • (4) Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship, of any of the persons in the preceding three subparagraphs.

  • (5) Not a director, supervisor, or employee of a corporate shareholder that directly holds five percent or more of the total number of issued shares of the company or that holds shares ranking in the top five in holdings.

  • (6) Not a director, supervisor, manager, or shareholder holding five percent or more of the shares, of a specified company or institution that has a financial or business relationship with the company.

  • (7) Not a professional individual who, or an owner, partner, director, supervisor, or executive of a sole proprietorship, partnership, company, or institution that, provides commercial, legal, financial, accounting services or consultation to the company or to any affiliate of the company, or a spouse thereof, provided that this restriction does not apply to any member of the remuneration committee who exercises powers pursuant to Article 7 of the Regulations Governing the Establishment and Exercise of Powers of Remuneration Committees of Companies Whose Stock is Listed on the TWSE or Traded on the GTSM.

  • (8) Not a spouse or a relative within the second degree of kinship of any other director of the Company.

  • (9) None of the conditions defined in Article 30 of the Company Law apply.

  • (10) Not an elected governmental, juridical person or its representative as defined in Article 27 of the Company Law.

17

(b) Data on supervisors, presidents, vice presidents, associate general managers, and executives of all departments and branch organizations

April 14,2017;Unit: Shares April 14,2017;Unit: Shares April 14,2017;Unit: Shares April 14,2017;Unit: Shares April 14,2017;Unit: Shares April 14,2017;Unit: Shares April 14,2017;Unit: Shares April 14,2017;Unit: Shares April 14,2017;Unit: Shares April 14,2017;Unit: Shares April 14,2017;Unit: Shares
Title Nationality
or Domicile		 Name Appointment
date		 Current shareholding Shareholding of spouse
or minor children		 Shareholding by
Nominee Arrangement		 Professional background (Education) Concurrent positions at other companies Managers who are spouses or
within two degrees of kinship
Number of
shares		 Shareholding
ratio		 Number of
shares		 Shareholding
ratio		 Number
of shares		 Shareholding
ratio		 Title Name Relation
Chairman and
President		 ROC Chang,
Hsien-Ming		 2008.01.22 12,788,540 3,120 0.0000% - - Graduation from Xihu High School of
Industry and Commerce, Electronics
Department
Chairman, Yeong Guan Mould Factory
Co., Ltd.
President, Yeong Guan Mould Factory
Co., Ltd.
Chairman, Shin Shang Special Industry
Co., Ltd.
President, Shin Shang Special Industry
Co., Ltd.
Sales Manager, Shin Shang Special
Industry Co., Ltd.		 Director, Yeong Guan Energy Holdings
Co., Ltd.
Director, Yeong Guan Energy
International Co., Ltd.
Director, Shin Shang Trade Co., Ltd.
Director, Yeong Chen Asia Pacific Co.,
Ltd.
Chairman, Dongguan Yeong Guan
Mould Factory Co., Ltd.
Chairman, Ningbo Yeong Shang Casting
Iron Co., Ltd.
Chairman, Ningbo Lu Lin Machine Tool
Foundry Co., Ltd.
Chairman, Jiangsu Bright Steel Fine
Machinery Co., Ltd.
Supervisor, Ningbo Yeong Chia Mei
Trade Co., Ltd.
Supervisor, Taipin Corporation Limited
Director, Yeong Guan Heavy Industry
(Thailand) Co., Ltd.
Director, Shanghai No. 1 Machine Tool
Foundry (Su Zhou)Co.,Ltd.		 Director and
Executive
Vice
President
Chang,
Wen-Lung		 Brother
Vice Chairman and
Spokesperson
ROC		 Tsai, Shu-Ken 2008.01.22 - - - - EMBA, National Taiwan University of
Science and Technology
Senior Engineer and Director, Metal
Industries R&D Center
President, Shieh Yih Machinery Industry
Co., Ltd.		 Director, Jiangsu Bright Steel Fine
Machinery Co., Ltd.
Director, Dongguan Yeong Guan Mould
Factory Co., Ltd.
Director, Ningbo Lu Lin Machine Tool
Foundry Co., Ltd.
Director, Yeong Guan Heavy Industry
(Thailand) Co., Ltd.
Chairman, Shanghai No. Machine Tool
Foundry (Su Zhou) Co., Ltd.
Director, New Power Team Technology
Co.,Ltd.		 - - -
Director and
Executive Vice		 ROC Chang,
Wen-Lung		 2008.01.22 5,806,313 4.89% 2,127,832 1.79% - - NTU Department of Law
President, YeongGuan Mould Factory		 Director, Yeong Guan Energy Holdings
Co., Ltd.		 Chairman
And
 Chang,
Hsien-Ming		 Brother

18

Title Nationality
or Domicile		 Name Appointment
date		 Current shareholding Current shareholding Shareholding of spouse
or minor children		 Shareholding of spouse
or minor children		 Shareholding by
Nominee Arrangement		 Shareholding by
Nominee Arrangement		 Professional background (Education) Concurrent positions at other companies Managers who are spouses or
within two degrees of kinship		 Managers who are spouses or
within two degrees of kinship		 Managers who are spouses or
within two degrees of kinship
Number of
shares		 Shareholding
ratio		 Number of
shares		 Shareholding
ratio		 Number
of shares		 Shareholding
ratio		 Title Name Relation
President Co., Ltd. Director, Yeong Guan Energy
International Co., Ltd.
Director, Shin Shang Trade Co., Ltd.
Chairman and President, Yeong Chen
Asia Pacific Co., Ltd.
Director, Dongguan Yeong Guan Mould
Factory Co., Ltd.
Supervisor, New Power Team
Technology Co., Ltd.
Director, Ningbo Yeong Shang Casting
Iron Co., Ltd.
Director, Ningbo Lu Lin Machine Tool
Foundry Co., Ltd.
Vice Chairman, Jiangsu Bright Steel
Fine Machinery Co., Ltd.
Executive Director, Ningbo Yeong Chia
Mei Trade Co., Ltd.
Director, Yeong Guan Heavy Industry
(Thailand)Co.,Ltd.		 President
Director and
Executive Vice
President		 ROC Chen, Wu-Chi 2008.01.22 1,614,263 1.36% 975,944 0.82% - - Vice President, Yeong Guan Mould
Factory Co., Ltd.		 Director and President, Dongguan
Yeong Guan Mould Factory Co., Ltd.
Director, Ningbo Yeong Shang Casting
Iron Co., Ltd.
Director, Ningbo Lu Lin Machine Tool
Foundry Co., Ltd.
Director, Yeong Guan Heavy Industry
(Thailand) Co., Ltd.
Director, Shanghai No. 1 Machine Tool
Foundry (Su Zhou) Co., Ltd.
Director, New Power Team Technology
Co.,Ltd.		 - - -
Executive Vice
President		 ROC Kung,
Hsing-Yuan		 2008.04.08 - - - - - - NTU Department of Agricultural
Machinery Engineering
President, Suzhou Liang Chi Industry
Co., Ltd.
Vice President,Suzhou Teco Co.,Ltd.		 - - -
Executive Vice
President		 ROC Huang,
Wen-Hung		 2015.05.11 12,000 0.01% - - - - Master of Business Administraion in
ExecutiveManagement Royal Roads
University		 President, Jiangsu Bright Steel Fine
Machinery Co., Ltd.
Director,Shanghai No. 1 Machine Tool

19

Title Nationality
or Domicile		 Name Appointment
date		 Current shareholding Current shareholding Shareholding of spouse
or minor children		 Shareholding of spouse
or minor children		 Shareholding by
Nominee Arrangement		 Shareholding by
Nominee Arrangement		 Professional background (Education) Concurrent positions at other companies Managers who are spouses or
within two degrees of kinship		 Managers who are spouses or
within two degrees of kinship		 Managers who are spouses or
within two degrees of kinship
Number of
shares		 Shareholding
ratio		 Number of
shares		 Shareholding
ratio		 Number
of shares		 Shareholding
ratio		 Title Name Relation
Master, Department of Industrial and
Business Management, China Industrial
& Commercial Research Institute
COO, Taiwan Express Co., LTD.
President, Chimei Logistics
Vice Director, Marketing & Sales
Department, Chi Mei Optoelectronics
Corporation and Director of Global Sales
Support Service Department		 Foundry (Su Zhou) Co., Ltd.
Vice President ROC Hsu,
Ching-Hsiung		 2008.01.22 - - - - - - Yu Da High School Of Commerce and
Home Economics, Commercial
Accounting Department
Vice President, Chen Hsing Industrial
Co., Ltd.
President,Weimao Company		 President, Ningbo Yeong Shang Casting
Iron Co., Ltd.
Director, Jiangsu Bright Steel Fine
Machinery Co., Ltd.		 - - -
Vice President ROC Lin, Tai-Feng 2008.01.22 - - - - - - Tamkang University, Department of
Marine Engineering
President, Great Sun Machinery Co.,
Ltd.		 President, Ningbo Lu Lin Machine Tool
Foundry Co., Ltd.		 - - -
Vice President ROC Huang,
Ching-Chung		 2010.12.01 - - - - - - Chien Hsin Junior College of
Technology, Mechanical Engineering
Department
Lio Ho Machine Works Ltd.		 Vice President, Dongguan Yeong Guan
Mould Factory Co., Ltd.		 - - -
Vice President PRC Kuo, Jui 2010.12.01 - - - - - - Sichuan Institute of Technology,
Department of Metallic Materials
Engineering
Engineer, Sichuan Jiangdong Machinery
Co.,Ltd.		 - - - -
Vice President ROC Lin, Yu-I 2013.01.07 - - - - - - MA, Department of Accounting,
Soochow University
Deloitte&Touche		 - - - -
Audit Office
Director		 ROC Tsai, Ching-Wu 2012.07.01 - - - - - - NCCU Department of Accounting
Finance Manager, Chen Hsin Co., Ltd.
Ernst & Young		 - - - -

20

(c) Remuneration of Directors, Supervisors, Presidents, and Vice Presidents in the most recent financial year

1. Remuneration of Directors (incl. Independent Directors)

Unit: 1000 NTD; %

Title Name Remuneration Remuneration Remuneration Remuneration Remuneration Remuneration Remuneration Remuneration Ratio of total remuneration
(A+B+C+D) to net
income(%)(note 3)
 Ratio of total remuneration
(A+B+C+D) to net
income(%)(note 3)
 Relevant remuneration received bydirectors who are also employees Relevant remuneration received bydirectors who are also employees Relevant remuneration received bydirectors who are also employees Relevant remuneration received bydirectors who are also employees Relevant remuneration received bydirectors who are also employees Relevant remuneration received bydirectors who are also employees Relevant remuneration received bydirectors who are also employees Relevant remuneration received bydirectors who are also employees Relevant remuneration received bydirectors who are also employees Relevant remuneration received bydirectors who are also employees Relevant remuneration received bydirectors who are also employees Relevant remuneration received bydirectors who are also employees Ratio of total
compensation
(A+B+C+D+E+F+G) to
net income(%)		 Ratio of total
compensation
(A+B+C+D+E+F+G) to
net income(%)		 Compensation
paid to directors
from an invested
company other
than the
company’s
subsidiary
(Note4)
Base compensation(A) Severance pay and
retirement pension (B)
Remuneration from
distribution of profits(C)		 Expenses for execution
of business(D)
Salary, Bonuses, and
Allowances (E)		 Severance pay and
retirement pension (F)		 Profit Sharing- Employee Bonus (G) Number of
subscribed shares
through Employee
stock option
certificates(H)		 Number of acquired
shares through
Restricted Stock
Awards (I)(Note5)
The
company
Companies
in the
consolidated
financial
statements
The
company		 Companies
in the
consolidate
d financial
statements
The
company		 Companies in
the
consolidated
financial
statements		 The
company		 Companies
in the
consolidated
financial
statements
The
company		 Companies in
the
consolidated
financial
statements
The
company		 Companies in
the
consolidated
financial
statements
The
company		 Companies
in the
consolidated
financial
statements
The company		 Companies in the
consolidated
financial
statements		 The
company		 Companies
in the
consolidate
d financial
statements		 The
company		 Companies
in the
consolidate
d financial
statements		 The
company		 Companies
in the
consolidated
financial
statements
Cash
bonus		 Stock
bonus		 Cash
bonus		 Stock
bonus
Chairman Chang,
Hsien-Ming		 1,199
 1,199 0 0 0 0 48 48 0.13% 0.13% 0 21,794 0 0 10,514 0 10,514 0 0 0 0 0 0.13% 3.36% 0
Vice
Chairman		 Tsai, Shu-Ken
Director Chang,
Wen-Lung
Director Chang,
Cheng-Chung
Director Chen, Wu-Chi
Director Kung,
Hsing-Yuan
Director Huang,
Wen-Hung
Director Chang,
Chih-Kai
Independent
Director		 Chen,
Ching-Hung
Independent
Director		 Chang,
Cheng-Lung
Independent
Director		 Wei, Chia-Min

Note: Director Chang, Chih-Kai was dismissed on April 17, 2017

21

Range of Remunerations

Range of Remunerations Range of Remunerations Range of Remunerations Range of Remunerations
Range of remunerations paid to
directors of the company		 Names ofdirectors
Totalof A+B+C+D Totalof A+B+C+D+E+F+G
The company Companies in the
consolidated financial
statements		 The company Companies in the
consolidated financial
statements
Below NT$ 2,000,000 Chen, Ching-Hung;
Chang, Cheng-Lung;
Wei, Chia-Min		 Chen, Ching-Hung;
Chang, Cheng-Lung;
Wei, Chia-Min		 Chen, Ching-Hung;
Chang, Cheng-Lung;
Wei, Chia-Min		 Chen, Ching-Hung;
Chang, Cheng-Lung;
Wei, Chia-Min;
Chang, Chih-Kai
NT$ 2,000,000 or more but less than NT$ 5,000,000 － － － Chang, Wen-Lung;
Kung, Hsing-Yuan
Huang, Wen-Hung
NT$ 5,000,000 or more but less than NT$ 10,000,000 － － － Tsai, Shu-Ken;
Chen, Wu-Chi;
Chang,Hsien-Ming
NT$ 10,000,000 or more but less than NT$ 15,000,000 － － － －
NT$ 15,000,000 or more but less than NT$ 30,000,000 － － － －
NT$ 30,000,000 or more but less than NT$ 50,000,000 － － － －
NT$ 50,000,000 or more but less than NT$ 100,000,000 － － － －
Over NT$ 100,000,000 － － － －
Total 3 directors 3 directors 3 directors 11 directors

Note: Director Chang, Chih-Kai was dismissed on April 17, 2017

  1. Remuneration of supervisors: Not applicable since the company has not established any supervisor positions

22

3. Remuneration of Presidents and Vice Presidents

Unit: 1000NTD; %

Title Name Base
compensation
(A)		 Base
compensation
(A)		 Severance pay
and retirement
pension
(B)		 Severance pay
and retirement
pension
(B)		 Bonuses and
allowances
(C)		 Bonuses and
allowances
(C)		 Profit Sharing- Employee Bonus
(D)		 Profit Sharing- Employee Bonus
(D)		 Profit Sharing- Employee Bonus
(D)		 Profit Sharing- Employee Bonus
(D)		 Ratio of total
remuneration
(A+B+C+D) to net
income(%)(%)		 Ratio of total
remuneration
(A+B+C+D) to net
income(%)(%)
Number of
received
Employee Stock
Option
Certificates
Number of
received
Employee Stock
Option
Certificates
Number of acquired
shares through
Restricted Stock Awards
Number of acquired
shares through
Restricted Stock Awards
Compensati
on paid to
presidents/
vice
presidents
from an
invested
company
other than
the
company’s
subsidiary
The
company		 Companies in
the
consolidated
financial
statements
The
company		 Companies in
the
consolidated
financial
statements
The
company		 Companies in
the
consolidated
financial
statements
The company		 Companies in the
consolidated financial
statements		 The
company		 Companies in
the
consolidated
financial
statements		 The
company		 Companies in
the
consolidated
financial
statements		 The
company		 Companies in
the
consolidated
financial
statements
Cash
Bonus		 Stock
Bonus		 Cash
Bonus		 Stock
Bonus
Chairman and
President		 Chang,
Hsien-Ming		 0

 17,343 0 0 0 150,058 13,447 0 13,447 0 1.35% 3.25% 0 0 0 0 0
Vice Chairman
and Spokesperson		 Tsai, Shu-Ken
Director and
Executive Vice
President		 Chang,
Wen-Lung
Director and
Executive Vice
President		 Chen, Wu-Chi
Executive Vice
President		 Kung,
Hsing-Yuan
Executive Vice
President		 Huang,
Wen-Hung
Vice President Hsu,
Ching-Hsiung
VicePresident Lin,Tai-Feng
Vice President Kuo, Jui
Vice President Huang,
Ching-Chung
Vice President Lin, Yu-I

23

Range of Remunerations

Range of remunerations paid to
presidents and vice presidents of the
company		 Names of presidents and vice presidents Names of presidents and vice presidents
The company Companies in the consolidated
financial statements (A+B+C+D)
Below NT$ 2,000,000 － Kuo, Jui
NT$ 2,000,000 or more but less than
NT$ 5,000,000		 － Chang, Wen-Lung;
Kung, Hsing-Yuan;
Huang, Wen-Hung;
Hsu, Ching-Hsiung;
Lin, Tai-Feng;
Huang, Ching-Chung;
Lin, Yu-I
NT$ 5,000,000 or more but less than
NT$ 10,000,000		 － Tsai, Shu-Ken;
Chen, Wu-Chi;
Chang, Hsien-Ming
NT$ 10,000,000 or more but less than
NT$ 15,000,000		 － －
NT$ 15,000,000 or more but less than
NT$ 30,000,000		 － －
NT$ 30,000,000 or more but less than
NT$ 50,000,000		 － －
NT$ 50,000,000 or more but less than
NT$ 100,000,000		 － －
Over NT$ 100,000,000 － －
Total 0persons 11persons

4. Managers and their allotted employee bonuses:

Unit: 1000 NTD; December 31, 2016

Title Name Stock bonus Cash Bonus Total Ratio of total
amount to net
income (％)
Managers Chairman and
President		 Chang,
Hsien-Ming		 － － － 0%
Vice Chairman and
Spokesperson		 Tsai, Shu-Ken
Director and Executive
Vice President
Chang,
Wen-Lung
Director and Executive
Vice President
Chen,
Wu-Chi
Executive Vice
President		 Kung,
Hsing-Yuan
Executive Vice
President		 Huang,
Wen-Hung
Vice President Hsu,
Ching-Hsiung
Vice President Lin,Tai-Feng
Vice President Kuo,Jui
Vice President Huang,
Ching-Chung
Vice President Lin,Yu-I

24

  • (d) Analysis of the ratio of total remuneration paid by the company and by all companies included in the consolidated financial statements to directors, supervisors, presidents and vice presidents of the Company within the two most recent fiscal years, to the net income and description of remuneration policies, standards, and mixes, setting of relevant procedures, and correlation between business performance and future risks:

  • (1) Analysis of the ratio of total remuneration paid by the company and by all companies included in the consolidated financial statements to directors, supervisors, presidents and vice presidents of the Company, to the net income:

Unit:1000 NTD; % Unit:1000 NTD; %
Item 2015 2016
Amount % Amount %
Director 25,701 1.90% 33,554 3.36%
Presidents and Vice
Presidents		 45,720 3.39% 45,847 4.60%
Consolidatednetincome 1,349,123 100% 997,419 100%

  • Note: The total remuneration of directors includes compensations for concurrent positions. The calculation of the remuneration of directors is therefore overlapping with that of presidents and vice presidents therefore

  • (2) Remuneration policies, standards, and mixes, setting of relevant procedures, and correlation between business performance and future risks

  • The remuneration of directors is based on the positions held in the company the value of the participation and contributions to company operations.

  • The remuneration of presidents and vice presidents is based on their positions and their level of contribution with reference to industry standards in accordance with the HR related rules and regulations of the company

25

3. Implementation of Corporate Governance

(a) Operations of the board of directors

A total of 8 board meetings (A) were convened in the most recent fiscal year (2015). Director attendance was follows:

Title Name Attendance
inperson(Ｂ)		 By proxy Attendance rate (%)
【Ｂ/Ａ】
Remarks
Chairman Chang,Hsien-Ming 8 0 100.00%
Director Chang,Cheng-Chung 8 0 100.00%
Director Chang,Wen-Lung 8 0 100.00%
Director Tsai,Shu-Ken; 8 0 100.00%
Director Chen,Wu-Chi 7 1 87.50%
Director Wu, Ting-Tsai 0 3 － Stepped down on June 7, 2016
(attendance required in 3 meetings)
Director Hsu, Yu-Yueh 3 0 － Stepped down on June 7, 2016
(attendance required in 3 meetings)
Director Chang,Chih-Kai 7 1 87.50%
Director Kung, Hsing-Yuan 4 1 － Stepped down on June 7, 2016
(attendance required in 5 meetings)
Director Huang, Wen-Hung 5 0 － Stepped down on June 7, 2016
(attendance required in 5 meetings)
Independent
Director		 Chen, Ching-Hung 7 1 87.50%
Independent
Director		 Chang, Cheng-Lung 8 0 100.00%
Independent
Director		 Wei, Chia-Min 8 0 100.00%
Other items to be recorded:
1. If any of the circumstances referred to in Article 14-3 of Securities and Exchange Act apply and
objections or reservations to resolutions by Independent directors are recorded or declared in
writing, the dates of meetings, sessions, contents of motions, the opinions of all independent
directors and responses to such opinions by the company should be specified: None
2. If directors recuse themselves from discussion and voting on motions that involve conflicts of
interest, the names of the directors, contents of motions, the reasons for recusal, and actual
participation in the voting process shall be clearly stated:
(1) On March 11, 2016, the board of directors discussed the award of the 2015 year-end bonus
to the managers of the company. Due to the fact that the directors Chang, Hsien-Ming, Tsai
Shu-ken, Chang, Wen-Hung and Chen, Wu-Chi concurrently serve as managers of the
company, they recused themselves from participation in the discussions and voting process
due to a personal conflict of interest. The motion was passed unanimously upon inquiry of
the other directors in attendance by the acting chairman, Chang, Cheng-Lung.
(2) On April 14, 2016, the board of directors reviewed the list of independent director
candidates submitted by the General Shareholders’ Meeting. Due to the fact that the
independent directors Chang, Cheng-Lung, Chen, Ching-Hung, and Wei, Chia-Min were
also listed as candidates, they did not participate in the discussions and voting process to
preclude a conflict of interest. The motion was passed unanimously upon inquiry of the
other directors in attendance by the chairman.
(3) On August 5, 2016, the board discussed the compensation and transportation allowance
proposal for newly appointed directors. The independent directors Chang, Cheng-Lung,
Chen, Ching-Hung, and Wei, Chia-Min did not participate in the discussions and voting
process topreclude a conflict of interest. The motion waspassed unanimouslyupon inquiry

26

of the other directors in attendance by the chairman.

  • (4) On August 5, 2016, the board discussed the 2016 bonus proposal for managers. The directors Chang, Hsien-Ming, Tsai, Shu-Ken, Chang, Wen-Lung, Chen, Wu-Chi, Kung, Hsing-Yuan, and Huang, Wen-Hung did not participate in the discussions and voting process to preclude a conflict of interest. The motion was passed unanimously upon inquiry of the other directors in attendance by the acting chairman Chang, Cheng-Lung.

  • Assessment of measures taken to strengthen the functionality of the Board in recent years and their actual implementation (such as the establishment of an audit committee and the enhancement of information transparency):

  • (1) The company established an audit committee and remuneration committee on March 19, 2010 and October 14, 2011, respectively, to strengthen the functionality of the board, improve its supervisory capabilities, and enhance its management functions. Said committees are comprised of all independent directors of the company.

  • (2) The company fully discloses all categories of business and financial information in its annual reports, the corporate website, and the Market Observation Post System to implement the spirit of corporate governance and effectively enhance information transparency.

(b) Operations of the audit committee/Participation of supervisors in board operations A total of 4 committee meetings (A) were convened in the most recent fiscal year (2016). Independent director attendance was follows:

Title Name Attendance in
person(Ｂ)		 By proxy
(C)		 Attendance rate (%)
【Ｂ/Ａ】		 Remarks
Independent director Chen,
Ching-Hung		 3 1 75.00%
Independent director Chang,
Cheng-Lung		 4 0 100.00%
Independent director Wei,
Chia-Min		 4 0 100.00%
Other items to be recorded:
1. If any of the circumstances referred to in Article 14-3 of Securities and Exchange Act apply and
resolutions which have not been approved by the Audit Committee are approved by at least two
thirds of all directors, the dates of meetings, sessions, contents of motions, resolutions of Audit
Committee and the Company’s response to Audit Committee opinions should be specified: None
2. If independent directors recuse themselves from discussion and voting on motions that involve
conflicts of interest, the names of the directors, contents of motions, the reasons for recusal, and
actual participation in the voting process shall be clearly stated: None
3. Communications between the independent directors, the Company's Chief Internal Auditor and
CPAs (e.g. the contents, methods and results of communications regarding corporate finance or
operations, etc.): The Chief Internal Auditor and CPA submit regular reports to the audit
committee and communications are excellent.

27

(c) Corporate Governance Execution Status and Deviations from “Corporate Governance Best-Practice Principles for TWSE/TPEx Listed Companies”

Assessment items ImplementationStatus ImplementationStatus ImplementationStatus Deviations from
“Corporate Governance
Best-Practice Principles for
TWSE/TPEx Listed
Companies”
Y N Brief description
1. Has the company formulated and duly disclosed corporate
governance best practice principles pursuant to the
“Corporate Governance Best-Practice Principles for
TWSE/TPEx Listed Companies”
The company formulated and duly disclosed corporate governance best
practice principles pursuant to the “Corporate Governance Best-Practice
Principles for TWSE/TPEx Listed Companies”. Corresponding norms and
regulations are observed and implemented in accordance with the spirit of
corporate governance. In the future, the company will continue to
strengthen information transparency and board functionality through the
amendment of relevant management regulations with the goal of
promoting corporate governance.		 No major deviations
2. Shareholding Structure & Shareholders’ Rights
(a) Have internal operating procedures for the handling of
shareholder suggestions, uncertainties, disputes, or
grievances been formulated and implemented?
(b) Does the company possess a list of major shareholders
that have actual control over the company and a list of
ultimate controllers of these major shareholders?
(c) Has the company established and implemented a risk
management and firewall mechanism with its affiliates?
(d) Has the company formulated internal norms and
regulations that prohibit insiders from using non-public
information on the market to conduct security
transactions?


1. The company has formulated internal operating procedures. The
spokesperson and deputy spokesperson are in charge of handling
shareholder suggestions, uncertainties, disputes, or grievances in
coordination with related units.
2. Actual information is provided through service agencies and the
company discloses lists of major shareholders and their ultimate
controllers on a regular basis in accordance with the Article 25 of
Securities and Exchange Act.
3. All affiliates are independently responsible for the management of their
assets and finances in accordance with the internal control system of the
company to ensure the implementation of the risk control and firewall
mechanism
4. The company has formulated internal norms and regulations that
prohibit insiders from using non-public information on the market to
conduct securitytransactions		 No major deviations
3. Composition and responsibilities of the board of directors
(a) Has the board formulated and implemented diversified
policies with regard to membership composition?
(b) Has the company established other functional committees
in addition to the remuneration and audit committees on a
voluntarybasis?		 1. The board has formulated diversified policies with regard to
membership composition. The company has also established three
independent director positions. Chang, Cheng-Lung, Chen, Ching-Hung,
and Wei Chia-Min currently serve as independent directors. Chen,
Ching-Hung has a legal background, while Chang, Cheng-Lung is a
finance and accounting specialist and Wei, Chia-Min has an
industry-related background. The expertise of the three independent
directors spans the fields of finance, law, and industry.		 No major deviations

28

Assessment items ImplementationStatus ImplementationStatus ImplementationStatus Deviations from
“Corporate Governance
Best-Practice Principles for
TWSE/TPEx Listed
Companies”
Y N Brief description
(c) Has the company determined board performance
assessment regulations and assessment methods? Are
performance assessments carried out every year on a
regular basis?
(d) Does the company assess the independence of CPAs on a
regular basis?		 2. The company has not established other functional committees. The
board will authorize the establishment of other committees in accordance
with actual needs.
3. The board of directors fully complies with relevant provisions set forth
in the Regulations Governing Procedure for Board of Directors Meetings
of Public Companies. Board performance assessment regulations and
assessment methods have not been determined yet.
4. The appointed accounting firm and CPAs are fully independent and
haveno conflictof interestwith the company.


4. Has the company established communication channels
with its stakeholders and a special section for
stakeholders on its website? Does the company deal with
CSR issues of concern to stakeholders in an appropriate
manner?		 The company maintains open communication channels with banks it has
dealings with as well as employees, consumers, and suppliers and respects
and protects their lawful rights and interests.
The company has established a spokesperson system and a
Litigation/Non-Litigation Agent position and requires that company
information is disclosed in an honest manner to provide stakeholders with
highly transparent financial and business information. It is also planned to
set up a special section for stakeholders on the corporate website to enable
the company to deal with CSR issues of concern to stakeholders in an
appropriatemanner		 No major deviations
5. Has the company commissioned a professional service
agencyto handle shareholders meetingaffairs?		 The company has commissioned Capital Securities Corp., Registrar
AgencyDepartment to handle shareholders meetingaffairs		 No major deviations
6. Information disclosure
(a) Has the company established a corporate website to
disclose information regarding the Company’s financials,
business, and corporate governance status?
(b) Has the company adopted other information disclosure
methods (e.g., maintenance of an English-language
website, appointment of dedicated personnel in charge of
handling information collection and disclosure,
implementation of a spokesperson system, webcasting of
investor conferences)?
1. The company has set up a Chinese-language website and will continue
to disclose relevant information. Finance, business, and corporate
governance related information of the company can also be queried on the
Market Observation Post System after the company goes public.
2. The company has already established a spokesperson and deputy
spokesperson position as well as a Chinese-language website. Finance,
business, and corporate governance related information have been made
available and investor conference related announcements are handled in
accordance with regulations prescribed by the Taiwan Stock Exchange.		 No major deviations

29

Assessment items ImplementationStatus ImplementationStatus ImplementationStatus ImplementationStatus ImplementationStatus ImplementationStatus Deviations from
“Corporate Governance
Best-Practice Principles for
TWSE/TPEx Listed
Companies”
Y N Brief description
7. Other important information to facilitate better
understanding of the Company’s corporate governance
practices (e.g., employee rights, employee care, investor
relations, supplier relations, rights of stakeholders,
advanced training of directors and supervisors,
implementation of risk management policies and risk
evaluation standards, implementation of customer
relations policies, and purchase of liability insurance for
directors and supervisors):		 1. Advanced training for directors and supervisors: The company has
scheduled advancedtraining coursesforalldirectors
Title
Name
Training
course
date
Hours
Organizer
Course title
Independent
Director
Chen,
Ching-Hung
2016/12/07
3
Taiwan Corporate
Governance
Association
Risk management and internal
control
2016/12/07
3
Taiwan Corporate
Governance
Association
Best board operation practices
Independent
Director
Chang,
Cheng-Lung
2016/12/07
3
Taiwan Corporate
Governance
Association
Risk management and internal
control
2016/12/07
3
Taiwan Corporate
Governance
Association
Best board operation practices
Independent
Director
Wei, Chia-Min
2016/10/06
3
Taiwan Corporate
Governance
Association
13th International Corporate
Governance Summit
2016/12/07
3
Taiwan Corporate
Governance
Association
Risk management and internal
control
2016/12/07
3
Taiwan Corporate
Governance
Association
Best board operation practices
Director
Chang,
Wen-Lung
2016/03/22
3
Taiwan Corporate
Governance
Association
How can directors and
supervisors without a financial
background review financial
statements
2016/12/07
3
Taiwan Corporate
Governance
Association
Risk management and internal
control
Director
Chang, Chih-Kai
2016/12/07
3
Taiwan Corporate
Governance
Association
Best board operation practices
2016/12/07
3
Taiwan Corporate
Governance
Association
Risk management and internal
control
Director
Tsai, Shu-Ken
2016/12/07
3
Taiwan Corporate
Governance
Association
Best board operation practices
2016/12/07
3
Taiwan Corporate
Governance
Association
Risk management and internal
control
2016/12/07
3
Taiwan Corporate
Governance
Association
Best board operation practices
Director
Chen, Wu-Chi
2016/12/07
3
Taiwan Corporate
Governance
Association
Risk management and internal
control
2016/12/07
3
Taiwan Corporate
Governance
Association
Best board operation practices		 No major deviations
Title Name Training
course
date		 Hours Organizer Course title
Independent
Director		 Chen,
Ching-Hung		 2016/12/07 3 Taiwan Corporate
Governance
Association		 Risk management and internal
control
2016/12/07 3 Taiwan Corporate
Governance
Association		 Best board operation practices
Independent
Director		 Chang,
Cheng-Lung		 2016/12/07 3 Taiwan Corporate
Governance
Association		 Risk management and internal
control
2016/12/07 3 Taiwan Corporate
Governance
Association		 Best board operation practices
Independent
Director		 Wei, Chia-Min 2016/10/06 3 Taiwan Corporate
Governance
Association		 13th International Corporate
Governance Summit
2016/12/07 3 Taiwan Corporate
Governance
Association		 Risk management and internal
control
2016/12/07 3 Taiwan Corporate
Governance
Association		 Best board operation practices
Director Chang,
Wen-Lung		 2016/03/22 3 Taiwan Corporate
Governance
Association		 How can directors and
supervisors without a financial
background review financial
statements
2016/12/07 3 Taiwan Corporate
Governance
Association		 Risk management and internal
control
Director Chang, Chih-Kai 2016/12/07 3 Taiwan Corporate
Governance
Association		 Best board operation practices
2016/12/07 3 Taiwan Corporate
Governance
Association		 Risk management and internal
control
Director Tsai, Shu-Ken 2016/12/07 3 Taiwan Corporate
Governance
Association		 Best board operation practices
2016/12/07 3 Taiwan Corporate
Governance
Association		 Risk management and internal
control
2016/12/07 3 Taiwan Corporate
Governance
Association		 Best board operation practices
Director Chen, Wu-Chi 2016/12/07 3 Taiwan Corporate
Governance
Association		 Risk management and internal
control
2016/12/07 3 Taiwan Corporate
Governance
Association		 Best board operation practices

30

Assessment items ImplementationStatus ImplementationStatus ImplementationStatus ImplementationStatus ImplementationStatus ImplementationStatus Deviations from
“Corporate Governance
Best-Practice Principles for
TWSE/TPEx Listed
Companies”
Y N Brief description
2016/04/13 3 Taiwan Academy
of Banking and
Finance		 Corporate governance
forum-Wealth management and
tax planning for high net worth
clients
Director
Director		 ~~C~~hang,
Hsien-Ming
Kung,
~~H~~sing-Yuan		 2016/12/07 3 Taiwan Corporate
Governance
Association		 Risk management and internal
control
2016/12/07 3 Taiwan Corporate
Governance
Association		 Best board operation practices
2016/12/07 3 Taiwan Corporate
Governance
Association		 Risk management and internal
control
2016/12/07 3 Taiwan Corporate
Governance
Association		 Best board operation practices
2016/09/30 3 Taiwan Corporate
Governance
Association		 Meeting the expectations of the
entrusters-Fulfillment of the
fiduciary duties of directors and
supervisors
Director Huang,
Wen-Hung		 2016/08/09 3 Securities and
Futures Institute		 Information meeting on
compliance with laws governing
insider equity trading of listed
companies
2016/12/07 3 Taiwan Corporate
Governance
Association		 Risk management and internal
control
8. Has the Company implemented a self-evaluation of
corporate governance or has it commissioned any other
professional organization to conduct such an evaluation
(please specifythe opinions of the board,results of such		 The company has not commissioned other professional organizations to
conduct evaluations. Board operations, internal controls and audits, and
information disclosure are implemented in the spirit of the “Corporate
Governance Best-Practice Principles for TWSE/TPEx Listed Companies”.		 Handled in accordance
with actual business
conditions

31

Assessment items ImplementationStatus ImplementationStatus ImplementationStatus Deviations from
“Corporate Governance
Best-Practice Principles for
TWSE/TPEx Listed
Companies”
Y N Brief description
evaluations, major deficiencies or suggestions, and
improvements)

(d) Remuneration Committee Operations

1. Remuneration committee member data

Status Criteria
Name		 Meet One of the Following Professional Qualification Requirements in addition to
at Least Five Years Work Experience		 Meet One of the Following Professional Qualification Requirements in addition to
at Least Five Years Work Experience		 Meet One of the Following Professional Qualification Requirements in addition to
at Least Five Years Work Experience		 Independence Criteria(Note 1) Independence Criteria(Note 1) Independence Criteria(Note 1) Independence Criteria(Note 1) Number of Other
Public Companies in
Which the Individual
is Concurrently
Serving as a
Remuneration
Committee Member		 Remarks
(Note 2)
An Instructor or Higher
Position in a Department of
Commerce, Law, Finance,
Accounting, or Other
Academic Department Related
to the Business Needs of the
Company in a Public or
Private Junior College,
College or University
A Judge, Public
Prosecutor, Attorney,
Certified Public
Accountant, or Other
Professional or Technical
Specialist Who has Passed
a National Examination
and been Awarded a
Certificate in a Profession
Necessary for the Business
of the Company		 Work Experience in
the Areas of
Commerce, Law,
Finance, or
Accounting, or
Otherwise Necessary
for the Business of the
Company		 1 2 3 4 5 6 7 8
Independent director Chang,Cheng-Lung 0 NA
Independent director Chen,Ching-Hung 0 NA
Independent director Wei,Chia-Min 0 NA

  • Note 1: If committee members meet one or several of the following criteria within two years before election or during their terms of office, please place a check in the column with the corresponding number

  • (1) Not an employee of the Company or any of its affiliates.

  • (2) Not a director or supervisor of the Company or any of its affiliates. The same does not apply, however, in cases where the person is an independent director of the Company, its parent company, or any subsidiary in which the Company holds, directly or indirectly, more than 50% of the voting shares.

  • (3) Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate amount of 1% or more of the total number of issued shares of the Company or ranking in the top 10 in holdings.

  • (4) Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship, of any of the persons in the

32

preceding three subparagraphs.

  • (5) Not a director, supervisor, or employee of a corporate shareholder that directly holds five percent or more of the total number of issued shares of the company or that holds shares ranking in the top five in holdings.

  • (6) Not a director, supervisor, manager, or shareholder holding five percent or more of the shares, of a specified company or institution that has a financial or business relationship with the company.

  • (7) Not a professional individual who, or an owner, partner, director, supervisor, or executive of a sole proprietorship, partnership, company, or institution that, provides commercial, legal, financial, accounting services or consultation to the company or to any affiliate of the company, or a spouse thereof.

  • (8) None of the conditions defined in Article 30 of the Company Law apply.

Note 2: If committee members are directors, please specify whether the regulations set forth in Paragraph 5, Article 6 of the Regulations Governing the Appointment and Exercise of Powers by the Remuneration Committee of a Company Whose Stock is Listed on the Stock Exchange or Traded Over the Counter

.

  1. Remuneration Committee Competencies

  2. (1) Assessment and monitoring of the company’s remuneration policies

  3. (2) Assessment and setting of remuneration standards for directors (incl. Chairman and Vice Chairman)

  4. (3) Assessment and setting of remuneration standards for executives above the level of president and Associate GM

  5. (4) Assessment and setting of remuneration standards for executives

  6. (5) Regular reviews of remunerations of directors (incl. Chairman and Vice Chairman) and top executives (incl. executives above the level of manager and associate GM) based on company goals, business performance, and competitive environment

  7. Operations of the remuneration committee

  8. (1) The Remuneration Committee of the company is comprised of three members

  9. (2) Term of office of the current committee:

  10. The term of office began on June 7, 2016 and will end on June 15, 2017 (on the same day as the 5th board of directors)

A total of 2 committee meetings (A) were convened in the most recent fiscal year (2016). Member qualifications and attendance records are as follows:

33

Title Name Attendance in
person(Ｂ)		 By proxy (C) Attendance rate (%)
【Ｂ/Ａ】		 Remarks
Convener Chang,Cheng-Lung 2 0 100%
Committee member Chen,Ching-Hung 2 0 100%
Committee member Wei,Chia-Min 2 0 100%
Other items to be recorded:
1. If the board rejects or revises suggestions submitted by the remuneration committee, the date of the board meeting, the session, content of the
motion, the board resolution, and the response by the company to opinions of the remuneration committee members should be specified (if
remunerations and compensations approved by the board are higher than those suggested by the committee, the actual discrepancies and
reasons should be stated clearly): None
2. If objections or reservations to resolutions by committee members are recorded or declared in writing, the dates of committee meetings,
sessions, contents of motions, the opinions of all committee members and responses to such opinions by the company should be specified:
None

(e) Implementation of Corporate Social Responsibility

(e)Implementation of Corporate Social Responsibility
Assessment items Implementation status Deviations from “Corporate
Social Responsibility Best
Practice Principles for
TWSE/TPEx Listed
Companies” and reasons
Y N Brief description
1. Exercising corporate governance
(a) Has the company formulated CSR policies or
established a CSR system and does it review the
implementation results?
(b) Does the company organize CSR-related
educational training on a regular basis?
(c) Has the company established exclusively (or
concurrently) dedicated units to be in charge of
proposing and enforcing CSR policies and has the
board authorized the top management level to

(a)The company has formulated CSR Best Practice
Principles and handles CSR related matters in
accordance with these principles.
(b)The company organizes CSR-related training
courses and education on a scheduled and
non-scheduled basis.
(c)Management departments of the company
concurrently serve as dedicated CSR units during
the current stage and are in charge of promoting
CSR-related operations.		 No major deviations
No major deviations
No major deviations

34

Assessment items Implementation status Implementation status Implementation status Deviations from “Corporate
Social Responsibility Best
Practice Principles for
TWSE/TPEx Listed
Companies” and reasons
Y N Brief description
handle CSR-related matters and report the progress
to the board?
(d) Has the company formulated reasonable
remuneration and compensation policies? Is the
employee performance evaluation system linked to
CSR policies? Is a clear and effective reward and
penalty system in place?		 (d)The company has established an employee
performance evaluation system and provides
relevant education during meetings or staff training
on a non-scheduled basis. The company also
actively schedules advanced training courses for
board directors to reinforce their understanding of
corporate governance. However, the employee
performance evaluation system has not yet been
linked to CSR policies.		 Future planning will
continue to focus on this
aspect
2. Fostering a sustainable environment
(a) Does the company endeavor to utilize all resources
more efficiently and use renewable materials which
have a low impact on the environment?
(b) Has the company established a proper
environmental management system based on the
characteristics of its industry?
(c) Does the company monitor the impact of climate
change on business activities? Does it carry out
greenhouse gas inventories and has it formulated
energy conservation, carbon reduction, and


(a)The company is committed to a more efficient
utilization of resources and promotes low-carbon
offices and inculcates water and power conservation
habits among its employees.
(b)The company has always placed great emphasis
on eco-friendliness and energy conservation to
fulfill its responsibility in the field of environmental
protection. Pollution prevention facilities have been
installed in accordance with relevant laws and all
production affiliates have passed the ISO14001
certification. Environmental protection is
implemented in the fields of environmental
management, pollution prevention, and garbage
reduction in the hope of making a contribution to
global environmental protection efforts. In addition,
the general affairs units are responsible for
designating dedicated personnel in charge of the
management of environmental protection operations
in the fields of air pollution, waste water, and solid
waste and relevant legal requirements.
(c)The company has already implemented energy

No major deviations
No major deviations
No major deviations

35

Assessment items Implementation status Implementation status Implementation status Deviations from “Corporate
Social Responsibility Best
Practice Principles for
TWSE/TPEx Listed
Companies” and reasons
Y N Brief description
greenhouse gas reduction strategies? conservation and carbon reduction activities. In
addition to the reduced use of light tubes in public
areas, the turning off of unnecessary lights as well
as the use of AC temperature controllers and highly
effective energy conservation equipment are
promoted in office areas.
3. Preserving public welfare
(a) Has the company formulated relevant management
policies and procedures pursuant to corresponding
laws and regulations and the International
Covenant on Human Rights?
(b) Has the company established mechanisms and
channels for employee grievances and are they
handled in a proper manner?
(c) Does the company provide a safe and healthy work
environment for its employees and does it organize
safety and health related training for its employees
on a regular basis?
(d) Is a mechanism in place for regular communication
with employees and are employees notified in a
reasonable manner of operational changes that may
have a significant impact?





(a)The company safeguards the legal rights and
interests of its employees through various
management systems and norms including the
formulation of HR management regulations and
staff work rules in accordance with relevant labor
laws. The company also contributes to employee
medical insurance, basic old-age insurance,
unemployment insurance, occupational injury
insurance, and maternity insurance.
(b)The company has established mechanisms and
channels for employee grievances and are handles
them in a proper manner.
(c)The company is committed to providing a
comfortable, safe, and healthy work environment
for its employees in accordance with laws and
regulations governing public building safety and
fire safety. It also organizes educational training and
annual health checks for its employees on a regular
basis and provides complete life and entertainment
facilities including staff dorms and recreation
centers.
(d)The company organizes labor-management
conferences on a regular basis and enables positive
communication between both sides. In addition,
employees are notified of operational changes that
No major deviations
No major deviations
No major deviations
No major deviations
No major deviations
No major deviations
No major deviations
No major deviations
The company will

36

Assessment items Implementation status Implementation status Implementation status Deviations from “Corporate
Social Responsibility Best
Practice Principles for
TWSE/TPEx Listed
Companies” and reasons
Y N Brief description
(e) Has the company established an effective career
skill development program for its employees?
(f) Has the company formulated relevant policies and
grievance procedures for the protection of
consumer rights and interests with regard to its
R&D, procurement, production, operation, and
services processes?
(g) Does the company comply with relevant laws and
international standards in the marketing and
labeling of its products and services?
(h) Does the company evaluate past records of
suppliers with regard to environmental and social
impacts before initiating dealings with them?
(i) Do contracts between the company and its main
suppliers stipulate that agreements may be
terminated or rescinded at any time if suppliers
violate CSR policies or generate significant
environmental and social impacts?

may have a significant impact on them through
different methods such as public notices to give
both sides a full understanding of labor and
management related information.
(e)The company has established an effective career
skill development program for its employees.
(f)The company doesn’t sell its products to end
consumers.
(g)The company fully complies with relevant laws
and regulations in Mainland China and international
standards in the marketing and labeling of its
products.
(h)The company conducts assessments of different
supplier conditions including environmental and
social impacts before initiating dealings with them.
(i)The contracts between the company and its main
suppliers do currently not include provisions
stipulating that agreements may be terminated or
rescinded at any time if suppliers violate CSR
policies or generate a significant environmental and
social impacts with its main suppliers: Relevant
provisions will be added or removed in accordance
with actual needs
discuss the inclusion of
relevant contract
provisions stipulating
that agreements may be
terminated or rescinded
at any time if suppliers
violate CSR policies or
generate significant
environmental and social
impacts with its main
suppliers.
4. Enhancing information disclosure
(a) Does the company disclose relevant and reliable
CSR-related information on its corporate website
and the Market Observation Post System?		 (a) The company has already set up a corporate
website and will establish a link to the Market
Observation Post System in accordance with
relevant Taiwanese laws to disclose relevant and
reliable CSR-related information.		 No major deviations

37

Assessment items Implementation status Implementation status Implementation status Deviations from “Corporate
Social Responsibility Best
Practice Principles for
TWSE/TPEx Listed
Companies” and reasons
Y N Brief description
5. If the Company has established corporate social responsibility principles based on “Corporate Social Responsibility Best Practice Principles
for TWSE/TPEx Listed Companies”, please describe any discrepancy between the principles and their implementation: No major
discrepancies exist as far as compliance with the CSR Best Practice Principles of the company is concerned.
6. Other important information to facilitate a better understanding of the company’s corporate social responsibility practices:
(a) The company implements and reinforces environmental management in accordance with relevant environmental laws.
(b) The company regularly responds to community charity events such as events organized by the Liyang Association for the Promotion of the
Guangcai Program and the Ningbo Zhenhai Charity Federation.
(c) The company provides feedback channels for employees and convenes labor-management and employee conferences on a regular basis to
enable employees to fully express their opinions.
7. State clearly whether the CSR reportsissued bythe companyhavemet theassurance standards of relevantverificationorganizations :NA
  • (f) Implementation of Ethical Corporate Management and Adopted Measures

38

Implementation of Ethical Corporate Management

Assessment items ImplementationStatus ImplementationStatus ImplementationStatus Deviations from “Ethical
Corporate Management
Best Practice Principles
for TWSE/TPEx Listed
Companies” and reasons
Y N Brief description
1.
Formulation of ethical corporate management
policies and programs
(a)
Are ethical corporate management policies and
methods stated explicitly in the company’s rules
and regulations and externally circulated
documents and do the board and management
level honor the commitment to ethical corporate
management.
(b)
Has the company developed programs to prevent
unethical behavior and do these programs contain
clearly defined operating procedures, codes of
conduct, penalties for violations, and a grievance
system? Are these programs implemented and
carried out?
(c)
Has the company adopted preventive measures
with regard to the provisions set forth in
Paragraph 2, Article 7 of the Ethical Corporate
Management Best Practice Principles for
TWSE/TPEx Listed Companies” or other
business activities within the scope of the
company’s operations that involve a high risk of
unethical behavior?


(a)
The company has already formulated Ethical
Corporate Management Best Practice
Principles and Supplier Code of Conduct.
Ethical management policies have been
disclosed in internal regulations, on the
corporate website, in annual reports, or other
promotional materials.
(b)
The company has included clearly
formulated prevention schemes and relevant
handling procedures in its “Ethical
Corporate Management Operating
Procedures and Code of Conduct” covering
the prohibition of bribery, illegal political
contributions, improper charity donations or
sponsorships, improper gifts, entertainment,
or other benefits.
(c)
The company has included clearly
formulated provisions prohibiting the
offering and acceptance of improper benefits
and the offering of illegal political
contributions with clearly stated handling
procedures in its “Ethical Corporate
Management Operating Procedures and
Code ofConduct”.		 No major deviations
No major deviations
No major deviations

39

Assessment items ImplementationStatus ImplementationStatus ImplementationStatus Deviations from “Ethical
Corporate Management
Best Practice Principles
for TWSE/TPEx Listed
Companies” and reasons
Y N Brief description
2. Implementation of ethical corporate management
(a)
Does the company evaluate integrity records of
trading counterparties and do contracts signed
with trading counterparties include clearly
formulated provisions regarding ethical
behavior?
(b)
Has the company established exclusively (or
concurrently) dedicated units subordinate to the
board to be in charge of proposing and enforcing
ethical corporate management policies and
submit regular reports regarding the
implementation progress to the board?
(c)
Are policies in place to prevent conflicts of
interest and have appropriate appeal channels
been established and implemented?


(a)
Before the company establishes commercial
relations with third parties, it carries out
assessments of the legality, ethical corporate
management policies, and past records of
unethical behavior of suppliers, customers,
or other trading counterparties to ensure the
fairness and transparency of their business
operations and guarantee that they will not
request, offer, or accept bribes.
(b)
The company has designated the audit office
as its dedicated unit in charge of amendment,
implementation, interpretation, and
counseling services with regard to the
“Ethical Corporate Management Operating
Procedures and Code of Conduct” in
addition to the recording and archiving of
reported contents as well as supervision of
implementation and submission of regular
reports to the board of directors.
(c)
The board directors uphold a high standard
of self-discipline. When a proposal at a
given board of directors meeting concerns
the personal interest or the interest of the
juristic person represented by any director,
that director may state his/her opinions and
respond to inquiries,but maynotparticipate
No major deviations
No major deviations
No major deviations

40

Assessment items ImplementationStatus ImplementationStatus ImplementationStatus Deviations from “Ethical
Corporate Management
Best Practice Principles
for TWSE/TPEx Listed
Companies” and reasons
Y N Brief description
(d)
Has the company established an effective
accounting and internal control system to
implement ethical corporate management and
are regular reviews carried out byinternal audit		 in the discussion or vote on that proposal and
shall recuse himself or herself from any
discussion and voting, where there is a
likelihood that the interests of the company
would be prejudiced. In addition, said
director may not exercise voting rights as
proxy on behalf of another director. The
directors shall exercise discipline among
themselves, and may not support each other
in an inappropriate manner.
If in the course of conducting company
business, any personnel of the company
discovers that a conflict of interest exists
involving themselves or the juristic person
that they represent, or that they or their
spouse, parents, children, or a person with
whom they have a relationship of interest is
likely to obtain improper benefits, the
personnel shall report the relevant matters to
both his or her immediate supervisor and the
responsible unit, and the immediate
supervisor shall provide the personnel with
proper instructions.
(d)
The company has established an accounting
system and effective internal control system.
Audit departments regularly review
compliance with this accountingand internal
No major deviations

41

Assessment items ImplementationStatus ImplementationStatus ImplementationStatus Deviations from “Ethical
Corporate Management
Best Practice Principles
for TWSE/TPEx Listed
Companies” and reasons
Y N Brief description
units or commissioned accountants?
(e)
Does the company organize regular internal and
external training on ethical corporate
management?
control system and submit reports to the
board of directors.
(e)
The company organizes regular training and
education for directors, executives,
employees, and appointees to provide them
with a full understanding of the
commitment, policies, and prevention
schemes of the company in the area of
ethical corporate management and ward off
unethicalbehavior.		 No major deviations
3. Implementation of the whistle-blowing system
(a)
Has the company established a clearly defined
whistle-blowing and incentive system and
convenient review channels? Has dedicated
personnel been designated to ensure an
appropriate processing of reported cases.
(b)
Has the company formulated standard
operating procedures for the investigation and
processing of received reports and relevant
confidentiality mechanisms?
(c)
Has the company adopted measures to protect
whistle-blowers from inappropriate disciplinary
actions due to their whistle-blowing?


(a)
The company has set up reporting mailboxes
to encourage employees to submit reports on
detected malconduct that prejudices the
interests of the company. The audit office is
in charge of processing such reports.
(b)
The audit office carries out investigations of
reported contents and reports the final results
to the chairman in accordance with
confidentiality principles.
(c)
The company is responsible for the
confidentiality of the identity of the
whistle-blower to prevent inappropriate
dismissal or retaliation at the workplace
against the whistle-blower.
No major deviations
No major deviations
No major deviations
Enhancing information disclosure
(a)
Does the companydisclose its Ethical		 (a)
The companyhas alreadydisclosed the		 No major deviations

42

Assessment items ImplementationStatus ImplementationStatus ImplementationStatus Deviations from “Ethical
Corporate Management
Best Practice Principles
for TWSE/TPEx Listed
Companies” and reasons
Y N Brief description
Corporate Management Best Practice Principles
and effects of their promotion on its corporate
website and the Market Observation Post
System?		 norms set forth in the Ethical Corporate
Management Best Practice Principles in the
corporate governance section of the
corporate website and the Market Post
ObservationSystem.
5.
If the Company has established ethical corporate management principles based on “Ethical Corporate Management Best Practice Principles
for TWSE/TPEx Listed Companies”, please describe any discrepancy between the principles and their implementation: The company has
formulated “Ethical Corporate Management Best Practice Principles” and “Ethical Corporate Management Operating Procedures and Code
of Conduct” based on the “Ethical Corporate Management Best Practice Principles for TWSE/TPEx Listed Companies” and requires
compliance with these principles byallstaff members.
6.
Other important information to facilitate a better understanding of the company’s ethical corporate management practices: (such as review
and amendment of ethical corporate management best practice principles)
The company closely monitors national and international developments in the field of ethical management related norms and encourages
directors, executives, and employees to provide suggestions. Ethical management policies and promotion measures adopted by the
companyare reviewed and enhanced based on these suggestions to increase the effect of ethical corporate management.
  • (g) If the company has formulated corporate governance best practice principles and relevant rules and regulations, query methods should be disclosed:

Please refer to the corporate website: http://www.ygget.com (Investor section/corporate governance)

  • (h) Other important information that facilitates a better understanding of corporate governance practices should also be disclosed: None

43

  • (i) Implementation of the internal control system

  • Declaration regarding the internal control system

Yeong Guan Energy Technology Group Co., Ltd.

Declaration regarding the internal control system

Date: March 9, 2017

Based on the results of a self-inspection, the company hereby makes the following declaration regarding the internal control system in 2016:

  • I. The company is fully aware of the fact that directors and managers of this company shall be fully responsible for the establishment, implementation, and maintenance of an internal control system. It has already established such a system in order to guarantee achievement of a wide range of goals including effectiveness and efficiency of company operations (e.g., profitability, performance, and asset security), reliability, timeliness, and transparency of reporting, and compliance with relevant laws, rules, and regulation.

  • II. The internal control system faces inherent constraints. No matter how perfect the design of the system is, an effective internal control system may only provide reasonable guarantees regarding the achievement of the aforementioned three goals. Furthermore, the effectiveness of the internal control system is affected by changes of the environment and external conditions. However, the internal control system of the company is equipped with a self-monitoring mechanism. Once shortcomings are identified, the company adopts corrective measures in a prompt manner.

  • III. The company judges the effectiveness of the design and implementation of the internal control system based on the judgment criteria prescribed in the Regulations Governing Establishment of Internal Control Systems by Public Companies (hereinafter referred to as “these Regulations”). The judgment criteria for the internal control system adopted in these Regulations divide the internal control system into five main constituents based on the management and control process: 1. Control environment 2. Risk assessment 3. Control activities 4. Information and communication and 5. Monitoring. Each constituent includes several items. For more details on the aforementioned items, please refer to the provisions set forth in these Regulations.

44

  • IV. The company inspects the effectiveness of the design and implementation of the internal control system based on the aforementioned judgment criteria

  • V. Based on the results of the aforementioned inspections, the company believes that the design and implementation of the internal control system on December 31, 2016 (including the supervision and management of subsidiaries) was efficient as far as goal achievement in the field of results and efficiency of operations, reliability of financial reports, and legal compliance are concerned and may provide reasonable guarantees regarding the achievement of the aforementioned goals.

  • VI. This declaration will be included as a main component of the annual report and prospectus of the company and will be made public. If the aforementioned published contents involve illegal activity such as fraud or concealment, the company shall assume legal liability pursuant to Article 20, 32, 171, 174 of the Securities and Exchange Act.

  • VII. This declaration was approved unanimously by the board of directors with an attendance of 11 directors on March 9, 2017. All directors consented to the contents of this declaration as stated herein.

Yeong Guan Energy Technology Group Co., Ltd.

Chairman: Signature/Seal

General Manager: Signature/Seal

45

  1. If an accountant is commissioned to review the internal control system, the contents of the review report shall be disclosed: NA

  2. (j) Penalties imposed in accordance with the law upon the company or its internal personnel and any penalties imposed by the company upon its internal personnel for violations of internal control system provisions as well as principal deficiencies and improvements efforts for the most recent fiscal year up to the printing date of the annual report: None

  3. (k) Major Resolutions of Shareholders' and Board Meetings (in the most recent fiscal year up to the printing date of the annual report)

  4. Major resolutions of shareholders meetings in 2016 and implementation status:

  5. (1) Ratification of the 2015 Business Report and Consolidated Financial Statement

  6. (2) Ratification of the company’s 2015 Earnings distribution proposal Implementation conditions: July 19, 2016 was set as the base date and August 8, 2016 as the distribution date (Cash dividend of NT$ 8.4540163 per share)

  7. (3) Deliberation of the modification of the authorized capital amount Implementation conditions: Completion of modification registration on Cayman Islands on June 28, 2016

  8. (4) Deliberation of the amendment of the company's Memorandum and Articles of Incorporation

    • Implementation conditions: Completion of amendment registration on Cayman Islands on June 28, 2016 and public announcement on corporate website

  9. (5) Complete reelection of all board directors (including independent directors) Implementation conditions: Completion of registration of new board on Cayman Islands on June 28, 2016

  10. (6) Annulment of non-compete clause for newly appointed directors

    • Implementation conditions: Implementation in accordance with shareholders’ meeting resolutions

  11. (7) Participation in the issuance of overseas depository receipts and issuance and public offering of convertible corporate bonds through cash capital increase via issuance of common shares

    • Implementation conditions: Not yet implemented since current capital and investment plans of the company do not require capital raising

  12. Major resolutions of board meetings in 2016 up to the printing date of the annual

report:

report:
Meeting
name		 Date Major resolutions
Board
meeting		 2016.3.11 1. Approval of the 2015 Business Report
2. Approval of the 2015 Consolidated Financial
Statement
3. Approval of the 2015 Earnings distribution
proposal
4. Approval of the 2015 Internal Control System
Statement issued by the company
5. Approval of complete reelection of board
directors (including independent directors)
6.
Approval of annulment of non-compete clause for

46

Meeting
name		 Date Major resolutions
newly appointed directors
7.
Approval of authorized capital modification
8.
Approval of amendment of the company’s
Articles of Incorporation and their outline
9. Approval of participation in the issuance of
overseas depository receipts and issuance and
public offering of convertible corporate bonds
through cash capital increase via issuance of
common shares
10. Approval of the convening of the 2016 General
Shareholders’ Meeting
Board
meeting		 2016.4.14 1. Review of the proposals submitted by
shareholders during the 2016 General
Shareholders' Meetings
The deadline for the processing of proposals
submitted by shareholders for the 2016 General
Shareholders' Meeting is 2016/04/01~2016/04/11.
As of 2016/04/11 no motions had been received
from shareholders with a shareholding ratio of
over 1%.;
2.
Review of the list of independent director
candidates nominated during the 2016
General Shareholders' Meeting
Board
meeting		 2016.6.7 1. Election of the chairman and vice chairman by the
board of directors
Complete reelection of board directors at the
General Shareholders’ Meeting on June 7, 2016.
Unanimous approval of the reappointment of Mr.
Chang, Hsien-Ming as Chairman and Mr. Tsai,
Shu-Ken as Vice Chairman at the board meeting
convened onJune 7,2016
Board
meeting		 2016.6.15 1. Approval of matters pertaining the setting and
distribution of 2015 cash dividends
2. Approval of audit committee members
3.Approvalof remunerationcommitteemembers
Board
meeting		 2017.3.9 1. Approval of the 2016 Business Report
2. Approval of the 2016 Consolidated Financial
Statement
3. Approval of the 2016 Earnings distribution
proposal
4. Approval of the 2016 Internal Control System
Statement issued by the company
5. Amendment of Shareholders’ Meeting Rules of
Procedure
6. Amendment of Procedures for Election of
Directors
7. Amendment of Procedures GoverningAcquisition

47

Meeting
name		 Date Major resolutions
and Disposal of Assets
8. Approval of the convening of the 2017 General
Shareholders’ Meeting

  • (l) Directors or supervisors who were on record or had submitted a written declaration for holding a dissenting opinion on major resolutions passed by the board of directors in the most recent fiscal year up to the publication date of the annual report: None

  • (m) Resignation or Dismissal of Personnel Involved in Preparation of Financial Reports (including the Chairman, President, Accounting Supervisor, Finance Supervisor, Internal Audit Supervisor, and R&D Supervisor) in the most recent fiscal year up to the publication date of the annual report: None

4. Professional fees of CPAs

. Professional fees of CPAs . Professional fees of CPAs . Professional fees of CPAs . Professional fees of CPAs . Professional fees of CPAs
(a)
Range ofprofessional fees of CPAs
Name of
Accounting Firm		 Accountant Name Audit Period Remarks
Deloitte&Touche Li, Tung-Feng Kung, Che-Li Jan 1, 2016-Dec 31, 2016

Unit: 1000 NTD

Accounting firm Name of
accountant		 Audit fee Non-audit fees Non-audit fees Non-audit fees Non-audit fees Non-audit fees Accountant
audit period		 Note
System
design		 Business
registration		 HR Other
(Note 1)		 Subtotal
Deloitte Taiwan Dong-Feng Li
Ze-Li Gong		 9,050 800 9,850 2016.01.01~
2016.12.31		 Note 1 Tax
assessment
fee

  • (b) Non-audit fees paid to CPAs, their accounting firms, and related businesses make up over 25% of the audit fees: NA

  • (c) Reduction of audit fees after replacement of the accounting firm compared to the year preceding replacement: NA

  • (d) Reduction of audit fees by more than 15% compared to the previous year: NA

5. Replacement of CPAs: NA

6. The Chairman, President, or executives in charge of finance or accounting affairs were employed in the accounting firm the CPAs are part of or related businesses in the most recent fiscal year: No

7. Transfer of stocks or changes in pledged shares of directors, supervisors, and executives, and shareholders holding over 10% of the total shares in the most recent fiscal year up to the publication date of the annual report

  • (a) Changes in Shareholding of Directors, Supervisors, Executives and Major Shareholders

48

Title Name 2016 2016 2017 upto April 14 2017 upto April 14
Holding
Increase
(Decrease)		 Pledged
Holding
Increase
(Decrease)		 Holding
Increase
(Decrease)		 Pledged
Holding
Increase
(Decrease)
Chairman and major shareholder Chang,
Hsien-Ming		 (4,699,000) (3,640,000) － －
Director and Executive Vice President Chang,Wen-Lung (1,284,000) － (950,000) －
Director Chang,
Cheng-Chung		 (1,050,000) (1,000,000) － －
Vice Director Tsai,Shu-Ken (90,000) － － －
Director and Executive Vice President Chen,Wu-Chi (230,000) － － －
Director Chang,Chih-Kai － － (70,000) －
Independent Director Chen,Ching-Hung － － － －
Independent Director Chang,
Cheng-Lung		 － － － －
Independent Director Wei,Chia-Min － － － －
Director and Executive Vice President Kung,Hsing-Yuan － － － －
Director and Executive Vice President Huang,Wen-Hung － － － －
Vice President Hsu,
Ching-Hsiung		 － － － －
Vice President Lin,Tai-Feng － － － －
Vice President Huang,
Ching-Chung		 － － － －
Vice President Kuo,Jui － － － －
Vice President Lin, Yu-I － － － －

49

(b) Share Transfer to Related Parties:

Unit: Shares

Name Reason of
Transfer		 Date of
Transaction		 Transferee Relationship between
Transferee and the
company, Directors,
Supervisors, and Major
Shareholders		 Shares Transaction
Price
Chang,
Cheng-Chung		 Stock
grant		 2016/7/06 Chang, Chia-Yi Director’s son/daughter 600,000 0
Hsu, Yu-Yueh Stock
grant		 2016/7/06 Chang, Chia-Min Director’s son/daughter 600,000 0
Hsu, Yu-Yueh Stock
grant		 2016/7/06 Chang, Wei-Lun Director’s son/daughter 300,000 0
Chang,
Wen-Lung		 Stock
grant		 2017/4/6 Lee Chang,
Yueh-Yun		 Relationships within the
Second Degree of the
director and executive
vice president of the
company



950,000		 0

(c) Shares pledged to related parties: NA

50

8. Information Disclosing the Relationship or Spousal or Kinship Relationships within the Second Degree between any of the Company’s Top Ten Shareholders

As of April 14, 2017/Unit: Shares; %

NAME/TITLE Personal shareholding Personal shareholding Shareholding of spouse or
minor children		 Shareholding of spouse or
minor children		 Shareholding by
nominee arrangement		 Shareholding by
nominee arrangement		 The relationship between
any of the company’s top ten
shareholders(name/title)		 The relationship between
any of the company’s top ten
shareholders(name/title)
REMARKS
Number
of shares		 Shareholding
ratio		 Number of
shares		 Shareholding
ratio		 Number
of
shares
Shareholding
ratio
Name
/title		 Relationship
Chang, Hsien-Ming 12,788,540 10.76% 3,120 0.00% - - Chang,
Wen-Lung		 Brother
Cathay Life Insurance
Company,Ltd.		 9,317,000 7.84%
Chang, Wen-Lung 5,806,313 4.89% 2,127,832 1.79% - - Chang,
Hsien-Ming		 Brother
Fubon
Life Insurance Co.,Ltd.		 5,287,981 4.45%
Nan Shan
Life Insurance Co.,Ltd.		 4,408,959 3.71%
Chang, Cheng-Chung 3,794,408 3.19% 2,562,261 2.16% - - Hsu,
Yu-Yueh		 Spouse
Mercuries Life Insurance 3,253,000 2.74%
Hsu, Yu-Yueh 2,562,261 2.16% 3,794,408 3.19% - - Chang,
Cheng-Chun
g		 Spouse
Labor Pension Fund
(New Scheme)		 2,532,380 2.13%
Wu,Ting-Tsai 2,183,701 1.84% -

51

9. Number of shares held and consolidated shareholding ratio of the company, directors, supervisors, executives, and businesses directly or indirectly controlled by the company in the same joint venture business

Joint venture business Investments by the
company		 Investments by the
company		 Investments by
directors, supervisors,
executives, and
businesses directly or
indirectly controlled by
the company		 Investments by
directors, supervisors,
executives, and
businesses directly or
indirectly controlled by
the company		 Total investments Total investments
Number
of shares		 Shareholding
ratio
Number
of shares		 Shareholding
ratio
Number
of shares		 Shareholding
ratio
Yeong Guan Holdings Co., Ltd. 146,000 100.00 － － 146,000 100.00
Yeong Guan Heavy Industry (Thailand)
Co.,Ltd.		 37,500 75.00 － － 37,500 75.00
Yeong Guan International Co., Ltd. 506,000 100.00 － － 506,000 100.00
Shin Shang Trade Co., Ltd. 50 100.00 － － 50 100.00
New Power Team Technology Co., Ltd. 13,000 52.00 － － 13,000 52.00
Lizhan Limited Note 52.00 － － Note 52.00
Yeong Chen Asia Pacific Co., Ltd. Note 100.00 － － Note 100.00
Dongguan Yeong Guan Mould Factory
Co.,Ltd.		 Note 100.00 － － Note 100.00
Ningbo Yeong Shang Casting Iron Co.,
Ltd.		 Note 100.00 － － Note 100.00
Ningbo Lu Lin Machine Tool Foundry
Co.,Ltd.		 Note 100.00 － － Note 100.00
Jiangsu Bright Steel Fine Machinery Co.,
Ltd.		 Note 100.00 － － Note 100.00
Ningbo Yeong Chia Mei Trade Co., Ltd. Note 100.00 － － Note 100.00
Shanghai No.1 Machine Tool Foundry
(Suzhou)Co.,Ltd.		 Note 90.00 － － Note 90.00
Shanghai No. 1 Foundry Trading Co., Ltd. Note 90.00 － － Note 90.00
Ningbo New Power Team Technology Co.,
Ltd.		 Note 52.00 Note 52.00

Note: Limited liability company that has not issued any shares

52

IV. Capital Overview

1. Capital and shares

(a) Source of Capital

1. Capital formation process

Month/
Year		 Par value Authorized capital Authorized capital Paid-in capital Paid-in capital Remarks Remarks
Shares
(1000 shares)		 Amount
(1000 dollars)		 Shares
(1000
shares)		 Amount
(1000 dollars)		 Sources of
capital		 Capital
Increased by
Assets Other
than Cash		 Other
2008.1 - Common shares
1,000		 HKD 100 1,000 HKD 100 Company
establishment		 NA
2008.9 - Common shares
985,000
Preferred shares
15,000		 HKD 100,000 50,000 HKD 5,000 Organizational
restructuring		 NA
2009.5 USD 2.08 Common shares
1,000,000		 HKD 100,000 57,822 HKD 5,782 Cash capital
increase		 NA
2009.8 USD 1.51 Common shares
1,000,000		 HKD 100,000 77,683 HKD 7,768 Cash capital
increase		 NA
2010.3 - Common shares
120,000		 NTD 1,200,000 80,000 NTD 800,000 Conversion of
capital into NT
dollars		 NA
2012.4 NTD 53 Common shares
120,000		 NTD 1,200,000 88,889 NTD 888,890 Cash capital
increase		 NA
2012.9 - Common shares
120,000		 NTD 1,200,000 100,889 NTD 1,008,890 Capitalization
of earnings		 NA
2014.8 NTD 118 Common shares
120,000		 NTD 1,200,000 104,889 NTD 1,048,890 Cash capital
increase		 NA
2015.3 NTD 153 Common shares
120,000		 NTD 1,200,000 105,793 NTD 1,057,930 Convertible
bond
conversion		 NA
2015.4 NTD 153 Common shares
120,000		 NTD 1,200,000 105,862 NTD 1,058,622 Convertible
bond
conversion		 NA
2015.6 NTD 149 Common shares
150,000		 NTD 1,500,000 111,212 NTD 1,112,118 Convertible
bond
conversion		 NA
2015.7 NTD 149 Common shares
150,000		 NTD 1,500,000 112,151 NTD 1,121,507 Convertible
bond
conversion		 NA
2015.8 NTD 149 Common shares
150,000		 NTD 1,500,000 112,155 NTD 1,121,545 Convertible
bond
conversion		 NA
2015.10 NTD 168 Common shares
150,000		 NTD 1,500,000 117,155 NTD 1,171,545 Cash capital
increase		 NA
2015.10
NTD 148.6		 Common shares
150,000		 NTD 1,500,000 117,830 NTD 1,178,303 Convertible
bond
conversion		 NA
2015.11
NTD 148.6		 Common shares
150,000		 NTD 1,500,000 117,845 NTD 1,178,451 Convertible
bond
conversion		 NA
2015.12 NTD 148.6 Common shares
150,000		 NTD 1,500,000 117,980 NTD 1,179,796 Convertible
bond		 NA

53

conversion
2016.1 NTD 148.6 Common shares
150,000		 NTD 1,500,000 118,126 NTD 1,181,263 Convertible
bond
conversion		 NA
2016.2 NTD 148.6 Common shares
150,000		 NTD 1,500,000 118,299 NTD 1,182,986 Convertible
bond
conversion		 NA
2016.3 NTD 148.6 Common shares
150,000		 NTD 1,500,000 118,702 NTD 1,187,023 Convertible
bond
conversion		 NA
2016.4 NTD 148.6 Common shares
150,000		 NTD 1,500,000 118,771 NTD 1,187,709 Convertible
bond
conversion		 NA
2016.6 NTD 148.6 Common shares
300,000		 NTD 3,000,000 118,782 NTD 1,187,823 Convertible
bond
conversion		 NA
2016.8 NTD 148.6 Common shares
300,000		 NTD 3,000,000 118,818 NTD 1,188,175 Convertible
bond
conversion		 NA

2. Type of stock

April 15, 2017

Share type Authorized capital Authorized capital Authorized capital Remarks
Issued shares Unissued shares Totalshares
Common 118,817,519 181,182,481 300,000,000

3. Information for the shelf registration system: NA

(b) Shareholder Structure

As of April 15, 2017; Unit: Persons; Shares; %

Shareholder
structure
Number		 Government
agencies		 Financial
Institutions		 Other
Juridical
Persons		 Domestic
Natural
Persons		 Foreign
Institutions&
Natural Persons		 Total
Number of shareholders 3 22 51 122 5,619 5,817
Number of shares 2,928,288 26,496,492 5,876,820 14,884,050 68,631,869 118,817,519
Shareholdingratio(%) 2.47% 22.30% 4.95% 12.52% 57.76% 100.00%

Note: The shareholding ratio of Mainland Chinese capital in this company is zero

(c) Shareholding distribution status:

As of April 15, 2017; Unit: Persons; Shares; %

Shareholding classes Number of
shareholders		 Number of shares Shareholding
ratio(%)
1
~
999		 631 90,288 0.08%
1,000
~
5,000		 3,988 7,825,238 6.59%
5,001
~
10,000		 533 4,142,302 3.49%
10,001
~
15,000		 184 2,380,864 2.00%
15,001
~
20,000		 107 1,965,386 1.65%
20,001
~
30,000		 118 2,987,106 2.51%
30,001
~
40,000		 66 2,319,624 1.95%
40,001
~
50,000		 22 1,024,495 0.86%
50,001
~
100,000		 62 4,562,835 3.84%

54

Shareholding classes Number of
shareholders		 Number of shares Shareholding
ratio (%)
100,001
~
200,000		 47 6,172,346 5.20%
200,001
~
400,000		 18 4,990,705 4.20%
400,001
~
600,000		 9 4,147,568 3.49%
600,001
~
800,000		 7 4,955,505 4.17%
800,001
~
1,000,000		 6 5,585,639 4.70%
1,000,001 or more 19 65,667,618 55.27%
Total 5,817 118,817,519 100.00%

(d) List of Major Shareholders

(d) List of Major Shareholders (d) List of Major Shareholders (d) List of Major Shareholders
As of April 15,2017;Unit: Shares;%
Number of shares and shareholding ratio
Name of major shareholder		 Number of
shares		 Shareholding
ratio (%)
Chang, Hsien-Ming 12,788,540 10.76%
CathayLifeInsurance Company,Ltd. 9,317,000 7.84%
Chang, Wen-Lung 5,806,313 4.89%
Fubon LifeInsurance Co.,Ltd. 5,287,981 4.45%
NanShan LifeInsurance Co.,Ltd. 4,408,959 3.71%
Chang, Cheng-Chung 3,794,408 3.19%
MercuriesLifeInsurance 3,253,000 2.74%
Hsu, Yu-Yueh 2,562,261 2.16%
Labor Pension Fund (New Scheme) 2,532,380 2.13%
Wu,Ting-Tsai 2,183,701 1.84%

(e) Market Price, Net Worth, Earnings, and Dividends per Share in the previous two fiscal years

Unit: NTD; 1000 shares

Year
Item		 Year
Item		 Year
Item		 2015 2016 Up to
March 31,2017
Market price per share Highest 244 247 130
Lowest 130 98.4 103
Average 186.98 179.52 113.22
Net worth per share Before distribution 89.36 82.26 －
After distribution 80.91 Not yet
distributed		 －
Earnings per share Weighted average shares 110,323 118,673 －
EPS 12.24 8.5 －
Dividends per share Cash dividends 8.45 3.25
(Note4)		 －
Stock － － －

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dividends None None －
Accumulated undistributed
dividends		 None None －
Return on investment Price-Earnings Ratio(Note 1) 15.28 21.12 －
Price-Dividend Ratio(Note 2) 22.00 55.24 －
Cash dividend yield rate(Note 3) 4.55% 1.81% －

  • Note 1: Price-Earnings Ratio ＝ Average closing price per share in the respective year/Earnings per Share

  • Note 2: Price-Dividend Ratio ＝ Average closing price per share in the respective year/Cash dividends per share

  • ＝

  • Note 3: Cash dividend yield rate Cash dividends per share/Average closing price per share in the respective year

  • Note 4: The 2016 Earnings Distribution Proposal was approved by board resolution on March 9, 2017 and will be submitted to the shareholders’ meeting for ratification on June 3, 2017

(f) Dividend Policy and Implementation Status

  1. Dividend policy as prescribed in the Articles of Incorporation

Dividends are paid to shareholders based on their shareholding ratios upon approval by ordinary resolution of the shareholders’ meeting, or in accordance with the conditions specified in Article 11.4(a) of the Articles of Incorporation by supermajority resolution of the board provided that the Articles of Incorporation and directions of the shareholders’ meeting are not violated. Dividends may be paid in form of cash, shares, or fully or partially in different types of assets. The value of these assets is determined by the board of directors. The company does not pay interest on undistributed dividends.

The board of directors may resolve to distribute all or part of the dividends from designated assets (shares or securities of other companies) and shall deal with problems generated by this distribution. The board of directors shall determine the value of said specified assets under condition that the aforementioned general provisions are not affected. It may also resolve to pay dividends to certain shareholders in cash in place of designated assets and may decide to convey said designated assets to a trustee under appropriate conditions.

Unless stipulated otherwise in relevant laws, Article 11.4 (a) of the Articles of Incorporation, the Articles of Incorporation, or the rights attached to shares, the company may distribute earnings in accordance with board earnings distribution proposals approved by ordinary resolution of the General Shareholders’ Meeting. The company may not pay dividends or make other distributions unless based on realized or unrealized earnings, share premium accounts, legally authorized reserves, or other funds. Unless rights attached to shares stipulate otherwise, all dividends shall be calculated based on the number of held shares and amounts paid by shareholders. If share issue conditions prescribe the calculation of dividends from a specified date, calculations shall be made accordingly.

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Where the Company earns profits in a fiscal year (as defined below), 2% - 15% shall be allocated as employee bonuses. The beneficiaries of such compensations shall include employees of subsidiaries who meet certain conditions. A maximum of 3% of the aforementioned profits may be allocated as director compensations. The employee bonus and director compensation proposal shall be approved by resolution of a majority of directors with a minimum of 2/3 of all directors in attendance and shall be reported to the shareholders’ meeting. In case of accumulated losses, a specified amount shall be retained for compensation prior to the allocation of employee bonuses and director compensations in accordance with the aforementioned ratios. The term “profits” shall refer to earnings before tax. The term “earnings before tax” shall refer to the amount prior to payment of employee bonuses and director compensations.

As for the determination of dividend policies, the board of directors determines the amounts of dividends and other distributions (if applicable) in each fiscal year based on a clear understanding of the maturity of the company’s operations and services and the stable income situation and sound financial structure of the company and requests approval by the shareholders. The board of directors shall:

  • (a) take into account the earnings, overall development, financial planning, capital demands, industry outlook, and future prospects of the company in the respective fiscal year to safeguard the rights and interests of the shareholders and;

  • (b) Shall make allocations from net income in the current quarter for (i) reserves for the payment of taxes in the respective fiscal year (ii) compensation of losses (iii) 10% general reserves and (iv) reserves as determined by the board of directors pursuant to Article 14.1 of the Articles of Incorporation or special reserves required by authorities in charge of securities pursuant to regulations for public companies.

The board of directors shall allocate a minimum of 20% of the distributable amount as shareholder

dividends upon allocation of amounts deemed appropriate by the board of directors as employee bonuses and director compensations in accordance with relevant regulations set forth in Article 13.4 and the dividend distribution policy specified in Article 13.5 under the premise of legal compliance. Dividends shall be subject to approval by resolution of the shareholders’ meeting.

Shareholder dividends and employee bonuses may be paid out to employees or shareholders as cash, unissued shares purchased with said amount, or a combination of these two methods. Issued cash dividends shall make up at least 10% of the total dividends paid to shareholders. The company does not pay interest on undistributed dividends and bonuses.

2. Dividend distribution in this fiscal year:

The board of directors approved the 2016 Earnings distribution proposal on March 9, 2017 with a planned distribution of cash dividends amounting to NT$ 3.25 per share. The proposal will be submitted to the shareholders’ meeting on June 13, 2017 for ratification. Earnings are to be distributed as follows:

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Unit: NTD

Unit: NTD
Item Amount
Undistributed earnings at the beginningof thequarter $1,626,814,255
plus: Net income after taxes for thisquarter 1,008,298,222
minus: Legal reserves (100,829,822)
minus: Special reserves (612,633,952)
Distributable earnings in this fiscalyear 1,921,648,703
Distribution items:
Shareholder bonus
Cash dividend(provisionallyset at NT$3.25per share) 386,156,937
Undistributed earnings at the end of thequarter $1,535,491,766
  • (g) Impact of stock dividends proposed by this shareholders’ meeting on business performance and EPS:

The board of directors approved the 2016 Earnings distribution proposal on March 9, 2017 with a planned distribution of cash dividends amounting to NT$ 3.25 per share. The proposal will be submitted to the shareholders’ meeting on June 13, 2017 for ratification. Since only cash dividends are distributed, the overall business performance of the company will not be affected.

(h) Compensation of employees, directors and supervisors

  1. Quotas or range of compensations of employees, directors and supervisors as specified in the Articles of Incorporation: Please refer to Paragraph 1 (f)

  2. Estimation basis for employee bonuses and compensations of directors and supervisors for this quarter, calculation basis for number of shares allocated as stock bonus, and accounting procedures in case of discrepancies between actually distributed amounts and estimated figures:

A proportional basis for the distribution of payable employee bonuses and director compensations in 2016 shall be determined based on the distribution intervals of 2%~15% and 3% after allocation of 10% legal reserves and special reserves from net income after tax (minus employee bonuses and director compensations). In case of major changes of distribution amounts determined by the board of directors after year end, the originally allocated annual expenses shall be adjusted. Further changes on the date of the shareholders’ meeting resolution shall be handled as accounting estimate changes. Annual adjustments shall be entered into accounts by resolution of the shareholders’ meeting. If the shareholders’ meeting resolves to pay out employee bonuses as stock, the number of shares allocated as stock dividends shall be determined based on payable bonus amounts divided by fair stock value. The term fair stock value shall refer to the closing price on the day prior to the shareholders’ meeting resolution date (upon consideration of ex-right/ex-dividend impacts)

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  1. Compensations approved by the board of directors:

(1) Employee bonuses and director and supervisor compensations in form of cash payment or dividend distribution. Where there is a discrepancy between such compensations and recognized fees and estimated amounts, the actual difference as well as the reasons and handling thereof shall be specified: The board of directors approved employee cash bonus payments of NT$ 21 million. (2) Amount of employee bonuses paid as distributed dividends/ratio of employee bonuses paid as dividends to after-tax net income as stated on the individual financial statement and total employee bonuses: NA

(3) Pro-forma EPS upon deduction of proposed employee bonuses and director/supervisor compensations: Employee bonus estimates have already been incorporated into the 2016 financial statement. Pro-forma EPS is therefore identical to the amount specified on the financial statement.

  1. Actual distribution of employee, director, and supervisor compensations in the previous year (including number and value of distributed shares and share price); where there is a discrepancy between actual compensations and approved amounts, the actual difference as well as the reasons and handling thereof shall be specified: NA

  2. (i) Repurchase of shares by the company: NA

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2. Issuance of company bonds:

1. Current Status of Company Bonds

Type of corporate bond Type of corporate bond 1st Issue of Domestic (ROC) Unsecured
ConvertibleBonds		 2nd Issue of Domestic (ROC)
Unsecured ConvertibleBonds
Issue (offer)Date June3,2014 August 18,2015
Denomination NT$100,000each NT$100,000each
Place of issuanceandtransaction Taipei Exchange Taipei Exchange
Issuing price Fullyissuedatparprice Fullyissuedatparprice
Total amount NT$1.5billion NT$2.5billion
Interest rate 0% 0%
Maturity 5 years;
Maturity date: June3,2019		 5 years;
Maturity date:August 18,2020
Guaranteeagency None None
Trustee Trusts Department of Land Bank of Taiwan Trusts Department of Land Bank of
Taiwan
Underwriter KGISecurities Co.LTD. KGISecurities Co.LTD.
Certified Lawyer Attorney Tian-Hsiang Song from Lee and
Li Attorneys-At-Law		 Attorney Tian-Hsiang Song from Lee
andLi Attorneys-At-Law
CPA Deloitte Touche Tohmatsu Limited (DTTL)
Accountants Dong-fong Lee and Zhe-li
Gong
Deloitte Touche Tohmatsu Limited
(DTTL) Accountants Dong-fong Lee
andZhe-liGong
Payback method Except for redemption by the company,
reselling by bondholders, or transfer, the
bonds will be bought back with bond
denomination plus interest compensation,
which is 105.10% of the denomination
(annual yield is about 1%) in a lump cash
payment.		 Except for redemption by the
company, reselling by bondholders,
or transfer, the bonds will be bought
back with bond denomination plus
interest compensation, which is
102.53% of the denomination (annual
yield is about 0.5%) in a lump cash
payment.
Outstanding principal NT$145,100,000 NT$2,500,000,000
Provisions of redemption and
prepayment		 Please refer to the issuance and conversion
procedures.		 Please refer to the issuance and
conversionprocedures.
Restrictions None None
Credit rating agency, credit rating
date, and corporate bond rating
results		 None None
Other
rights		 Converted (exchanged or
subscribed) common
shares, global depository
receipts, or amount of
other securities.		 By April 15, 2017, a total of NT$ 1,354,900,000 have been converted into
8,928,504 ordinary shares of a face value
of NT$10 each.		 Conversion started on November 19,
2015; no bonds have been converted
yet
Issuance and conversion
(exchange or subscription)
procedures		 Please refer to the credit section of the
market observation post system for bond
issuance information		 Please refer to the credit section of
the market observation post system
for bond issuance information
Impact of issuance and conversion,
exchange and subscription methods
and issuance conditions on equity
dilution, possible dilution on stock
equity and shareholder’s equity		 According to the current conversion price
of NT$142.3, 1,019,676 shares need to be
issued if all shares are to be converted to
common shares. The impact on
shareholders’ equity is limited so far.		 According to the current conversion
price of NT$ 207.3, 12,059,816
shares need to be issued if all shares
are to be converted to common
shares. The impact on shareholders’
equityislimited sofar.
Commissioned agency for
exchanged object		 Not applicable Not applicable

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2. Convertible bond data

Corporate bond type Corporate bond type (15891)
1stIssue of Domestic (ROC) Unsecured Convertible Bonds		 (15891)
1stIssue of Domestic (ROC) Unsecured Convertible Bonds
Year
Item
2016		 Current year until
April 30, 2017
Market price
of convertible
bonds		 Highest 165.00 106.45
Lowest 120.45 102.05
Average 146.36 103.56
Conversion price 142.3 142.3
Issue (offer) date and
conversion price on issue date		 Issue date: June 3, 2014
Conversion price on issue
date: 158		 Issue date: June 3, 2014
Conversion price on issue
date: 158
Conversion method Issuance of new shares Issuance of new shares
Corporate bond type Corporate bond type (15892)
1stIssue of Domestic (ROC) Unsecured Convertible Bonds		 (15892)
1stIssue of Domestic (ROC) Unsecured Convertible Bonds
Year
Item
2015		 Current year until
April 30, 2017
Market price
of convertible
bonds		 Highest 114.00 101.00
Lowest 98.10 98.45
Average 105.04 99.24
Conversion price 207.3 207.3
Issue (offer) date and
conversion price on issue date		 Issue date: August 18, 2015
Conversion price on issue
date: 217		 Issue date: August 18, 2015
Conversion price on issue
date: 217
Conversion method Issuance of new shares Issuance of new shares

  1. Exchange of corporate bond date: NA

  2. Shelf registration of issued corporate bonds: NA

  3. Corporate bonds with attached warrant: NA

3. Preferred shares: None

4. Overseas depositary receipts: None

5. Employee stock option certificates: None

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6. Restricted Employee Shares Compensation: None

7. Status of New Shares Issuance in Connection with Mergers and Acquisitions: None

8. Implementation of fund utilization plans:

The company raised a total of 2.5 billion NTD through the 2nd Issue of Domestic (ROC) Unsecured Convertible Bonds in August 2015. The raised funds were mainly used for the construction of factory buildings, the purchase of machines and equipment, and the replenishment of working capital . These bonds are expected to be exercised in full by the first quarter of 2019. The company plans to use NT$1,077,215,000 and NT$1,808,967,000 for the construction of factory buildings and purchase of machinery and equipment, respectively. Upon assessment of accumulated expenses, major irregularities have been ruled out, By the printing date of the annual report, the company did not have any uncompleted plans for issuance or private placement of securities or plans completed within the last three years that had not produced any significant benefits.

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V. Operations Overview

1. Business activities

(a) Business scope

  1. Main areas of business operations The company’s operations mainly focus on the manufacture and sale of spheroidal graphite cast iron and gray cast iron including hubs and bases for wind turbines, thermal power generation exhaust hoods, injection molding machine components, and castings for machine tools and other industrial machinery

2. Revenue distribution

2. Revenue distribution
Main product categories 2015 2016
Net sales % of total
sales		 Net sales % of total
sales
Energy castings 4,757,759 58.58% 3,893,540 52.58%
Injection molding
machine castings		 1,784,435 21.97% 1,863,685 25.27%
Othercastings 1,580,276 19.45% 1,616,663 21.93%
Total 8,122,470 100.00% 7,373,888 100.00%
3. Current product categories
Mainproduct categories Application areas
Low-temperature high-tensile
spheroidal graphite iron castings and
gray cast iron castings for energy
applications		 Large-scale wind turbines (hubs, gear
boxes, and bases)
Steam turbine components for
large-scale power plants
High-grade spheroidal graphite iron
castings for injection moldingmachines		 Plastic injection molding machine
Other applications of high-grade
spheroidal graphite iron castings and
gray cast iron castings		 Large-scale high-precision machine
tools
Air compressor
Very large-scale rapid color printing
machine
Medical equipment (cancer therapeutic
apparatus, gamma knife therapeutic
apparatus)
  1. Planned development of new products: Engineering, mining, and marine equipment castings

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(b) Industry overview

1. Current status and development

Wind power industry

The world economy grew by a meager 2.2% in 2016, which represents the lowest growth rate since the recession in 2009. Due to the sluggish outlook of the global economy, investments are stagnant and global trade is slowing down. In addition, productivity growth is high and debts remain at high levels. Total global production is expected to expand by 2.7% and 2.9% in 2017 and 2018, respectively. This recovery trend signals a stabilization of the global economy. In view of the inextricable connection between demands, investments, trade, and productivity, the sluggish growth and expansion of the global economy may be mirrored in the wind energy industry.

Statistics released by the Global Wind Energy Council (GWEC) reveal that the newly installed wind power capacity in 2016 fell short of 55GW. New capacities did not reach the record-breaking number of 2015 but exceeded the records of all other years. The total global capacity currently exceeds 487GW. 241GW of this total capacity was added in the last five years. Despite the fact that the market share fell short of 60GW in 2016 (since the newly installed capacity in China only reached 23GW in 2016 as opposed to 30GW in 2015), the industry still achieved an aggregate growth rate of 12.6 ％ . In addition, the performance in China, Brazil, Germany, Mexico, South Africa, and Canada dropped somewhat compared to the base year of 2015. However, this is a matter of cyclic trends (except Germany and South Africa). The Global Wind Energy Council forecasts a turn for the better in 2017.

GWEC statistics also indicate that the Chinese wind power market gradually shifts to an optimized use of existing wind turbine generators. The number of new installations slightly decreased compared to 2015 but still exceeded 23GW, accounting for 40% of all newly added installations worldwide. China’s total wind power capacity is currently close to 170GW, comprising over 30% of the global capacity despite the fact that statistics released by the National Energy Administration reveal that on-grid capacity fell short of 150GW. India set a new record of 3,612 MW, which is only surpassed by China, the US, and Germany. India’s cumulative wind power capacity approaches 29GW, but it is currently planned to dismantle and re-commission installations of a total capacity of 4.5GW. Pakistan was the fastest growing market in the Asia Pacific region in

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  1. The country almost doubled its installed capacity to 282MW. The Australian wind power market also shows signs of positive development. The country added 140MW of operable capacity in 2016. Growth in Japan remains sluggish. In 2016, the country added a meager 196MW, but its total installed capacity surpassed Korea for the first time (201MW).

In 2016, Germany provided almost 40% of the newly added wind power capacity for the European market. The country added 5.4GW in new installations and achieved a total capacity of over 50GW. Despite the fact that newly added capacities slightly decreased compared to 2015, they still exceeded other EU countries by over 300%.

France and Turkey are two other successful examples in this region with significant growth and newly added capacities of 1.6GW and 1.4GW, respectively. The growth pattern in Sweden, Denmark, and Ireland was similar to 2015, while most areas in Central Europe and Eastern Europe did not exhibit any significant growth. Poland and Romania have recently promoted a wind power expansion program, but the anti-onshore wind turbine policy of the Polish government starts to affect the market. The capacity of newly installed wind turbines dropped from 1266 MW in 2015 to 682 MW in 2016. Romania, on the other hand, believes that the 2020 target for renewable energy sources can be achieved without relying on new installations and has therefore drastically reduced investments in wind power.

The Spanish market is on the verge of extinction with a mere 49 MW in newly added capacities. Italy did not exhibit any significant growth, either. The UK added 736MW of wind power in 2016 (56MW of this newly installed capacity consists of offshore installations). However, onshore installations hardly increased after the government withdrew its support.

A dramatic increase in the US in the fourth quarter of 2016 led to the installation of new wind turbines with a total capacity of 8.2GW, increasing the total capacity to over 82GW. The following five US states accounted for 75% of newly added capacities in the US last year: Texas(2611 MW), Oklahoma(1,462 MW), Idaho(707MW), Kansas(687MW), and North Dakota(603MW). Despite the fact that the new government seems to favor fossil fuels, the American Wind Energy Association (AWEA) is optimistic about the mid- and short-term prospects of the wind energy market. AWEA points out that new turbines with a

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total capacity of over 10GW are currently under construction, while projects with a total capacity of 8GW are nearing completion. AWEA states that these new wind power projects consist of 130 items spread out over 31 states. Canada, on the other hand, saw a dramatic drop of new wind power installations from 1545MW in 2015 to a mere 702MW in 2016. It is expected that new installations in 2017 will reach a capacity similar to that in 2016. In the long run, the prospects of the Canadian market look quite promising since Alberta and Saskatchewan make steady progress toward more ambitious renewable energy goals.

The economic crisis in Brazil stifles the demand for electricity and accounts for the sluggish growth of wind power in the country. In 2016, newly added capacities exceeded 2GW in 2016 compared to 3.2GW in 2015 and the total cumulative capacity reached 10.7GW. New installations in Chile exceeded those in Mexico and the total cumulative capacity amounted to 1424 MW in 2016. Mexico is still the second largest market in this region with a total capacity in excess of 3.5GW. However, newly added capacities in Mexico dropped from 692MW in 2015 to 454MW in 2016. Uruguay also joined the club of nations with a wind power capacity of 1GW. The country added 365MW in 2016, reaching a total capacity of 1,210 MW. Argentina is the fastest growing market in this region. However, the bidding process for two major renewable energy projects has just been initiated, which explains why no new wind power installations were added in 2016.

The South African wind power market is stagnating and the state-owned energy industry company Eskom has delayed the signing of power purchase agreements with wind energy developers. The country added new installations of a total capacity of 418 MW last year and the total cumulative capacity reached 1,471MW. Morocco offers the best opportunities for wind power developers in this region. Despite the fact that only 95MW were added in 2016, a consortium led by Enel is currently carrying out a project encompassing five items with a total capacity of 850MW. Siemens will provide a portion of the turbines and Vestas turbines will drive the 120MW Khalladi project which will be commissioned this year. The goal of the Egytian government is a wind power capacity of 7GW by 2022, but progress is sluggish. The Egyptian government has secured the funds for a 200MW project and plans to initiate the bidding process later this year.

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For the European offshore wind power industry, 2016 was a year of relative lull. Even the UK which is the leading nation in the field of offshore wind power added a mere 56MW. It should however be pointed out that projects of a total capacity of 700MW are currently in their final stages and are expected to be completed this year. Germany added a total of 813 MW in offshore wind installations in 2016, resulting in a total offshore wind power capacity of over 4GW. The Netherlands added 691 MW in offshore wind power capacity. The largest part of this capacity is provided by the newly commissioned Gemini offshore wind farm. Following the completion of the 30MW Block Island project, the US entered the age of offshore wind power generation. South Korea followed suit by completing the 30MW Tamra wind farm, the country’s first commercial offshore development project. In China, the progress of offshore wind power development is still sluggish. However, newly added capacities of 59.2 MW exceed those in Denmark, turning China into the third largest offshore wind power nation behind the UK and Germany.

Ranking of countries by newly added/cumulative wind power capacities in 2016

==> picture [342 x 277] intentionally omitted <==

Source: GWEC, February 2017

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==> picture [132 x 249] intentionally omitted <==

==> picture [140 x 246] intentionally omitted <==

Global cumulative and newly added wind power capacity (the chart on the right shows offshore capacities)

Source: Windpower Monthly

Injection molding machine

The application range of injection molding machines is very wide and includes injection molding operations in the fields of household appliances, food products, automobiles, construction, pharmaceuticals, aviation, national defense, petrochemistry, and the casing of cell phones, cameras, notebook computers, and other digital devices. The evaluation of plastic goods is mainly based on three factors: 1. Outer appearance including integrity, color, and luster 2. Accuracy of dimensions and relative positions 3. Physical, chemical, and electrical properties correspond to the purpose. Quality and size requirements vary based on different usage locations.

Injection molding machines are mainly manufactured in Germany, Austria, Italy, and Japan. However, in view of the performance in 2014, the US growth potential should not be underestimated. Europe and Japan mainly produce high-precision large-scale injection molding machines with high technology content and high added value. Following the import of technologies and technological innovation over many years, the Chinese molding machine industry is gradually elevating its manufacturing standards in the field of low-end injection molding machines and is now playing a leading role in this market due to the added impact of a competitive advantage in the area of labor costs. In addition, a large

68

number of European and Japanese enterprises set up factories or R&D centers in China to reduce costs and get closer to the domestic market.

North America was the area with the most impressive performance between 2014 and 2015 with an output volume of 4000 machines in 2015. The main reason for this high production volume lies in the fact that a large number of plastic processing enterprises built new plants in this area (suppliers of North American car makers in particular). Numerous automobile manufacturers and their plastic part suppliers have built factories in the Southeastern US and Mexico. Manufacturers of electrical appliances and plastic packaging have also seen growth. It is expected that Mexico will turn into one of the regions with the largest demand for injection molding machines in 2016. There are currently around 4,400 plastic manufacturers in Mexico (84% of them are small- or micro-sized enterprises) with a total annual production capacity of 5 million tons of plastic products. In the upcoming years, the annual growth rate is expected to reach 9-10%. Around 43% of these products are bottles or packaging materials. Other products are widely applied in the packaging, construction, furniture, and toy industries as well as agriculture.

In addition, the US output of plastic has exceeded that of other countries for many years. Texas' and California's combined output of plastic goods is ranked second in the world. Due to the advantage of low costs in Mexico, numerous plastic processing enterprises in the above-mentioned two states have moved into Mexico, providing a shot in the arm for the Mexican plastic industry. Small-scale facilities predominate and all-electric machines have an edge. Smart, automatic, and high-speed machines with program design are favored by the market. Equipment with applications in the fields of health care, consumer products, and silicon materials have a strong footing in the market.

Statistics released by the Committee on Equipment Statistics (CES) which is subordinate to the Society of the Plastics Industry (SPI) reveal that the total value of new orders placed in the fourth quarter of 2016 reached US$ 390.2 million, exceeding the third quarter by 24.2%. A CES report points out that the output volume of new equipment in 2016 will increase by 1.2% compared to 2015.

Machinery industry

The machinery industry is of fundamental and strategic importance for every nation and is the mother of all industries. The machinery sector is closely connected to other sectors and provides suitable and highly efficient production equipment and facilities to satisfy the demand of other industries. The machinery industry covers a wide range and can have a

69

wide or narrow meaning. The wide definition of machinery industry includes the five main categories of general machinery, electrical machinery, transportation tools, high-precision machinery, and metal goods, while the narrow definition only refers to production machinery and facilities and auxiliary equipment directly used by different industries including metal processing machinery, industrial machinery, special and electrical manufacturing machinery, general machinery, transportation and automation facilities, metal molds, and other machinery and components.

The customers of Yeong Guan Energy Technology Group are distributed in four main categories: Energy, injection molding machines, medical equipment, and industrial machinery. The last category includes machine tools, air compressors, marine equipment, nut making machines, gear processing machines, printing machinery, rubber machines, paper making equipment, tile making machines, cement machines and equipment, conduit valves, and transportation equipment and components. An overview of the development of machine tools and air compressors, the main applications belonging to the category of industrial machinery products of this company will be provided below:

A. Machine tools

The term machine tools refers to motive power manufacturing equipment which is used for precision cutting of metals to manufacture other machines or processed metal parts. Machine tools are commonly known as “the mother of all machines” or “mother machines”. Machine tools may be used for molding, cutting, and bonding. Machine may be divided into the following categories based on usage purposes: lathes, milling machines, grinding machines, and drilling machines. Based on the level of computerization they may also be divided into traditional metal cutting machines, numerical control (NC) machines (equipped with automated control but not with digital control), and computerized numerical control (CNC) machines which have wide application in the machinery, automobile, electronics, mold, and, aerospace industries.

Machine tool manufacturers must adopt a strategy of low prices and high performance to enhance their international competitiveness. In addition to the lowering of product prices through manufacturing technologies and component modularization, localized and low-cost key technologies and components such as high-speed spindle technologies, high-speed feed technologies, high-precision ball bearings, high-speed high-precision ball screws, high-performance servo motors and servo controls, and CNC software technologies must be developed independently. The design and development of key technologies and components is therefore one of the key development goals of machine tool manufacturers. Yeong Guan can supply industrial machinery business customers with

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fatigue-resistant ductile cast iron which is suitable for high-speed applications.

The global machinery tool market was in a slump in 2015. Reports of professional research institutions indicate a decline of global production value forecasts from $EU 64 billion at the beginning of the year to 59.3 billion in October. A detailed market analysis however reveals the emergence of a phenomenon called “the strongest prevail” in almost all machinery industries in 2015.

In addition, the favored weapon of Chinese manufacturers to control prices through volume has also lost its past effectiveness. The added impact of the strong depreciation of the Euro at the beginning of the year and the weak Japanese Yen has led to a situation in which more markets turn to high-end/highly efficient/smart European and Japanese manufacturers.

The brisk demand for machine tools in 2017 is a clear indicator for economic recovery. The rising demand for machine tools also boosts the demand for other types of industrial machinery. The Company will actively develop new demands and products.

B. Air compressors

Air compressors are capable of converting mechanical energy into gas pressure energy and compressed air pressure. Based on the compression methods, compressors can be divided into Positive Displacement Compressors and Dynamic Compressors. Based on the cooling method air compressors can also be categorized into water-cooled and air-cooled types. In addition, compressors can also be classified into lubricated and non-lubricated types based on the fact whether or not air is mixed with lubricating oil during the air compression process. Lubricating oil has a lubricating and cooling effect on any machinery equipment. In lubricated air compressors, it also has a sealing effect and thereby enhances the volumetric efficiency of air compressors. From an energy conservation perspective, the efficiency of lubricated air compressors is much higher than that of non-lubricated compressors. However, it is impossible to completely remove the oil gas from the compressed air through a meticulous filer mechanism. Despite the higher energy efficiency of lubricated air compressors, the purchase costs and pressure loss generated by the precise filter mechanism as well as the energy loss are also quite significant. Most clients therefore favor non-lubricated air compressors. In the upcoming years, the petroleum, chemical, metallurgy, shipping, environmental protection, and clean energy industries will continue to develop and the demand outlook in the compressor market is still expected to be positive.

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However, this highly competitive environment has also generated quite a few positive changes. Last year, many businesses still pondered how to develop their products. This year, the focus has shifted to the selection of an appropriate business model. How can energy-saving products be realized? The air compressor industry cannot survive without transformations regardless of whether businesses are willing or not or whether they are active or passive. The reconstruction of the corporate value chain through innovations and reforms is a key prerequisite for development in this new era.

In 2017, the machinery industry enjoyed brisk orders and the demand of leading brands for injection molding machines, machines tools, and air compressors rose significantly. Although price competition is fierce, key players tend to dominate the market and end customers gradually understand that quality has its price and that the prices charged by leading brands represent a quality guarantee.

Medical equipment

Since the 1970s, electronic instruments have been adopted for medical purposes. Large-scale high-precision medical equipment such as CT, MRI, medical linear accelerators, ultrasonic positioning extracorporeal shock wave lithotripsy devices, PET, and ultrasonic diagnostic devices have wide application areas. These devices and medical technologies not only focus on the cure of communicable diseases and the enhancement of rescue technologies but place greater emphasis on minimally invasive examinations and precise medical treatment. In addition, global medical equipment and facilities have evolved from surgery and treatment equipment to diagnosis and monitoring equipment, which has led to a rapid development of the medical instrument industry. The global market for medical supplies was affected by regional economic growth patterns in 2012. The market structure and growth rates saw significant changes. Slowed down economic growth in Western Europe and Japan led to a lower growth rate for the medical instrument market. The exchange difference of the currencies of these two regions was greatly affected by these developments which resulted in changes in annual market values. In addition, the continued growth of the senior population in these regions also leads to a rising demand for medical equipment. Due to the impact of future economic changes, all countries will assess the reasonableness of medical expenses even more carefully and respond by tightening insurance reimbursements. It will therefore be imperative to constantly monitor changes in economic policies and insurance reimbursements to be able to respond to transformations of the global medical instrument industry. On the other hand, the Affordable Care Act proposed by President Obama contains hidden business

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opportunities for providers of “affordable” medical equipment. This new policy has a considerable effect on European, American, and emerging markets. In the face of this trend, manufacturers should reconsider their product positioning, pricing, and marketing strategies.

In contrast to high market uncertainty in Western Europe and Japan, the rapid growth of emerging markets generates a higher demand for medical instruments. Following the gradual improvement of the economic situation in Mainland China, India, and emerging ASEAN markets, governments successively adopt policies for the improvement of medical infrastructure, which in turn leads to higher health awareness of the general public and stimulates purchase demands and development of the global medical instrument market. It is expected that emerging markets have the greatest potential in the field of medical instruments and supplies. This includes the Southeast Asian region, Latin America, and Central and Eastern Europe. Global manufacturers accelerate their deployment in these markets and the identification and firm grasp of business opportunities represents a key future objective.

In response to a gradual emergence of demand in emerging markets regulations governing the medical instrument industry will be adjusted through a harmonization of relevant laws and regulations in the face of frequent transactions of medical instruments and emerging demand. In addition to a firm grasp of demands and business opportunities, a full understanding of medical instrument related laws and regulations in target markets and advance responses are also of paramount importance to gain rapid access to these markets.

Research data released by BMI in 2013 indicate that the global market for medical instruments had a total size of 304.6 billion USD in 2012. America, Europe, and the Asia Pacific region accounted for 45.4%, 30.0%, and 22.2%, respectively. It is expected that the size of the global market for medical instruments will reach 429.7 billion USD in 2017 and the compound annual growth rate (CAGR) of this market is projected to amount to 7.1% between 2013-2017. The growth rate of the Asia Pacific region is expected to exceed that of America and Western Europe.

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Forecast of the size of the global medical instrument market

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----- Start of picture text -----

Western Middle East/ Central/Eastern Asia Pacific America Global
Europe Africa Europe
Source: BTM, IEK, November 2013
Unit: 100 million USD
----- End of picture text -----

According to data released by CA Cheuvreux, most sales of radiation therapy equipment was concentrated in America and Europe in 2010. America is the largest market with a penetration rate of radio therapy accelerator equipment around 11.9 devices per one million people on average, while Ireland and Northern Europe have penetration rates of 8.6 and 7.3 devices per one million people, respectively. On the contrary, penetration rates of radiation therapy equipment in many countries with large populations are relatively low. For instance, penetration rates in China and India amount to a mere 1.1 and 0.1 devices per one million people. These countries obviously offer an excellent growth potential for providers of radiation therapy equipment.

The medical equipment industry is also affected by the global recession and oil prices. Due to the high unit prices, medical institutions in developing countries tend to cut down on their expenditures and their willingness to invest in such equipment is comparatively low, which in turn leads to sluggish sales and declining sales performance on the part of medical equipment manufacturers. Currency depreciation all over the world also has an impact on sales. A recovery of the medical equipment market is not expected in the short run. The worsening market climate affects all manufacturers. This is not related tom product issues but rather to the fact that countries are more careful in their assessment of capital expenditures. Extension of the service life of existing equipment serves as a substitute for the purchase of new devices.

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----- Start of picture text -----

Penetration Rates of Radiation Therapy Equipment
15 11.9 by Region
10 8.6
7.3 6.6 6.5 6.0 6.0 5.9 5.8 5.8 5.1 5.0
5 3.6 2.8
1.4 1.1 0.7 0.2 0.1 0.1 0.1
0
US HK UK
Scand… Japan New… Germ… Nethe… Singa… South… Malay… China Thaila… Philip… India Indon…
Ireland Austrlia Taiwan Belgium Vietnam
----- End of picture text -----

Source: CA Cheuvreux, 2010/6

Our main client for medical equipment is one of the leading manufacturers of radiation therapy equipment in the world. The company's product range encompasses neuroscience, oncology, brachytherapy. In addition, the company has developed highly sophisticated systems in the field of radiation therapy and software to enhance the efficiency of the cancer treatment process. The China Food and Drug Administration (CFDA) approved the sale and marketing of the Flexitron® brachytherapy platform in China. The company will maintain its focus on North America and will actively develop the Latin American, Chinese, and Japanese markets. Elektra currently has a US market share of 15% . Our clients request more flexible delivery times and adjustment of business models in accordance with their needs and wishes. Make-to-stock has been transformed to make-to-order and orders will be less visible in the future. This new business model affects short- and long-term operative goals. We are committed to enhancing our own competitiveness to provide the best quality at highly competitive prices in response to market developments.

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----- Start of picture text -----

million USD Global Radiation Therapy Market Forecast
8,000
5,783
6,000 4,985 5,372
4,625
4,290
3,992
4,000
2,000
-
2010 2011 2012e 2013f 2014f 2015f
----- End of picture text -----

Source: Koncept Analytics, November 2010

We continue to actively develop new clients in the field of medical equipment assembly. The leading manufacturer in the field of proton therapy is introduced below: Proton therapy

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The main manufacturers of radiation therapy equipment are listed below:

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SBRT(Stereotactic Body Radiation Therapy)

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  1. Relationship between up- mid- and downstream industries

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----- Start of picture text -----

Upstream Downstream
industries Own industry market
Raw Consumer
Product manufacturing,
materials market
technology development
Raw materials: Product R&D, Raw Livelihood industries,
Pig iron, scrap material dissolution, Wind power industry
steel casting, forming, Machine tool industry
Auxiliary Machine processing
materials:
Resin,nodulizer
----- End of picture text -----

Castings have a very wide application range which currently includes the hardware, machinery, and electronics industry with a constantly expanding range of uses. Castings are used in construction, hardware, equipment, engineering machinery, and other large-scale machinery as well as the machine tool, shipping, aerospace and aviation, automobile and motorcycle, and electronic appliance industries.

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3. Economic and industrial development and product competition trends

Wind power industry

A. Analysis of wind power market shares in 2015

According to preliminary surveys of FTI Intelligence, Vestas turned into the largest supplier of wind turbines in 2016 mainly due to the company’s efforts in the US market. Vestas surpassed the US company GE in this market. GE and Enercon, on the other hand, relied on robust growth of the domestic markets in the USA and Germany to move up to the second and fifth rank, respectively. The Chinese supplier Goldwind dropped two ranks and is currently ranked third mainly due to a decrease of new wind power installations by 24% in 2016. The Spanish company Gamesa moved up one rank to fourth position, which can be attributed to the company’s excellent performance in India and emerging markets.

Ranking in 2016 Wind turbine
manufacturer		 Compared to 2015 Note
1 Vestas +1 Ranked 2ndin 2015
2 General Electric +1 Ranked 3rdin 2015
3 Goldwind -2 Ranked 1stin 2015
4 Gamesa +1 Ranked 5thin 2015
5 Enercon +1 Ranked 6thin 2015

Source: FTI Intelligence (Gamesa data does not include Siemens) Statistics released by GWEC reveal that new offshore wind power installations with a capacity of 2,219 MW were added in 2016 bringing the total global capacity to 14,384 MW. Europe, which is the largest market for offshore wind power in the world added offshore installations with a total capacity of 1,558 MW in 2016, which represents a decrease by 48.4% compared to 2015. The newly added offshore wind power capacity in 2016 was comparable to the level of 2013 and 2014. Siemens Wind Power and Mitsubishi Heavy Industries/Vestas account for 96.4% and 3.6% of all new offshore wind power installations in Europe, respectively. Grid-connected wind turbine generators have capacities of 3 to 8 MW (Market shares for other markets have not been released yet)

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Source: WindEurope

B ． Market forecasts

The wind power industry outlook report published by the industry analysis firm MAKE in March 2016 reveals a projected annual growth rate of 0.8% of the global wind power market for the next ten years. It is expected that the growth rate in Latin America, India, and the Middle East will greatly exceed that of traditional wind power markets.

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Source: MAKE

Global investments in offshore wind power in 2016 reached 29.9 billion USD, which represents a 40% increase year-on-year. The Danish Dong Energy Corporation made the largest investment in 2016. The company decided to invest 750 million USD in the construction of the 1.2GW Hornsea Project One. Despite the fact that European offshore wind power projects (total value of 25.6 billion USD) accounted for the bulk of global investments, offshore wind power investments in China also amounted to 4.1 billion USD in 2016.

Data released by Bloomberg New Energy Finance (BNEF) reveals that the growth of global offshore wind power investments in 2016 could not reverse the global trend of declining investments in clean energy sources. Global investments in clean energy dropped by 18% to 287.5 billion USD compared to 2015. Investments by clean energy industries in the Asia-Pacific region (including India and China) decreased by 26% to 135 billion USD, while investments in the US dropped by 7% to 58.6 billion USD. On the contrary, investments in clean energy in Europe rose by 3% to 79 billion USD.

Dramatically decreasing offshore wind power tariffs is a phenomenon which has been brewing since 2016 and will finally erupt in 2017. For instance, the tender price for the Dutch Borssele 1 ＆ 2 in June dropped to an unexpected low of 72 Euro/MWh. Another

example is the tender price of near-shore projects in Denmark in September which fell to 64 Euro/MW. The tender price of the Kriegers Flak project in November further dropped to a shocking low of 49.90 Euro/MWh. The transaction price of Dutch Borssele 3 ＆ 4 project in December was 54.50 Euro/MWh. These prices are sure to draw the attention of other offshore wind power markets. A strange (albeit temporary) situation of onshore wind power being cheaper than offshore power has emerged in certain European countries. There are many reasons for this price drop such as maturity of the industry, improvements and maturity of technologies and management, growing investor confidence, and adoption

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and deployment of new-generation 6-8 MW turbines (9 MW V-194 are currently available). These wind turbines have a huge swept area and power generation capacity. Based on these observations, we predict that offshore wind power will soon appear in markets other than Northern Europe such as North America, East Asia, India, and other regions.

GWEC forecasts that the US, Germany, and India will maintain their development rate in 2017. At the same time, the Brazilian economy shows signs of recovery, which should help restore some demand for wind power in this market. The growth outlook of the South African wind power market is also improving due to the fact that the stalemate between the South African President Zuma and his relatives on the one hand and regulatory agencies and the industry on the other is seemingly about to end. As for other areas of Africa, construction of a 850MW project in Morocco which was auctioned off at a record low price was initiated in 2016, while the Lake Turkana project in Kenya is slated to be completed in the first half of this year. In addition to the recovery in Brazil, the GWEC forecasts the initiation of a large number of new wind power projects in Argentina, most of which will not be completed in 2017. The Chilean wind power industry is currently developing vigorously, the Peruvian market is recovering, and Colombia is gradually turning into a new potential market. Within the next two years, the Australian market is expected to stage a recovery and the Philippines and Vietnam could turn into markets with huge potential.

GWEC also expects new installations with a capacity of 30GW for the Chinese market in 2017 in the wake of planned further reductions of feed-in tariffs in early 2018. Despite the fact that new HVDC lines are expected to alleviate the problem of wind power curtailment, the issue still exists. The main problem does not lie in a lack of transmission lines but an insufficient willingness on the part of regional system operators to give priority to wind power transmission in accordance with the Renewable Energy Law of the PRC and the fact that the central authorities are unwilling or incapable of enforcing this law. This problem will persist unless China implements true reforms in its electricity market. The national emission trading system which was implemented this year will at least provide relief in the economic dimension.

The previously released 13th Five-Year Plan for wind power development provided effective effective guidance and direction for the development of the industry in the upcoming five years or even longer. Stable scope, optimized layout, greatly reduced wind power curtailment, and a sound market mechanism represent the four plan highlights. The Chinese government has made a firm commitment to realizing the goal of raising the ratio of non-fossil energy sources to 15% and 20% of primary energy consumption by 2020 and 2030, respectively. After the Paris Agreement became effective on November 4, this commitment was elevated to a legal obligation and a binding target. According to estimates of relevant agencies, power generated through non-water renewable energy sources (contributions of nuclear and hydropower deducted) must reach at least 50TWh by 2020 to ensure achievement of the 15% target. Based on average usage hour calculations for different renewable energy sources, grid-connected wind power installations must reach a capacity of at least 0.21 TWh. Wind power is a strategic emerging industry. Current conditions point to the conclusion that annual new installations of a total capacity of at least 20GW are required to facilitate industrial and technological progress.

The plan prescribes a concrete direction to optimize the industry layout. The core contents

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of the plan aim to accelerate the large-scale development of wind power in eastern, central, and southern China and optimize and adjust the industry layout. The latest assessments of the China Meteorological Administration indicate that the wind speed of 5m/s or more in this area allows the development of a wind power capacity of close to 0.9 TW through available wind resource technologies, which will satisfy future development needs. The plan significantly increased the development targets for this area to turn eastern, central, and southern China into a key incremental market for the continued large-scale development of wind power. For onshore wind power, the goals are newly added grid-connected installations of a total capacity of 42GW or more and an aggregate grid-connected capacity of 70GW or more. If new offshore wind power installations are taken into account, newly added grid-connected installations in eastern, central, and southern China account for 56.9% of all new installations in China, which far exceeds the goal of 25.8% stipulated in the 12th Five-Year Plan. At the same time, cumulative grid-connected installations in this area will also rise from the 21.7% stipulated in the 12th Five-Year Plan to 33.3%.

Table 1 2020 Onshore Wind Power Development Targets in Eastern,
Central and Southern China
No. Area Cumulative grid-connected
capacity (unit:10,000kW)
Eastern China ShanghaiCity 50
JiangsuProvince 650
ZhejiangProvince 300
Anhui Province 350
Fujian Province 300
Eastern China total 1650
Central China Jiangxi Province 300
Henan Province 600
Hubei Province 500
Hunan Province 600
ChongqingProvince 50
Sichuan Province 500
TibetAutonomousRegion 20
Central China total 2570
Southern China GuizhouProvince 600
Yunnan Province 1200
GuangdongProvince 600
Guangxi Zhuang
AutonomousRegion		 350
Hainan Province 30
Southern China total 2780
Onshore wind power total 7000

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Table 2 2020 Onshore Wind Power Development Targets in the three northern regions

Table 2 2020 Onshore Wind Power Development Targets
in the three northern regions		 Table 2 2020 Onshore Wind Power Development Targets
in the three northern regions		 Table 2 2020 Onshore Wind Power Development Targets
in the three northern regions
No. Area Cumulative grid-connected
capacity (unit:10,000kW)
Northern China Beijing City 50
TianjinCity 100
Hebei Province 1800
Shanxi Province 900
ShandongProvince 1200
Mengxi Area 1700
Northern China total 5750
Northeast JiangningProvince 800
Jilin Porvince 500
HeilongjiangProvince 600
MengdongArea 1000
Northeast total 2900
Northwest Shanxi Province 550
GanshuProvince 1400
Qinghai Province 200
Ningxia Hui Autonomous
Region		 900
Xinjiang Uyghur
Autonomous Region
(including the Xinjiang
Production and
ConstructionCorps.)		 1800
Northwest total 4850
Three northern regions total 13500

New energy policies in Taiwan will be determined by the new government led by Tsai Ing-Wen, who was elected president early this year. The political views of President Tsai as summarized by the Industrial Development Bureau indicate that the new government plans to increase the target of an offshore wind power capacity of 2GW in 2025 set by the outgoing Ma Government by 50% to 3GW.

The Tsai government plans to realize its new energy goals through policy guidance, sound infrastructure, establishment of an application environment, and promotion of international cooperation, and industrial autonomy.

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Power Installed capacity (MW) Installed capacity (MW) Installed capacity (MW) Power generation
(100 million kWh)		 Power generation
(100 million kWh)		 Power generation
(100 million kWh)
generation
categories		 2015
Current		 New 2025
Current		 Projected 2030
Current		 Capacity
factor		 2025
New
Current		 2030
Current
state government government increase government government government
government
Land
Wind power offshore
Small-scale
Hydropower
Photovoltaic Roof
Ground
Geothermal
Biomass energy
Total

Source: Political views of President Tsai Ing-Wen (organized data): Renewable Energy Promotion Program of the Industrial Development Bureau Feb. 2016

Injection molding machines

The following trends will determine the development of injection molding machine technologies in 2016:

China has accelerated the development of high-precision injection molding and extruding machines. The market for high-precision injection molding machines is currently dominated by international brands such as Engel and Krauss-Maffei. 60% of the 20,000 injection molding machines which are imported by China every year are high-precision machines. In many application fields of multy-layered co-extrusion and molding machines, Chinese machinery is no match for foreign-made machinery as far as accurate control technologies are concerned. As for extruding equipment, biaxially-oriented film machines PET (PA, BOPP) and medical tube extruders are also monopolized by international brands. It is therefore of paramount importance to develop domestically produced high-precision injection molding and extruding machinery with independent intellectual property rights

Analysis and comparison of currently available data for the first half of 2016

  1. From January to June 2016, China imported 2611 injection molding machines, a 14.3 % decrease compared to the same period of the previous year. The total value of imported

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injection molding machines dropped by 21.8% to US$ 273.5 million. In June alone, China imported 595 machines of a total value of US$ 56.08 million, representing a decrease by 4.5% and 16.4%, respectively, compared to the same month of the previous year. 2. From January to June 2016, China exported 13737 injection molding machines, a 17.2 % increase compared to the same period of the previous year. The total value of exported injection molding machines dropped by 4.1% to US$ 485.23 million. In June alone, China exported 2313 machines, which represents a 12.8% increase compared to the same month of last year and a 40.4% decrease compared to the previous month. The export value in June amounted to US$ 90.8 million, a 3.9% increase compared to June of last year.

The technical performance of standard and special injection molding machinery made in China has been greatly improved in recent years. A large number of performance indicators of fully electric, hybrid, or large-scale two-platen machinery made in China are identical or comparable to machinery manufactured in Japan or Taiwan. At the same time, injection molding machinery made in China has significant price and service advantages compared to Japanese and Taiwanese machinery. Against the backdrop of unfavorable economic conditions, a larger number of enterprises select local Chinese brands which has a considerable impact on machinery produced in Japan and Taiwan.

The most high-end injection molding machinery is produced in Germany. Despite the unfavorable economic conditions, the import quantity and value of German injection molding machinery has remained stable between January and June. This clearly indicates that China’s demand for high-end injection molding machinery is still high.

Injection molding machinery export conditions

Chart 3 Chinese injection molding machinery export data broken down by month (January-June 2016) (Unit: 10,000USD, units)

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----- Start of picture text -----

Quantity Quantity Amount Amount
----- End of picture text -----

Chart 3 clearly shows that the export value of Chinese injection molding machinery from March to June 2016 was higher than in the same period of 2015. From January to June 2016, a total of 13737 Chinese injection molding machines were exported, which

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represents an increase by 17.2% compared to the same period of 2016. The export value reached US$ 485.23 million, a drop by 4.1% compared to the same months in 2015.

Chart 4 Top ten importing nations of Chinese injection molding machinery ( January-June 2016)

Unit: 10,000USD/unit Unit: 10,000USD/unit Unit: 10,000USD/unit
Country Amount Quantity Amount
compared to
the same
period of the
previous year		 Quantity
compared to
the same
period of the
previous year
Vietnam 5403 1628 64.4% 76.8%
USA 4617 455 36.4% 8.1%
Turkey 3785 694 -6.8% -3.3%
Mexico 3707 404 88.3% 30.3%
Indonesia 1897 451 -2.7% -26.1%
Korea 1764 580 -30.8% -18.4%
Thailand 1430 237 -46.0% -44.9%
Bangladesh 1167 385 -23.3% 36.0%
Russia 1129 337 78.4% 85.2%
Malaysia 1039 2117 -51.1% 339.2%

Chart 4 shows that Vietnam has surpassed the USA as the largest importer of Chinese injection molding machinery with a growth rate of over 60% compared to the same period of the previous year. The USA was ranked 2[nd] with a growth rate of 36.4%. The growth rate of Mexico and Russia reached 88.3% and 78.4%, respectively. Turkey, Indonesia, Korea, Thailand, Bangladesh, and Malaysia exhibited different levels of decrease. Imports 。 by Malaysia dropped by the widest margin of 51.1%.

A. Development of large-scale and micro machines

International currently focus on the development of large-scale and micro machines. Large-scale and micro machines in China are currently still in a fledgling stage.

The design and manufacture of large-scale and micro plastic machinery is inextricably linked to the national standard of machine production and materials technology. Emphasis must be placed on the establishment of a technology foundation and intellectual property right system in the initial stage. International brands such as Krauss-Maffei have already initiated the research and development of 8,000-12,000 ton models, while the Chinese brand Chende has launched the development of a 6,500 ton models.

Miniaturization represents the main development direction for all product categories. The obvious momentum in the fields of electronics, information, electrical appliances, medical treatment, and biology reflected in rising demand is evidence for this. The demand for production equipment for plastic tubes of a diameter of less than 0.5mm which can be used as artificial blood vessels and high-performance soft packaging film for a wide variety of industry fields such as food products, beverages, and new energy continues to surge.

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Plastic film multi-layer co-extrusion technologies are constantly innovated. For instance, Nissei currently focuses on the development of micro machinery.

B. Development of energy-saving plastic machinery

In view of a global trend of energy conservation and carbon reduction, the government has formulated new energy conservation benchmarks for all industries. Traditional plastic machinery has a certain potential for energy conservation due to the fact that the focus of past designs often lay on the maximization of machine productivity. The main plastic machinery production bases in China such as Ningbo, Foshan, and Dongguan therefore implement stripped down designs for plastic machinery.

Production rates will no longer be the main consideration for the design of energy-saving plastic machinery, which will instead focus on the energy consumption generated by heavy goods of processing units. Optimized design of machinery structure, control modes, and operation technology conditions is therefore implemented based on the goal of minimization of energy consumption. Advanced energy conservation technologies are adopted. For instance, the power conversion efficiency of motors with variable frequency speed control is much higher than that of motors with electromagnetic speed control or direct current motors. Following the maturity of variable frequency speed control technologies and the decreasing cost of variable frequency speed regulators, these technologies are widely adopted in the field of plastic machinery and extruding equipment in particular.

C. Development of automated smart plastic machinery

The development of automated plastic machinery will greatly increase the stability and reliability of such machines. This will be conducive to the enhancement of high quality, efficiency, and energy conserving production functions and production rates and the reduction of labor intensity and costs as well as the improvement of labor conditions and maximization of equipment usage rates.

A large number of new control devices are being adopted. For instance, Programmable logic controllers (PLC) replace traditional relays. Programmed controllers and micro computers are used for process and parameter control of injection molding machines. These new control methods are extremely important for high-precision molded goods. They can automatically adjust the molding conditions and thereby guarantee the dimensions and quality of finished goods. The production process of machines for the manufacture of generic goods is fully automated from material input to the testing and packaging of finished goods. Machine safety is ensured through relevant safety devices. Safety is fully automated and centrally managed allowing unmanned operation.

D. Network-based smart management

The essence of “Industry 4.0” lies in the realization of an industrial Internet, or in other words the linkage of virtual and physical networks to form a highly effective production system. Maximization of competitive advantages of this traditional industry is achieved through the Internet and big data analysis and clustering and linkage of competitive industry chains through innovative information installations In the face of upgrading pressures of the manufacturing industry and disappearance of demographic dividends, the

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plastic machinery industry realizes its own “Industry 4.0”. Industry development is fully linked to the Internet. Network-based management technologies from production management to after-sale services are non-equipment related technologies but are inseparable from relevant equipment. Auxiliary equipment and host machine manufacturers use network-based management systems as one of their equipment control functions.

Industrial machinery

  • A. Smartness and automation

Establishment of autonomous key components and technologies, promotion of high-precision manufacturing and services, and development of high-end system controllers to create A+ high-end machine tools and new-generation smart factory control systems. A rising number of manufacturers have adopted robotic arms and automated production processes. The characteristics of the casting industry are different, but partial semi-automation can effectively improve production processes and data recording.

  • B. Green manufacturing

Promotion of green manufacturing concepts with an emphasis on sustainability, renewability, material and resource conservation, and eco-friendliness to develop a green manufacturing industry, green industrial manufacturing, and green competitiveness. While water will be a key resource in the future, the importance of crude oil will decrease due to diversified power generation methods and a rising awareness of energy conservation and carbon reduction. Automated production processes will eliminate generated waste. A large number of major manufacturers actively adopt automation and green manufacturing concepts. Our customers also sincerely hope that we cooperate with them in the inspection of process waste and active improvements and share the profits generated through these savings with them.

Medical equipment

A. New health care industry model

  • (A) Effective use of medical expenses: Medical expenses in Europe and America are skyrocketing, while those in emerging markets are very limited. The emphasis has shifted from expenses to benefits and from capitation to pay for performance

  • (B) Integrated information is conducive to health management: Emphasis on user-oriented thinking and provision of convenient and effective products and services, data integration and analysis to create value

  • B. Demand for products is affected by population aging; medical equipment for the treatment of diseases and life expectancy extension of the elderly population exhibits continued growth.

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  • C. Application opportunities for cross-disciplinary technologies increase rapidly and wearable health equipment becomes more popular

  • D. In view of the unclear economic situation, medical institutions are gradually adopting a more conservative attitude as far as capital expenditures and purchase of new equipment is concerned. Clients are therefore forced to develop new device models to target different market segments. Business models have to be transformed from make-to-stock to make-to-order in the past. In addition, end clients have a high demand for product maintenance and warranties. Repair and maintenance to extend service lives reduces sales. Clients will therefore continue their efforts in the field of cost optimization, which in turn affects the suppliers. Flexible supplier strategies are therefore extremely important.

  • E. Supply chain management methods of the medical equipment industry are characterized by rising flexibility. The goal is to optimize the quality of services, minimize costs, and shorten delivery times of suppliers. Make-to-order production allows an effective reduction of inventories. The company must therefore more comprehensive service packages to satisfy customer demands.

  • (c) Overview of Technologies and R&D

  • Research and development expenses and R&D investments as share of revenue in recent years up to the first quarter of 2017

1. Research and development expenses and R&D investments
years up to the first quarter of 2017		 1. Research and development expenses and R&D investments
years up to the first quarter of 2017		 as share of revenue in recent as share of revenue in recent
Unit: 1000 NTD; %
2016
First Quarter of
2017
187,517
43,118
7,373,888
1,434,679
2.54%
3.01%
Year
Item		 2015 2016 First Quarter of
2017
R&D expenses(Note) 88,597 187,517 43,118
Revenue 8,122,470 7,373,888 1,434,679
Share of revenue(%) 1.09% 2.54% 3.01%

Note: R&D expenses are manpower and mold costs generated by technology improvements and development of new products

2.R&D Achievements

2.R&D Achievements
Technology orproduct type Properties andfunctions
Molding flask Based on the contour of the mold, these specially designed
flasks guarantee the use of suitable amounts of sand to reduce
sand-iron ratios and cooling times and improve turnover rates of
flasks.
Iron ball This sphere-shaped object is hollow and is added during stages
of molding and core making processes that consume large
amounts of sand. These balls can be recycled and reused and
helpreduce sand costs.
Inoculants with Bi conent Improve the grade of nodulization and enhance the mechanical
properties and quality ofcastings
EN-GJS-350-22U-LT Utilized in wind power and gas turbine products to ensure high
elongation rates, excellent low-temperature impact properties,
andhigh fatigueresistance
EN-GJS-400-18U-LT
Anti-overflow gate riser The effect of inertia when molten iron is poured into the mold
cavityfromtheladle during the casting process which leads to

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Technology orproduct type Properties andfunctions
overflow at the gate riser and an expanding area of molten iron.
This technical improvement prevents the overflow of molten
ironat gaterisers onto the surface ofsandmold.
Core-wire injection nodulizing
equipment		 Enhances the molten iron nodulization effect and quality
Unpluggable pouring basin Allows the pouring of molten iron of a weight equivalent or
approximate to the casting into the basin above the mold cavity
and ensures that impurities in the molten iron float to the
surface. When the plug is removed and the molten iron flows
into the cavity, the impurities are kept in the basin and out of the
casting.
ASME U STAMP(Certified by
American Society of Mechanical
Engineers)		 Permission certificate for export of pressure vessels to Europe
and the US
PED(pressure equipment
directive)		 Permission certificate for export of pressure vessels to Europe
Ceramic tube runner Decreases slag flowing into castings and enhances product
quality
CNC wooden pattern
processing		 Machine tools are employed for 3D programming of processing
patterns. This enhances the accuracy of the dimensions of the
pattern and the surface flatness, increases the service life of the
pattern, reduces the impact of human negligence and facilitates
the production and measuring of complicated shapes which
cannot be createdmanually.
PFMEA - Process failure mode
and effect analysis		 Increases the ability to control production processes and reduces
processrejectratios.
Optimization of gating systems Reduced use of ceramic tubes, decreased labor costs and
intensity, and enhanced yieldrate
Minimization of allowances for
pouring weight
Enhances the usage rate of molten iron and reduces energy
consumption
Promotion of the use of chips
in all plants		 The computerization of mold data enhances the consistency of
scheduling and production and reduces human error during
productionprocesses
Wind turbine hub rotary fixture Implementation of simultaneous setup and machining of three
flanges to effectively reduce processing times and enhance
productionefficiency.
Hollow core support
technology for wind turbine
hub castings		 Reduced consumption of core sand, decreased sand-iron ratio,
convenient core making operations and facilitate ventilation
during casting.
Ventilated and anti-leakage
flask		 Guarantees sufficient ventilation during the casting process and
facilitates mold closing and sand enclosing operations and
preventsleakage
Standardization of the base
plate ofpattern		 Reduce pattern costs and shorten pattern making times
Air-cooled iron core
technologies		 One end of the sand core is exposed to cold air and the other end
releases hot air to accelerate the cooling of heavy castings and
enhance the quality ofcastings
Ductile iron
castings(energy-type gas		 Refined inspection process to guarantee product inspection
quality

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Technology orproduct type Properties andfunctions
turbines)MT, UT Special
inspectioncode
Universal assembly and
welding device/tool		 Reduces assembly and welding times, enhances production
efficiency, and guarantees product quality
Styrofoam cylinder molding
technology		 Cylinder-shaped Styrofoam rapid molding tool for increased
productionefficiency
Specialtapping clamping cutter Enhanced efficiency andreduced costs
Converter Face mill cutter head is converted and clamped to boring shank
for reduced costs
C5 High-grade anti-corrosion
coating technology		 Improved and optimized coating techniques allow the highest
C5 grade corrosion protection and provide enhanced coating
quality
EN-GJS-600-10U-LT Wind power and gas turbine products are characterized by
excellent elongation characteristics and low-temperature impact
resistance as well as high fatigue resistance and weight
reduction
Casting dimension scanning
technology		 Enhances the accuracy and efficiency of casting dimension
detection
Coating automation Enhances the quality consistency and efficiency of spray coating
for castings

(d) Long- and short-term development plans

  1. Short-term development plans

(1). Customer dimension and after-sale services: Continued increase of sales opportunities in the Japanese and North American markets to enhance and balance the export market distribution. American and British sales representatives have been hired for the North American and European markets, respectively to accelerate market development and penetration and enhance after-sale service capabilities. A senior Danish processing technology consultant is stationed in Jiangsu Bright Steel Machinery to enhance processing capabilities and production capacity utilization efficiency.

(2). Expansion into new product areas and vertical services: Provision of vertically integrated services for existing products such as precise processing services for injection molding machines, assembly capabilities for existing products for which processing services are already available, and provision of more comprehensive services. In 2017 it is planned to add precise processing services for wind turbine gearbox castings. Components include the gearbox body, planetary brackets, and torque arms. Provision of processing services for finished products other than castings with higher demands for processing accuracy (an additional processing workshop with temperature and humidity control has therefore been established and a European/Japanese high-precision processing lathe was added to enhance product competitiveness)

(3). Horizontal expansion into new industries and product areas including the shipping industry, agricultural machinery, castings for the automobile industry, and the health care industry as well as horizontal expansion through acquisition of new customers in the same industry or cross-industry cooperation with existing customers. Expansion of sales to

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same-industry businesses upon successful initiation of cooperation with top-ranked enterprises.

(4). Energy industry: In view of the fact that the wind power market shifts toward offshore wind turbines, the company is searching for suitable locations for the production of large-scale castings. The next step in the planning of marketing strategies for the group lies in the planning of factories with integrated production processes that include casting, processing, spray coating, and assembly capabilities. This year, orders have been placed by key clients for the development of offshore wind turbines and deployment of capacities for future production bases is being planned.

(5).Production strategies: Processes are improved, yield rates and production efficiency are increased, production costs are reduced, and current production flows are optimized to increase production capacities and satisfy rising customer demands. A continued focus on supplier management and development allows the maintenance of positive and stable interactions with suppliers. In addition, the company also actively seeks cooperation with large international suppliers of raw materials to ensure a stable source of raw materials under conditions of wide price fluctuations in countries of origin.

2. Long-term plans:

(1) Marketing strategies: Balancing of regional sales ratios and reasonable allocation of sales volumes to different fields and industries to maintain a flexible utilization of production capacities and reduce the risks and impact of regional market fluctuations. Newly developed order quantities of existing top customers and increased purchase shares of key customers have an indicative and stabilizing effect on certain regional markets.

(2) Research and development: Cooperation with customers and participation in customer designs to resolve casting-related problems and optimization of product mixes and casting processes to reduce production costs. Maintenance of positive exchanges and interactions with relevant international industry associations to ensure a firm grasp of the main trends in the field of casting technologies worldwide.

(3) Production strategies: Integration of upstream and downstream resources to effectively reduce production costs and concerted efforts to increase yield rates and rigorous implementation of quality control operations to guarantee the provision of superior product services. Gradual adoption of automation concepts covering the whole range of production operations from mold making to spray coating to enhance and promote production concepts related to production control and data analysis.

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2. Market and sales overview

(a) Market analysis

1. Main products and sales regions

Unit: 1000NTD;% Unit: 1000NTD;% Unit: 1000NTD;% Unit: 1000NTD;%
Year
Region		 2015 2016
Amount % Amount %
Europe 2,595,647 31.96% 2,383,665 32.33%
China 2,859,938 35.21% 2,200,694 29.84%
USA 1,850,843 22.79% 1,460,238 19.80%
Asia 816,042 10.04% 1,329,291 18.03%
Total 8,122,470 100.00% 7,373,888 100.00%

2. Future supply conditions and growth potential of the market

Wind power industry

The global wind power industry still exhibits a long-term stable growth trend.

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It is expected that regional wind power markets display the same stable growth pattern.

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Paris Agreement enters into force

The United Nations Climate Change Agreement also known as the “Paris Agreement” came into effect on October 5, 2016. Among the 197 United Nations Framework Convention on Climate Change members, 132 have ratified the agreement. This solid international support shows the strong momentum in favor of a transition to clean energy resources.

The capacity of newly added wind power installations in 2016 dropped by 14% compared to 2015

In 2015, newly added wind energy capacities worldwide reached a record high of 63GW. 2015 has been the best year in the history of the wind power industry so far. However, new installations decreased by 14% in 2016 mainly due to sluggish demand in China. Nevertheless, the wind power industry still achieved impressive results in 2016. For instance, wind power turned into the second most important power generation method in Europe. The total installed capacity of wind power in Europe exceeds that of natural gas. In the US, wind power surpassed hydropower as the largest renewable energy source, while power generated through wind exceeded coal generated power in the UK in 2016.

In the US, short-term growth is guaranteed, while mid-term prospects are unclear

Short-term prospects in the wind power market in the US are still stable and the newly appointed Secretary of the Treasury has confirmed his support of the Production Tax Credit (“PTC”). However, the mid-term development of the US market is unclear since President Trump has repeatedly called for the repeal of the Clean Power Plan and withdrawal from the Paris Agreement.

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Continued integration of the Value Chain

Over the past 12 months, large wind turbine manufacturers merged with competing businesses(Siemens/ Gamesa, Gamesa / Adwen, Senvion / Kenersys, and WEG / Northern Power Systems), adjusted their strategic positioning, and expanded to upstream areas of the value chain(GE acquired LM blade manufacturer, Senvion acquired EUROS, and Nordex recently acquired SSP). In addition, state-owned Chinese enterprise are also unusually active in overseas markets, acquiring renewable energy assets in areas all over the world (SPIC acquired PacificHydroand China Three Gorges/Mei Rong).

Continued growth of corporate PPAs

The wind industry has invited a growing number of enterprises to sign independent Power Purchase Agreements over the past three years. These agreements represent direct contracts signed by wind turbine manufacturers and power consuming enterprises. The total utilization capacity of corporate renewable energy sources passed the milestone of 7GW in the US in late 2016. Europe lags behind America with direct contracts for only 1GW. However, it is expected that European enterprises will also gradually follow the example of their American counterparts in view of the long -term demand of commerce and industry(“C ＆ I”)for self-owned green energy sources, rising electricity tariffs, and competitive prices of renewable energy.

The Company’s main sales markets are China, Europe, and America. However, the European and US casting industry has been relocating to China due to the rapid growth of Chinese wind turbine manufacturers and lower manpower costs in China. This analysis therefore focuses on the Chinese market. Prior to 2000, Chinese wind power equipment manufacturers mainly relied on imports. The wind equipment castings industry is still in its initial stages, production capacities are small, and technical capabilities are limited. Following the rapid development of the wind power industry and rising procurement demands of domestic and international wind turbine manufacturers, casting businesses start to engage in the manufacture of castings for wind power equipment. The number of Chinese wind turbine generator manufacturers rapidly rose from 6 in 2004 to around 70 in 2008. This indicates that the industry has already reached a certain scale.

The Chinese Wind Power Development Roadmap 2050 was officially released on October 19, 2011. It is expected that the capacity of Chinese wind power installations will reach 1 TWh in 2050, which will meet 17% of the domestic power demand. After 2020, wind power prices will be lower than coal power prices and current wind power subsidy policies will be gradually phased out. The future outlook of wind power development can be outlined as follows: Prior to 2020, onshore wind power will represent the main focus and offshore pilot projects will be initiated. Between 2021 and 2030, onshore and near-shore wind power will be developed simultaneously and high-sea pilot projects will be initiated. Between 2031 and 2050, the full development of onshore wind power in eastern, central, and western China and near-shore and high-sea wind power will be realized. According to recent forecasts, Chinese power consumption will reach 13,000 TWh in 2050. Currently available wind power technologies and resources can support a maximum wind power capacity of over 1 TWh.

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Newly added capacity Cumulative capacity

Source: GWEC

The chart above clearly shows that new wind power installations in China in 2015 account for 45% of all ne installations worldwide. The policies of the 13[th] National Congress focus on pursuit of progress and stability. It is also evident from the chart that wind power accounts for a relatively low percentage of power generation in China and that there is still a lot of room for growth.

Power consumption of Chinese society Total on-grid wind power Wind power as a percentage of total power consumption

Source: GWEC

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H1
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Wind turbine generator capacities are increasing; the mainstream is currently 1.5~3.6MW

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Source: IEA Wind Power Technology Roadmap 2013 Edition (2013)

India

  1. Fifth largest market in the world with regard to newly added wind turbines in 2014

  2. Within the next five years, India is expected to be the country with the fastest growth

  3. Within the next five years , renewable energy is expected to account for 12% of total generation

Brazil

  1. Within the next five years, an annual increase of wind power by 12-13GW is planned; wind power is expected to account for 12% of total generation in 2023

  2. Wind power projects of a total capacity of over 21GW will be made available for wind power developers starting in February 2016

Current state of development of offshore turbines of a rating of 5MW or more

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----- Start of picture text -----

Goldwind United Power Gamesa
Technology (China) 12MV (Spain) 15MV
(China) 10MV
Conceptual
stage Sinovel
GE Wind
Wind Group
(USA) 15MV
(China) 10MV
Dongfangturbine Vestas
Mingyang Wind
(China) Power (Denmark)
5.5MW 8MW
(China) 6.5MW
DSME
Hyundai Bard (Korea) 7MW Avera
Teco (Korea) (Germany) (France)
(Taiwan) 5.5MW 6.5MW 8MW
5MW
Develoment Gamesa
stage (Spain) 7MW
Haizhuang Sinovel
Wind Power
Wind Group
(Taiwan)
5MW (China) 6MW
Mitsubishi
STX Goldwind United Power (Japan) 7MW
(Korea) Technology (China) 6MW
5MW (China) 6MW
XEMC
Sinovel Siemens
Windpower
Wind Group (Germany)
(China)
5MW (China) 5MW 6MW
Test
operation
stage Gamesa Aistom Samsung
(Spain) (France) (Korea)
5MW 6MW 7MW
Avera
(France)
5MW
Commercial
operation
Bard Senvion Senvion
(Germany) (Germany) (Germany)
5MW 5MW 6.15MW
----- End of picture text -----

Source: IEK, December 2014

Wind-generated power has seen the most rapid development in the field of new power supply and renewable energy sources in the US since 2000. Wind-generated power has seen a threefold growth in the US, accounting for 1.5% and 4.5% of the annual electricity consumption in 2008 and 2013, respectively. Wind power facilities of a total capacity of over 61 GW were installed in 2013. Electric power system operators all over the country generally believe that wind power is an integral part of the diversified power generation mix. The interest in wind power is spurred by the great potential of these rich resources (over tenfold the amount of current electricity demand), the competitive and stable prices, the economic development potential, and the environmental protection properties including reduced carbon emissions, improved air quality, and decreased water consumption.

At the same time, relatively low natural gas prices and wholesale electricity prices and a decreased electricity demand are also key factors that affect investments in new power sources. The annually installed wind power capacity in the US has seen drastic

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fluctuations due to the abovementioned factors and policy development trends.

In 2008, the US Department of Energy assumed that 20% of the total annual power consumption could be provided by wind-generated power in 2030 and assessed the technical feasibility of this scenario. The main conclusion of this report is that the US electricity system can sustain a market share of 20% for wind power in this scenario. Under the assumption that no new wind power will be added, the expenses of the Department of Energy are expected to rise by 2% within the time interval (2008-2030) of this scenario.

This report also points out key activities that require increased attention including an expansion of transmission infrastructure, a reduction of wind power generation costs, the integration of reliable wind energy into the major electricity systems as well as the solution of potential problems related to selection of suitable sites for wind farms and the application for licenses. Upon publication of this report, the total installed wind power capacity has seen a threefold increase. By the end of 2013, the annual installed capacity had already exceeded the anticipated 20%, surpassing the previously predicted challenges. The Wind Vision report records the progress in this field since 2008 and relies on past experiences to predict future opportunities.

The goal of the analyses in the Wind Vision report is to provide a deeper understanding of the future potential of wind-generated electricity and quantify the costs and benefits of continued investments in wind power. The provided analyses, model input, and conclusions are based on the most reliable information currently available as well as past experiences in the field of science, technology, economy, finance, and engineering and industry growth and maturity periods until October 2014.

Finally, the Wind Vision report is action-oriented. It examines the potential for continued development and utilization of wind-generated power in the US. The report analyses and standards identify key challenges and potential solution methods. The prime objective lies in the utilization of wind-generated power to support the continued transformation of the national electricity sector.

The Wind Vision report mainly analyzes the future outlook. It states that wind energy can supply 10%, 20%, and 35% of the national electricity demand in 2020, 2030, and 2050, respectively. This outlook is referred to as the Wind Vision study scenario. This ambitious but credible scenario has been identified after a series of analyses of different settings and modeling under the condition of normal operations. Comparisons are conducted based on the study scenario results and a fixed installed wind power capacity of 61GW as specified in the baseline scenario to quantify costs, benefits, and the impact of the deployment of other forms of wind power in the future. The baseline scenario and study scenario do not represent goals or a forecast of the future of wind power. On the contrary, they contain analyses and a framework for potential costs, benefits, and relevant effects of the deployment of other forms of wind power in the future.

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The USA has enacted a law to extend the PTC policy for the wind power industry. Production tax credits are valid for five years which decreases policy uncertainty. Over the past six years, the cost of US wind turbines has decreased by almost 60%, Yeong Guan is therefore forced to constantly reduce its costs to maintain its competitiveness.

The table below shows the long-term US plans as far as the ratio of wind power to total generation is concerned

Installed capacity
(GW)		 Wind power to total
generation ratio of
10% in 2020		 Wind power to total
generation ratio of
20% in 2030		 Wind power to total
generation ratio of
35% in 2050
Land-based wind
power capacity		 110 202 318
Offshore wind
power capacity		 3 22 86
Total installed wind
power capacity		 113 224 404

Injection molding machinery industry

  • The following trends characterize the injection molding machinery industry  China is accelerating the development of high-precision injection molding and extruding machinery

  • It is of paramount importance to develop high-precision injection molding and extruding machinery with independent intellectual property rights

  • Increasing size and capacity

  • The design and manufacture of large-scale and micro plastic machinery is inextricably linked to the national standard of technology in machine manufacturing and materials

  • Miniaturization is the main development direction for all product categories

  • Energy conservation trends

  • Optimized design of machine structures, control modes, and operation technology

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conditions based on energy conservation concepts

  • Adoption of advanced energy conservation technologies and motors with variable frequency speed control

  • Automated smart molding machines

  • Production functions conducive to enhancement of molding machine quality, efficiency, and energy conservation and key approaches to enhance production rates, reduce labor intensity, improve labor conditions, maximize equipment usage rates, and reduce costs

  • Programmable logic controllers (PLC) replace traditional relays. Programmed controllers and micro computers are used for process and parameter control of injection molding machines

  • Network-based smart management

  • Linkage of virtual and physical networks to create more efficient production systems and maximization of competitive advantages of this traditional industry through the Internet and big data analysis

  • Implementation of Industry 4.0 in the plastic machinery industry and linkage of industry development to the Internet

Industrial machinery

The global machinery tool market was in a slump in 2015. Reports of professional research institutions indicate a decline of global production value forecasts from $EU 64 billion at the beginning of the year to 59.3 billion in October. A detailed market analysis however reveals the emergence of a phenomenon called “the strongest prevail” in all machinery industries this year.

Starting in 2017, the demand of industrial machinery clients increased significantly, the order situation stabilized, and visibility was higher. The Company therefore fully cooperated with castings and processing delivery times.

In addition, the favored weapon of Chinese manufacturers to control prices through volume has also lost its past effectiveness. The added impact of the strong depreciation of the Euro at the beginning of the year and the weak Japanese Yen has led to a situation in which more markets turn to high-end/highly efficient/smart European and Japanese manufacturers.

In 2015, reports released by numerous Chinese machine tool providers point out that the industry is in a deep trough mainly for the following reasons:

  1. Decrease and constant decline of sales figures and orders placed by related industries by an average of 10%-30%;

  2. Only the output volume of metal forming machines of all brands has increased, while that of other processing machine tools exhibits a decline of around 10%.;

  3. The loss ratio of Chinese machine tools hit a record high in 2015 (56.9%)

The term industrial machinery refers to a wide range of facilities. Every type of machinery that is used for production purposes may be classified as industrial machinery. Machine tools (“mother machines”), air compressors, and shipping equipment currently form the mainstay of Yeong Guan Energy Technology Group’s industrial machinery sales. The machine tool market currently has a global focus, while Asia provides the main growth momentum and China represents the largest market. However, the competition between

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Mainland Chinese and Taiwanese manufacturers is still fierce and market conditions are harsh. Against the backdrop of a full-scale expansion of the US manufacturing sector, machine tool orders still exhibit a pattern of gradual decline. Only Germany and Japan showed signs of recovery in the third quarter of 2013. As for China, local Chinese enterprises have been forced to start transforming their businesses after an over two-year period of excess supply. Certain products have even gained a foothold in the international brand market. This phenomenon has also prompted large international manufacturers to accelerate localized production in China.

Machinery equipment derived from machine tools

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----- Start of picture text -----

Packing
Textile machinery machinery
Plastic injection
Printing
machinery
machinery
Glass good
Metal molding machinery
machinery
Machine tools
----- End of picture text -----

The DMG group is the undisputed industry leader as far as market share and technical capabilities are concerned and is a typical representative of the law of “the strongest prevail”. Despite the fact that the manufacturing sector is mired in a slump, the company still posted a growth of 6% compared to the same period of the previous year. In the third quarter, the sales volume of the group reached 1.648 billion EURO (1.562 billion EURO in October 2014). Despite the impact of dropping demand in China, it is expected that the total sales volume in 2015 will still reach 5.58 billion EURO. Yeong Guan has already initiated the development of new machine models as a foundation for cooperation between the two companies and mutual growth.

As far as the market for air compressors is concerned, the demand of the downstream market is indeed insufficient against the backdrop of a continued cooling down of the economy in 2015. Excessive supply and production capacities have led to a significant drop of prices.

The sluggish market has also generated numerous negative effects. Some manufacturers pursue a low-cost strategy through reduced deployment and quality. Some even adopt non-standard methods and norms, which leads to lower product quality and negatively affects the reliability and stability of products, which in turn results in a vicious cycle for the air compressor market.

However, quite a few positive developments have also been brought about in this

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competitive environment. Last year, many people were still pondering over the direction of product development. This year, the focus has shifted to the selection of a business model that ensures the survival of the company and the realization of energy-saving products. The air compressor industry has reached a stage where transformation is the only way to survive regardless of intention or attitude. A remolding of the value chain through innovative thinking is a prerequisite of development in this new era.

Atlas has maintained its leadership position in the global air compressor market since 2010. Although the overall demand for the company's products was also affected in 2015, the procurement volume from Yeong Guan has seen positive growth (an increase by 9% compared to the same period in 2014) due to constant innovation and the latest energy-saving high-end centrifuge (MKII). Development efforts have been crowned with success. In 2016, Yeong Guan will initiate the development of other machine models, which are expected to ensure further growth.

In 2017, the company will continue to develop even more new models with better performance characteristics. Orders are brisk and the company has been able to maintain its leadership position in the air compressor market due to the exceptional quality of its products despite low-price competition.

A detailed analysis reveals that despite the fact that overall demand has dropped significantly, remaining demand is highly concentrated in high-end brands. Order records clearly show that the aforementioned DMG and Atlas, the packing machine manufacturer Bobst, and the ship equipment provider Man have posted growth figures in the face of adversity. All current forecasts in 2017 point to the conclusion that the economic outlook has significantly improved and customers have placed their orders earlier than expected. The selection/development/retention of major customers therefore represents the key task in 2017.

As far as the market for shipping equipment is concerned, the shipping industry has been undergoing structural adjustments for some time due to the bleak outlook of the global shipping market. As to the market demand structure, the demand for ship models with complicated technologies continues to grow and international shipbuilding regulations successively require that development focus on energy conservation, safety, and environmental protection, which in turn generates a large number of new opportunities for the market.

Due to the higher technical requirements and the fact that all advanced countries have their register of shipping certificates (12 major registers of shipping currently exist), a market entrance barrier is formed owing to the fact that large investments of time and money are required for the certification process. New markets are mostly dominated by large manufacturers, which leads to a situation in which a small number of big players continue to grow stronger. Small- and medium-sized shipping businesses are forced to grit their teeth and hang on in the face of adverse economic circumstances. However, the worst is already over in this industry since demand is clearly picking up. An increase of localized production in China has turned into a key course of action for large international manufacturers due to cost considerations. The demand for castings has therefore never waned, but high-precision processing has to be provided. Due to the fact that the production capacity of Yeong Guan Energy Guan has not been expanded yet, the company is willing to increase the output of existing products for clients at its own discretion, but

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will only be able to meet customer demands for the development of new products after expansion of its production capacities. The Company is currently applying for a certificate issued by the British classification society and plans to apply for a certificate from the Norwegian classification society in the future with the goal of a gradual enhancement of capabilities and the development of more shipping industry clients.

Medical equipment

The main customer for medical equipment manufactured by Yeong Guan Energy Technology Group is currently Elektra, which is one of the leading manufacturers of Radiation Therapy equipment in the world (ranked second and first in the global and North American markets, respectively). Elektra has recently focused on the development of the North American market and actively expands into the Latin American, Chinese, and Japanese markets. Yeong Guan Energy Technology Group will continue to develop casting products for medical equipment in coordination with Elektra’s market expansion efforts to achieve joint growth and will also step up its efforts in the acquisition of new customers in the field of medical equipment.

The US is currently still the largest market for LINAC. However, shrinking capital expenditures have considerably reduced the willingness of medical institutions to invest in such equipment. The main focus lies on repair and maintenance to extend the service life of existing equipment. Our clients therefore actively develop new models with the goal of satisfying the demands of different markets. JPM has conducted a survey of US doctors who are engaged in the field of radiation therapy. 65% of all US hospitals state that their budgets are tight recently, while 27% believe that capital expenditures will remain unchanged and 8%express the opinion that the economic outlook is more positive than last year. This obviously generates considerable pressure on our clients in the medical field. Economic downturns in developing countries impede the acquisition of orders. Our clients therefore step up their efforts to increase the sale of Gamma Knife (ICON) products. The conversion to new device models is more difficult than previously assumed by management levels since the required time for conversion in the neurology and radiation therapy departments of large-scale hospitals is hard to estimate. In addition, sales prices have increased significantly and equipment must be reviewed and approved by the US Nuclear Therapy Commission prior to official launch.

3. Creation of a niche

  • (1) Due to the group’s over forty years’ experience in the casting industry, it possesses exclusive metallurgy technologies and provides stable quality occupying a leadership position in the industry.

  • (2) In the field of production the group possesses vertically integrated capabilities in the field of casting and processing which enable it to provide customers with higher added-value services and maintain strong partnerships with its customers.

  • (3) The group continues to develop new products in close cooperation with its clients to maintain its market competitiveness.

  • (4) The field of industrial applications is very wide and production and sales counterparties and fields can be adjusted flexibly.

  • (5) Due to the fact that most of the group’s customers are highly ranked large manufacturers in different fields and the group is cooperating with large-scale international raw material suppliers, the group is able to resist the impact of economic fluctuations in the areas of production and sales.

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  1. Favorable and unfavorable factors for long-range development and response strategies

  2. (1) Favorable factors

  3. (A) Components and parts for products with excellent mechanical properties and wide range of product areas

The company is mainly engaged in the manufacture of spheroidal graphite cast iron and gray cast iron high-grade castings and creation of hand-made molds. Products are customized and the main product applications include components and parts for products with excellent mechanical properties such as plastic injection molding machines, large-scale wind turbines, large-scale high-precision machine tools, large-scale gas turbines for power plants, large-scale air compressors, and medical equipment. The company is currently committed to spanning different industries by moving beyond the equilibrium in the field of product areas and increasing product types and categories. Production technologies may be utilized for different product categories to give product technologies a more comprehensive character.

  • (B) Integration of up-and downstream industries allows an effective reduction of production costs and enhanced delivery efficiency

To achieve a breakthrough in the field of services, Yeong Guan Energy Technology Group not only focuses on casting operations but has also created a main niche through a successful integration of secondary processing of metal. The company has established five casting plants, two processing plants, one assembly plant, and one resource recycling plant (recycled scrap steel is used as a substitute raw material) in Dongguan in Guandong province, Ningbo in Zhejiang province, Liyang in Jiangsu, and in Taiwan. The group currently provides casting, processing, welding, assembly, and spray coating services and imports advanced processing lathes of international standard from Europe, Japan, and the US. The company also actively seeks cooperation with downstream subcontractors to gain the ability to provide customers with comprehensive and high-quality services and gain a firm grasp of high-end casting technologies with the goal of providing customers with outstanding and highly effective solutions. This enables the company to reduce customer costs, shorten delivery times, and satisfy customer demands in the field of casting and processing and thereby further raise the threshold for industry competition. Continued growth enables the group to gradually widen the gap between the group and same industry competitors as far as business scope and production capacity are concerned. Customer reliance will also gradually increase.

  • (C) Independent sales capabilities and international competitiveness

The business scope of the company is wider than that of generic same industry businesses and its technical standards are equivalent to European standards. The group has the ability to accept orders from large international manufacturers. The group’s customers are leading industry brands with excellent standards. This clearly indicates that the company’s technologies and quality are recognized by large international manufacturers. Due to the fact that the operations of these

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manufacturers are characterized by a high level of stability, the operation of Yeong Guan Energy Technology Group are also more stable than those of its same industry competitors which has earned the company the trust of large international manufacturers.

  • (2) Unfavorable factors and response strategies

  • (A) Exchange rate fluctuations

Since most of the group’s customers are located in Europe and America, the value of its exports accounts for a large proportion of revenues. Exchange rate fluctuations therefore have a considerable impact on actual revenues. Drastic fluctuations of the global economic climate in recent years and frequent disasters caused by changes of the natural environment lead to dramatic changes of national economic climates. Exchange rate fluctuations in particular have a huge impact on the group’s operations.

Response strategies

To cope with exchange rate fluctuations, the company uses sales revenues in a certain currency to pay for purchases and related expenses in the same currency to achieve a natural hedging effect, lower the demand for currency exchange, and reduce risks associated with currency exchange losses. The company has adopted a response strategy which focuses on the reinforcement of currency exchange hedging related concepts among financial personnel and constant monitoring of exchange rate fluctuations through real-time online exchange rate systems. A real-time grasp of exchange rate developments and trends based on an analysis of financial data provided by banks and investment institutions provides a reference basis for foreign exchange settlement. In addition, the company has established a price adjustment and floating mechanism with its sales counterparties and actively expands marketing scopes and industry categories. Multi-currency sales serve the purpose of lowering currency exchange risks generated by large-scale single currency exchange rate fluctuations. With regard to foreign exchange net positions, the company has formulated Operating Procedures for the Trading of Derivative Financial Products which have been approved by resolution of the board and the shareholders’ meeting and prescribe relevant procedures for derivative financial products. Required measures are adopted based on foreign exchange positions and exchange rate fluctuations to reduce exchange rate risks generated by the company’s business operations. In addition, the company also actively adjusts its market dominance and equilibrium strategies under conditions of a rapidly changing global economy to balance domestic and foreign sales ratios and buffer the impact of changes of the economic environment.

  • (B) Raw material price fluctuations

The main raw materials of the casting industry which are characterized by large market price fluctuations are pig iron, scrap steel, and iron ore fines. Futures trading prices frequently fluctuate before the actual market demand situation is reflected. Spot or futures operations therefore involve a higher risk. Contract breach damages incurred by suppliers for scheduled transactions are usually lower than the actual

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price increases. In addition, large storage spaces are required complicating the stock-up process and affecting production.

Response strategy

To prevent contract breach on the part of suppliers or higher purchase costs caused by emergency feedstock preparation in case of large-scale price increases of raw materials, the company actively seeks to secure raw material sources through cooperation with large international raw material suppliers and previously rated upstream suppliers. It also selects a spread out range of countries of origin for supplied materials and prepares feedstock in batches in advance to ensure that the production process and realized revenue are not affected by a shortage of raw materials.

In addition, the company has taken account of the fact that the available warehouse space in its subsidiaries is not sufficient for the storage of large quantities of pig iron. Several factory buildings of the Qing Zhi plant of Ningbo Yeong Shang Casting Iron Co., Ltd. have therefore been converted into storage space for pig iron. This allows the company to order large quantities of pig iron when prices are relatively low, which helps reduce pig iron unit costs and allows the company to effectively distribute pig iron to all subsidiaries. In the future, the group plans to integrate upstream raw material industries to achieve self-sufficiency in the field of raw materials or strategic alliances with upstream industries, which in turn will ensure an optimized production efficiency as well as an adequate supply of raw materials.

  • (C) Corrosion at sea affects product quality

In recent years, the development of wind power products has seen significant changes with a gradual shift from land-based wind power installations to offshore wind power. The techniques, design, and processing capabilities employed during the casting process are different from those utilized for the manufacture of onshore wind turbines. Corrosion at sea poses a serious problem that affects product quality and life cycles.

Response strategy

In view of the harsh marine environment which causes serious corrosion, it is necessary to strengthen the corrosion resistance and enhance the quality of products to make them more resistant against corrosion caused by the sea wind. Based on the abovementioned considerations, Yeong Guan Energy Technology Group has obtained the ISO12944 Corrosion protection certification allowing it to provide the highest C5 grade corrosion protection for offshore wind turbines. The company has constructed new factory buildings at Jiangsu Bright Steel Fine Machinery Co., Ltd. and Ningbo Yeong Shang Casting Iron Co., Ltd. that provide anti-corrosion coating capabilities including sand blasting, spray painting, and zinc spraying. These facilities specialize in the coating of offshore wind power products to maximize the benefits of vertical integration of casting and spray coating processing and enable the company to further expand its offshore wind power business.

107

  • (b) Main uses and production procedures of major products

  • Main uses of major products

Provision of key components for industrial machinery equipment of different industrial fields including wind energy and injection molding machinery

108

==> picture [736 x 187] intentionally omitted <==

----- Start of picture text -----

(1) Production processes Sand
processing
core
making sand
model recycling
making mold laminate mold closing gating heat preservation and unboxing shakeout sand follow-up processing inspection annealing painting packing delivery
auxiliary materials Burden/ charge mixture smelting inspection of chemical components temperature adjustment and
determination and tapping
molding sand
----- End of picture text -----

(2) Welding

==> picture [582 x 164] intentionally omitted <==

----- Start of picture text -----

Cutting Cutting combination welding follow-up mechanical final inspection packing delivery
processing processing
breaching,
arranging assembly,
polishing,
and blanking spot welding polishing,
dressing
dressing,
and blanking
annealing,
sandblasting,
spray painting
CAD creation NC processing mechanical cutting and processing inspection paint coating packing delivery
program creation (turning, milling, boring)
----- End of picture text -----

(3) Mechanical processing

109

(c) Supply status of main materials

Main raw
materials		 Main suppliers Supply status
Pig iron Ningbo Mingyuan Trading Co., Ltd. (hereinafter referred to as “Ningbo Mingyuan”), Jongmeixin Industry &
Trading Compay, Benxi Shentie Iron (Group) Co., Ltd., Benxi Juxinda Machine Company, Hebei Fongshan
CastingCompany,Linzhou Hexin CastingIndustrial Co.,Ltd.		 Good
Scrap steel Ningbo Yinzhou Jinlong Waste Metal Recycling Co., Ltd., Ningbo Yinzhou Hongli Metal Recycling Co., Ltd.,
Ningbo Zhonglie Renewable Resource Recycling Co., Ltd., Changzhou Hengguan Metal Company, Liyang City
Tianheng Recycling Co., Ltd., Wenling City Hua Tai Resource Recycling Co., Ltd., Ningbo City Yinzhou Chihao
Recycling Co., Ltd., Dongguan City Youxin Recycling Co., Ltd., Chiashan County Dong Tzu Scrap
Metal RecyclingCompany.		 Good
Resin Kao Chemical Corporation Shanghai(hereinafter referred to as Kao Shanghai),Jinan Shengquan GroupCo.,Ltd. Good
Nodulizer SanxiangAdvanced Materials Co.,Ltd. Good

The company maintains positive and stable cooperative relationships with its main raw material suppliers. In addition to a firm grasp of raw material sources, the company also implements rigorous controls in the field of quality and delivery times to guarantee a stable supply of main raw materials. No shortages or disruptions of material supply occurred in the last three years and the application year. Supply sources have been stable.

110

(d) Major suppliers and clients

  1. Suppliers that account for over 10% of total purchases of materials in any of the last two calendar years as well as purchase amounts, ratios, and specification of reasons for increases/decreases

Unit: 1000 NTD ； %

2015 2015 2015 2015 2016 2016 2016 2016 1st Quarter of 2017 1st Quarter of 2017 1st Quarter of 2017 1st Quarter of 2017
Item Company name Amount Percentage
of annual net
purchases
(%)
Relation
with
issuer		 Company
name		 Amount Percentage
of annual net
purchases
(%)
Relation
with issuer		 Company
name		 Amount Percentage of
annual net
purchases (%)		 Relation
with issuer
1 Kao Shanghai 341,239 10.23% none Benxi Shentie
Iron Co.,Ltd.
304,379		 9.78% none Benxi Shentie
Iron Co.,Ltd.
76,073		 9.11% none
2 Benxi Shentie
Iron Co.,Ltd.		 333,518
10.00%		 none Kao Shanghai 267,690 8.60% none Kao Shanghai 53,371 6.39% none
3 Other 2,661,093 79.77% Other 2,539,011 81.62% Other 705,189 84.50%
Netpurchases 3,335,850 100.00% Netpurchases 3,111,080 100.00% Netpurchases 834,633 100.00%

Specification of reasons for increase/decrease:

Specification of reasons for increase/decrease:

In 2016, several pig iron suppliers were unable to maintain their supply due to a lack of capital. In response to the risk of overreliance on a small number of suppliers, the Company has added new suppliers and reduced the amount and ratio of purchases from single suppliers. The amount and ratio of purchases from Benxi Shentie Iron therefore decreased compared to 2015. Due to a change of product mix ratios in 2016, resin purchases were decreased and the amount and ratio of purchases from Kao Shanghai dropped compared to 2015.

111

  1. Clients that account for over 10% of total sales in any of the last two calendar years as well as sales amounts, ratios, and specification of reasons for increases/decreases

Unit: 1000 NTD; %

2015 2015 2015 2015 2016 2016 2016 2016 1stQuarter of 2017 1stQuarter of 2017 1stQuarter of 2017 1stQuarter of 2017
Item Company name Amount Percentage
of annual
net sales
(%)		 Relation
with issuer		 Company
name		 Amount Percentage
of annual
net sales
(%)		 Relation
with
issuer		 Company
name		 Amount Percentage of
annual net
sales in 1st
quarter(%)		 Relation
with
issuer
1 IO 1,400,788
17.25%		 None IO 1,270,743 17.23%
None		 IO 274,121 19.11% None
2 EA 1,143,188
14.07%		 None EA 1,065,662 14.45%
None		 EN 104,143 7.26% None
Other 5,578,494
68.68%		 Other 5,037,483 68.32% Other 1,056,415 73.63%
Net sales 8,122,470
100%		 Net sales 7,373,888 100% Net sales 1,434,679 100.00%

Specification of reasons for increase/decrease:

  1. The following three reasons have been identified for the drop in sales to IO:

  2. 1) In 2016, average raw material prices decreased compared to 2015. Due to the fact that the Company signed a floating agreement with IO which requires price adjustments in accordance with raw material price fluctuations, sales prices were adjusted downward and sales amounts decreased.

  3. 2) The exchange rate of NTD to RMB dropped from 5.1436 in 2015 to 4.8607 in 2016, generating exchange rate losses of 5.5%.

  4. 3) However, the shipping weight increased from around 16,700T in 2015 to around 18,300T in 2016. The drop in sales was therefore most likely caused by the first two reasons.

  5. 4) The decreasing sales to EA have mainly been caused by the supply of castings by suppliers of the supply chain of the company which was acquired by EA. This has resulted in a drop in purchases from EA’s original suppliers.

112

(e) Production volume and value over the last two years

Unit: tons ； 1000 NTD

Unit: tons；1000 NTD Unit: tons；1000 NTD Unit: tons；1000 NTD
Year
Production volume/value
Production categories		 2015 2016
Production
capacity
Production
volume		 Production
value
 Production
capacity
Production
volume		 Production
value
Casting products 174,400 157,014 4,744,725 174,400 149,373 4,324,854
Precisely processed
products(Note1)		 336,421
(hour)		 284,315
(hour)		 1,160,592 342,566
(hour)		 251,743
(hour)		 956,266
Pressed scrapsteel blocks 42,000 29,618 213,431 42,000 26,436 180,694
Other Note2 Note2 451,083 Note 2 Note 2 489,247

  • Note 1: Processing production capacity and production volume units are calculated in hours

  • Note 2: Other categories include welded and assembled products. Manpower is dispatched to conduct processing operations based on client order types. Due to the fact that different types of services are provided and measurement units are not consistent, production capacities and volumes are not comparable.

  • Note 3. Due to the fact that measurement units are inconsistent, total annual production volumes can not be indicated.

  • Specification of reasons for increase/decrease:

  • The main reason for the growing production volume and value in 2014 lies in the fact that the company increased production to meet customer demands for optimized processes and removal of bottlenecks.

Specification of reasons for increase/decrease:

  • (1) The decreasing output amount and value of castings and processed products can be mainly attributed to reduced customer demand and delivery time delays. Another reason for the decreasing output value lies in downward price adjustments in line with raw material price fluctuations pursuant to price agreements with customers. In addition, the RMB depreciated against NTD in 2016.

  • (2) The reduced output amount and value of pressed scrap steel blocks may be explained by reduced usage due to decreased customer demand. Another reason for the decreased output value lies in the lower scrap steel prices compared to the same period of last year.

(f) Sales volume and value over the last two years

Unit: tons; 1000 NTD

(f)Sales volume and val ue over the last two years ue over the last two years ue over the last two years ue over the last two years Unit: tons;1000 NTD Unit: tons;1000 NTD Unit: tons;1000 NTD Unit: tons;1000 NTD
Year
Sales volume/value
Mainproducts		 2015 2016
Domestic sales Foreign sales Domestic sales Foreign sales
Volume Value Volume Value Volume Value Volume Value
Energy product castings 29,010 1,555,079 49,871 3,202,680 17,563 879,353 51,952 3,014,187
Injection molding machine
castings		 18,558 727,678 29,567 1,056,757 18,748 662,058 34,465 1,201,627
Other castings 19,337 970,822 6,019 609,454 21,009 1,007,934 7,116 608,729
Total 66,906 3,253,579 85,457 4,868,891 57,320 2,549,345 93,533 4,824,543

113

3. Number, average years of service, average age, and level of education of employees engaged in different fields in the two most recent fiscal years up to the publication date of the annual report

Year Year 2015 2016 1st Quarter of 2017
Number Executives 75 90 93
Production line staff 1,696 1,648 1,714
General staff 405 454 448
R&Dpersonnel 52 71 74
Total 2,228 2263 2329
Average age 35.52 36.91 37.20
Averageyears of service 5.41 5.83 5.89
Distribution of
level of
education(%)
PhD/MA		 0.54% 0.57% 0.47%

BA		 8.12% 13.83% 13.65%
Junior college or
below		 91.34% 85.60% 85.88%

4. Environmental protection expenses

Total amount of losses (including compensations) and fines in the most recent fiscal year up to the publication date of the annual report due to environmental pollution as well as future response strategies (including improvement measures) and potential expenses (including estimated amounts of potential losses, fines, or compensations due to failure to adopt response strategies; if reasonable estimates are not possible, a corresponding statement shall also be included):

This company and its subsidiaries did not incur any fines due to pollution of the environment in the most recent fiscal year up to the printing date of this report

5. Labor-Management Relationship

  • (a) Employee welfare measures, advanced education, training, retirement system and implementation status, labor-management agreements, and measures to safeguard employee rights and interests

  • Employee welfare measures

The company allocates statutory contributions in accordance with Chinese law including social security contributions (old-age insurance, medical insurance, occupational injury insurance, unemployment insurance, and childbirth insurance) as well as contributions to the housing provident fund. In addition, new-year bonuses, marriage and childbirth cash gifts are also granted and regular contributions are made to welfare funds. Staff trips, dinner parties, and recreation activities are organized on a non-scheduled basis to enhance the mental and physical health of the staff and promote staff engagement and emotional attachment.

114

2. Advanced education and training

The company organizes professional and safety-related educational training on a non-scheduled basis to enhance the professional skills of its staff in order to ensure they are qualified for their jobs and able to realize their potential. The goal is to strengthen the innovative energy of the company and achieve the target of sustainable operations through an increased refinement and core competitiveness of the staff.

3. Retirement system and implementation status

The company pays monthly contributions to old-age insurance in accordance with regional laws and regulations and legally required ratios to care for retired employees

4. Labor-Management Agreements

In addition to labor contracts concluded in accordance with relevant laws after

employees assume their duties, the company has also established a grievance channel and a labor union to provide open communication channels between labor and management.

5. Measures to safeguard employee rights and interests

The company safeguards employee rights and interests in accordance with the law and has formulated welfare management guidelines that clearly state various benefits, rights, and interests. Actual implementation is based on these guidelines.

  • (b) Losses caused by labor-management disputes in the most recent fiscal year up to the publication date of the annual report and disclosure of estimated current and future amounts and response measures. If reasonable estimates are not possible, a corresponding statement shall also be included

The total amount paid due to labor dispute arbitration in the most recent fiscal year up to the publication date of the annual report was 56,000 RMB. Adopted response measures are as follows:

  1. General investigation of employee contracts and regular update of relevant lists

  2. Reinforced health checks to detect occupational diseases

  3. Better understanding of the current condition of employees who have suffered work-related injuries and timely ascertainment and appraisal of work-related injuries within the prescribed deadline.

  4. Regular education of employees, amicable relations between employees, reinforced controls, and implementation in accordance with management rules and regulations. No lawsuits are currently pending that involve labor-management disputes.

115

6. Critical Contracts

6. Critical Contracts
Nature of
Contract
Parties of Contract		 Term of Contract Major Contents Limitation
Clause
Lease Contract Lessor: Ningbo Yeong Shang
Lessee: Ningbo YeongChia Mei		 2014-1-1~2018-12-31 Factory Building Lease Nil
Lease Contract Lessor: Ningbo Yeong Shang
Lessee: Ningbo New Power Team		 2016-8-1~2019-7-31 Factory Building Lease Nil
Insurance Insured: Ningbo Yeong Shang
Insurance company: PICC P&C		 2016-6-29~2017-6-28 Employer Liability Insurance Nil
Property
insurance		 Party A: Fubon Property & Casualty
Insurance
PartyB: Ningbo YeongShang		 2016-7-5~2017-7-4 Property Insurance Nil
Insurance Lessor: Ningbo Lu Lin
Lessee: PICC P&C		 2016-6-29~2017-6-28 Employer Liability Insurance Nil
Property
insurance		 Party A: Fubon Property & Casualty
Insurance
PartyB: Ningbo Lu Lin		 2016-7-5~2017-7-4 Property Insurance Nil
Insurance Insured: Jiangsu Bright
Insurance company: PICC P&C		 2016-6-29~2017-6-28 Employer Liability Insurance Nil
Property
insurance		 Party A: Fubon Property & Casualty
Insurance
PartyB: Jiangsu Bright		 2016-7-5~2017-7-4 Property Insurance Nil
Insurance Insured: Dongguan Yeong Guan
Insurance company: PICC P&C		 2016-6-29~2017-6-28 Employer Liability Insurance Nil
Property
insurance		 Party A: Fubon Property & Casualty
Insurance
PartyB: Dongguan YeongGuan		 2016-7-5~2017-7-4 Property Insurance Nil
Cooperation
agreement		 Party A: Shenyang Research
Institute of Foundry
PartyB: Dongguan YeongGuan		 2017-3~2017-11 Technology Service Nil
Cooperation
agreement		 Party A: Shenyang Research
Institute of Foundry
PartyB: Jiangsu Bright		 2017-3~2017-11 Technology Service Nil
Cooperation
agreement		 Party A: Shenyang Research
Institute of Foundry
PartyB: Ningbo YeongShang		 2017-3~2017-11 Technology Service Nil
Cooperation
agreement		 Party A: Shenyang Research
Institute of Foundry
PartyB: Ningbo Lu Lin		 2017-3~2017-11 Technology Service Nil
Purchase
Contract		 Supplier: Benxi Shentie Iron
Purchaser: Jiangsu Bright		 2016.2.24 Pig iron Nil
Purchase
Contract		 Supplier: Benxi Juxinda
Purchaser: Jiangsu Bright		 2016.2.24 Pig iron Nil
Purchase
Contract		 Supplier: Benxi Shentie Iron
Purchaser: Dongguan Yeong Guan		 2016.2.24 Pig iron Nil
Maintenance Party A: Chagnzhou Du Sheng
Machine
PartyB: Jiangsu Bright Steel		 2015/3～2018/3 Air Compressor Maintenance Nil
Purchase
Contract		 Supplier: Benxi Juxinda
Purchaser: Ningbo Lu Lin		 2016.2.29 Pig iron Nil
Purchase
Contract		 Supplier: Benxi Shentie Iron
Purchaser: Ningbo Lu Lin		 2016.2.28 Pig iron Nil
Sales &
Purchase
Contract		 Party A: Wenlin Huatai
Party B: Ningbo Lu Lin		 2015.1.2-long term Scrap Steel Sales & Purchase Contract Nil
Sales &
Purchase
Contract		 Party A: Ningbo Zhonglie
Party B: Ningbo Lu Lin		 2015.1.2-long term Scrap Steel Sales & Purchase Contract Nil
Sales &
Purchase
Contract		 Party A: Shanghai Ding En
Party B: Ningbo Lu Lin		 2015.1.2~2017.12.31 Scrap Steel Sales & Purchase Contract Nil

116

Nature of
Contract
Parties of Contract		 Term of Contract Major Contents Limitation
Clause
Sales &
Purchase
Contract		 Party A: Yinzhou Chin Hao
Party B: Ningbo Lu Lin		 2015.1.2-long term Scrap Steel Sales & Purchase Contract Nil
Purchase
Contract		 Supplier: Benxi Juxinda
Purchaser: Ningbo Yeong Shang		 2015.3.17 Pig iron Nil
Purchase
Contract		 Supplier: Benxi Juxinda
Purchaser: Ningbo Yeong Shang		 2015.11.25 Pig iron Nil
Purchase
Contract		 Supplier: Benxi Shentie Iron
Purchaser: Ningbo Yeong Shang		 2015.11.25 Pig iron Nil
Purchase
Contract		 Supplier: Benxi Shentie Iron
Purchaser: Ningbo Yeong Shang		 2016.2.24 Pig iron Nil
Purchase
Contract		 Supplier: Benxi Juxinda
Purchaser: Ningbo Yeong Shang		 2016.2.24 Pig iron Nil
Collateral
contract		 Pledger: Ningbo Lu Lin
Debtor: Ningbo Lu Lin
Creditor: Bank of China		 2015-7-13~2020-7-13 The pledger provides 33,333 sq m of
land and 23,502 sq m of factory
buildings as collateral for the
fulfillment of contract obligations to
the creditor as prescribed in several
main contracts valid from Jul 13, 2015
to Jul 13, 2020 or about to be
concluded. Secured claims shall not
exceed the principal of RMB$ 37.5
million.
Nil
Collateral
contract		 Pledger: Ningbo Lu Lin
Debtor: Ningbo Lu Lin
Creditor: Bank of China		 2015-9-22~2020-9-22 The pledger provides 12,697 sq m of
land and 3,786 sq m of factory
buildings as collateral for the
fulfillment of contract obligations to
the creditor as prescribed in several
main contracts valid from Sep 22,
2015 to Sep 22, 2020 or about to be
concluded. Secured claims shall not
exceed the principal of RMB$ 12.5
million.		 Nil
Collateral
contract		 Pledger: Ningbo Lu Lin
Debtor: Ningbo Yeong Chia Mei
Creditor: Bank of China		 2015-12-15~2017-12-15 The pledger provides 39,290 sq m of
land and 24,895 sq m of factory
buildings as collateral for the
fulfillment of contract obligations to
the creditor as prescribed in several
main contracts valid from Dec 9, 2015
to Dec 15, 2017 or about to be
concluded. Secured claims shall not
exceed the principal of RMB$ 48.59
million.
Nil
Collateral
contract		 Pledger: Ningbo Yeong Shang
Debtor: Ningbo Yeong Shang
Creditor: Bank of China		 2014-9-9~2019-9-8 The pledger provides 13,350 sq m of
land and 12,801 sq m of factory
buildings as collateral for the
fulfillment of contract obligations to
the creditor as prescribed in several
main contracts valid from Sep 9, 2014
to Sep 8, 2019 or about to be
concluded. Secured claims shall not
exceed theprincipal of RMB$18.4
Nil

117

Nature of
Contract
Parties of Contract		 Term of Contract Major Contents Limitation
Clause
million.
Collateral
contract		 Pledger: Ningbo Yeong Shang
Debtor: Ningbo Yeong Shang
Creditor: Bank of China		 2014-9-9~2019-9-8 The pledger provides 24,948 sq m of
land and 36,394 sq m of factory
buildings as collateral for the
fulfillment of contract obligations to
the creditor as prescribed in several
main contracts valid from Sep 9, 2014
to Sep 8, 2019 or about to be
concluded. Secured claims shall not
exceed the principal of RMB$ 46.87
million.
Nil
Collateral
contract		 Pledger: Ningbo Yeong Shang
Debtor: Ningbo Yeong Shang
Creditor: Bank of China		 2014-9-9~2019-9-8 The pledger provides 33,344 sq m of
land and 18,980 sq m of factory
buildings as collateral for the
fulfillment of contract obligations to
the creditor as prescribed in several
main contracts valid from Sep 9, 2014
to Sep 8, 2019 or about to be
concluded. Secured claims shall not
exceed the principal of RMB$ 36.47
million.
Nil
Collateral
contract		 Pledger: Jiangsu Bright Steel
Debtor: Jiangsu Bright Steel
Creditor: Bank of China		 2013-08-28~2018-08-27 The pledger provides 30,066 sq m of
land as collateral for loan, trade
finance, guarantee letter, financial
service, and other credit service
contracts concluded with the creditor
valid from Aug 28, 2013 to Aug 27,
2018 or about to be concluded.
Secured claims shall not exceed the
principal of RMB$11.48 million.		 Nil
Collateral
contract		 Pledger: Jiangsu Bright Steel
Debtor: Jiangsu Bright Steel
Creditor: Bank of China		 2015-01-22~2020-01-22 The pledger provides 32,066 sq m of
land and 24,577 sq m of factory
buildings as collateral for loan, trade
finance, guarantee letter, financial
service, and other credit service
contracts concluded with the creditor
valid from Jan 22, 2015 to Jan 22,
2020 or about to be concluded.
Secured claims shall not exceed the
principal of RMB$30.75 million.		 Nil
Collateral
contract		 Pledger: Dongguan Yeong Guan
Debtor: Dongguan Yeong Guan
Creditor: Industrial and Commercial
Bank of China		 2014.10.17~2019.10.05 The pledger provides land and factory
buildings as collateral for Financial
derivative Agreements and other
documents signed with the creditor
valid from Oct 17, 2014 to Oct 5,
2019 such as Foreign Exchange Loan
Contracts, Foreign Exchange Sub-loan
Contracts, Bank Acceptance
Agreements, Letter of Credit Issuance
Agreements/Contracts,Guarantee
Nil

118

Nature of
Contract
Parties of Contract		 Term of Contract Major Contents Limitation
Clause
Issuance Agreements, International
and Domestic Trade Finance
Agreements, and Agreements on
Forward Transaction of Foreign
Exchange. Secured claims shall not
exceed the principal of RMB$ 36.8
million.
Foreign
Exchange Loan
Contract
Borrower: Ningbo Yeong Shang
Lender: Shanghai Commercial &
Savings Bank		 2017-2-10~2020-2-9 Shanghai Commercial & Savings
Bank provides Ningbo Yeong Shang
with a working capital of US$ 3
million. Principal and interest shall be
payable once everythree months.		 Nil
Foreign
Exchange Loan
Contract
Borrower: Ningbo Yeong Shang
Lender: BNP Paribas		 2016-08-30~2017-08-31 BNP Paribas provides Ningbo Yeong
Shang with a working capital of US$ 3 million. Principal and interest shall
bepayable once everythree months.		 Nil
Foreign
Exchange Loan
Contract
Borrower: Jiangsu Bright Steel
Lender: Shanghai Commercial &
Savings Bank		 2016-12-17~2017-12-16 Shanghai Commercial & Savings
Bank provides Jiangsu Bright Steel
with a working capital of US$ 2.5
million. Principal and interest shall be
payable once everythree months.		 Nil
Foreign
Exchange Loan
Contract
Borrower: Jiangsu Bright Steel
Lender: Citibank		 2016-8-01~2017-7-31 Bitibank provides a revolving line of
credit of NT$ 5 million for Jiangsu
Bright Steel. Interest shall be payable
once everythree months.		 Nil
Foreign
Exchange Loan
Contract
Borrower: Jiangsu Bright Steel
Lender: CTBC Bank
Joint guarantor: Yeong Guan Energy
Tech.		 2016-08-05~2017-08-04 CTBC Bank provides a revolving line
of credit of US$ 4 million for Jiangsu
Bright Steel. Interest shall be payable
once everymonth.		 Nil
Credit
agreement		 Borrower: Yeong Guan Energy
Tech.
Lender: Bank SinoPac Hong Kong
Branch		 2016-8-29~2017-8-28 Bank SinoPac Hong Kong Branch
provides Yeong Guan Energy
Technology with a revolving line of
credit of US$ 6 million. Interest shall
bepayable once everymonth.
Credit
agreement		 Borrower: Yeong Guan Energy
Tech.
Lender: CTBC Bank
Joint guarantor: Chang, Hsien-Ming		 2016-08-05~2017-08-04 CTBC Bank provides Yeong Guan
Energy Technology with a revolving
line of credit of US$ 10 million.
Interest shall be payable once every
month.
Credit
Extension
Contract		 Borrower: Yeong Guan Energy
Tech.
Lender: Citibank		 2016-08-01~2017-07-31 Bitibank provides a revolving line of
credit of NT$ 5 million for Yeong
Guan Energy Tech.. Interest shall be
payable once everythree months.		 Nil
Credit
Extension
Contract		 Borrower: Yeong Guan Energy
Tech.
Lender: BNP Paribas		 2016-08-30~2017-08-31 BNP Paribas provides a revolving line
of credit of NT$ 3 million for Yeong
Guan Energy Tech. Interest shall be
payable once everythree months.
Nil
Credit
Extension
Contract		 Borrower: Yeong Guan Energy
Tech.
Lender: Shin Kong Bank		 2017-02-14~2018-02-13 Shin Kong Bank provides a revolving
line of credit of NT$ 15 million for
YeongGuan EnergyTech.. Interest		 Nil

119

Nature of
Contract
Parties of Contract		 Term of Contract Major Contents Limitation
Clause
shall be payable once every months.
Credit
Extension
Contract		 Borrower: Yeong Guan Holding
Lender: CTBC Bank
Joint guarantor: Yeong Guan Energy
Tech.		 2016-08-05~2017-08-04 CTBC Bank provides a revolving line
of credit of NT$ 135 million for
Yeong Guan Holdings Co., Ltd.
Taiwan Branch on the British Virgin
Islands. Interest shall be payable once
everymonth.		 Nil
Credit
Extension
Contract		 Borrower: Shin Shang Trade
Lender: Shanghai Commercial &
Savings Bank
Joint guarantor: Yeong Guan Energy
Tech.		 2016-11-29~2019-11-28 Shanghai Commercial & Savings
Bank provides a revolving line of
credit of US$ 2 million for Yeong
Chen Asia Pacific. Interest shall be
payable once a month. The bank
provides the company with an
additional NT$700,000 for financial
derivative operations.		 Nil
Credit
Extension
Contract		 Borrower: Yeong Chen Asia Pacific
Lender: Land Bank of Taiwan
Joint guarantor: Chang, Wen-Lung		 2016-11-03~2017-11-02 Land Bank of Taiwan provides a
short-term secured loan and a total
financing line of NT$ 300 million for
Yeong Chen Asia Pacific. The latter
company provides land and factory
buildings for a maximum lien of NT$ 360 million.		 Nil
Credit
Extension
Contract		 Borrower: Yeong Chen Asia Pacific
Lender: KGI Bank
Joint guarantor: Yeong Guan Energy
Tech.		 2015-7-3~2016-7-2 KGI Bank provides a revolving line of
credit of NT$ 30 million for Yeong
Chen Asia Pacific. Interest shall be
payable once a month. The bank
provides the company with an
additional NT$ 30 million for
financial derivative operations.
Nil
Credit
Extension
Contract		 Borrower: Yeong Chen Asia Pacific
Lender: DBS Bank (Taiwan)
Joint guarantor: Yeong Guan Energy
Tech.		 2016-09-26~2017-09-25 DBS Bank (Taiwan) provides a
short-term financing line of US$ 6
million for Yeong Chen Asia Pacific.
The bank provides the company with
an additional US$ 2 million for
financial derivative operations.		 Nil
Credit
Extension
Contract		 Borrower: Yeong Chen Asia Pacific
Lender: Bitibank
Joint guarantor: Yeong Guan Energy
Tech.		 2016-08-01~2017-07-31 Bitibank provides a revolving line of
credit of NT$ 5 million for Yeong
Chen Asia Pacific. Interest shall be
payable once everythree months.		 Nil
Credit
Extension
Contract		 Borrower: Yeong Chen Asia Pacific
Lender: CTBC Bank
Joint guarantor: Yeong Guan Energy
Tech.		 2016-08-05~2017-08-04 CTBC Bank provides a revolving line
of credit of NT$ 200 million for
Yeong Chen Asia Pacific. Interest
shall bepayable once everymonth.		 Nil
Credit
Extension
Contract		 Borrower: Yeong Chen Asia Pacific
Lender: BNP Paribas
Joint guarantor: Yeong Guan Energy
Tech.		 2016-08-30~2017-08-31 BNP Paribas provides a revolving line
of credit of US$ 5 million for Yeong
Chen Asia Pacific. Interest shall be
payable once everymonth.
Nil
Credit
Extension		 Borrower: Shanghai No. 1 Foundry
Lender: Fubon Bank (China)
Jointguarantor: YeongGuan Energy		 2017-01-18~2018-01-17 Fubon Bank (China) provides a
revolvingline of credit of RMB$ 26		 Nil

120

Nature of
Contract
Parties of Contract		 Term of Contract Major Contents Limitation
Clause
Contract Tech. million for Yeong Chen Asia Pacific.
Interest shall be payable once every
month.
Credit
Extension
Contract		 Borrower: New Power Team
Lender: Taiwan Business Bank
Joint guarantor: Chiang, Shao-Hsieh		 2016-4-18~2017-4-18 Taiwan Business Bank provides a
revolving line of credit of NT$ 30
million for New Power Team. Interest
shall be payable once every month.
The latter company provides 4,536 m2
of land and 3,699.49 m2of factory
buildings for a maximum lien of NT$ 200 million.

121

VI. Financial Summary

1. Summarized balance sheets and consolidated income statements for the last five

years

(1) Summarized Balance Sheet & Income Statement

1-1 Summarized Consolidated Balance Sheet

Unit: NTD in thousands

Year
Item		 Year
Item		 Financial data for the last fiveyears Financial data for the last fiveyears Financial data for the last fiveyears Financial data for the last fiveyears Current Financial Data as
of March 31st, 2017
(Note 1)
2012 2013
(Note)		 2014
(Note 1)		 2015
(Note 1)		 2016
(Note1)
Current Asset Note2 4,971,886 6,726,616 9,557,290 8,127,766 8,017,934
Property, Plant and
Equipment		 4,021,240 4,310,151 5,251,823 5,700,681
5,457,037
Intangible Asset 131,652 134,386 133,214 145,208
141,850
Other Asset 381,580 507,107 647,429 1,078,734
1,082,379
Total Asset 9,506,358 11,678,643 15,589,756 15,052,389 14,699,200
Current
Liability		 Before
allocation		 2,466,894 2,067,496 2,473,907 2,546,022
2,661,506
After
Allocation		 2,820,006 2,734,973 3,478,095 Note3
Note3
Non-current Liability 740,034 1,553,712 2,461,407 2,428,059 2,526,310
Total
Liability		 Before
allocation		 3,206,928 3,621,591 4,935,314 4,974,081
5,187,816
After
Allocation		 3,560,040 4,288,685 5,939,502 Note3
Note3
Owner’s Equities
Attributed to Parent
Company		 6,299,430 7,937,034 10,542,667 9,774,150
9,218,936
Share Capital 1,008,890 1,048,890 1,179,796 1,188,175
1,188,175
Additional Paid-in
Capital		 3,548,276 4,045,959 6,091,651 6,204,774
6,204,774
Retained
Earnings		 Before
allocation		 1,665,736 2,314,788 2,998,411 3,002,521
3,056,287
After
Allocation		 1,312,624 1,647,694 1,994,223 Note3
Note3
Other Equities 76,528 527,397 272,809 (621,320) (1,230,300)
TreasuryShare 0 0 0 0
0
Non-controlling Equities
Total Equities		 0 120,018 111,775 304,158
292,448
Non-contro
lling
Equities		 Before
allocation		 6,299,430 8,057,052 10,654,442 10,078,308
9,511,384
After
Allocation		 5,946,318 7,389,958 9,650,254 Note3
Note3

  • Note 1: Financial data for 2013, 2014, 2015, 2016 and those as of March 31[st] , 2017 have all been audited or reviewed by certified accountants.

  • Note 2: With respect to financial data for summarized consolidated balance sheet for 2012, please refer to 1-2 Summarized Balance Sheet – Financial Accounting Guidelines in the Republic of China hereunder.

  • Note 3: As of May 4[th] , 2017, 2016 earnings distribution has yet to be approved by shareholder meeting resolution.

122

1-2 Summarized Balance Sheet – ROC GAAP

Year
Items		 Year
Items
2012
Current Asset 3,869,454
Fund & Investment 0
Fixed Asset 3,996,823
Intangible Asset 372,637
Other Asset 126,475
Total Asset 8,365,389
Current Liability Un-allocated 1,865,364
Allocated 2,127,675
LongTerm Liability 788,545
Other Liability 9,763
Total Liability Un-allocated 2,663,672
Allocated 2,925,983
Share Capital 1,008,890
Additional Paid-in Capital 3,548,276
Retained Earnings Un-allocated 1,346,037
Allocated 1,083,726
Financial Product Unrealized Income 0
Cumulative Translation Adjustment (201,486)
Unrecognized Pension Cost Net Loss 0
MinorityInterest 0
Shareholder’s Equity
Total		 Un-allocated 5,701,717
Allocated 5,439,406

Note 1: Financial data for 2012 is based on consolidated financial statements audited and certified by accountants.

123

2-1 Summarized Consolidated Income Statement

Unit: NTD in thousands except for EPS

Year
Item		 Financial data for the last fiveyears Financial data for the last fiveyears Financial data for the last fiveyears Financial data for the last fiveyears Financial data for the last fiveyears Current Financial
Data as of March
31st, 2017
(Note 3)
2012 2013 2014
(Note2)		 2015
(Note2)		 2016
(Note2)
Operation Revenue (Note1) 5,899,431 7,206,294 8,122,470 7,373,888 1,434,679
Operation Profit Margin 1,687,389 2,257,711 2,668,103 2,418,746 385,694
Operation Income 861,908 1,348,859 1,515,908 1,274,865 107,450
Non-operation Revenue & Expenses (132,332) (27,782) 272,605 180,777 (16,028)
Pre-tax Net Profit 729,576 1,321,077 1,788,513 1,324,658 91,422
Current Net Profit for Continuing
Operations		 541,119 1,001,817 1,349,123 997,419 65,323
Discontinued Operations Loss 0 0 0 0 0
Current Net Profit 541,119 1,001,817 1,349,123 997,419 65,323
Current Other Consolidated Income
(after tax net amount)		 286,228 455,109 (261,237) (899,614) (614,451)
Current Consolidated Income Total
Amount		 827,347 1,456,926 1,087,886 97,805 (549,128)
Net Profit Attributed to Parent
CompanyOwner		 541,119 1,002,164 1,350,717 1,008,298 71,427
Net Profit Attributed to
Non-controllingEquities		 0 (347) (1,594) (10,879) (6,104)
Consolidated Income Total Attributed
to Parent CompanyOwner		 827,347 1,453,033 1,096,129 114,619 (537,553)
Consolidated Income Total Attributed
to Non-controllingEquities		 0 3,893 (8,243) (16,364) (11,575)
Earnings Per Share 5.36 9.78 12.24 8.50 0.60

Note 1: The Company did not present consolidated financial statements prepared based on International Financial Reporting Standard (IFRS) in 2012.

Note 2: Financial data for 2013, 2014, 2015 and 2016 have already been audited by accountants.

Note 3: Current financial data as of March 31[st] , 2017 have already been audited by accountants.

2-2 Summarized Consolidated Income Statement - ROC GAAP

Unit: NTD in thousands except for EPS

Unit: NTD in thousands except for EPS
Year
Item		 Financial data for the last two years (note)
2012
Operation Revenue 5,261,316
Operation Profit Margin 1,215,451
Operation Income 546,722
Non-operation Revenue & Expenses (82,616)
Pre-tax Income for ContinuingOperations 464,106
After Tax Income for ContinuingOperations 370,385
Discontinued Operations Loss 0
ExtraordinaryGain or Loss 0
Cumulative Effects from AccountingPrinciple Changes 0
Current Income 370,385
Earnings Per Share 3.79

Note: Financial data for 2012 are based on consolidated financial statements audited and certified by accountants.

124

(2) Certified accountants and their audit comments for the last five years

Year Name of Accounting Firm Certified
Accountants		 Audit
Comments
2012 Deloitte Touche Tohmatsu Limited.,
Taiwan		 Li, Tung-Feng,
Kuo, Cheng-Hung		 No Reservation
2013 Deloitte Touche Tohmatsu Limited.,
Taiwan		 Li, Tung-Feng,
Gon, Ze-Li		 No Reservation
2014 Deloitte Touche Tohmatsu Limited.,
Taiwan		 Li, Tung-Feng,
Gon, Ze-Li		 No Reservation
2015 Deloitte Touche Tohmatsu Limited.,
Taiwan		 Li, Tung-Feng,
Gon, Ze-Li		 No Reservation
2016 Deloitte Touche Tohmatsu Limited.,
Taiwan		 Li, Tung-Feng,
Gon,Ze-Li		 No Reservation

2. Financial analysis for the last five years

I. Financial Analysis

I.
Financial Analysis		 I.
Financial Analysis
Year
Items Analyzed
(note4)		 Financial analysis for
the last fiveyears		 Current Financial
Data as of March
31st, 2017
2012
(note 1)		 2013 2014 2015 2016
Finance
Structure		 Debt Ratio(%) 31.86 33.73 31.01 31.66
33.05
35.29
Long Term Fund to Fixed
Asset Ratio(%)		 161.09 175.06 220.20 247.61 214.05
215.23
Repayment
Capability		 Current Ratio(%) 207.00 201.54 325.35 386.32 319.23
301.26
Quick Ratios(%) 153.25 151.29 250.55 327.24 260.02
242.81
Times Interest Earned 5.80 11.24 25.09 41.69
23.16
6.38
Operating
Performance		 Account Receivables
Turnover Rate(Times)		 3.41 3.44 3.59 3.61
3.14
2.86
Average Collection Days 107 106 102 101
116
128
Inventory Turnover Rate
(Times)		 3.99 3.96 3.82 3.92
3.72
3.11
Account Payable Turnover
Rate(Times)		 7.84 5.79 4.55 4.67
4.44
3.85
Average Inventory Turnover
Days		 91 92 96 93
98
117
Fixed Asset Turnover Rate
(Times)		 1.27 1.46 1.73 1.70
1.35
1.03
Total Asset Turnover Rate
(Times)		 0.62 0.66 0.68 0.60
0.48
0.39
Profitability Return on Asset(%) 5.38 6.77 9.93 10.19
6.86
0.54
Return on Equity (%) 6.87 9.02 14.07 14.60
9.82
0.69
Pre-tax Net Profit to Paid-in
Capital(%)		 10.18 16.01 25.93 20.85
17.92
1.24
Net Margin Rate(%) 7.04 9.17 13.90 16.61
13.53
4.55
Earnings Per Share(NTD) 3.79 5.36 9.78 12.24
8.5
0.6
Cash Flow Cash Flow Ratio(%) 59.93 27.47 72.32 60.22
52.6
9.27
Cash Flow Adequacy Ratio
(%)		 Note2 Note2 Note2 Note2
96.95
83.42
Cash Re-investment Ratio
(%)		 14.23 4.73 9.69 5.30
2.27
1.68
Leverage OperatingLeverage 3.21 2.79 2.29 2.40
2.96
5.14

125

Financial Leverage 1.21 1.09 1.04 1.03
1.05
1.19
Reasons for changes of various financial ratios within the last two years (analysis is exempted for
changes of increase/decrease less than 20%)
1. Quick Ratio: The company continued to invest in modifications and improvements of
Shanghai No. Foundry Trading Co., ltd. and Jiangsu Bright Steel Fine Machinery
Co., Ltd this year.
2. Times Interest Earned: Continued modifications and expansion of factories without
commensurate increases of production capacities and profitability in the short run
3. Fixed Asset Turnover Rate, Return on Asset, Return on Equity, Earnings Per Share: Drop in
profitability due to dropping revenues
4. Cash Re-investment Ratio: Higher cash dividends issued to shareholders
5. OperatingLeverage:Lower operatingexpenses
Note 1: Data for 2012 are derived from the calculation of 2013 current numbers on
consolidated financial statements which are prepared using IFRS.
Note 2: No calculation conducted because application of IFRS is less than five years.
Note 3: Calculation formulas are as follows:
1. Financial Structure
(1) Debt Ratio＝Total Liabilities／Total Assets
(2) Long Term Fund to Fixed Asset Ratio＝(Total Equities＋Non-Current Liability)
／Net Fixed Asset
2. Liquidity
(1) Current Ratio＝Current Assets／Current Liabilities
(2) Quick Ratio＝(Current Assets－Inventories－Prepaid Expenses)／Current
Liabilities
(3) Times Interest Earned＝Net Income before Income Tax and Interest Expense／
Current Interest Expense
3. Operating Performance
(1) Account Receivable (including Account Receivable and Operating Notes
Receivables) Turnover Rate＝Net Sales／Average Account Receivable (including
Account Receivable and Operating Notes Receivables) Balance
(2) Average Collection Days＝365／Account Receivable Turnover Rate
(3) Inventory Turnover Rate＝Cost of Sales／Average Inventory
(4) Account Payable (including Account Payable and Operating Notes Payables)
Turnover Rate＝Cost of Sales／Average Account Payable (including Account
Payable and Operating Notes Payables) Balance
(5) Average Days of Sales＝365／Inventory Turnover Rate
(6) Fixed Asset Turnover Rate＝Net Sales／Net Average Fixed Asset
(7) Total Asset Turnover Rate＝Net Sales／Average Total Asset
4. Profitability
(1) Return on Asset＝［Income After Tax＋Interest Expense × (１－Tax Rate)］／
Average Total Asset
(2) Return on Equity＝Income After Tax／Average Total Equity
(3) Net Margin Rate＝Income After Tax／Net Sales
(4) Earnings Per Share＝(Income Attributed to Parent Company Owner－Preferred
Share Dividend)／Weighted Average Number of Outstanding Shares
5. Cash Flow
(1) Cash Flow Ratio＝Operating Activity Net Cash Flow／Current Liability
(2) Net Cash Flow Adequacy Ratio＝Operating Net Cash Flow for the Last Five
Years／(Capital Expenditure＋Increased Inventory＋Cash Dividend) for the Last
Five Years
(3) Cash Re-Investment Ratio＝(Operating Activity Net Cash Flow－Cash Dividend)

126

／ (Gross Fixed Asset ＋ Long Term Investment ＋ Other Non-Current Asset ＋ Working Capital)

  1. Leverage:

  2. ＝ －

  3. (1) Operating Leverage (Net Sales Variable Operating Cost & Expense) ／ Operating Income

  4. ＝ －

  5. (2) Financial Leverage Operating Income ／ (Operating Income Interest Expense)

II. Financial Analysis – ROC GAAP

Financial Analysis – ROC GAAP Financial Analysis – ROC GAAP Financial Analysis – ROC GAAP
Year
Items Analyzed(note 2)		 Financial Analysis for
Last TwoYears
2012
Financial Structure Debt Ratio(%) 31.84
LongTerm Fund to Fixed Asset Ratio(%) 162.39
Liquidity Current Ratio(%) 207.44
Quick Ratios(%) 151.17
Times Interest Earned 5.80
Operating
Performance		 Account Receivables Turnover Rate(Times) 3.41
Average Collection Days 107
InventoryTurnover Rate(Times) 3.99
Account Payable Turnover Rate(Times) 7.84
Average InventoryTurnover Days 91
Fixed Asset Turnover Rate(Times) 1.26
Total Asset Turnover Rate(Times) 0.62
Profitability Return on Asset(%) 5.39
Return on Equity (%) 6.87
Percentage to Paid-in
Capital(%)		 OperatingIncome 12.00
Pre-Tax Income 10.18
Net Margin Rate(%) 7.04
Earnings Per Share(NTD) 3.79
Cash Flow Cash Flow Ratio(%) 58.83
Cash Flow AdequacyRatio(%) 76.14
Cash Re-investment Ratio(%) 13.88
Leverage OperatingLeverage 3.21
Financial Leverage 1.21

Note 1: No calculation because information of operating activity net cash flow and capital expenditure for the last five years is unavailable.

Note 2: Calculation formulas are as follows:

  1. Financial Structure

  2. (1) Debt Ratio ＝ Total Liabilities ／ Total Assets

  3. (2) Long Term Fund to Fixed Asset Ratio ＝ (Net Shareholder Equity ＋ Long Term Liability) ／ Net Fixed Asset

  4. Liquidity

  5. (1) Current Ratio ＝ Current Assets ／ Current Liabilities

  6. (2) Quick Ratio ＝ (Current Assets － Inventories － Prepaid Expenses) ／ Current Liabilities

  7. ＝

  8. (3) Times Interest Earned Net Income before Income Tax and Interest Expense ／ Current Interest Expense

127

  1. Operating Performance

  2. (1) Account Receivable (including Account Receivable and Operating Notes Receivables) Turnover Rate ＝ Net Sales ／ Average Account Receivable (including Account Receivable and Operating Notes Receivables) Balance

  3. (2) Average Collection Days ＝ 365 ／ Account Receivable Turnover Rate

  4. (3) Inventory Turnover Rate ＝ Cost of Sales ／ Average Inventory

  5. (4) Account Payable (including Account Payable and Operating Notes Payables) Turnover Rate ＝ Cost of Sales ／ Average Account Payable (including Account Payable and Operating Notes Payables) Balance

  6. (5) Average Days of Sales ＝ 365 ／ Inventory Turnover Rate

  7. (6) Fixed Asset Turnover Rate ＝ Net Sales ／ Net Fixed Asset

  8. (7) Total Asset Turnover Rate ＝ Net Sales ／ Total Asset

  9. Profitability

  10. －

  11. (1) Return on Asset ＝［ Income After Tax ＋ Interest Expense × (1 Tax Rate) ］／ Average Total Asset

  12. (2) Return on Shareholder Equity ＝ Income After Tax ／ Average Net Shareholder Equity

  13. (3) Net Margin Rate ＝ Income After Tax ／ Net Sales

  14. ＝ －

  15. (4) Earnings Per Share (Net Income After Tax Preferred Share Dividend) ／ Weighted Average Number of Outstanding Shares

  16. Cash Flow

  17. ＝

  18. (1) Cash Flow Ratio Operating Activity Net Cash Flow ／ Current Liability

  19. (2) Net Cash Flow Adequacy Ratio ＝ Operating Net Cash Flow for the Last Five Years ／ (Capital Expenditure ＋ Increased Inventory ＋ Cash Dividend) for the Last Five Years

  20. (3) Cash Re-Investment Ratio ＝ (Operating Activity Net Cash Flow － Cash Dividend) ／ (Gross Fixed Asset ＋ Long Term Investment ＋ Other Asset ＋ Working Capital)

  21. Leverage

  22. ＝ －

  23. (1) Operating Leverage (Net Sales Variable Operating Cost & Expense) ／ Operating Income

  24. ＝ －

  25. (2) Financial Leverage Operating Income ／ (Operating Income Interest Expense)

128

  1. Audit Committee’s Review Report over the Latest Year Financial Statements

Yeong Guan Energy Technology Group Company Limited

Audit Committee’s Review Report

To: Shareholders’ Annual General Meeting for Year 2017

The Board of Directors has prepared and submitted to the undersigned, Audit Committee of the company the Business Report, Consolidated Financial Statements and Dividend Distribution proposal. The above Business Report, Consolidated Financial Statements and Dividend Distribution proposal have been examined and determined to be correct and accurate by the undersigned. This Report is duly submitted in accordance with applicable laws.

Yeong Guan Energy Technology Group Company Limited The Audit Committee, Chairman:

March 9, 2017

129

4. The Latest Year Financial Statement: Please refer to Appendix 1.

5. Latest individual financial statements audited and attested by CPAs but without detailed lists of the main accounting items: NA

6. In the latest year and as of the date when annual report was published, occurrence of financial difficulty which poses influences over the Company’s financial situation: none.

130

VII. Financial Status and Financial Performance Analysis and Risk Issues

1. Financial Status

Unit: NTD in thousands

Financial Status Unit: NTD in thousands Unit: NTD in thousands
Year
Item		 2015 2016 Difference
Amount %
Current Asset 9,557,290 8,127,766 (1,429,524) (14.96%)
Real Estate, Factory
Buildings and
Equipment		 5,251,823 5,700,681 448,858 8.55%
Intangible Asset 133,214 145,208 11,994 9.00%
Other Asset 647,429 1,078,734 431,305 66.62%
Total Asset 15,589,756 15,052,389 (537,367) (3.45%)
Current Liability 2,473,907 2,546,022 72,115 2.92%
Non-Current
Liability		 2,461,407 2,428,059 (33,348) (1.35%)
Total Liability 4,935,314 4,974,081 38,767 0.79%
Share Capital 1,179,796 1,188,175 8,379 0.71%
Additional Paid-in
Capital		 6,091,651 6,204,774 113,123 1.86%
Retained Earnings 2,998,411 3,002,521 4,110 0.14%
Other Interest 272,809 (621,320) (894,129) (327.75%)
Non-controlling Int
erest		 111,775 304,158 192,383 172.12%
Total Interest 10,654,442 10,078,308 (576,134) (5.41%)
Main reasons and impacts of major changes (increase/decrease by over 10% in two years;
total amounts of increases/decreases are equivalent to 1% of the total asset value of the
respective year):
1.
Current assets: Investment of held capital in modifications and improvements of the
Wujiang Plant in Shanghai and the expansion of the Liyang plant in Jiangsu
2.
Other assets: The company actively increased and expanded its prepayments
3.
Other interest: Decrease of cumulative translation adjustments of long-term
investments due to depreciation of the RMB compared to the previous year.
4. Non-controlling interests: Generation of non-controlling interests due to new
investments in New Power Team TechnologyInc.

131

2. Financial Performance

(1). Operating Performance Analysis Table

Unit: NTD in thousands

Unit: NTD in thousands Unit: NTD in thousands
Year
Item		 2015 2016 Difference
Amount %
OperatingIncome 8,122,470 7,373,888 (748,582) (9.22%)
OperatingCost 5,454,367 4,955,142 (499,225) (9.15%)
Operating Gross
Margin		 2,668,103 2,148,746 (249,357) (9.35%)
OperatingExpense 1,152,195 1,274,865 122,670 10.65%
OperatingNet Income 1,515,908 1,143,881 (372,027) (24.54%)
Non-Business Income
& Expense		 272,605 180,777 (91,828) (33.69%)
Pre-Tax Net Income 1,788,513 1,324,658 (463,855) (25.94%)
Income Tax Expense 439,390 327,239 (112,151) (25.52%)
Current Net Income 1,349,123 997,419 (351,704) (26.07%)
Explanations on items with significant changes (items with changes exceeding 10%
and with change amount reaching 1% of current year total asset amount)
1. Operating net income: Drop in operating net income mainly due to falling
gross margins in 2016
2. Pre-tax net income and current net income: Drop in profitability compared to
thepreviousyear mainlydue to falling gross margins in 2016

  • (2) Expected Sales and Reasons

  • The Company maintains a neutral and conservative attitude with regard to overall sales income for 2017 will maintain. This mainly comes from considerations of changes in macroeconomic environment, industry prospect, the Company’s future development direction as well as operating target which is established based on the Company’s operating status.

  • (3) Potential Effects on The Company’s Future Finance Business and Responding Plan

The Company will closely monitor changes of economic situation and trend of market demand in order to expand market share and increase the Company’s profit. As such, the Company’s future business is expected to grow continuously while its financial conditions will also remain in good shape.

132

3. Cash Flow

(1) Analysis of Cash Flow Changes in Recent Years

Unit: NTD in thousands

Year
Item		 2015 2016 Increased
(Decreased)
Amount%		 Increased
(Decreased)
Percentage %
Operating
Activity		 1,489,816 1,339,211 (150,605) (10.11%)
Investment
Activity		 (1,676,846) (857,121) 819,725 (48.88%)
Financing
Activity		 2,756,380 (1,361,045) (4,117,425) (149,38%)
Analysis of Changes:
1. Investment Activity: Decrease of this year’s investment activity net cash
outflow is mainly because of decrease in capital expenditure.
2. Financing Activity: Increase of this year’s financing activity net cash outflow is
mainlybecause ofpayingcash dividends.

  • (2) Cash flow liquidity analysis and liquidity insufficiency improvement plan for the upcoming year

    • The Company still plans capital expenditures in fixed assets for 2017, but will adopt a neutral and conservative attitude and carefully assess investment scope and efficiency. It is expected that net cash outflows will be generated by non-investment activities in the context of development of new orders in 2017, but an assessment of the current capital situation of the company indicates that sufficient capital is available to meet these expenses and no liquidity risks exist.

4. Influence on finance business from major capital expenditure in the latest year: The main goal of capital expenditures in recent years was the expansion of business scopes in response to future industry development trends with the goal of strengthening future competitiveness and maintaining the growth momentum. The Company therefore continues to expand its plants and purchase required equipment in the Greater China area. These expenses will be met with the company’s own capital. The Company will only adopt other financing methods such as loans if its own funds are insufficient.

5. Investment strategy for the latest year, main reason(s) for gain or loss, improvement plan and investment plan for the upcoming year

  • (1) The Company’s Investment Strategy The Company’s management over invested enterprise is based on investment cycle requirements of internal control system. Additionally, management is also based on the Company’s drafted requirements of “Operation guidelines for business operating and finance transaction among group enterprise, designated company and related party,” “Operation guidelines for subsidiary monitoring,” and “Operation guidelines for subsidiary operation and management.” Under considerations of domestic laws and actual operations for respective invested companies, assistance is offered accordingly for respective invested companies

133

to establish appropriate internal control system. With respect to organization structure, directors for respective invested companies are established in accordance with domestic laws and are designated by parent company. As for management level for respective invested companies, all general managers are designed by parent company while other managers are designed or recruited by authorized respective invested companies’ general managers. However, employment of finance head shall be submitted to parent company for approval or be designated by parent company. Furthermore, the Company regularly receives related financial statement materials, operation reports as well as CPA certified financial statements for the purpose of in-time analysis and assessment over invested enterprise’s operation condition and income status. The Company’s internal audit department will also dispatch personnel, regularly or randomly, to conduct auditing operation over subsidiary, and establish related auditing plan as well as prepare audit report in order to monitor internal control system deficiency and rectification over irregularity matter.

134

(2) Main reasons for gain or loss on investments for the latest year (2016)

Unit: NTD in thousands

Invested Enterprises Recognized
Investment Gain/Loss
Amount
Reason for Gain or Loss		 Improvement
Plan
Yeong Guan Holding Co.,
Ltd.		 1,192,301 This is mainly because investment income is
assessed usingequitymethod.		 －
Yeong Guan Heavy Industry
(Thailand) Co., Ltd.		 (1,157) This is mainly because invested enterprise is still
in its opening phase and business has not yet
started.		 Nil
New Power Team
Technology Co., Ltd.		 (7,961) Insufficient production and sales amounts have
been caused by the sluggish progress of product
development and large variations of customized
products


Commitment
to the
development of
standardized
newproducts
Yeong Guan International
Co.,Limited		 893,507 This is mainly because investment income is
assessed usingequitymethod.		 －
Shin Shang Trade Co., Ltd. 2,291 This is main because of order transfer benefits
from shipments to Europe/US customers.		 －
Yeong Chen Asia Pacific Co.,
Ltd.		 149,648 This is main because of order transfer benefits
from shipments to Europe/US customers.		 －
Lizhan Limited (3,416) This is main because of order transfer benefits
from shipments to Europe/US customers.		 Nil
Ningbo Yeong Shang Casting
Iron Co.,Ltd.
193,559		 Profit for main business remains steady. －
Dongguan Yeong Guan
Mould FactoryCo.,Ltd.		 83,694 Profit for main business remains steady. －
Ningbo Lu Lin Machine Tool
FoundryCo.,Ltd.
304,732		 Profit for main business remains steady. －
Jiangsu Bright Steel Fine
MachineryCo.,Ltd.		 451,071 Profit for main business remains steady. －
Ningbo Yong Jia Mei Trade
Company		 855 Profit for main business remains steady. －
Shanghai No.1 Machine
Tool Foundry (Su Zhou)
Co.,Ltd.		 (28,308) This is mainly because reinvestment businesses
are still in the adjustment and improvement stage
and operations have notyet been initiated

Nil
Shanghai No.1 Foundry
Trading Co., Ltd.		 (4,279) This is mainly because reinvestment businesses
are still in the adjustment and improvement stage
and operations have notyet been initiated

Nil
Ningbo New Power Team
Technology Co., Ltd.		 (3,424) This is mainly because reinvestment businesses
are still in the adjustment and improvement stage
and operations have notyet been initiated

Nil

135

(3) Investment plan for the upcoming year

The Company continues its investments to establish Thailand plant and Taichung plant.

In view of the rising global awareness of climate change issues, “Green Home” and “Investment in Green Energy” have replaced traditional energy policies centered around coal, natural gas, and nuclear energy. These new concepts gradually turn into the mainstream of economic strategies and public administration all over the world. In line with the global trend of energy conservation and carbon reduction, development and application of new energy technologies, a constantly rising demand for green energy worldwide, and promotion of vigorous development of relevant industries, the Company continues its commitment to serve as a driving force for the development of green energy industries. It also constructs new and expands existing up- and downstream casting, processing, and spray coating plants to extend and expand industry standards. In addition to an increase of “hard power” through plant expansion investments, the Company develops its soft power by adopting a long-term strategic perspective. The goal is to strengthen the capabilities of the company in the field of material and technology development as well as make an active commitment to corporate social responsibility and safe production. EHS development is conducive to strengthening the future international competitiveness of the Company, gives a strong impetus to sustainability, and creates synergy effects fostering long-term growth.

6. Risk Analysis and Assessment

  • (1) Interest rate, change of exchange rate and inflation’s influence over the Company’s gain or loss as well as future responding measures

  • I. Interest Rate

The Company’s interests paid in cash for 2015 and 2016 are NTD11,299 thousands and NTD19,882 thousands with percentages of 0.14% and 0.27% to respective current year operating income. These percentages are extremely small and therefore change of interest rate does not have a significant influence over the Company. Although currency market interest rates for the latest year decrease slowly, they’re still relatively low. Therefore the Company’s borrowing interest rates did not change a lot. However, in the event of larger fluctuation for interest rates going forward and the Company still has needs for loan, the Company will then raise capital through other fund raising instruments in capital market. Additionally, the Company will observe interest rate trends and select fixed or floating interest rate loan to avoid interest rate fluctuation risk.

II. Exchange Rate

Given the fact that thirty percent (30%) of the Company’s sales territories are in China with sales are denominated in RMB, and fifty percent (50%) are in Europe and U.S. with sales denominated in EUR and USD, while goods purchased are mainly denominated in RMB, offset incurred accordingly between purchase in RMB and sales in RMB. Meanwhile, exchange rate changes among different currencies still come with offset effect. As a result, in addition to natural hedging on exchange rate

136

differences, the Company is also engaged in selling forward exchange to evade risks on foreign currency positions held. The Company’s net exchange gains (losses) for 2015 and 2016 are NTD162,742 thousands and NTD150,299 thousands respectively accounting for 2.00% and 2.04% of respective current operating net income. Influences are extremely small and therefore there are no significant exchange risks as a whole. However, under consideration of future operation growth, the Company will continue to increase its foreign currency position. As such, possible counter measures to enhance control over foreign currency position are as follows:

  • (a) Financial personnel’s foreign exchange hedge concept will be enhanced continuously. Through internet exchange rate real time system as well as enhanced communication with financial institutions, exchange rate change trend will be determined accordingly to serve as foreign exchange settlement reference basis.

  • (b) Sales income in the same currency will be utilized, to the maximum extent, to pay for purchase and related expenses in order to obtain natural hedging effect.

III. Inflation

The Company continues to maintain close and good interaction relationship with suppliers and customers, adjusts purchase and sales strategies in a flexible way, pays attention to price changes in the market and keeps well informed of upstream material price changes in order to mitigate influence on the Company’s income from change of inflation. In the latest year and as of the date when annual report was published, there are no significant changes on financial market and prices and there is no significant influence on the Company’s income.

  • (2) Policy for conducting high risk/high leveraged investment, lending capital to others, endorsement/guarantee and derivative transactions; Major reasons for gain or loss and future responding measures

The Company has already drafted guidelines of “Handling Process for Asset Acquisition and Disposition,” “Operation Procedure for Capital Lending to Others,” “Operation Procedure for Endorsement/Guarantee,” and “Handling Process for Derivative Product Transactions” which shall serve as compliance basis for the Company and subsidiary when engaged in related behavior.

As of the date when this annual report was published, the Company is not engaged in Endorsement/Guarantee or lending of capital to other companies except for the ones between the Company and its subsidiaries, or the ones between its subsidiaries. Aforementioned endorsement/Guarantee or lending of capital are all conducted in accordance with related operation process regulations and, in general, they do not have significant influence over consolidated income. Furthermore, the Company is always focused on the operating of its main businesses and has never stepped into other high risk industries. The Company’s finance policy is based on the principle of being stable and conservative and never engages itself in high risk/high leveraged investment or transaction. As such, related risks should be limited.

137

  • (3) Future R&D plan and expected R&D expenditure

  • Future R&D plan

    • (a) The Company’s future R&D plan utilizes new auxiliary materials to enhance casting product quality, reduce defected product, enhance casting product material conversion rate and develop high power wind power products.

    • (b) Development and improvement of new techniques and production technologies to reduce defect rates and thereby enhance product competitiveness and quality consistency.

    • (c) Development of new industry materials and alloys to achieve a breakthrough in existing casting technologies; provision of more professional services to meet future customer demands through upgrades of welding capabilities and acquisition of professional system certifications

  • Projected R&D expenses

    • (a) Projected R&D expenses account for a fixed ratio of 1-3% of the operating revenue in 2017. Future R&D expenses will be determined by optimizations and improvements of new products, production processes, and molds developed by customers as well as yield rate enhancement, energy conservation, and waste reduction.

  • (4) Influence from domestic/offshore important policies and changes of law on the Company’s finance business as well as responding measures

  • The Company is registered in British Cayman Islands while its important subsidiaries are registered in Taiwan, British Virgin Islands, Hong Kong and China. The Company does not operate in British Cayman Islands. Fluctuation for China’s internal exchange rate is stable. Political relationship between Taiwan and China is stable. The Company and its important subsidiaries conduct all their businesses in accordance with regulations of their respective territories. The Company’s major products include large wind power generator (wheel hub and base) and steam turbine for large power plant. Therefore, this industry should not be a franchising or a restricted industry. Therefore in the latest year and as of the date when this annual report was published, critical policy changes or regulation changes in British Cayman Islands, British Virgin Islands, Taiwan, Hong Kong and China are not expected to pose significant influence on the Company’s finance business. Most of the Company’s major customers and suppliers are located in Asia. Given special political situations in some Asian countries, the Company and its customers’ finance business may be affected by politics, economy and laws. Therefore, in the event of changes in respective government’s policy, economy, tax or interest rate, or in the event of incidents involving politics, diplomacy or society, business of the Company’s client or the Company might be affected accordingly.

  • (5) Influence on the Company’s finance business from changes of technology and industry as well as responding measures to such influence

The Company’s clients include leading vendors across the world. Given the close collaboration relationship between both parties now, the Company is therefore able to access to information of the latest technology through such relationship. Losing

138

such important clients is equal to losing critical sources to understand changes of technology as well as changes in the industry. Failure to master market trend and the trend for future product development will keep the Company from launching products needed by the market and operation may suffer from significant and negative impact. As such, the Company continuously pursues product promotion in an effort to elevate product positioning to the position of a market leading brand. On the other hand, the Company also follows clients’ steps closely in order to obtain, at any time, the latest technology information in the market, understand future changes in the industry and master market trend as well as product future development trend.

The company’s main clients are currently concentrated in the energy, injection molding machinery, and industrial machinery industry. As for the energy sector, the design of wind power products, and offshore wind turbines in particular, is characterized by increasing size. These products pose new challenges in the fields of weight, dimensions, and technologies and represent the future trend of this industry. The company also plans to further upgrade its production capabilities and technologies in line with customer demands. We will continue our efforts in the development of new customers in different industries and new products for existing customers to ensure continued growth of our energy products sales and maintain our competitiveness and technological edge in the industry. Technology and industry changes therefore don’t have a significant impact on our financial operations.

  • (6) Influence to enterprise crisis management from enterprise image change as well as responding measures to such influence

The company has always been dedicated to the development goal of honesty and sustainable operation while focusing on high quality casting products technology enhancement of spherical graphite cast iron and grey cast iron as well as development and manufacturing of energy and injection molding machine products with the goal of meeting market demands. The Company enjoys good business reputation in international market and this has established the Company’s credibility and position in this industry. There is no change of company image which leads to crisis management in the latest year and as of the date when annual report was published.

  • (7) Projected benefits, potential risks, and response measures for mergers &acquisitions

The Company’s subsidiary Yeong Guan Holdings Co., Ltd. acquired 52% of the total equity of New Power Team Technology Inc. on January 7, 2016. This was followed by the establishment of New Power Team Special Equipment Inc. near the manufacturing base in Ningbo, China to achieve maximum benefits and continued sophistication of the company’s products. The main goal of the acquisition is to take advantage of the industrial machinery assembly capabilities and technologies accumulated by New Power Team in various fields. This move is expected to effectively replenish and strengthen the casting assembly capabilities of the company in Mainland China. It is also expected to enhance the product quality and economic value, intensify links with different machinery industries and markets, and increase the competitiveness of the company’s products in different fields.

In addition, the company’s subsidiaries Yeong Guan International Co., Ltd. and

139

Dongguan Yeong Guan Mould Factory Co., Ltd. acquired 90% of the total equity of Shanghai No.1 Machine Tool Foundry (Su Zhou) Co., Ltd. on January 25, 2016 to alleviate the shortage of production capacities, enhance the supply capabilities of the group, and maintain the company’s growth momentum. Due to the fact that Shanghai No.1 mainly focused on modifications and improvements to enhance its capability to provide large-scale castings in 2016, the trial run stage was still in progress in the first quarter of 2017 to ensure consistent quality upon initiation of mass production. Stable output increases are planned for the third quarter of 2017. It is estimated that Shanghai No.1 will only make minor contributions to the company’s revenue. The main benefits are expected to occur in 2018.

To sum up the expected benefits and risk considerations associated with these acquisitions, the Company’s manufacturing capabilities have received international acclaim and product quality and competitiveness can withstand conflicts generated by market variations. In the latest year, customer orders have shown stable growth. Acquisitions and mergers allow the integration of resources, increase of output capacities, and enhancement of operational performance. Full consideration is given to investment returns and potential risks and overall assessments of positive impacts on future shareholder rights and interests are carried out.

  • (8) Expected benefits, potential risks and responding measures for plant expansion

The company serves leading manufacturers of various industries. Plants are expanded to build excellent supply capabilities and the Company will continue to adopt innovative technologies and advanced operation concepts. Safe production (EHS), enhanced quality, and conservation of resources serve the purpose of intensifying cooperation with large international manufacturers in pursuit of business opportunities created by the demand for next generation green energy products. Plant expansion processes are initiated upon comprehensive and careful assessments by dedicated units in full consideration of investment returns and potential risks.

  • (9) Risks and responding measures for concentrated purchase of goods or sales of goods

1. Purchase of Goods

The main raw materials used by this company are pig iron, scrap steel, nodulants, inoculants, carburants, ferro-silicon, ferro-manganese, ferro-chromium, ferro-molybdenum, ferro-phosphorous, and ferro-sulphur. Auxiliary casting materials include furan resin, curing agents, deslagging agents, steel shot, bonding agents, dross filters, quartz sand, and magnesium oxide coating. Pig iron and scrap metal account for the bulk of all purchases and 40% of the total procurement costs. As for supply sources, the main raw materials are purchased in the local Chinese market due to the fact that Mainland China possesses rich mineral resources.

In response to market demands, the company added two pig iron suppliers (Hebei Long Feng Shan Casting Industry Co., Ltd and Linzhou Hexin Casting Co., Ltd.) and two scrap steel suppliers (Tian Heng Renewable Resources Co., Ltd. in Liyang City and Dong Zu Scrap Steel and Metal Recycling Co., Ltd. in Jiashan County) in 2016. Due to the fact that several suppliers have been

140

selected for each raw material, no major supply shortages have occurred. In the most recent two years, the top ten suppliers accounted for 49% and 42% of the total net purchases of the Company, respectively. Average ratios of the top ten suppliers lie between 42% and 49%. In 2016, purchases from individual suppliers did not exceed 10% of total purchases. The risk of concentration of supply sources is therefore not present.

  1. Sales of Goods

In 2016, percentages of the Company’s sales to its biggest an second biggest clients all exceeded 10% while sales percentages to other individual clients are all under 9%. Sales to the Company’s top ten client accounts for roughly 65% of total sales in latest fiscal year of 2016. Given the fact that the Company’s casting product technology has been improving continuously and the professional stability of service quality has been affirmed by numerous major international companies, Yeong Guan aggressively explores other industries in different business fields such as agriculture machine, mining machine, naval machine and auto accessories. It is also hoped that offshore sales can be more balanced globally and sales development for America and Japan markets can be enhanced. These plans shall assist to diversify and lower impact on the Group’s sales from concentrated sales to individual clients as well as market fluctuations in respective industries. With analysis herein, the Company’s risks from sales to concentrated clients is expected to be controlled effectively.

  • (10) Influence, risks to the Company from large amount equity transfer or change by director, supervisor or major shareholder with ownership exceeding 10% and responding measures to such influence and risks.

No aforementioned cases in the latest year and as of the date when annual report was published.

  • (11) Influence and risks to the Company as well as responding measures from changes of management rights

The Company has a stable major shareholder structure and a comprehensive professional management team. The Company’s various management and operation advantages will not be compromised if there are changes in management rights. There are no changes of the Company’s management rights in the latest year and as of the date when annual report was published.

  • (12) The Company and the Company’s director, supervisor, general manager, actual responsible person and major shareholders holding more than 10% of shares shall prescribed litigation or non-litigation incidents. With respect to subsidiary’s finalized or pending major litigation, non-litigation and administrative dispute incidents, the disputed facts, target amount, litigation commencement date, major parties involved and processing status as of annual report publish date shall all be disclosed if results for aforementioned incidents may have significant influence over shareholder’s equity or securities price.

Total number of finalized litigations and arbitration cases for the Company’s

141

subsidiaries of Ningbo Yeong Shang Casting Iron Co., Ltd., Jiangsu Bright Steel Fine Machinery Co., Ltd., Dongguan Yeong Guan Mold Factory Co., Ltd. and Ningbo Lu Lin Machine Tool Foundry Co., Ltd. in the latest two years and as of the date when annual report was published is four, while total compensation amount paid by the Company is only RMB 56,000. Such result does not have significant influence over the Company’s shareholder equity or securities price.

  • (13) Other critical risks and responding measures

  • (a) The Company’s critical operating risks and responding measures: With respect to possible negative factors incurred from the Company’s operation as well as their responding strategies, please refer to positive, negative factors for the Company’s future development and responding strategies prescribed in this annual report. Even with the existence of such responding strategies, it is still possible that complete implementation is unfeasible because of force majeure factors encountered during implementation. This will further affect the Company’s operation, business and finance.

  • (b) Negative influence on the Group’s business, operating performance and financial condition from the Company’s potential insufficient insurance over operation:

    • Currently, the Company has already followed Chinese enterprise’s common practice and proposed comprehensive property insurance which covers the Company’s properties of plant and machine equipment with a total insurance amount of RMB1,459,734 thousands. However, the Company did not propose any insurance over operation disruptions in China factory or any compensation liability from damage to environmental protection. Reason for not proposing is that such insurance in China is not mature enough and causes for compensation are not clearly stipulated. The Company may suffer losses or assume compensation liability from occurrence of such risks because of its failure to propose such insurance accordingly. Additionally, among items which are already insured, it is possible that the scope of insurance may not provide sufficient protection against possible losses. This could have negative impact

  • (c) Risk of Intellectual Property Infringement: As of now, the Company holds 4 trade mark rights and 32 patents. Intellectual property of these trademarks and patents is critical to the Company’s operation. Therefore, the Company is dedicated to protecting these intellectual properties. In the event of any infringement to the Company’s intellectual property in the future which damages the Company’s product market value and brand reputation and affects the Company’s business, financial status and operating performance, the Company will file litigations to protect such rights. However, when faced with different levels of litigation costs, the Company will take necessary measures and actions under considerations of overall cost efficiency.

  • (d) Risk of Patent Rights Violation:

In the face of more and more fierce competition in emerging energy industry, competitor may use patent infringement litigation to disrupt the Company’s

142

business development. The Company’s risk of being sued for compensation from intellectual property rights infringement is also increasing. Therefore, as the Company’s operating scale continues to grow, it is expected that the possibility to face with other competing company’s patent infringement litigation will also increase. Accordingly, the Company strictly complies with patent related regulations, avoids using other’s patented technology by mistake, continues to enhance R&D and emphasizes on developing the Company’s own technology. As of now, there is no legitimation raised from the Company’s violation of patent rights.

7. Other Critical Matters: None.

143

VIII. Special Matters Documented

1. Subsidiary Related Information

(1) Enterprise Organization Chart: Please refer to “II. Company Introduction”

(2) Subsidiary Basic Information

(2) Subsidiary Basic Information (2) Subsidiary Basic Information (2) Subsidiary Basic Information (2) Subsidiary Basic Information (2) Subsidiary Basic Information
March 31st,2017,Unit: in thousands
Name of Enterprise Date of
Establishment		 Address Paid-in
Capital		 Major Business or
Production Items
Yeong Guan Holding Co., Ltd. 2007.11 OMC Chambers, Wickhams
Cay 1, Road Town, Tortola,
British Virgin Islands		 USD 146,000 Investment in share
holding
Yeong Guan International Co.,
Limited		 2007.11 1004 AXA Centre, 151
Gloucester Road, Wan Chai,
HongKong		 HKD 506,000 Investment in share
holding
Shin Shang Trade Co., Ltd. 1998.01 OMC Chambers, P.O. Box
3152, Road Town, Tortola,
British Virgin Islands		 USD 50 Trading business
Yeong Chen Asia Pacific Co.,
Ltd.		 2008.06 No. 502, Sec. 1, Cheng Gon
Rd., Guan Yin Township,
Taoyuang County		 NTD 95,000 Trading business,
manufacturing and selling
ofcast iron
Dongguan Yeong Guan Mould
Factory Co., Ltd.		 1995.06 Yin Quan Industrial Zone,
Chin Xi Town, Dong Guan
City, Guandong Province,
China		 HKD 31,000 Manufacturing and selling
of cast iron
Ningbo Yeong Shang Casting
Iron Co., Ltd.		 2000.12 No. 1, Gang Kuo Rd., Bei
Lun District, Ningbo City,
ZhejiangProvince,China		 USD 43,100 Manufacturing and selling
of cast iron; processing of
precision machinery
Ningbo Lu Lin Machine Tool
Foundry Co., Ltd.		 2000.08 No. 28, Ding Hai Rd.,
Economic Technology
Development Zone, Zhen
Hai District, Ningbo City,
ZhejiangProvince,China		 USD 13,705 Manufacturing and selling
of cast iron; recycling of
scrap steel
Jiangsu Bright Steel Fine
Machinery Co., Ltd.		 2006.11 No. 9, Yue Pen Rd., Tien
Mu Hu Industrial Park, Li
Yang City, Jiangsu Province,
China		 USD 80,000 Manufacturing and selling
of cast iron
Ningbo Yong Jia Mei Trading
Co., Ltd.		 2009.11 No. 95, Huang Hai Rd., Bei
Lun District, Ningbo City,
ZhejiangProvince, China		 USD 1,000 Trading business
Yeong Guan Heavy Industry
(Thailand) Co., Ltd.		 2014.07 6 No.622/15, Rama2 Road,
Samae Dum Sub-District,
Bangkhuntian District,
Bangkok Metropolis.		 THB500,000 Manufacturing and selling
of cast iron
Shanghai No. 1 Machine Tool
Foundry (Suzhou) Co., Ltd.		 2009.08 No.999 Laixiu Road, Fen
Lake Economic
DevelopmentZone, Wujiang		 USD23,540 Manufacturing and selling
of cast iron
New Power Team
TechnologyCo.,Ltd.		 2009.08 No. 9, Minquan Rd., Dayuan
District,TaoyuanCity		 NTD 250,000 Manufacturing and selling
of machine & equipment
LIZHAN LIMITED 2016.01 Offshore Chambers, P.O.
Box 217, Apia, Samoa		 USD 1,000 Investment in share
holding
Shanghai No. 1 Foundry
Trading Co., Ltd.		 2009.11 Room No.312, Haiboxin
Building, No. 829, Yishan
Rd., Xuhui District,
Shanghai		 CNY 15,000 Trading business
Ningbo New Power Team Co.,
Ltd.		 2016.07 No. 647, Xin Qi Bo Hai Rd.,
Beilun District, Ningpo City,
Zhejiang Province, China		 USD 1,000 Manufacturing of base of
medical equipment, wind
turbine hub and
semiconductor equipment
products
  • 1 -

(3) Materials for same shareholder under assumed control and affiliate relationship: None.

(4) Director, Supervisor and General Manager Information for Respective Subsidiaries

Subsidiaries
Name of Enterprise Job Title Name
Yeong Guan Holding Co., Ltd. Director Chang, Hsien-Ming
Chang,Wen-Lung
Yeong Guan Heavy Industries (Thailand) Co., Ltd. Director Chang, Hsien-Ming
Chang, Wen-Lung
Chang, Cheng-Chung
Tsai, Shu-Ken
Chen, Wu-Chi
Sutep Jatupornpakdi
Niyom Jatupornpakdi
Yeong Guan International Co., Limited Director Chang, Hsien-Ming
Chang,Wen-Lung
Shin Shang Trade Co., Ltd. Director Chang, Hsien-Ming
Chang,Wen-Lung
Yeong Chen Asia Pacific Co., Ltd. Director Chang, Hsien-Ming
Chang,Wen-Lung
Dongguan Yeong Guan Mould Factory Co., Ltd. Director Chang, Hsien-Ming
Chang, Wen-Lung
Chang, Cheng-Chung
Tsai, Shu-Ken
Chen,Wu-Chi
General
Manager		 Chen, Wu-Chi
Ningbo Yeong Shang Casting Iron Co., Ltd. Director Chang, Hsien-Ming
Chang, Wen-Lung
Chang, Cheng-Chung
Chen,Wu-Chi
Supervisor Hsu,Yu-Yue
General
Manager		 Hsu, Ching-Hsiung
Ningbo Lu Lin Machine Tool Foundry Co., Ltd. Director Chang, Hsien-Ming
Chang, Wen-Lung
Chang, Cheng-Chung
Tsai, Shu-Ken
Chen,Wu-Chi
Supervisor Hsu,Yu-Yeeh
General
Manager		 Lin, Tai-Feng
Jiangsu Bright Steel Fine Machinery Co., Ltd. Director Chang, Hsien-Ming
Chang, Wen-Lung
Tsai, Shu-Geng
Hsu,Ching-Hsiung
Supervisor Chang,Cheng-Chung
General
Manager		 Chang, Hsien-Ming
Ningbo Yong Jia Mei Trading Co., Ltd. Director Chang,Wen-Lung
Supervisor Chang,Hsien-Ming
  • 2 -
Name of Enterprise Job Title Name
Shanghai No. 1 Machine Tool Foundry (Suzhou) Co., Ltd. Director Chang, Hsien-Ming
Tsai, Shu-Ken
Chen, Wu-Chi
Huang, Wen-Hung
Yu,Hsiao-Bin
Supervisor Chang,Chih-Kai
New Power Team Technology Co., Ltd. Director Chiang, Hsiao-Chieh
Tsai, Shu-Ken
Chen,Wu-Chi
Supervisor Chiang, Yung-Chien
Chang,Wen-Lung
LIZHAN LIMITED Director Chiang,Hsiao-Chieh
Shanghai No. 1 FoundryTradingCo.,Ltd. Director Lu,Hai-Feng
Ningbo New Power Team Co., Ltd. Director Chiang,Hsiao-Chieh
Supervisor Chiang,YungChien

(5) Operating Summary for Respective Subsidiaries

Unit: NTD in thousands except earnings per share

Name of Enterprise Paid-in
Capital		 Total Asset Total
Liability		 Net Value Operating
Income		 Operating
Benefit
Current
Income
(Loss)		 Earnings
Per Share
(NTD)
Yeong Guan Holding Co.,Ltd. 4,793,180 11,913,205 617 11,912,588 - (2,805) 1,192,301 8.17
Yeong Guan Heavy Industry
(Thailand) Co.,Ltd.		 454,750 441,639 533 441,106 - (1,346) (1,542) (0.03)
Yeong Guan International Co.,
Limited		 2,142,910 9,321,240 774,241 8,546,999 - (196) 893,517 1.77
ShinShangTrade Co.,Ltd. 1,642 304,756 176,314 128,442 435,292 (12,938) 146 2.92
Yeong Chen Asia Pacific Co.,
Ltd.		 95,000 2,400,270 1,568,398 831,872 3,863,366 194,411 150,692 Note
New Power Team
TechnologyCo.,Ltd.		 250,000 335,957 22,319 313,638 66,671 (10,635) (15,641) (0.63)
Lizhan Limited 32,260 27,819 - 27,819 - 2 (3,422) Note
Dongguan Yeong Guan Mould
Factory Co.,Ltd.		 128,955 764,605 134,403 630,202 570,654 99,458 84,404 Note
Ningbo Yeong Shang Casting
IronCo.,Ltd.		 1,390,406 3,648,572 602,700 3,045,872 2,002,664 122,360 189,047 Note
Ningbo Lu Lin Machine Tool
FoundryCo.,Ltd.		 442,123 2,114,188 184,273 1,929,915 1,685,035 343,700 307,648 Note
  • 3 -
Name of Enterprise Paid-in
Capital		 Total Asset Total
Liability		 Net Value Operating
Income		 Operating
Benefit
Current
Income
(Loss)		 Earnings
Per Share
(NTD)
Jiangsu Bright Steel Fine
Machinery Co.,Ltd.		 2,580,800 5,268,425 1,277,049 3,991,376 3,114,983 540,510 453,439 Note
Ningbo Yong Jia Mei Trading
Co.,Ltd.		 32,260 36,957 1,970 34,987 10,310 443 1,100 Note
Shanghai No.1 Machine
ToolFoundry (Su Zhou) Co.,
Ltd.		 759,400 1,076,391 923,327 153,064 1,464 (68,968) (43,602) Note
Shanghai No.1 Foundry
TradingCo.,Ltd.		 162,765 13,945 1,480 12,465 - (4,280) (4,279) Note
Ningbo New Power Team
TechnologyCo.,Ltd.		 32,260 35,978 8,161 27,817 146 (3,293) (3,424) Note

Note: Earnings per share cannot be calculated because this is not an incorporated company.

  • (6) Affiliated Enterprise Consolidated Financial Statements: Please refer to appendix 1.

  • (7) Affiliation Report: None.

2. In the latest year and as of the date when this annual report was published, any cases of securities private placement: None.

3. In the latest year and as of the date when this annual report was published, cases of subsidiary holding or disposing the Company’s shares: None.

4. Other necessary supplementary explanation: None.

5. Explanation of major differences from ROC shareholder equity protection regulations:

  • Shareholder Equity Contents of The Protection Critical Company’s Modified Reasons for Differences Issues Articles of Incorporation

    1. Shareholders holding Within the scope legally Company Act of British more than 3% of the permitted by British Cayman Islands does not Company’s Cayman Island laws and in have specific regulations to outstanding shares accordance with applicable allow minority shareholders for more than one laws which allow the to raise litigation process year are entitled to Company to raise litigation against director in British request, in writing, against director, Cayman Island court. supervisor to raise shareholders holding more Articles of Incorporation is litigation against than 3% of the Company’s not a contract entered director for the outstanding shares for more between shareholder and Company and are than one year are entitled director. Rather, it is an entitled to utilize to: agreement between Taiwan Taipei shareholder and the District Court as the (a) request, in writing, BOD Company. As such, even first instance court. meeting to authorize though articles of

  • 4 -

Shareholder Equity
Protection Critical
Issues		 Contents of The
Company’s Modified
**Articles of Incorporation **		 Reasons for Differences
2. In the event that
supervisor does not
raise litigation hereto
within thirty (30)
days after
shareholder’s
request, shareholder
hereto will be
entitled to raise
litigation for the
Company and is
entitled to utilize
Taiwan Taipei
District Court as the
jurisdiction court.		 audit committee
independent director to
raise litigation against
director for the
Company and are
entitled to utilize
Taiwan Taipei District
Court as the first
instance court; or
(b) request, in writing, audit
committee independent
director to raise
litigation against
director for the
Company after being
approved by BOD
meeting resolution and
are entitled to utilize
Taiwan Taipei District
Court as the first
instance court;
Within thirty (30) days after
requests prescribed in the
preceding clause (a) or
clause (b) have been
submitted, in the event that:
(i). BOD meeting being
requested has failed to
authorize audit committee
independent director in
accordance with clause (a),
or audit committee
independent director
authorized by BOD meeting
has failed to raise litigation
accordingly in accordance
with clause (a); or, (ii).
Requested audit committee
independent director has
failed to raise litigation
accordingly in accordance
with clause (b), or
BOD meeting does not pass
a resolution to raise
litigation accordingly,
Withinthe scopelegally		 incorporation allows
minority shareholder to
raise litigation against
director, British Cayman
Islands lawyers don’t
consider such contents will
be entitled to regulate
director accordingly.
However, as per common
law, all shareholders
(including minority
shareholders) are entitled to
raise litigation (including
litigation against director)
disregard of their
shareholding percentages or
duration of shareholding. In
the event of litigation raised
against director, British
Cayman Islands court shall
have full and complete
authority to determine if
shareholders are entitled to
proceed with litigation
hereto. To elaborate, even
though articles of
incorporation prescribes
that minority shareholders
( or shareholders with
certain holding percentage
or holding duration) are
entitled to represent the
Company to raise litigation
against director, proceeding
of such litigation shall
ultimately be determined by
British Cayman Island
court. Based on related
judgements from the grand
court of British Cayman
Islands, guideline applied in
determining if litigation can
be proceeded is that if
British Cayman Island court
is convinced and accepts
that thereis ostensible
  • 5 -
Shareholder Equity
Protection Critical
Issues		 Contents of The
Company’s Modified
**Articles of Incorporation **		 Reasons for Differences
permitted by British
Cayman Island laws and in
accordance with applicable
laws which allow the
Company to raise litigation
against related director,
shareholders hereto shall be
entitled to raise litigation
against director for the
Company and are entitled to
utilize Taiwan Taipei
District Court as the first
instance court.		 substantiality on
plaintiff’s request submitted
on behalf of the Company,
and the claimed illegal
behavior is conducted by
the party who is capable of
controlling the Company,
and the controlling party is
capable of keeping the
Company from raising
litigation accordingly.
British Cayman Island court
will make determinations
based on facts for
individual cases. (Although
court may take references
of the Company’s articles of
incorporation, this is
however not a decisive
factor.)
According to the laws of
British Cayman Islands,
BOD meeting shall make
decisions on behalf of the
Company based on
expression of intention
form the BOD as a whole
(instead of individual
director). As such, any
director shall all be
authorized by BOD meeting
resolution in accordance
with articles of
incorporation to raise
litigation against other
director on behalf of the
Company.
Company Act of British
Cayman Islands does not
have regulations granting
shareholders the rights to
request the holding of BOD
meeting for resolution on
specific issues. On the other
hand, the aforementioned
CompanyAct doesnot
  • 6 -
Shareholder Equity
Protection Critical
Issues		 Contents of The
Company’s Modified
**Articles of Incorporation **		 Reasons for Differences
prohibit companies from
drafting BOD meeting
agenda related requirements
(including requirements on
convening BOD meeting)
inarticles of incorporation.

Note: With respect to related matters of “Equity Protection Checklist for Foreign Issuer’s Shareholders of Registered Country” modified by Taiwan Stock Exchange Corporation on April 14[th] , 2015 under reference of Tai-Zheng-Shang-Yi-Tze No. 1040020809, the Company intended modification of “Company Articles of Incorporation” had already been approved by BOD meetings on March 11[th] , 2016 and is expected to be submitted to shareholder’s meeting on June 7[th] , 2016 for approval.

IX. In the latest year and as of the date when annual report was published, occurrence of events with significant effect on shareholder’s equity or securities prices as prescribed in Clause 2, Paragraph 2, Article 36 of Securities & Exchange Law: None.

  • 7 -

STOCK CODE: TT.1589

(English Translation of Financial Report Originally Issued in Chinese)

YEONG GUAN ENERGY TECHNOLOGY GROUP CO., LTD. AND SUBSIDIARIES

Consolidated Financial Statements and Independent Auditors’ Report

DECEMBER 31, 2016 and 2015

Address: Cricket Square, Hutchins Drive, Po Box 2681, Grand Cayman, KY1-1111, Cayman Islands Telephone: +86-574-86228866

  • 8 -

§ Table of Contents §

§ Table of Contents §
ITEM
1. Cover Page
2. Table of Contents
3. Independent Auditors’ Report
4. Consolidated Balance Sheet
5. Consolidated Statements of comprehensive
income
6. Consolidated Statements of Changes in Equity
7. Consolidated Statements of Cash Flows
8. Consolidated Financial Statements Notes
(1)
History of Company
(2)
Financial Statements Authorization Date
and Authorization Process
(3)
Application of Newly Promulgated and
Modified Guidelines and Explanation
(4) Explanation of Summarized Significant
Accounting Policy
(5)
Significant Accounting Judgment and
Assessment and Major Source of
Assumption Uncertainty
(6)
Significant Accounting Item Explanation
(7)
Related Party Transaction
(8)
Mortgaged or Pledged Assets
(9)
Significant Contingencies or
Unrecognized Contractual Commitment
(10) Significant Disaster Loss
(11) Significant Subsequent Events
(12) Foreign Currency Financial Assets and
Liabilities Exchange Rate Information
(13) Notes Disclosures
1. Significant Transaction Related
Information
2. Reinvestment Related Information
3. China Investment Information
(14) Segment Information		 PAGE
1
2
3~7
8
9
10
11~12
13
13
13~24
24~37
38~39
40~72
72~75
75
-
-
-
76
77
77
77~78
78~80		 FINANCIAL
STATEMENTS
NOTE NO.
-
-
-
-
-
-
-
-
1
2
3
4
5
6~27
28
29
-
-
-
30
31
31
31
32
  • 9 -

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors

YEONG GUAN ENERGY TECHNOLOGY GROUP CO., LTD.

Opinion

We have audited the accompanying financial report of Yeong Guan Energy Technology Group Co., Ltd. and its subsidiaries, which comprise the consolidated balance sheets as of December 31st, 2016 and 2015, and the Consolidated Statements of comprehensive income, table of consolidated Statements of changes in equity, consolidated Statements of cash-flows and notes to consolidated financial Statements (including Explanation of Summarized Significant Accounting Policy) from January 1st to December 31st of 2016 and 2015.

In our opinion, all material aspects of aforementioned financial Statements were compiled in accordance with Regulations Governing the Preparation of Financial Reports by Securities Issuers as well as International Financial Reporting Standards (hereinafter referred to as “IRFSs”), International Accounting Standards (hereinafter referred to as “IAS”), interpretation from International Financial Reporting Interpretations Committee and announcement made by Standing Interpretations Committee which are recognized and promulgated by the Financial Supervisory Commission. These Statements can be utilized to appropriately describe consolidated financial status for Yeong Guan Energy Technology Group Co., Ltd. and its subsidiaries as of December 31st, 2016 and 2015, as well as consolidated financial performance and consolidated cash-flow from January 1st to December 31st for 2016 and 2015.

Basis for Opinion

We conducted our audits in accordance with the “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants” and generally accepted auditing standards in the Republic of China. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of Yeong Guan Energy Technology Group Co., Ltd. and its subsidiaries in accordance with the code of ethics for professional accountants, and we have fulfilled our other ethical responsibilities in

  • 10 -

accordance with the code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

  • 11 -

Key Audit Matters

Key Audit Matters are those matters that, in our professional judgment, were of most significance in our audit of Yeong Guan Energy Technology Group Co., Ltd. and its subsidiaries’ financial Statements for 2016. These matters were addressed in the context of our audit of the financial Statements as a whole and, in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Explanation of key audit matters on 2016 consolidated financial Statements for Yeong Guan Energy Technology Group Co., Ltd. and its subsidiaries is as follows:

Closing Date for Operating Income

Operating income for both Yeong Guan Energy Technology Group Co., Ltd. and its subsidiaries mainly comes from export. Sea freight must be utilized due to product characteristics. According to related guidelines on income recognition timing prescribed in International Accounting Standards #18, condition for income recognition can only be qualified when enterprises transfer ownership major risks and compensation to buyers. Please refer to note #4 of consolidated financial Statements. As such, the most critical matter for this audit is to verify if year-end export income has already been recorded correctly in accordance with business income recognition timing point.

With respect to this most critical matter, accountant hereto considered Yeong Guan Energy Technology Group Co., Ltd. and its subsidiaries’ operating income recognition policy, assessed operating income related internal control design and implementation, selected samples of this implementation details from export income for verification and test, and checked audit procedure on transaction documents for the purpose of verifying if operating income has been recorded in correct timing point.

Accounting Judgments for Bad Debt Allowance

As described in note #8 of consolidated financial Statements, for bad debt allowance, consideration of account receivable’s collectability is also needed in addition to assessment over bad debt allowance recognition policy drafted by the company. This part involves major accounting assessment and judgment. In the event that future actual cash flow is lower than expected one, it is possible to incur major impairment loss. Disclosure of related major accounting assessment and judgment explanation is described in note #4 and #5 of consolidated financial Statements. With this, this is the key audit matter for this audit.

  • 12 -

With respect to most critical matter, accountant hereto reviewed Yeong Guan Energy Technology Group Co., Ltd. and its subsidiaries’ bad debt allowance recognition policy, assessed design and implementation of account receivable assessment related internal control, tested management’s assessment on bad debt and materials utilized, tested collectability through subsequent collection documents, re-calculated bad debt allowance amount which was then compared with Yeong Guan Energy Technology Group Co., Ltd. and its subsidiaries’ recognized bad debt allowance. This is to verify if recognition has already been conducted as well as its adequacy in accordance with Yeong Guan Energy Technology Group Co., Ltd. and its subsidiaries’ bad debt allowance policy.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

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

In preparing the consolidated financial Statements, management is responsible for assessing Yeong Guan Energy Technology Group Co., Ltd. and its subsidiaries’ ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate Yeong Guan Energy Technology Group Co., Ltd. and its subsidiaries’ or to cease operations, or have no realistic alternative but to do so.

Those charged with governance (including audit committee) are responsible for overseeing Yeong Guan Energy Technology Group Co., Ltd. and its subsidiaries’ financial reporting process.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our Objectives are to obtain reasonable assurance about whether the consolidated financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with generally accepted auditing standards will always detect a material misstatement when it exists. Misstatement can arise from fraud or error and are considered material if,

  • 13 -

individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial Statements. As part of an audit in accordance with the auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

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

  2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Yeong Guan Energy Technology Group Co., Ltd. and its subsidiaries’ internal control.

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

  4. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on Yeong Guan Energy Technology Group Co., Ltd. and its subsidiaries’ ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial Statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause Yeong Guan Energy Technology Group Co., Ltd. and its subsidiaries to cease to continue as a going concern.

  5. Evaluate the overall presentation, structure and content of the consolidated financial Statements, including the disclosures, and whether the consolidated financial Statements represent the underlying transactions and events in a manner that achieves fair presentation.

  6. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the

  7. 14 -

consolidated financial Statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

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

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

From the matters communicated with those charged with governance, we determine those matters for Yeong Guan Energy Technology Group Co., Ltd. and its subsidiaries’ 2016 consolidated financial Statements. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in

extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Deloitte and Touche CPA Lee, Dong-Fong CPA Gong, Ze-Li

Securities and Futures Committee, Financial Supervisory Commission Ministry of Finance Executive Yuan Approval Document No. Approval Document No. Tai-Cai-Zheng-Liu-Tze Gin-Guan-Zheng-Shen-Tze No. 0930128050 No. 1000028068

March 9, 2017

  • 15 -

YEONG GUAN ENERGY TECHNOLOGY GROUP CO., LTD. AND SUBSIDIARIES Consolidated Balance Sheets Dec. 31, 2016 and 2015

Unit: in thousands of NTD

Code

1100
1110
1150
1170
130X
1419
1479
11XX

1600
1760
1805
1840
1915
1985
1990
15XX
1XXX
Code


2100
2120
2150
2170
2219
2230
2321
2322
2399
21XX

2500
2530
2540
2570
2613
2670
25XX
2XXX

3110
3200		 Asset
CURRENT ASSETS
Cash and cash equivalent(Notes 4 and 6)
Financial assets at fair value through profit and loss
(Notes 4, 5 and 7)
Notes receivable(Notes 4 and 28)
Account receivables, net(Notes 4, 5, 8 and 28)
Inventories, net(Notes 4, 5 and 9)
Prepayments
Other current assets(Notes 4, 14, 22, 28 and 29)
Total Current Assets
NON-CURRENT ASSETS
Property, plant and equipment(Notes 4, 5, 11 and 29)
Investment property, net(Notes 4, 12, 25 and 29)
Goodwill(Notes 4, 5 and 13)
Deferred income tax assets(Notes 4, 5 and 22)
Equipment prepayments
Long-term prepaid rents(Notes 4, 14 and 29)
Other non-current assets(Notes 4 and 28)
Total Non-Current Assets
TOTAL ASSETS
LIABILITIES and SHAREHOLDER’S EQUITY
CURRENT LIABILITIES
Short-term debts(Notes 15 and 29)
Financial liabilities at fair value through profit and loss (Notes 4, 5 and 7)
Notes payable(Note 28)
Accounts payable (Note 28)
Other accounts payable(Notes 18 and 28)
Current income tax liabilities(Notes 4, 5 and 22)
Exercise of Corporate Bond Payable Put Option Within One Year (Note 4 and 16)
Long term liabilities due within one year (Note 15)
Other current liabilities(Note 17)
Total Current Liabilities
NON-CURRENT LIABILITIES
Financial debts at fair value through profit and loss – non-current
(Notes 4, 5 , 7 and 16)
Bonds payable (Notes 4 and 16)
Long-term debts payable (Notes 15 and 29)
Deferred income tax debts(Notes 4, 5 and 22)
Rent payable-non-current(Note 17)
Other non-current liabilities
Total Non-Current Liabilities
TOTAL LIABILITIES
Shareholder’s Equity
Common stock capital
Additional paid-in capital		 Dec.31,2016
Amount
％
$ 4,240,818
28
8,386
-
278,886
2
1,907,569
13
1,261,237
8
246,282
2
184,588

1
8,127,766
54
5,700,681
38
27,405
-
145,208
1
72,066
-
561,335
4
380,547
3
37,381

-
6,924,623
46
$ 15,052,389
100
$ 521,950
3
2,190
-
369,993
2
728,110
5
528,177
4
93,153
1
145,360
1
96,780
1
60,309

-
2,546,022
17
20,500
-
2,392,775
16
-
-
14,046
-
735
-
3

-
2,428,059
16
4,974,081
33
1,188,175

8
6,204,774
41		 Dec.31,2015
Amount
％
$ 5,407,809
35
1,024
-
282,319
2
2,200,256
14
1,304,494
8
157,219
1
204,169

1
9,557,290
61
5,251,823
34
8,993
-
133,214
1
12,879
-
252,360
2
341,295
2
31,902

-
6,032,466
39

$ 15,589,756
100
$ 401,885
3
-
-
394,530
2
739,640
5
501,510
3
132,756
1
264,581
2
-
-
39,005

-
2,473,907
16
3,000
-
2,347,777
15
98,490
1
12,140
-
-
-
-

-
2,461,407
16

4,935,314
32
1,179,796

7
6,091,651
39
Amount
$ 4,240,818
8,386
278,886
1,907,569
1,261,237
246,282
184,588
8,127,766
5,700,681
27,405
145,208
72,066
561,335
380,547
37,381
6,924,623
$ 15,052,389
$ 521,950
2,190
369,993
728,110
528,177
93,153
145,360
96,780
60,309
2,546,022
20,500
2,392,775
-
14,046
735
3
2,428,059
4,974,081
1,188,175
6,204,774		 Amount
$ 5,407,809

1,024
282,319
2,200,256

1,304,494
157,219
204,169

9,557,290

5,251,823

8,993
133,214
12,879
252,360
341,295
31,902

6,032,466

$ 15,589,756

$ 401,885
-
394,530
739,640
501,510
132,756
264,581
-
39,005

2,473,907

3,000
2,347,777

98,490
12,140
-
-

2,461,407

4,935,314

1,179,796

6,091,651


























  • 16 -
Retained earnings
3310
Legal reserve
3320
Special reserve
3350
Unappropriated retained earnings

3300
Total Retained Earnings

Other Shareholder’s Equity
3410
Exchange difference on translation of foreign financial Statements
(
31XX
The Company’s Total Shareholder’s Equity

36XX
Non-controlling interest

3XXX
TOTAL SHAREHOLDER’S EQUITY

TOTAL LIABILITIS and SHAREHOLDER’S EQUITY
 359,195
2
8,214
-
2,635,112
18

3,002,521
20

621,320)
(
4)

9,774,150
65

304,158

2

10,078,308
67

$ 15,052,389
100
 224,123
1
8,214
-
2,766,074
18
2,998,411
19
272,809

2
10,542,667
67

111,775

1

10,654,442
68

$ 15,589,756
100

The accompanying notes constitute an integral part of this consolidated financial Statements. Chairman: Chang, Hsien-Ming General Manager: Chang, Hsien-Ming Chief Accountant: Lin, Yu-Yi

  • 17 -

YEONG GUAN ENERGY TECHNOLOGY GROUP CO., LTD. AND SUBSIDIARIES

Consolidated Statements of comprehensive income

For periods from January to December 30 of 2016 and 2015

Unit: In Thousands of New Taiwan Dollars, Except Earnings Per Share

Code
4000 OPEARTING REVENUE (Notes 4 and 28)
5000 OPERATING COSTS
(Notes 4, 9, 21 and 28)
5900 OPERATING GROSS PROFIT
OPERATING EXPENSES(Note 21)
6100
Marketing expenses
6200
General and administrative expenses
6300
Research and development expenses
6000
Total Operating Expenses
6900 OPERATING NET PROFIT
NON-OPEARTING INCOME and EXPENSES
7100
Interest income
7110
Rent income(Note 28)
7190
Other income and losses(Note 21)
7235
Financial product net profit (loss) at fair value through profit and loss
(Notes 4, 5, 7 and 16)
7630
Foreign currency exchange net profit(loss) (Notes 21 and 30)
7510
Interest expenses(Note 16)
7000
Total Non-Operating Income and Expenses
7900 Pretax net profit
7950 Income tax(Notes 4 and 22)
8200 Current net profit
Other Comprehensive Income
8361
Exchange Differences on Translation of Foreign Financial
Statements
8500 Current Total Comprehensive Income
Net Profit Attributed to:		 2016 ％
100
67
33
7
8
2
17
16
-
-
1
-
2
(1)
2
18
5
13
(12)
1		 2015 ％
100
67
33
7
6
1
14
19
1

-
1

-
2
(1)
3
22
6
16
(3)
13
Amount
$ 8,122,470

5,454,367

2,668,103

537,168
526,430

88,597

1,152,195

1,515,908

56,784
1,232
70,026
25,781
162,742
(
43,960)


272,605

$ 1,788,513


439,390

1,349,123
(
261,237)

$ 1,087,886
  • 18 -
8610
Shareholders

8620
Non-Controlling Interest
(
8600

Comprehensive Income Attributed to:
8710
Shareholders

8720
Non-Controlling Interest
(
8700

Earnings Per Share(Note 23)
9750
Basic

9850
Diluted
 $1,008,298
14

10,879)

-
$ 997,419
14
$ 114,169
1

16,364)

-
$ 97,805
1
$ 8.50
$ 7.89		 $ 1,350,717
17
(
1,594)

-
$ 1,349,123
17
$ 1,096,129
13
(
8,243)

-
$ 1,087,886
13
$ 12.24
$ 11.63


The accompanying notes constitute an integral part of this consolidated financial Statements. Chairman: Chang, Hsien-Ming General Manager: Chang, Hsien-Ming Chief Accountant: Lin, Yu-Yi

  • 19 -

Unit: in thousands of NTD

YEONG GUAN ENERGY TECHNOLOGY GROUP CO., LTD. AND SUBSIDIARIES Consolidated Statements of Changes in Equity for periods from January 1[s t] to December 31[s t] of 2016 and 2015

Code

A1
BALANCE, JANUARY 1ST, 2015

Appropriation and Distribution
of 2014 Earnings:
B1
Legal Reserve
B5
Cash Dividend

Sub-Total

D1
2015 Net profit
D3
2015 Other consolidated income

D5
2015 Total consolidated income

E1
Capital Increase by Cash

I1
Convertible corporate bond
I1
Amount incurred from issuance of
convertible corporate bond recognized
equity component – recognized equity
Z1
Balance, Dec. 31, 2015

2015 Earnings appropriation and
distribution:
B1
Legal Reserve
B5
Cash Dividend

Sub-Total

D1
2016 Net profit
D3
2016 Other consolidated income

D5
2016 Total consolidated income

I1
Convertible corporate bond

O1
Changes in non-controlling interests

Z1
Balance, Dec. 31, 2016
 EQUITY ATTRIBUTED TO SHAREHOLDERS (Notes 4, 16 and 20) EQUITY ATTRIBUTED TO SHAREHOLDERS (Notes 4, 16 and 20) EQUITY ATTRIBUTED TO SHAREHOLDERS (Notes 4, 16 and 20) EQUITY ATTRIBUTED TO SHAREHOLDERS (Notes 4, 16 and 20) EQUITY ATTRIBUTED TO SHAREHOLDERS (Notes 4, 16 and 20) EQUITY ATTRIBUTED TO SHAREHOLDERS (Notes 4, 16 and 20) The Company’s
Total
Shareholder’s
Equity
$ 7,937,034

-

667,094)


667,094)

1,350,717


254,588)

1,096,129

836,494

1,189,749
150,355

10,542,667
-

1,004,188)


1,004,188)
1,008,298


894,129)

114,169

121,502

-

$ 9,774,150
 Non-ControllingI
nterests
(Notes 4 and 20)
$ 120,018
-

-

-
(
1,594 )
(
6,649)
(
8,243)

-
-

-
111,775
-

-
-
(
10,879 )
(
5,485)
(
16,364)

-

208,747
$ 304,158		 Total
Shareholder’s
Equity
Common Share
$ 1,048,890

-

-


-

-

-


-


50,000

80,906

-


1,179,796

-

-


-

-

-


-


8,379


-

$ 1,188,175
 Capital Surplus TOTAL
$ 4,045,959
-
-
-
-
-
-
786,494

1,108,843
150,355
6,091,651
-
-
-
-
-
-
113,123
-
$ 6,204,774		 Retained Earnings TOTAL
$ 2,314,788
-

667,094)

667,094)
1,350,717
-
1,350,717
-
-
-
2,998,411
-

1,004,188)

1,004,188)
1,008,298
-
1,008,298
-
-
$ 3,002,521		 Exchange
Differences on
Translation of
Foreign Financial
Statements
$ 527,397

-

-


-

-
(
254,588)

(
254,588)


-

-

-

272,809

-

-

-

-
(
894,129)

(
894,129)


-


-

($ 621,320)
Additional
Paid-In Capital
$ 3,977,130

-
-

-

-
-

-

786,494

1,165,310

-

5,928,934

-
-

-

-
-

-

118,827

-

$ 6,047,761
 Legal Reserve
$ 123,907
100,216
-
100,216
-
-
-
-
-
-
224,123
135,072
-
135,072
-
-
-
-
-
$ 359,195		 Special Reserve
$ 8,214
-
-
-
-
-
-
-
-
-
8,214
-
-
-
-
-
-
-
-
$ 8,214



























































(
(



(
(

(
(



(
(


(
(
(
(




(
(
(



 $ 8,057,052
-
(
667,094)
(
667,094)
1,349,123
(
261,237)

1,087,886

836,494
1,189,749

150,355
10,654,442
-
(
1,004,188)
(
1,004,188)
997,419
(
899,614)
97,805

121,502

208,747
$ 10,078,308

Chairman: Chang, Hsien-Ming

The accompanying notes constitute an integral part of this consolidated financial Statements. General Manager: Chang, Hsien-Ming Chief Accountant: Lin, Yu-Yi

  • 20 -

YEONG GUAN ENERGY TECHNOLOGY GROUP CO., LTD. AND SUBSIDIARIES Consolidated Statements of Cash Flows

For periods from January 1 to Dec. 31 of 2016 and 2015

Codes
Cash Flows from Operating Activities
A1000
0
Pre-tax net profit
A2001
0
Income/Expense item not affecting cash
flows
A2010
0
Depreciation expense
A2020
0
Amortization expense
A2030
0
Gain on reversal of bad debts
A2040
0
Financial instrument net profit at fair
value through profit and loss
A2090
0
Interest expense
A2120
0
Interest income
A2250
0
Net loss from disposal and abolishment
of property, factory and equipment
A2380
0
Inventory devaluation and obsolescence
loss (price recovery gain)
A2410
0
Unrealized foreign currency exchange
net profit
A2990
0
Amortization of prepaid lease payment
A3000
0
Net change on operating assets and liabilities
A3113
0
Notes receivable
A3115
0
Account receivable
A3120
0
Inventory
A3123
0
Advance payments
A3124
0
Other current assets
A3211
0
Financial instrument at fair value through
profit and loss		 Unit: in thousands of NTD
2016
2015
$1,324,658 $1,788,513
467,847
465,564
5,617
2,925
3,087
(
949
)
14,304
(
15,752
)
58,591
43,960
(
39,682
)
(
56,784
)
2,773
22,690
31,371
(
12,478
)
(
7,427
)
(
26,020
)
9,037
8,103
(
20,058
)
( 104,671
)
134,324
( 404,756
)
(
56,449 )
95,696
(
90,654 ) (
25,571)
96,426
32,086
(
2,971 )
479		 Unit: in thousands of NTD
2016
2015
$1,324,658 $1,788,513
467,847
465,564
5,617
2,925
3,087
(
949
)
14,304
(
15,752
)
58,591
43,960
(
39,682
)
(
56,784
)
2,773
22,690
31,371
(
12,478
)
(
7,427
)
(
26,020
)
9,037
8,103
(
20,058
)
( 104,671
)
134,324
( 404,756
)
(
56,449 )
95,696
(
90,654 ) (
25,571)
96,426
32,086
(
2,971 )
479
$1,788,513
465,564
2,925
(
949
)
(
15,752
)
43,960
(
56,784
)
22,690
(
12,478
)
(
26,020
)
8,103
( 104,671
)
( 404,756
)

95,696
(
25,571)

32,086

479
  • 21 -
A3213 Notes payable
0 ( 33,419 ) ( 87,523)
A3215 Account payable
0 ( 60,464 ) 50,736
A3218 Other payables
0 ( 54,285 ) 130,866
A3223 Other Current Liabilities
0 ( 8,010)
 ( 16,280)
A3300 Operating net cash inflows
0 1,774,616 1,890,834
A3330 Interest paid
0 ( 19,882 ) ( 11,299)
A3350 Income tax paid
0 ( 415,523)
 ( 389,719)
AAAA Operating Activity Net Cash Inflows 1,339,211
 1,489,816

(to be continued)

  • 22 -

(brought forward)

Codes
Investment Activity Cash Flows
B0220
0
Acquisition of subsidiaries
B0270
0
Purchase of property, plant and equipment
B0280
0
Disposal of property, plant and equipment
B0450
0
Payment for intangible assets
B0670
0
Increase in other non-current assets
B0710
0
Increase in equipment prepayments
B0730
0
Long term lease prepayments
B0750
0
Interests collected
BBBB
Investment Activity Net Cash
Outflow
Financing Activity Cash Flows
C0020
0
Increase (Decrease) in short term loan
C0120
0
Issuance of Corporate Bond
C0160
0
Long term loan
C0170
0
Long term loan repayment
C0300
0
Increase in deposit received
C0450
0
Cash dividend
CCCC
Financing Activity Net Cash Inflow
(Outflow)
DDDD
Exchange rate change effects on cash and cash
equivalents
EEEE
Cash and cash equivalents increase (decrease)
E0010
0
Cash and cash equivalents, beginning of the
period		 2016
$ 935

(
326,794 )

24,296
(
12,142 )

(
767 )

(
594,237 )

11,056

40,532

(
857,121)

(
227,739 )
-

-
(
129,121 )
3
( 1,004,188 )

-

( 1,361,045)

(
288,036)

( 1,166,991 )

5,407,809
  • 23 -

$4,240,818 $5,407,809

E0020 Cash and cash equivalents, end of the period 0

The accompanying notes constitute an integral part of this consolidated financial Statements.

Chairman: Chang, Hsien-Ming

General Manager: Chang, Hsien-Ming

Chief Accountant: Lin, Yu-Yi

  • 24 -

YEONG GUAN ENERGY TECHNOLOGY GROUP CO., LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements

for periods from January 1st to Dec. 31st of 2016 and 2015

(Unless otherwise specified, all amounts are in thousands of NTD.)

1. History of Company

Yeong Guan Energy Technology Group Co., Ltd. (hereinafter referred to as the “Company”) was established on January 22nd, 2008 in British Cayman Islands under the main purpose of organization restructuring. According to the Company’s equity swap agreement, organization restructuring was completed on September 22nd, 2008. The Company has become an investment holding company after the restructuring.

The Company’s stocks was listed and traded in Taiwan Stock Exchange starting April 27th, 2012.

Consolidated financial Statements hereto are presented in the Company’s functional currency of NTD.

2. Financial Statements Authorization Date and Authorization Process

The consolidated Statements were approved by the Board of Directors on March 9, 2017.

3. Application of Newly Promulgated and Modified Guidelines and

  • Explanation

  • (1) Regulations Governing the Preparation of Financial Reports by Securities Issuers of the Republic of China, which is not yet effective, and 2017 International Financial Reporting Standard(“IFRS”) , International Accounting Standard (“IAS”), International Financial Reporting Interpretations Committee (“IFRIC”) Interpretations and Standing Interpretations Committee (“SIC”) Interpretations recognized by the Financial Supervisory Commission.

According to mails under reference numbers of Gin-Guan-Zheng-Shen-Tze No. 1050050021 and Gin-Guan-Zheng-Shen-Tze No. 1050026834 issued by the Financial Supervisory Commission (hereinafter referred to as “FSC”), the consolidated company shall apply 2017 IFRS, IAS, IFRIC and SIC (hereinafter referred to as “IFRSs”), which are issued by International Accounting Standards Board (“IASB”) and approved by FSC, IAS, IFRIC,

  • 25 -

SIC as well as related modified Regulations Governing the Preparation of Financial Reports by Securities Issuers of the Republic of China starting 2017.

Newly Published／Rectified／Modified
Guidelines and Explanations
“Annual Improvement for 2010-2012 Period”
“Annual Improvement for 2011-2013 Period”
“Annual Improvement for 2012-2014 Period”
IFRS 10, IFRS 12 and IAS 28’s modification of
“Investment Entities: Applying the Consolidation
Exception”
IFRS 11’s modification of “Accounting for
Acquisitions of Interests in Joint Operations”
Modification of IAS 1 “Disclosure Initiative”
IAS 16 and IAS 38’s modification of
“Interpretation for Acceptable Methods of
Depreciation and Amortization”
IAS 16 and IAS 41’s modification of “Agriculture:
Bearer Plants”
IAS 19’s modification of “Defined Benefit Plan:
Employee Contribution”
IAS 36’s modification of “Recoverable Amount
Disclosures for Non-Financial Assets”
IAS 39’s modification of “Novation of Derivatives
and Continuation of Hedge Accounting”
IFRIC 21 “Common Levy”		 Effective Dates
Published by
IASB(Note1)
July 1st, 2014 (note 2)
July 1st, 2014
January 1st, 2016 (note
3)
January 1st, 2016
January 1st, 2016
January 1st, 2016
January 1st, 2016
January 1st, 2016
July 1st, 2014
January 1st, 2014
January 1st, 2014
January 1st, 2014

  • 26 -

  • Note 1: Unless otherwise stipulated, aforementioned newly published/rectified/modified guidelines or explanations shall become effective in the years starting after respective dates.

  • Note 2: Share-based payment transactions with grant date after July 1st, 2014 start to apply IFRS 2 modifications; Business combinations with acquisition dates after July 1st, 2014 start to apply IFRS 3 modifications; IFRS 13 takes effect immediately upon modification. The remaining modifications apply to years starting after July 1st, 2014.

  • Note 3: With the exception that application of IRFS 5 modification is postponed to years starting after January 1st, 2016, the remaining modifications shall be applied retrospectively to the years starting after January 1st, 2016.

With the exception of explanations hereunder, application of IFRSs in 2017 is not expected to incur major changes to the consolidated company’s accounting policy:

1. Modification of “Recoverable Amount Disclosure for Non-Financial Assets” of IAS 36

  • Modification of IAS 36 is to clarify that the consolidated company only needs to disclose recoverable amounts when recognizing or reversing assets, or in the period when impaired losses are incurred to cash generating unit. Furthermore, in the event that recoverable amount for real property, factory and equipment already recognized or reversed is measured using fair value deducted by disposal cost, the consolidated company shall disclose fair value level, and valuation technique as well as every key assumption for fair value measurement shall also be disclosed in the event of level 2 or level 3 fair value measurement. In the event that present value is used to measure fair value deducted by disposal cost, an additional disclosure of discount rate used shall be made accordingly. Aforementioned modifications shall be applied retrospectively in 2017.

2. Annual Improvement for 2010-2012 Period

  • Annual improvement for 2010-2012 period modifies guidance of IFRS 2 “Share-Based Payment,” IFRS 3 “Corporate Merger” and IFRS 8 “Operating Segment.”

  • 27 -

IFRS 2’s modification changes definitions for vesting conditions and market price conditions and increases definitions for performance conditions and service conditions. This modification clarifies that performance goal prescribed under performance conditions can be established based on operations (non-market price conditions) or equity instrument market price (market price conditions) of consolidated company or another entity of the same group. Establishment of this performance goal can be related to overall or partial (for instance, a specific segment) performance of consolidated company and period for achieving performance goal shall not be longer than service period. Furthermore, this modification also clarifies that stock price index goal is not a performance condition because it reflects performances of both consolidated company itself and other enterprises outside the group. Given the fact that accounting handlings for market price term, non-makret price term or non-existing term share-based payment agreements are different, aforementioned modifications are expected to impact share-based payment agreements after 2017.

IFRS 3 modification clarifies that corporate merger contingent consideration, no matter if it falls within application scopes of IAS 39 or IFRS 9, shall be measured in fair value and changes in fair value is recognized in profit and loss Statements.

Aforementioned modifications shall be applied to business merger transaction with purchase date after 2017.

IFRS 8 modification clarifies that consolidated company’s summary disclosure of operating segments with similar economic characteristics shall disclose, in consolidated financial Statements, management’s judgment when utilizing summarized standards. Additionally, this modification also clarifies that consolidated company shall only disclose adjustment information of segment asset total amount’s transferring to enterprise asset total amount when department assets are regularly provided to major operation decision makers. Explanation of summarized base judgment will be added when modified IFRS 8 is retrospectively applied in 2017.

Upon retrospective application of IFRS 13 in 2017, no stated interest rate short term receivables or payables with immaterial discounting effect shall be measured in accordance with original invoice amounts.

  • 28 -

IAS 24 “Related Party Disclosures” modification clarifies that management entities providing services to major management levels of the consolidated company shall be the consolidated company’s related parties, and such entities’ amounts already paid or should be paid as a result of management entities’ providing of services to major management levels shall be disclosed accordingly. However, there is no need to disclose composition of categories for such remunerations.

3. Annual Improvement for 2011-2013 Period

Annual improvement for 2011-2013 period modifies guidance of IFRS 3, IFRS 13 and IAS 40 “Investment Property.”

IFRS 13 modification modifies financial assets and exceptions to financial liabilities group fair value (i.e., composition exception), both of which apply net amount based measurement, in order to clarify that such exception scope includes IAS 39 or IFRS 9 application scope, and process all contracts in accordance with such guidance, even if such contracts are not in line with definitions of financial assets or financial liabilities from IAS 32 “Financial Instruments: Presentation.”

IAS 40 modification clarifies that consolidated company shall, based on both IAS 40 and IFRS 3, determine if an investment property belongs to asset obtained or corporate merger. Aforementioned modifications shall be applied to investment real property acquisition transactions after 2017.

4. Modification of IAS 16 and IAS 38 “Interpretation of Acceptable Methods of Depreciation and Amortization”

Enterprises shall adopt appropriate depreciation and amortization methods to reflect expected future economic benefits from their consumption of real property, plant and equipment as well as intangible asset.

With respect of modification of IAS 16 “property, plant and equipment”, income is not an appropriate basis for measuring depreciation expense of property, plant and equipment, and the modification does not provide

  • 29 -

exceptional requirements for recognition of depreciation expense using income as a basis.

With respect of modification of IAS 38 “Intangible Assets”, income is not an appropriate basis for measuring intangible asset amortization expense unless with limited circumstances as follows:

  • (1) Intangible assets are measured and expressed in income (for instance, no rights to use intangible asset after income has reached specific threshold as pre-set by agreement), or

  • (2) It can be proved that income and intangible assets economic benefit consumption are highly related.

5. Annual Improvement for 2012-2014 Period

Annual improvement for 2012-2014 period modifies guidance of IFRS 5 “Non-Current Assets Held for Sale and Discontinued Operations,” IFRS 7, IAS 19 and IAS 34.

6. Modification of Regulations Governing the Preparation of Financial Reports by Securities Issuers

In addition to newly added certain accounting items and non-financial asset impairment disclosure requirements for the purpose of aligning with IFRSs adopted in 2017, this modification also emphasizes certain recognition and measurement requirements for the purpose of aligning with domestic implementation of IFRSs, and disclosure over stakeholder transaction and goodwill has also been added.

This modification mandates that in the event that board director or general manager for other company and the consolidated company are the same person, or are spouses or relatives within the second degree, they shall then be substantial stakeholder unless it can be proved that they don’t possess control or signification influence. Additionally, this modification also mandates name of stakeholder engaged in major transaction with the consolidated company and relationship shall be disclosed accordingly. In the event that transaction amount or balance from one single stakeholder reaches 10% of such transaction total amount or balance for the consolidated

  • 30 -

company, separate disclosure shall then be made following stakeholders’ names.

Furthermore, this modification mandates disclosure through notes shall be made in the event that there are significant differences between expected benefits at the time of purchase and actual operation status after consolidation for the purchasing company.

In the event of retrospective application of aforementioned modification in 2017, disclosure of stakeholder transaction and goodwill impairment will be added accordingly.

In addition to aforementioned influences and as of the day when this consolidated financial Statements was promulgated and took effect, the consolidated company shall continue to assess influences on respective periods of finance and financial performance from modified Regulations Governing the Preparation of Financial Reports by Securities Issuers as well as modified IFRSs applied in 2017. Disclosure will be made accordingly once assessment over related influences is completed.

  • (2) IFRSs which has already been published by IASB but yet to be recognized by Financial Supervisory Commission:

  • Consolidated company does not apply the following IFRSs which has already been published by IASB but yet to be recognized by Financial Supervisory Commission. As of the date of this consolidated financial Statement’s approval and release, the Financial Supervisory Commission has not yet promulgated validity dates for other guidelines with the exception of IFRS 9 and IFRS 15 which shall be applied starting from the year of 2018.

Effective Dates Newly Published ／ Rectified ／ Modified Published by IASB(Note Guidelines and Explanations 1) “Annual Improvement for 2014-2016 Period” Note 2 January 1[st] , 2018 IFRS 2’s modification of “Classification and measurement of share-based payment transactions” IFRS 9 “Financial Instrument” January 1[st] , 2018 IFRS 9 and IFRS 7’s modification of “Mandatory Effective Date and Transition Disclosure” January 1[st] , 2018

  • 31 -

IFRS 10 and IAS 28’s modification of “Sale or Contribution of Assets Between An Investor and Its Associate or Joint Venture” pending IFRS 15 “Revenue from contract with customer” January 1[st] , 2018 IFRS 15’s modification of “IFRS 15 Explanations” January 1[st] , 2018 IFRS 16 “Lease” January 1[st] , 2019 IFRS 7’s modification of “Disclosure Initiative” January 1[st] , 2017 IAS 12’s modification of “Recognition of January 1[st] , 2017 Unrealized Loss related to Deferred Income Tax Asset”

IAS 40 modification of “Transfers of Investment January 1[st] , 2018 Property” January 1[st] , 2018 IFRIC 22 “Foreign Currency Transactions and Advance Consideration”

Note 1: Unless otherwise stipulated, aforementioned newly published/rectified/modified guidelines or explanations shall become effective in the years starting after respective dates

  • Note 2: Modified IFRS 12 shall be applied retrospectively to the year which began

from January 1st, 2017. Modified IAS28 shall be applied retrospectively to the year which shall begin from January 1st, 2018.

1. IFRS 9 “Financial Instruments”

Recognition and Measurement of Financial Assets

With regard to financial assets, subsequent measurement over financial assets which originally fall within the scope of IAS 39 “Financial Instruments: Recognition and Measurement” shall be conducted in amortized cost measurement or fair value measurement. IFRS 9 stipulates categorization of financial assets as follows:

With regard to consolidated company’s invested debt instruments, categorization and measurement shall be as follows if contract cash flow is completely for principal payment as well as for interest over outstanding principal amount:

  • 32 -

  • (1) For financial assets held under operation pattern which aims to collect contract cash flow, such financial assets shall be measured in amortized costs. Financial assets of this kind will later be recognized as interest income on profit and loss Statements based on effective interest rates, and will be assessed continuously of their impairment. Impairment profit/loss will then be recognized accordingly on profit and loss Statements.

  • (2) For financial assets held under operation pattern which achieves its goal by collecting contract cash flow and selling of financial assets, such financial assets are measured at fair value through other consolidated profit and loss. Financial assets of this kind will later be recognized as interest income on profit and loss Statements based on effective interest rates, and will be assessed continuously of their impairment. Both impairment profit/loss and exchange profit/loss be recognized accordingly on profit and loss Statements, while changes in other fair values will be recognized in other consolidated profit and loss Statements. In the event of de-recognition or re-categorization of such financial assets, fair value changes which originally accumulate in other consolidated profit and loss Statements shall be re-categorized to profit and loss Statements.

Financial assets invested by the consolidated company but do not fall within the scope of aforementioned conditions are measured in fair value, and changes in fair value shall be recognized in profit and loss Statements. However, during original recognition, the consolidated company is entitled to designate equity investment not held for trading to be measured at fair value through other consolidated profit and loss. For this type of financial assets, with the exception of recognition of stock dividend income on profit and loss Statements, other related profit and loss will be recognized in other consolidated profit and loss Statements. There is no need for subsequent impairment assessment, and fair value changes accumulated in other consolidated profit and loss Statements will not re-categorized to profit and loss Statements.

Impairment of Financial Assets

IFRS 9 adopts “Expected Credit Loss Model” to recognize financial asset impairment. Financial assets at amortized cost and rents receivables are all

  • 33 -

recognized as credit loss reserves. In the event that credit risks for aforementioned financial assets do not increase substantially after original recognition, credit loss reserve shall therefore be measured using expected credit loss for future 12 months. In the event that credit risks for aforementioned financial assets increase substantially after original recognition and they are not low credit risks, credit loss reserve shall therefore be measured using expected credit loss for residual existing period. However, for account receivables which is not included in major financial components, its credit loss reserves must be measured using expected credit loss for existing period.

Additionally, with respect to financial assets which already have credit impairment during original recognition, the consolidated company calculates effective interest rates after credit adjustments under considerations of expected credit loss during original recognition. Subsequent credit loss reserves shall then be measured using subsequent expected credit loss accumulated changes.

2. IFRS 15 “Revenue from Contracts with Customers” and Related Modifications

IFRS 15 mandates recognition principles for revenue from contracts with customers. This guideline shall replace IAS 18 “Revenue”, IAS 11 “Accounting for Construction Contracts” and related interpretations.

Upon the consolidated company’s application of IFRS 15 revenue was recognized in the steps as follows:

  • (1) Identification of customer contract;

  • (2) Identification of performance obligation in the contract;

  • (3) Determination of transaction price;

  • (4) Performance obligation to amortize transaction price to contract; and

  • (5) Recognition of revenue while filling performance obligation.

3. IFRS 16 “Lease”

IFRS 16 is for regulating accounting handling over lease. This guideline shall replace IAS 17 “lease” and related interpretations.

Upon application of IFRS 16 and in the event that the consolidated company serves as a lessee, with the exceptions that handling similar to the IAS 17

  • 34 -

business lease can be adopted and used on small amount lease and short term lease, other leases shall all be recognized as utilization rights assets and lease liabilities on the consolidated balance sheet. The Consolidated Statements of comprehensive income shall respectively illustrate depreciation expenses for utilization rights assets as well as interest expenses incurred from lease liability under effective interest rate. With respect to consolidated cash flow Statements, repayment amount for lease liability principal shall be illustrated as capital-raise activities, while amount for interest repayment shall be recognized as business activities.

The consolidated company’s being a lessor is not expected to have material effects on accounting handling.

When IFRS 16 takes effect, the consolidated company is entitled to retrospectively apply it to a relatively shorter period, or, to recognize first application cumulative effect of changes on the first application day.

4. IAS 12’s modification of “Recognition of Unrealized Loss related to Deferred Income Tax Asset”

IAS 12’s modification is mainly for the clarification that regardless if a consolidated company retrieves fair value measured debt instrument investment through selling or collecting cash equivalent, or if there is unrealized loss related to such asset, temporary difference shall be determined based on the difference between asset fair value and taxable base.

Additionally, unless tax laws restrict deductible revenue types for deductible temporary difference and therefore assessment shall be conducted on deductible temporary differences to verify if they shall be recognized as deferred income tax asset, otherwise all temporary differences shall be assessed together. Upon assessment to verify if they shall be recognized as deferred income tax assets and in the event that there is enough evidence indicating that the consolidated company is quietly likely to retrieve assets at prices higher than their book values, asset retrieval amounts to be considered when assessing future taxable income will therefore not be limited to their book values, and estimate on future taxable income shall exclude effects incurred as a result of deductible temporary difference reversal.

  • 35 -

In addition to aforementioned effects, the consolidated company still continues to assess effects on financial condition and financial performance from modifications of other guidelines and explanation as of the approval and publish date of this consolidated Statements. Related effects will be disclosed upon completion of assessment.

5. Annual Improvement for 2014-2016 Period

Annual Improvement for 2014-2016 Period modifies guidelines of IFRS 12 “Disclosure of Interests in Other Entities” and IAS 28 “Investments in Associates and Joint Ventures.”

6. Modification of IAS 40 “Investment Property Conversion”

This modification clarifies that conversion of property into or from investment property can only conducted when the consolidated company’s real property complies (or no longer complies) with the definition of investment property and there is evidence of change of application purpose. Mere change of management’s intention on property utilization shall not be used as evidence of change of application purpose. Additionally, this modification also clarifies that evidence for change of application purpose is not limited to the ones listed in IAS 40.

The consolidated company may choose to postpone application of aforementioned modifications starting from the year of first application, and re-categorize real property, when necessary, depending on the circumstances existed on the day of first application. The consolidated company shall also have additional disclosure of re-categorized amounts, and include first application day re-categorization in investment property book value adjustments. The consolidated company may also choose to retrospectively apply this modification under the premises that no hindsight is utilized.

7. IFRIC 22 “Foreign Currency Transactions and Advance Consideration”

IAS 21 mandates that original recognition of foreign currency transaction shall be recorded in functional currency which is converted from sport exchange rate between functional currency and foreign currency based on foreign currency

  • 36 -

amount on the transaction day. IFRIC 22 further explains that in the event that an enterprise originally recognized non-functional currency asset, or consideration has already been prepaid or received prior to being indebted, original recognition day when consideration is prepaid or received shall serve as the transaction day. In the event that prepaid or pre-received consideration is conducted by enterprise in multiple times, transaction day for each prepaid or pre-received consideration shall be determined.

The consolidated company may choose to retrospectively apply IFRIC 22, or postpone application of IFRIC 22 starting from the first application day, or from starting day of comparative period for financial Statements with first application of IFRIC 22.

With the exception of aforementioned influences and as of the day when this consolidated financial Statements is passed and announced, the consolidated company continues to assess influences on financial status and financial performance from other guidelines, interpretation modification. Disclosure will be made accordingly upon the completion of assessment over related influences.

4. Explanation of Summarized Significant Accounting Policy

  • (1) Compliance Announcement

This consolidated financial Statements is prepared in accordance with Regulations Governing the Preparation of Financial Reports by Securities Issuers of the Republic of China and IFRS 34 “Interim financial reporting” which is recognized by the Financial Supervisory Commission.

(2) Consolidation Basis

In addition to financial assets measured at fair value, this consolidated financial Statements is prepared in accordance with historical cost basis. Historical cost is usually determined by fair value of consideration paid to obtain asset.

Fair value measurements are categorized from Level 1 to Level 3 in accordance with Observability and importance of related input values:

  • 37 -

    1. Level 1 Input Value: Quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date (without adjustment);

    2. Level 2 Input Value: Inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly(i.e., price) or indirectly(i.e., inferred from price).

    3. Level 3 Input Value: Inputs are unobservable inputs for the asset or liability.

  • (3) Standards for Distinguishing Current and Non-Current Assets and Liabilities Current assets include:

    1. Assets held mainly for the purpose of transaction;

  • Assets realized within twelve (12) months after the balance sheet date; and

    1. Cash and cash equivalents (but excluding the ones which have been restricted as a result of being used for liability exchange or repayment exceeding twelve (12) months after balance sheet date).

    Current liabilities include:

    1. Liabilities held mainly for the purpose of transaction;

    2. Liabilities to be repaid upon maturity twelve (12) months after balance sheet date; and

  • Liabilities whose repayment deadlines cannot be extended unconditionally to at least twelve (12) months after balance sheet date.

For those which are not aforementioned current assets or current liabilities, they are categorized as non-current assets or non-current liabilities.

  • (4) Consolidation Basis

    • This consolidated financial Statements is a financial Statements which includes the Company and entities controlled by the Company (subsidiaries). Consolidated Statements of comprehensive income has already included purchased or disposed subsidiaries’ current operating income starting from purchase date or until disposal date. Subsidiaries’ financial Statements have already been adjusted to ensure their accounting policies are consistent with the one for consolidated company. During preparation of consolidated financial Statements, transactions, account balances, income and expense impairments among respective entities have already been eliminated. Subsidiaries’ total consolidated income is attributed to the Company’s owners

  • 38 -

and non-controlling interests even if non-controlling interests have become loss balance as a result of this.

In the event that consolidated company’s equities on subsidiary change but this does not lead to loss of control, it shall be processed as equity transaction. Adjustment of book amounts for the consolidated company and non-controlled equities has been conducted to reflect changes of its relative equities in such subsidiary. Difference between adjusted amount for non-controlled equities and fair value for consideration paid or received shall be recognized directly as equities and shall be attributed to the company’s owners.

  • (5) Business Merge

  • Business merge is processed using acquisition method. Acquisition related costs are recognized as expenses for the year when costs are generated and services are acquired.

Goodwill is measured over the net amount which is the sum of transfer consideration fair value and non-controlling interest amount of the purchased party exceeding the sum of identifiable assets obtained and liabilities assumed on the merger day.

Current ownership interest over the purchased party as well as non-controlling interest, which is entitled to the purchased party’s net assets during liquidation, are measured over the percentage of rights on the purchased party’s identifiable net asset amounts already recognized.

  • (6) Foreign Currency During respective entities’ preparation of financial Statements, transactions entered in currencies other than respective entities’ functional currencies (foreign currency) have been recorded by exchanging such currencies into functional currencies in accordance with exchange rates of the days for transactions.

Foreign currency items have been translated based on closing rates of each balance sheet day. Exchange differences incurred from settlement currency items or exchange currency items have been recognized as current profit or loss.

Foreign currency non-monetary items measured in historical costs have been translated based on exchange rates of transaction days and there are no re-translation for these items.

During preparation of consolidated financial Statements, assets and liabilities of consolidated company’s offshore operating institutions (including

  • 39 -

subsidiaries or branches with operating locations or currencies used different from the ones for the Company) have been translated in New Taiwan Dollar based on exchange rates for each balance sheet day. Items of income and expense impairment are translated based on current average exchange rates, and exchange differences incurred accordingly have been recognized as other consolidated profit or loss.

  • (7) Inventory

  • Inventory includes raw materials, finished goods and work-in-process. Inventory is measured in cost or net realizable value, whichever is lower. With the exception of inventory of the same category, comparison of cost and net realizable value is based on inventory of respective categories. Net realizable value is, under normal circumstances, the balance from selling price’s deducting of estimated costs still needed for completion of production and estimated costs needed to complete sales. Calculation of inventory cost adopts weighted average method.

  • (8) Property, Factory and Equipment

Property, factory and equipment are recognized based on their costs. Going forward, they will be measured in amounts from cost’s deducting of accumulated depreciation and accumulated impairment loss. Property, factory and equipment in progress are recognized in amounts from cost’s deducting of accumulated impairment loss. Costs hereto include professional service fees as well as borrowing costs which are in line with capitalized conditions. Upon such assets’ completion of construction and reaching of expected utilization status, they will be classified into proper categories of property, factory and equipment, and depreciation shall begin to incur accordingly. Depreciation for property, factory and equipment is based on linear basis, while depreciation for every significant portion is incurred separately. The consolidated company reviews service life, residual value and depreciation method on fiscal year ending day at least for each fiscal year. Influence from changes in accounting estimates is processed using prospective application. Gain or loss amounts generated from the de-recognition of property, factory and equipment are differences between such assets’ net disposal proceeds and book values, and these amounts are recognized as current income (loss).

  • (9) Investment Property

  • 40 -

Investment property is property held for the purposes of earning rents, or increasing capital, or both. Investment property also includes lands held with future purpose yet to be determined as of now.

Originally, investment property is measured in costs (including transaction costs), and going forward will be measured in amounts from cost’s deducting of accumulated depreciation and accumulated impairment loss. The consolidated company adopts linear basis to recognize depreciation. Gain or loss amounts generated from de-recognition of investment property are differences between such assets’ net disposal proceeds and book values, and these amounts are recognized as current income (loss).

  • (10) Goodwill

Goodwill obtained from corporate merger adopts goodwill amounts recognized on the purchase day as costs, and going forward it will be measured in amounts from cost’s deducting of accumulated impairment loss.

  • For the purpose of impairment test, goodwill is amortized to the consolidated company’s respective cash generating units or cash generating unit groups which are expected to benefit from the synergy of consolidation (cash-generating unit (CGU)).

Each year (or when there are signs indicating impairment already incurred to such unit), the cash generating unit with amortized goodwill conducts its impairment test through the comparison between such unit’s book value, which includes goodwill, and its recoverable amounts. In the event that goodwill, which is amortized to cash generating units or cash generating unit groups, is obtained through current year corporate merger, such units or unit groups shall therefore conduct impairment test prior to the end of that current year. In the event that recoverable amount for the goodwill-amortized cash generating unit is lower than book value, impairment loss shall first be deduction of such cash generating unit’s amortized goodwill book value, and the next will be proportionate deduction of respective asset book values based on the percentages of other respective assets within such unit. Any impairment loss shall be directly recognized current loss. Goodwill impairment loss shall not be reversed in subsequent periods.

In the event of disposing goodwill-amortized cash generating unit’s certain operation, goodwill amounts related to such disposed operation is included the operation’s book value in order to determine disposal gain or loss.

  • (11) Intangible Assets

  • Separate Acquisition

  • 41 -

Originally, intangible assets with limited service life from separate acquisition are measured in costs. Going forward, they will be measured in amounts from cost’s deducting of accumulated depreciation and accumulated impairment loss. The consolidated company adopts linear basis in its depreciation amortization, and reviews estimated service life, residual value and depreciation method on the fiscal year ending day at least for each fiscal year. With the exception of the consolidated company’s expected disposal of intangible asset prior to the expiration of such asset’s economic life, residual value for intangible asset with limited service life is estimated to be zero. Influence from changes in 

  2. De-Recognition Gain or loss amounts generated from de-recognition of intangible assets are differences between such assets’ net disposal proceeds and book values, and these amounts are recognized as current income (loss).

  • (12) Tangible and Intangible Assets (excluding Goodwill) Impairment On each balance sheet day, the consolidated company conducts assessments to clarify if there are any signs to indicate that tangible and intangible assets (excluding goodwill) may have already been impaired. In the event of existence of any impairment sign, the recoverable amount for such asset will therefore be assessed. In the event that recoverable amount for individual asset cannot be estimated, the consolidated company will then estimate recoverable amount for the cash generating unit to which such asset belongs. In the event that shared resources can be amortized to individual cash generating units based on a reasonable and consistent basis, such resources will then be amortized to individual cash generating units accordingly. Otherwise, such resources will be amortized to the smallest cash generating group based on a reasonable and consistent basis.

  • As for intangible assets with un-defined service life and are not yet available for use, impairment tests shall be conducted at least each year, or when there is a sign of impairment.

  • Recoverable amount comes from fair value’s deducting of selling cost or utilization value, whichever is higher. In the event that recoverable amounts for respective asset or cash generating units are lower than their book values, book values for such assets or cash generating units shall therefore be adjusted and reduced to recoverable amounts. Impairment loss shall be recognized in profit and loss.

  • 42 -

  • During impairment loss’s subsequent reversal, book values for aforementioned assets or cash generating units will be adjusted and increased to modified recoverable amounts. However, these increased book values shall not exceed aforementioned assets or cash generating units’ book values (less amortization or depreciation) determined prior to previous year’s recognition of impairment loss. Reversal of impairment loss is recognized in profit or loss.

  • (13) Financial Instruments In the event that consolidated company becomes a party for such instrument contract, both financial assets and financial liabilities are recognized in balance sheet.

  • During original recognition of financial assets and financial liabilities, in the event that financial assets and financial liabilities are not measured at fair value through profit and loss, they should therefore be measured at fair value plus transaction costs which can be directly attributed to the acquisition or issuing of financial assets or financial liabilities. Transaction costs which can be directly attributed to the acquisition or issuing financial assets or financial liabilities measured at fair value through profit and loss are immediately recognized in profit and loss.

    1. Financial Assets

  • Regular way purchase or sale for financial assets adopts transaction day accounting recognition and de-recognition. 

     - (1) Types of Measurements Financial assets held by the consolidated company are financial assets at fair value through profit and loss and loans extended and account receivables.

    - A.  Financial Assets at Fair Value through Profit and Loss

       - Financial assets at fair value through profit and loss are financial assets held for the purpose of transaction.

    - Financial assets at fair value through profit and loss are measured at fair value. Profit or loss generated from re-measurement will be recognized in income. Method for measuring the fair value, please refer to Note 27.

    - B.  Loans and Account Receivables

  • 43 -

Loans and account receivables (including account receivables, cash and cash equivalents, and bond investment with no active market) are measured using amounts from amortized costs’, which are derived from effective interest rates method, lessing of impairment losses. However, short term account receivables interest recognition without significance is excluded.

Cash equivalents include time deposits which are obtained in less than three (3) months after acquisition dates with high liquidity, and can be transformed into fixed amounts of cash at any time with very little risks of change in value. This is to be used for meeting short term cash commitments.

  • (2) Impairment of Financial Assets

In addition to financial assets at fair value through profit and loss, consolidated company assesses other financial assets on each balance sheet day to clarify if there are objective evidences for impairment. If there is an objective evidence indicating that single or multiple items generated after financial asset’s original recognition has/have caused losses to financial asset’s estimated future cash flow, financial asset under such circumstances has already suffered from impairment. For financial assets such as account receivables which are recognized in amortized costs, there will be another collective assessment on impairment if there is no objective impairment evidence for such assets. Collectively existed objective impairment evidence for account receivables may include consolidated company’s previous payment collection experience, increased cases of delayed payments which collectively exceed average credit extension period of ninety (90) days, and observable national or regional economic situation changes which are related to default in account receivables.

  • 44 -

Impairment loss amounts for financial assets recognized in amortized costs are the differences between such assets’ book values and estimated future cash flow discounted in accordance with such financial assets’ original effective interest rates.

For financial assets recognized in amortized costs, in the event that impairment loss amounts decrease in subsequent period and objective judgment indicates that such decrease is related to matters occurred after recognition of impairment, previously recognized impairment loss under such circumstances will be reversed, either directly or through adjustments in allowance accounts, and recognized in income. However, such reversal shall not make financial assets’ book values exceed original amortized costs on the reversal day if there is no recognition of impairment. Financial assets’ other objective impairment evidences include issuer’s or debtor’s major financial difficulty, default (such as delay or suspension of interest or principal payment), or increased possibilities of debtor’s entering into bankruptcy or other financial restructuring. All of financial assets’ impairment losses are deducted directly from such financial assets’ book values. For account receivables, however, it will be by lowering their book values through allowance accounts. In the event that account receivables are determined to be

unrecoverable, allowance accounts in such cases will be offset accordingly. Payment which was originally offset but later recovered will be credited in allowance accounts. With the exception that account receivables are unrecoverable and are therefore offset against allowance accounts, changes in allowance account book value

amounts shall be recognized in income.

  • (3) De-Recognition of Financial Assets

Financial assets shall only be de-recognized if the consolidated company’s cash flow contract rights from such financial assets have become invalid, or when such

  • 45 -

financial assets have already been transferred and almost all risks and remuneration from such assets’ ownership have already been transferred to other enterprise.

  • Upon de-recognition of a certain financial asset as a whole, the difference between its book value and considerations collected plus any total accumulated profit or loss recognized in other consolidated income is recognized as income.

    1. Equity Instruments

  • Debts and equity instruments issued by the consolidated company are categorized as financial liabilities or equities based on natures of contract agreements and definitions of financial liabilities and equity instruments. 

     - Equity instruments issued by the consolidated company are recognized in amounts from acquisition prices’ lessing of direct issuance costs.

    1. Financial Liabilities

      • (1) Subsequent Measurement

        • With the exceptions hereunder, all financial liabilities are measured in amortized costs using effective interest rate method:

        • A. Financial Liabilities at Fair Value through Profit and Loss

        • Financial liabilities at fair value through profit and loss are held for transaction purpose.

        • Financial liabilities at fair value through profit and loss are first measured at fair value. After that, profit or loss generated will be measured accordingly.

      • (2) De-Recognition of Financial Liabilities Upon de-recognition of financial liabilities, differences between book value and considerations paid (including any non-cash assets transferred or liabilities assumed) are recognized as income.

    2. Convertible Corporate Bond During original recognition, components of compound financial instruments (convertible corporate bonds) issued by

  • 46 -

the consolidated company are categorized into financial liabilities and equities based on nature of contract agreement and definitions for financial liabilities and equity instruments.

During original recognition, fair values for liability components are estimated using current market interest rates for similar inconvertible instruments. Upon conversion or prior to maturity, aforementioned fair values will be measured using amortized costs from effective interest rate method. Liability components for embedded non-equity derivatives are measured at fair value.

Conversion rights, which are categorized as equities, equals to residual amounts from such compound instrument overall fair value’s lessing of separately determined liability component fair values. They are recognized as equities after income tax effects are lessed and there will be no subsequent measurements. Upon execution of such conversion rights, related liability components and equity amounts will be recognized as Capital and Additional Paid-In Capital – Issuance Premium. In the event that convertible corporate bond conversion rights are not executed upon maturity, amounts originally recognized as equities will now be recognized as Additional Paid-In Capital – Issuance Premium. Related transaction costs to issue convertible corporate bonds will be amortized to such instrument’s liabilities (as liability book value) and equity components (as equities) based on amortization percentage for total payment. 5. Derivatives

Derivative instruments entered by the consolidated company are forward exchange contracts which are utilized to manage 。 the consolidated company’s exchange rate risks.

  • Derivative instruments originally were recognized at fair value when derivative instrument contact was entered. Later on the balance sheet day, they will be re-measured at fair value, and subsequent profit or loss generated are measured and directly recognized in income. Derivative instruments will be recognized as financial assets when their fair values

  • 47 - 

     - are positive. On the other hand, they will be recognized as financial liabilities when their fair values are negative.

  • (14) Income Recognition Income is measured at fair values of consideration received or consideration receivables, with estimated customer returns, discounts and other similar allowances lessed. Sales returns are recognized based on previous experiences as well as reasonable estimated future return amounts derived from other relevant factors.

    1. Sale of Products Sale of Products are recognized as income when all of the following conditions are met:

      • (1) Consolidated company has already transferred

        • ownership’s significant risks and remuneration to buyer;

      • (2) Consolidated company does not continuously participate in management nor maintain effective control over products already sold;

      • (3) Income amounts can be measured in a reliable way;

      • (4) There is a great possibility that transaction related economic efficiencies will flow into the consolidated company; and

      • (5) Transaction related costs already incurred or about to incur can be measured in a reliable way.

      • During subcontract processing, significant risks and

      • remuneration of ownership for processed products have not been transferred. Therefore, there is no sales accounting process for subcontract processing.

    2. Provision of Labor

  • Provision of labor is recognized when labor is provided. Income incurred from provision of labor is recognized in accordance with extents of contract completed.

    1. Interest Income Financial asset interest income is recognized when it is possible for economic efficiency to flow into the consolidated company and income amounts can be measured in a reliable way. Interest income is recognized based on outstanding

  • 48 -

principal, which depends on the time lapsed, and effective interest rates applied under accrual basis.

  • (15) Lease In the event that lease terms transfer asset ownership’s almost all risks and remuneration to lessee, the lease shall therefore be categorized as financial lease, while all other leases shall be categorized as business lease. 

     1. Consolidated Company as Lessor Lease income from business lease is recognized, in accordance with linear basis and during relevant lease periods, as income. Under business lease, contingent rents are recognized as current income for the period when it is incurred.

 2. Consolidated Company as Lessee For financial leasing, the lowest lease payment present value total amount among respective installments or lease asset fair value on the day of lease commencement, whichever is lower, shall be recognized as costs and lease payable liability shall also be recognized accordingly. Interest implied in each installment lease payment is recognized as current finance expense, and it will be capitalized if it can be directly attributed to assets which meet requirements

    - Under business lease, contingent rents are recognized as current expense for the period when it is incurred.
    1. Leased Land

    Leased land from consolidated company’s business lease is a land utilization rights in China region and it is amortized under linear basis during lease period.

  • (16) Borrowing Costs

  • Borrowing costs directly attributed to acquisition, building or production of qualified assets will serve as a portion of such assets’ costs until almost all necessary activities for such assets to reach expected utilization or sale status are completed.

  • With the exception of aforementioned, all other borrowing costs are recognized as current profit or loss.

  • (17) Post-Employment Benefits With respect to pension in a defined contribution pension plan, pension to be contributed during employee service period shall all be recognized as current expense.

  • 49 -

  • (18) Income Tax

  • Income tax expense is the sum of current income tax and deferred income tax.

  • Current Income Tax Retained earnings calculated in accordance with income tax law plus 10% requisitioned income tax are recognized as income tax expense for the year of shareholders’ meeting resolution.

    • Adjustments over income tax payable for the previous year is recognized as current income tax.

  • Deferred Income Tax Temporary differences incurred between consolidated financial Statements asset and liability book values and taxable bases, which are used for income tax calculation, are recognized as deferred income tax. Generally, all taxable temporary differences are recognized as deferred income tax liability, while deferred income tax asset is recognized when there’s a possibility of taxable income for use on income tax deduction which is generated from deductible temporary difference and loss carry-forward.

    • Taxable temporary differences related to subsidiary investments are all recognized as deferred income tax liabilities. Nevertheless, cases that consolidated company is able to control the timing of temporary difference reversal and it’s quite possible that such temporary differences will not be reversed in the foreseeable future will be excluded. Deferred income tax assets incurred from deductible temporary differences related to such investments and equities are recognized only to the extent that it’s quite possible that there is enough taxable income to realize benefits of temporary differences, and within the scope of reversal in the foreseeable future.

    • Deferred income tax book values are reviewed on each balance sheet day. Adjustment and reduction of book values will be made on those that it is impossible for them to have enough taxable income to retrieve all or partial assets. For those which have not been recognized as deferred income tax

  • 50 -

assets, they will also be reviewed on each balance sheet day. Adjustment and increase of book values for these items will be made in the future when it is possible for them to generate taxable income to retrieve all or partial assets. Deferred income tax assets and liabilities are measured based on current tax rates for expected liability repayment or asset realization. Such tax rates are based on tax rates and tax laws already established or substantially established on the balance sheet day. Measurements of deferred income tax liability and asset reflect tax consequences for an enterprise generated from methods of expected retrieval or repayment of asset and liability book values on the balance sheet day.

  1. Current and Deferred Income Tax for This Year Current and deferred income tax are recognized as profit or loss. However, current and deferred income tax related to items recognized in other consolidated income or items directly recognized as equities are recognized as other consolidated income or are directly recognized as equities. In the event that current income tax or deferred income tax is generated from a corporate merger, accounting process on income tax effect incurred will therefore be included in accounting process for such merged corporation.

5. Significant Accounting Judgment, Assessment and Major Source of Assumption Uncertainty

  • With respect to related information not easily accessible from other resources, the consolidated company’s accounting policy requires that management must make related judgment, assessment and assumption based on historical experience and other relevant factors. Actual results may be different from assessments. Management will continue to review assessments and basic assumptions. Current recognition will be modified accordingly if modification is expected to have current influence only. In the event that modification, based on accounting estimate, poses both current and future influence, recognition shall therefore be made in current and future periods accordingly.

  • (1) Estimated Goodwill Impairment

  • 51 -

Determination of impairment for goodwill requires assessment of utilization value amortized to goodwill cash generating units. For the purpose calculating utilization value, management shall assess expected future cash flow incurred from cash generating units, and determine appropriate discount rates utilized for current value calculation. Significant impairment losses may incur if actual cash flow amount is less than anticipated one. (2) Income Tax

As of Dec. 31 for both 2016 and 2015, deferred income tax related to tax loss are NTD72,066,000 and NTD12,879,000 respectively. Given the unforeseeability of future profit, consolidated company still has tax losses of NTD1,389,000 and NTD12,221,000 not recognized as deferred income tax assets as of Dec. 31, 2016 and 2015 respectively . Realization of deferred income tax assets mainly depends on whether there are sufficient profits or taxable temporary differences in the future. In the event that profits generated in the future are less than anticipated ones, it will be possible to have a reversal incurred on deferred income tax assets. Such reversal will be recognized as profit or loss for the period of occurrence.

  • (3) Account Receivable Estimated Impairment

In the event of objective evidence indicating sings of impairment, the consolidated company will consider estimates for future cash flow. Impairment loss amount is measured based on the difference between such asset’s book value and estimated future cash flow (excluding future credit loss not yet incurred) current value discounted by such financial asset’s original effective interest rate. There is a possibility of significant impairment losses if future actual cash flow is less than expected.

  • (4) Fair Value Measurement and Assessment Process In the event that there is no market quotation in an active market for assets and liabilities measured in fair value, the consolidated company shall determine, in accordance with related laws or its judgment, whether to have outsourced evaluation and determine appropriate fair value evaluation techniques.

  • 52 -

In the event that tier 1 input value cannot be obtained for estimated fair value, the consolidated company or outsourced appraiser shall refer to market price or information of interest rate and derivative instrument features in determining input value. In the event that future actual changes on input value are different from expected ones, it is possible to incur changes on fair value. Each quarter, the consolidated company shall update various input values depending on market situations for the purpose of monitoring if fair value measurement is appropriate. Please refer to note #7 and note #27 for explanation on fair value assessment techniques and input values.

  • (5) Service Life for Property, Factory and Equipment With reference of aforementioned note 4(8), the consolidated company reviews service life for property, factory and equipment on each balance sheet day.

  • (6) Inventory Impairment

  • Inventory net realizable value is estimated based on, during normal business process, balance from estimated sale price’s lessing of estimated costs still needed for work completion and sale of products. Such estimates are based on current market conditions and historical sale experiences for similar products. Changes in market conditions may have major influences over results for such estimates.

  • 53 -

6. Cash and Cash Equivalents

Mortgaged or Pledged Assets
Dec. 31,2016 Dec. 31,2015
Cash On Hand
$ 3,701 $ 2,179
Bank Check and Demand Deposit
2,827,824
4,516,931
Cash Equivalents
Time Deposit with Original Maturity
within 3 months

1,409,293

888,699
$ 4,240,818
$ 5,407,809
Scope of Bank Deposit Market Interest Rates on Balance Sheet Day:
Dec. 31,2016
Dec. 31,2015
Bank Deposit
0.01%~4.5%
0.01%~5.4%
7.Financial Instruments at Fair Value through Profit and Loss
Dec. 31,2016
Dec. 31,2015
Financial Assets Held for
Transaction-Current
Derivatives
Forward Exchange Contract
$ 8,342
$ -
Domestic First Convertible
Corporate Bond (Note 16)

44

1,024
$ 8,386
$ 1,024
Financial Assets Held for Transaction-Current
Derivatives
Forward Exchange Contract
$ 2,190
$ -
Financial Assets Held for
Transaction-Non-Current
Derivatives
Domestic Second Convertible Corporate
$ 20,500
$ 3,000		 Mortgaged or Pledged Assets
Dec. 31,2016 Dec. 31,2015
Cash On Hand
$ 3,701 $ 2,179
Bank Check and Demand Deposit
2,827,824
4,516,931
Cash Equivalents
Time Deposit with Original Maturity
within 3 months

1,409,293

888,699
$ 4,240,818
$ 5,407,809
Scope of Bank Deposit Market Interest Rates on Balance Sheet Day:
Dec. 31,2016
Dec. 31,2015
Bank Deposit
0.01%~4.5%
0.01%~5.4%
7.Financial Instruments at Fair Value through Profit and Loss
Dec. 31,2016
Dec. 31,2015
Financial Assets Held for
Transaction-Current
Derivatives
Forward Exchange Contract
$ 8,342
$ -
Domestic First Convertible
Corporate Bond (Note 16)

44

1,024
$ 8,386
$ 1,024
Financial Assets Held for Transaction-Current
Derivatives
Forward Exchange Contract
$ 2,190
$ -
Financial Assets Held for
Transaction-Non-Current
Derivatives
Domestic Second Convertible Corporate
$ 20,500
$ 3,000		 Mortgaged or Pledged Assets
Dec. 31,2016 Dec. 31,2015
Cash On Hand
$ 3,701 $ 2,179
Bank Check and Demand Deposit
2,827,824
4,516,931
Cash Equivalents
Time Deposit with Original Maturity
within 3 months

1,409,293

888,699
$ 4,240,818
$ 5,407,809
Scope of Bank Deposit Market Interest Rates on Balance Sheet Day:
Dec. 31,2016
Dec. 31,2015
Bank Deposit
0.01%~4.5%
0.01%~5.4%
7.Financial Instruments at Fair Value through Profit and Loss
Dec. 31,2016
Dec. 31,2015
Financial Assets Held for
Transaction-Current
Derivatives
Forward Exchange Contract
$ 8,342
$ -
Domestic First Convertible
Corporate Bond (Note 16)

44

1,024
$ 8,386
$ 1,024
Financial Assets Held for Transaction-Current
Derivatives
Forward Exchange Contract
$ 2,190
$ -
Financial Assets Held for
Transaction-Non-Current
Derivatives
Domestic Second Convertible Corporate
$ 20,500
$ 3,000		 Mortgaged or Pledged Assets
Dec. 31,2016 Dec. 31,2015
Cash On Hand
$ 3,701 $ 2,179
Bank Check and Demand Deposit
2,827,824
4,516,931
Cash Equivalents
Time Deposit with Original Maturity
within 3 months

1,409,293

888,699
$ 4,240,818
$ 5,407,809
Scope of Bank Deposit Market Interest Rates on Balance Sheet Day:
Dec. 31,2016
Dec. 31,2015
Bank Deposit
0.01%~4.5%
0.01%~5.4%
7.Financial Instruments at Fair Value through Profit and Loss
Dec. 31,2016
Dec. 31,2015
Financial Assets Held for
Transaction-Current
Derivatives
Forward Exchange Contract
$ 8,342
$ -
Domestic First Convertible
Corporate Bond (Note 16)

44

1,024
$ 8,386
$ 1,024
Financial Assets Held for Transaction-Current
Derivatives
Forward Exchange Contract
$ 2,190
$ -
Financial Assets Held for
Transaction-Non-Current
Derivatives
Domestic Second Convertible Corporate
$ 20,500
$ 3,000		 Mortgaged or Pledged Assets
Dec. 31,2016 Dec. 31,2015
Cash On Hand
$ 3,701 $ 2,179
Bank Check and Demand Deposit
2,827,824
4,516,931
Cash Equivalents
Time Deposit with Original Maturity
within 3 months

1,409,293

888,699
$ 4,240,818
$ 5,407,809
Scope of Bank Deposit Market Interest Rates on Balance Sheet Day:
Dec. 31,2016
Dec. 31,2015
Bank Deposit
0.01%~4.5%
0.01%~5.4%
7.Financial Instruments at Fair Value through Profit and Loss
Dec. 31,2016
Dec. 31,2015
Financial Assets Held for
Transaction-Current
Derivatives
Forward Exchange Contract
$ 8,342
$ -
Domestic First Convertible
Corporate Bond (Note 16)

44

1,024
$ 8,386
$ 1,024
Financial Assets Held for Transaction-Current
Derivatives
Forward Exchange Contract
$ 2,190
$ -
Financial Assets Held for
Transaction-Non-Current
Derivatives
Domestic Second Convertible Corporate
$ 20,500
$ 3,000
0.01%~5.4%
Loss
Dec. 31,2015
$ -

1,024
$ 1,024
$ -
$ 3,000

Financial Assets Held for
Transaction-Current
Derivatives
Forward Exchange Contract
Domestic First Convertible
Corporate Bond (Note 16)
Financial Assets Held for Transaction-Current
Derivatives
Forward Exchange Contract
Financial Assets Held for
Transaction-Non-Current
Derivatives
Domestic Second Convertible Corporate
Dec. 31,2016
$ 8,342

44
$ 8,386
$ 2,190

$ 20,500







  • 54 -

Bond (Note 16)

Forward Exchange Contract with Hedge Accounting not Applied and Maturity not Reached on Balance Sheet Day:

Dec. 31, 2016

Dec. 31, 2016
Forward Exchange Sold

Forward Exchange Sold

Forward Exchange Sold
 Currency
USD/RMB
EUR/RMB
EUR/USD		 Periods of Maturity
2017.01.10-2017.02.24
2017.01.09-2017.04.06
2017.01.03-2017.06.28		 Contract Amounts
(in thousands)
USD 2,600/RMB 17,784
EUR 1,500/RMB 11,232
EUR 3,900/USD 4,359

Purpose of consolidated company’s forward exchange transactions in 2016 is mainly for avoiding exchange rate fluctuation risks incurred from foreign currency assets and liabilities.

8. Account Receivables

Account Receivables
Less: Bad Debt Reserves		 Dec. 31,2016
$ 1,927,320

19,751)
$ 1,907,569		 Dec. 31,2015

(
(
 $ 2,210,134

9,878)
$ 2,200,256

Consolidated company’s average credit extension period for products sold is ninety (90) days, with no interests accrued on account receivables. Upon determination of account receivable recoverability, consolidated company will consider any changes in account receivable credit quality from the day of original credit extension to the balance sheet day. Given the fact that historical experience has shown that account receivables aged more than 180 days are unrecoverable, the consolidated company hereto therefore recognizes 100% of them as bad debt reserves. For account receivables aged between 0 day and 180 days, bad debt reserves unrecoverable amounts are estimated based on transaction counterparty’s previous default records as well as analysis of their current financial conditions.

Aging analysis for account receivables is as follows:

Non-Overdue Dec. 31,2016
$ 1,831,096		 Dec. 31,2015
$ 2,114,427
  • 55 -
Below 90
90～180 Days
Over 180 Days

Total
 79,754
257

16,213

$ 1,927,320
 84,288
6,574

4,845

$ 2,210,134

Aforementioned aging analysis is conducted based on the number of overdue days.

Information of changes in account receivables bad debt reserves is as follows:

Balance, January 1st, 2015
Plus: Current Bad Debt Reversal Expense
Foreign Exchange Difference
Balance, Dec. 31st, 2015
Plus: Current Bad Debt Reversal Expense
Less: Current Actual Write-Off Amount
Acquisition from Business Merge
Foreign Exchange Difference
Balance, Dec. 31st, 2016		 Group Estimated
Impairment Loss
$ 11,038
(
949)
(
211)
9,878
3,087
(
5,095)
13,679
(
1,798)
$ 19,751

9. Net Inventory

Finished Goods
Work-In-Progress
Raw Materials		 Dec. 31, 2016
$ 501,01
366,38

393,83
$ 1,261,23		 Dec. 31, 2015




$ 586,270
332,395

385,829
$ 1,304,494

Operating costs related to inventory for 2016 and 2015 are NTD 4,955,142,000 and NTD 5,454,367,000 respectively.

2016 operating cost includes inventory price drop loss of NTD 31,371,000, while 2015 operating cost includes inventory net realizable value increase profit of NTD 12,478,000 (which is mainly because of sale of dead stock in mid-year).

10. Subsidiaries

  • 56 -

Subsidiaries included in this consolidated financial Statements

Subjects for this consolidated financial Statements are as follows:

Investor Company
Subsidiary
Yeong Guan Energy
Technology Group Co.,
Ltd.
Yeong Guan Holding Co. , Ltd.
(Yeong Guan Holding
Company)
Yeong Guan Heavy Industry
(Thailand) Co., Ltd.
(Yeong Guan Heavy Industry
Company)
Yeong Guan Holding Co.,
Ltd.
Yeong Guan Energy International
Co., Ltd. (Yeong Guan Energy
International Company)
Shin Shang Trade Co., Ltd.
(Shin Shang Trade Company)
Yeong Chen Asia Pacific Co., Ltd.
(Yeong Chen Asia Pacific
Company)
New Power Team Technology Inc.
(New Power Company)
Yeong Guan Energy
International Co., Limited
Ningbo Yeong Shang Casting Iron
Co., Ltd.
(Yeong Shang Casting Iron
Company)
Ningbo Lu Lin Machine Tool
Foundry Co., Ltd.
(Lu Lin Machine Tool Foundry
Company)
Dongguan Yeong Guan Mould
Factory Co., Ltd.
(Dongguan Yeong Guan Mould
Factory Company)
Jiangsu Bright Steel Fine
Machinery Co., Ltd.
(Bright Steel Fine Machinery
Company)
Ningbo Yeong Chia Mei Trade
Co., Ltd. (Yeong Chia Mei Trade
Company)
Shanghai No. 1 Machine Tool
(Suzhou) Co., Ltd.
Yeong Shang Casting Iron
Company
Jiangsu Bright Steel Fine
Machinery Co., Ltd.
Dongguan Yeong Guan
Mould Factory Co., Ltd.
Shanghai No. 1 Machine Tool
(Suzhou) Co., Ltd.
Shanghai No. 1 Machine tool
Co., Ltd.
Shanghai No. 1 Machine Tool and
Marketing Co., Ltd.
(Shanghai Marketing Company)
New Power Team
Technology Inc.
Lizhan Limited		 Nature of Business
2016
Dec. 31
Investment
100
Manufacturing and selling of high quality casting
products of spherical graphite cast iron and
grey cast iron
75
Investment
100
Transaction of various steel castings and casting
molds as well as related import/export
businesses
100
Manufacturing and selling of high quality casting
products of spherical graphite cast iron and
grey cast iron
100
Processing, manufacturing and selling of various
of machinery and hardware
52
(Note 1)
Manufacturing and selling of high quality casting
products of spherical graphite cast iron and
grey cast iron
100
Manufacturing and selling of high quality casting
products of spherical graphite cast iron and
grey cast iron
100
Manufacturing and selling of high quality casting
products of spherical graphite cast iron and
grey cast iron
100
Manufacturing and selling of high quality casting
products of spherical graphite cast iron and
grey cast iron
80
Transaction of various steel castings and casting
molds as well as related import/export
businesses
100
Manufacturing and selling of high quality casting
products of spherical graphite cast iron and
grey cast iron
50
(Note 2)
Manufacturing and selling of high quality casting
products of spherical graphite cast iron and
grey cast iron
20
Manufacturing and selling of high quality casting
products of spherical graphite cast iron and
grey cast iron
40
(Note 2)
Trading, importing and exporting of various
steel and iron castings and casting mold
100
Investment
100
(Note 1)		 2015
Dec. 31
100
75
100
100
100
-
100
100
100
80
100
-
20
-
100
-
  • 57 -
Investor Company
Subsidiary
Lizhan Limited
Ningbo New Power Team
Technology Co., Ltd.		 Nature of Business
2016
Dec. 31
Manufacturing of base of medical
equipment, wind turbine hub and
semiconductor equipment products
100
(Note 3)		 2015
Dec. 31
-

  • Note 1 ： Yeong Guan Holding Co., Ltd. acquired the control of 52% shares of New Power Team Technology Inc. on January 7th, 2016 and therefore this company is merged accordingly.

  • Note 2 ： Yeong Guan International Co., Ltd. And Dongguan Yeong Guan Casting Iron Factory Company acquired 50% and 40% of shares of Shanghai No. 1 Machine Tool Co., Ltd. respectively on January 25th, 2016. This Group is capable of controlling the company and therefore this company is merged accordingly.

  • Note3: Lizhan Limited established New Power Team Technology Inc., which was integrated into the consolidated entity based on 100% ownership, on July 5th, 2016 through seasoned equity offerings.

11. Property, Factory and Equipment

Cost

Balance, Jan. 1st, 2016

Addition

Disposal

Acquisition from Business Merge

Reclassification

Net Exchange Difference

Balance, Dec. 31st, 2016
 Self-Owned
Land		 Building Machine
Equipment		 Transportation
Equipment		 Other
Equipment		 Leased
Asset
$ -
1,847
-
-
-
(
80)
$ 1,767		 Work-in-
Progress
Property		 Total Total

$ 533,005


-

-


180,658
(
6,729 )

(
13,073)

$ 693,861
 $ 3,092,713
17,172
(
11,270 )
203,695
(
14,621 )
(
253,484)
$ 3,034,205		 $ 3,434,044
125,031
(
39,997 )
113,476
131,225
(
294,159)
$ 3,469,620		 $ 65,841
6,102
(
4,033 )
10,870
-
(
5,387)
$ 73,393		 $ 509,051
32,171
(
9,177 )
4,960
20,965
(
42,598)
$ 515,372

$ 777,909
165,458
(
2,059 )
389,076
79,951
(
77,779)
$ 1,332,556		 $ 8,412,563
347,781
(
66,536 )
902,735
210,791
(
686,560)
$ 9,120,774


$ 9,120,774
  • 58 -
Balance, Jan. 1st, 2015

Addition

Disposal

Reclassification

Net Exchange Difference

Balance, Dec. 31st, 2015


Accumulated Depreciation and
Impairment

Balance, Jan. 1st, 2016

Disposal

Depreciation Expense

Acquisition from Business Merge

Reclassification

Net Exchange Difference

Balance, Dec. 31st, 2016


Balance, Jan. 1st, 2015

Disposal

Depreciation Expense

Reclassification

Net Exchange Difference

Balance, Dec. 31st, 2015
 $ 120,092
$ 2,961,153
$ 3,237,067
$ 65,283
$ 450,760

-
203,935
163,776
5,896
38,424
-
(
7,774 )
(
10,103 )
(
8,396 )
(
1,816 )
418,032
5,055
119,199
4,453
33,430
(
5,119)
(
69,656)
(
75,895)
(
1,395)
(
11,747)

$ 533,005
$ 3,092,713
$ 3,434,044
$ 65,841
$ 509,051

$ -
$ 972,684
$ 1,818,599
$ 39,947
$ 329,510

-
(
11,270 )
(
16,623 )
(
3,592 )
(
7,982 )
-
148,843
261,015
6,973
49,998
-
39,632
64,818
6,171
2,514
-
(
1,493 )
(
3,224 )
-
3,224

-
(
85,142)
(
163,030)
(
3,438)
(
28,200)

$ -
$ 1,063,254
$ 1,961,555
$ 46,061
$ 349,064

$ -
$ 854,179
$ 1,615,001
$ 41,992
$ 287,854

-
(
7,774 )
(
7,938 )
(
7,380 )
(
1,634 )
-
147,009
260,484
6,220
51,209
-
821
(
6,654 )
-
(
840 )

-
(
21,551)
(
42,294)
(
885)
(
7,079)

$ -
$ 972,684
$ 1,818,599
$ 39,947
$ 329,510
 $ -
$ 274,822
$ 7,109,177
-
490,352
902,383
-
(
20,414 )
(
48,503 )
-
40,670
620,839

-
(
7,521)
(
171,333)
$ -
$ 777,909
$ 8,412,563
$ -
$ -
$ 3,160,740
-
-
(
39,467 )
166
-
466,995
-
-
113,135
-
-
(
1,493 )
(
7)

-
(
279,817)
$ 159
$ -
$ 3,420,093
$ -
$ -
$ 2,799,026
-
-
(
24,726 )
-
-
464,922
-
-
(
6,673 )

-

-
(
71,809)
$ -
$ -
$ 3,160,740		 $ -
$ 274,822
$ 7,109,177
-
490,352
902,383
-
(
20,414 )
(
48,503 )
-
40,670
620,839

-
(
7,521)
(
171,333)
$ -
$ 777,909
$ 8,412,563
$ -
$ -
$ 3,160,740
-
-
(
39,467 )
166
-
466,995
-
-
113,135
-
-
(
1,493 )
(
7)

-
(
279,817)
$ 159
$ -
$ 3,420,093
$ -
$ -
$ 2,799,026
-
-
(
24,726 )
-
-
464,922
-
-
(
6,673 )

-

-
(
71,809)
$ -
$ -
$ 3,160,740


$ 3,160,740
  • 59 -

Depreciation for consolidated company’s property, factory and equipment is recognized under linear basis:

Building 5 to 20 years Machine Equipment 3 to 10 years Transportation Equipment 5 to 20 years Other Equipment 3 to 10 years Leased Asset 5 years

Major components for consolidated company’s building include factory main building and power generating equipment. Depreciation for them is recognized based on service life of 20 years and 5 years respectively.

Please refer to note 29 for property, factory and equipment amounts serve as loan collaterals during the consolidated company’s creation of pledge.

12. Investment Property

Cost
Balance, Jan. 1st, 2016
Transfer-in for the current period
Transfer to Property, Factory, Equipment
Net Exchange Difference
Balance, Dec. 31st, 2016
Balance, Jan. 1st, 2015
Transfer to Property, Factory, Equipment
Net Exchange Difference
Balance, Dec. 31st, 2015
Accumulated Depreciation
Balance, Jan. 1st, 2016
Depreciation Expense
Transfer-in for the current period
Transfer to Property, Factory, Equipment		 Total
$ 13,385
22,463
(
1,113)
(
961)
$ 33,774
$ 18,236
(
4,489)

362)
$ 13,385
$ 4,392
852
1,731
(
238)
  • 60 -
Net Exchange Difference ( 368)
Balance, Dec. 31st, 2016 $ 6,369
Balance, Jan. 1st, 2015 $ 4,678
Depreciation Expense 642
Transfer to Property, Factory, Equipment ( 821)
Net Exchange Difference ( 107)
Balance, Dec. 31st, 2015 $ 4,392

Depreciation for consolidated company’s investment property is recognized under linear basis and 20-year service life.

Consolidated company’s investment properties for end of 2016 are buildings and lands located in No. 95, Huang Hai Rd., Ningbo City and No. 575, Sec. 1, Cheng Gong Rd., Cao Ta Village, Guan Yin District, Taoyuang City and No. 9, Minquan Road, Dayuan District, Taoyuan City; Consolidated company’s investment properties for end of 2015 are buildings and lands located in No. 95, Huang Hai Rd., Ningbo City, No 18, Central Avenue, Tianmu Lake Industrial Park, Liyang City and No. 575, Sec. 1, Cheng Gong Rd., Cao Ta Village, Guan Yin District, Taoyuang City. Such areas are located within industrial zone. There are no active market transactions or reliable alternative fair value available for assessment. Therefore, fair values cannot be determined in a reliable way. All of consolidated company’s investment properties are equity capitals. Please refer to note 29 for investment property amounts pledged by consolidated company as loan collaterals.

13. Goodwill

odwill
Cost
Balance, Beginning
Goodwill Incurred from
Acquisition (Note 24)
Net Exchange Difference
Balance, Ending		 2016
$ 133,214
17,491

5,497)
$ 145,208		 2015

(
(
 $ 134,386
-

1,172)
$ 133,214

Determination of goodwill recoverable amount is based on utilization value. Utilization value is estimated based on cash flow

  • 61 -

for future 5-year financial budget approved by consolidated company’s management, and has been calculated based on annual discount rates of 8.69% and 9.3% in 2016 and 2015 respectively. Management of the consolidated company does not think any reasonable possible changes of critical assumptions which are used as recoverable amount basis may lead to goodwill book value total amount’s exceeding of recoverable amounts.

14. Lease Prepayment

ase Prepayment
Current (included in other current assets)
Non-Current		 Dec. 31st,2016

$ 9,696

380,547

$ 390,243
 Dec. 31st,2015


$ 8,064

341,295
$ 349,359

As of Dec. 31[st] for 2016 and 2015, prepaid lease is for land utilization rights in China. Please refer to note 29 for prepaid lease amounts pledged by consolidated company as loan collaterals.

15. Loans

  • (1) Short Term Loans
s
Short Term Loans
Secured Loans(Note 29)
－Bank Loan		 Dec. 31st,2016
$ 521,950		 Dec. 31st,2015
$ 401,885

Bank revolving loan interest rates on Dec. 31, 2016 and 2015 are 1.10%-2.69% and 1.70%-2.32% respectively.

  • (2) Long Term Loan
Secure Loan(Note 29)
Bank Loan
Less: Recognized Portion of Loan Due
within One Year.
Long Term Loan		 Dec. 31st,2016
$ 96,780
(
96,780)
$ -		 Dec. 31st,2015 Dec. 31st,2015

(

$ 98,490

-
$ 98,490
  • 62 -

As of Dec. 31[st] , 2016 and 2015, annual interest rates for long term loans are 2.61% and 2.32% respectively.

16. Corporate Bond Payable

Corporate Bond Payable
Domestic First Un-Secured Convertible
Corporate Bond
Domestic Second Un-Secured Convertible
Corporate Bond
Minus: One-year Putable Bond		 Dec. 31st,2016
$ 145,360

2,392,775
2,538,135

145,360
$ 2,392,775		 Dec. 31st,2015






$ 264,581

2,347,777
2,612,358

264,581
$ 2,347,777
  • (1) On June 3rd, 2014, the Company issued 15,000 units NTD denominated un-secured convertible corporate bond with 0% coupon rate and total principal amount of NTD1.5 billion.

Each unit corporate bond holder is entitled to convert the bond into the Company’s common shares under the price of NTD158/share. After determination of conversion price, adjustments shall be made in accordance with conversion price adjustment formula in the event of ex-right or ex-dividend. As of Dec. 31st, 2016, conversion price has been adjusted to NTD142.3 and conversion period starts from September 4th, 2014 to May 24th, 2019. In the event of unconverted corporate bond upon expiration of aforementioned period, onetime cash repayment of bond face value plus interest compensation will be made on June 3rd, 2019. Interest compensation upon maturity is 5.01% of face value for creditor’s rights. In the event that conditions are met, the Company shall be entitled to request to redeem this convertible corporate bond from creditors based on agreed prices.

During the period which starts from the next day after 3 months of issuance and until 40 days before expiration of the issuance, in the event the Company’s common share closing prices in Taiwan Stock Exchange exceed this bond’s conversion price at that time over 30% (included) for 30 consecutive business days, the Company will be entitled to send out a 30-day-expiration “Bond Redemption Notice” within subsequent 30 business days, and redeem all bonds in cash calculated based on face value upon expiration of aforementioned period. During the period which starts from the next day after 3 months of issuance and until 40 days before expiration of the issuance, in the event that

  • 63 -

this bond’s outstanding balance is lower than 10% of original total issue amount, the Company will therefore be entitled to send out a 30-day-expiration “Bond Redemption Notice” based on names recorded on bondholder’s name list 5 business days prior to the mailing day, and redeem outstanding bond in cash calculated based on face value upon expiration of aforementioned period.

Respective expiration dates of 2-year and 3-year periods after issuance are pre-mature sell back record dates for bondholders of this bond. Bondholders are entitled to send out notice in writing to the Company’s share agent within 30 days prior to aforementioned sell back record dates requesting the Company to redeem bond held by them in cash and in 102.015% and 103.03% of face value.

This convertible corporate bond include liability and equity components. Equity components are presented as Additional Paid-In Capital - Share Subscription Right under equities. Liability components, on the other hand, are cognized as liabilities of embedded derivative financial instruments and non-derivative products. Such embedded derivative financial instrument has been assessed at fair value of NTD(44) thousands and NTD(1,024) thousands respectively on Dec. 31st, 2016 and 2015. Non-derivative product liability has been measured on Dec. 31st, 2016 and 2015 as NTD145,360 thousands and NTD264,581 thousands based on amortized cost and its effective interest rate originally recognized is 1.0715%.

Issuance Proceeds (less transaction cost of NTD3,714
thousands) $1,496,286
Equity Components ( 68,829)
Net Liability Components on Issue Day (including
NTD1,427,607 thousands of corporate bond payable and
NTD150 thousands of financial assets at fair value –
noncurrent) 1,427,457
Interest Calculated in Effective Interest Rate 35,759
Corporate bond payable converted to common stock ( 1,318,006 )
Loss on Valuation of Financial Instrument 106
Liability Components on Dec. 31st, 2016 $ 145,316
  • 64 -

As of Dec. 31st, 2016, unsecured convertible corporate bonds with face value of NTD1,354,900,000 have already been converted into the Company’s shares of 8,929,000 shares.

  • (2) On August 18[th] , 2015, the Company issued 25,000 units NTD denominated un-secured convertible corporate bond with 0% coupon rate and total principal amount of NTD2.5 billion.

Each unit corporate bond holder is entitled to convert the bond into the Company’s common shares under the price of NTD217/share. After determination of conversion price, adjustments shall be made in accordance with conversion price adjustment formula in the event of ex-right or ex-dividend. As of Dec. 31st, 2016, conversion price has been adjusted to NTD207.3 and conversion period starts from November 18th, 2015 to August 18th, 2020. In the event of unconverted corporate bond upon expiration of aforementioned period, onetime cash repayment of bond face value plus interest compensation will be made on August 18th, 2020. Interest compensation upon maturity is 2.53% of face value for creditor’s rights. In the event that conditions are met, the Company shall be entitled to request to redeem this convertible corporate bond from creditors based on agreed prices.

During the period which starts from the next day after 3 months of issuance and until 40 days before expiration of the issuance, in the event the Company’s common share closing prices in Taiwan Stock Exchange exceed this bond’s conversion price at that time over 30% (included) for 30 consecutive business days, the Company will be entitled to send out a 30-day-expiration “Bond Redemption Notice” within subsequent 30 business days, and redeem all bonds in cash calculated based on face value upon expiration of aforementioned period. During the period which starts from the next day after 3 months of issuance and until 40 days before expiration of the issuance, in the event that this bond’s outstanding balance is lower than 10% of original total issue amount, the Company will therefore be entitled to send out a 30-day-expiration “Bond Redemption Notice” based on names recorded on bondholder’s name list 5 business days prior to the mailing day, and redeem outstanding bond in cash calculated based on face value upon expiration of aforementioned period.

Respective expiration dates of 3-year and 4-year periods after issuance are pre-mature sell back record dates for bondholders of this bond.

  • 65 -

Bondholders are entitled to send out notice in writing to the Company’s share agent within 30 days prior to aforementioned sell back record dates requesting the Company to redeem bond held by them in cash and in 101.51% and 102.02% of face value.

This convertible corporate bond include liability and equity components. Equity components are presented as Additional Paid-In Capital - Share Subscription Right under equities. Liability components, on the other hand, are cognized as liabilities of embedded derivative financial instruments and non-derivative products. Such embedded derivative financial instrument have been assessed at fair value of NT$20,500 and NTD3,000 thousands respectively on Dec. 31st, 2016 and 2015. Non-derivative product liability have been measured on Dec. 31st, 2016 and 2015 and NTD2,392,775 thousands NTD2,347,777 thousands respectively based on amortized cost and its effective interest rate originally recognized is 0.8351%

Issuance Proceeds (less transaction cost of NTD6,546
thousands)

Equity Components
(
Net Liability Components on Issue Day (including
NTD2,331,130 thousands of corporate bond payable
and NTD11,969 thousands of financial assets at fair
value – noncurrent)
Interest Calculated in Effective Interest Rate
Gain on Valuation of Financial Instrument

Liability Components on Dec. 31, 2016
 $ 2,493,454

150,355)
2,343,099
61,645

8,531
$ 2,413,275

All of the second unsecured convertible corporate bonds have not yet been converted as of Dec. 31st, 2016.

17. Lease Payable

Lease Payable

Minimum Lease Payment
Less Than 1 Year

1～5 Years

Less: Future Finance Expense
 Dec. 31st,2016


$ 528

865
1,393

297
  • 66 -
Minimum Lease Payment Present Value

Minimum Lease Payment Present Value
Less Than 1 Year（included in other current
liabilities）

1～5 Years

 $ 1,096
$ 361

735
$ 1,096

The consolidated company leased transportation equipment via finance leasing in June 2016, with a lease period of 3 years. Ownership of such transportation equipment will be transferred to the consolidated company without consideration upon expiration of the lease period. Interest rate for the lease is 20.13%.

18. Other Account Payables

Salary Payable
Freight Payable
Payables on Equipment
Tax Payable
Interest Payable
Others		 Dec. 31,,2016
$ 243,928
48,511
44,888
21,722
1,003

168,125
$ 528,177		 Dec. 31,2015




$ 279,410
61,951
28,264
19,376
1,416

111,093
$ 501,510

19. Post-Employment Benefit Plan

Pension system of “Labor Pension Act” applied by consolidated company’s Yeong Chen Asia Pacific Co., Ltd. is a defined contribution pension plan managed by government. 6% of employee’s monthly salary will be contributed to personal account in Bureau of Labor Insurance.

Consolidated company’s subsidiaries in China apply defined contribution pension regulation. A certain percentage of contribution from pension contributed in accordance with employee salary will be contributed, together with the pension, into pension fund accounts managed by local insurance institution designated by law. Upon employee’s retirement, deposits form employee him/herself and deposits from company’s contribution together interests incurred can be withdrawn from such pension fund account.

  • 67 -

20. Equities

(1) Share Capital

ies
Share Capital
Dec. 31, Dec. 31,
2016 2015
Number of Shares Authorized
(in thousands) 300,000 150,000
Amount of Capital Authorized $ 3,000,000 $ 1,500,000
Number of Outstanding Shares with Share
Payment Fully Collected (in thousands) $ 118,818 117,980
Outstanding Share Capital $ 1,188,175 $ 1,179,796

Par value for each outstanding common share is NTD10 and each share enjoys one voting rights as well as rights to collect dividend.

The Company’s Board of Directors Meeting made a resolution on August 21, 2015 on cash capital increase by issuing 5,000 new shares with par value of NTD 10 for each share. New shares will be issued at a premium of NTD168 per share. Board of Directors Meeting also set October 20, 2015 as record date for capital increase. Application of aforementioned capital increase project has already been submitted and Financial Supervisory Commission of the

Executive Yuan has already approved accordingly.

  • (2) Additional Paid-In Capital

Proceeds form share premium issuance, which exceeds par value, of Additional paid-in capital can be used to compensate losses. They can also be used to distribute cash dividend, or to be contributed as share capital, when there is no loss incurred to the Company. However, contribution of share capital is limited to certain percentages of paid-in capital each year. Paid-in capital incurred from share subscription rights of convertible corporate bond shall not be utilized for any purpose.

  • (3) Policy for Retained Earnings and Dividends

Based on modifications of the Company Act in May, 2015, distribution of dividend and bonus shall be limited to shareholders, and employees are not the subject for dividend distribution. The Company has already passed modifications on the Articles of Incorporation and Dividend Distribution Policy via shareholders’ Meeting Resolution on June 7th, 2016, and has drafted a separate employee compensation distribution policy in the Articles of Incorporation.

  • 68 -

As per surplus distribution policy requirements of the modified Articles of Incorporation, in the event that the Company enjoys surplus after annual final account settlement, surplus shall first be used to pay for tax as required by laws and make up for accumulated losses before appropriating 10% as legal reserve. Special reserve shall then be recognized or reversed from the balance as required by laws. In the event that there is still surplus, the Board of

Directors Meeting shall then stipulate surplus distribution proposal over such surplus and accumulated retained earnings and submit the proposal to the Shareholder’s Meeting for resolution over distribution of dividend and bonus to shareholders. Please refer to Note 21 Employee Benefit Expense on the compensation policy for employees and directors/supervisors before and after modification of Articles of Incorporation.

Distribution of shareholder dividend and employee bonus can be distributed, pursuant to Board of Director’s Meeting determination, to employees or shareholders in cash, proceeds from fully paid shares not yet issued, or both cash and aforementioned proceeds. For shareholder dividend, however, cash dividend distributed shall not be less than 10% of all dividends. The Company will not pay for interest on undistributed dividend or bonus. The Company appropriates and reverses special reserve in accordance with letters of Gin-Guan-Zheng-Fa-Tze No. 1010012865 and

Gin-Guan-Zheng-Fa-Tze No. 1010047490 as well as “Application Q and A on Special Reserve Appropriation after Adoption of IFRSs” guideline. In the event of subsequent reversal on other shareholder equity deduction balance, the reversal portion can be used to distribute earnings. Legal reserve shall be appropriated until its balance equals the Company’s paid-in capital total amount. Legal reserve can be used to compensate losses. In the event of no losses incurred to the Company, except that legal reserve exceeding 25% of paid-in capital total amount shall be appropriated as share capital, legal reserve can be distributed in cash.

The Company held shareholder meetings on June 7, 2016 and June 2, 2015 respectively, and approved, through resolutions, earnings distribution, employee bonus and director/supervisor remuneration for 2015 and 2014 as follows:

Earnings Distribution
2015
2014		 Earnings Per Share
(dollar)
2015
2014
  • 69 -

Legal Reserve $ 135,072 $ 100,216 Cash Dividend 1,004,188 667,094 $ 8.5 $ 6.36

2016 Earnings Distribution Proposed by the the Company’s Board of Directors’ Meeting on March 9th, 2017 is as follows:

Legal Reserve
Special Reserve
Cash Dividend		 Earnings Distribution
Proposal
$ 100,830
612,634
386,187		 Earnings Per Share
(dollar)
$ 3.25

2016 Earnings Distribution proposal is pending for resolution from the shareholders’ meeting which is expected to be held on June 13th, 2017.

(4) Special Reserve

  • Upon the Company’s first adoption of IFRSs, accumulated conversion adjustment amount transferred into retained earnings was NTD8, 214 thousand dollars. The same amount of special reserve has already been appropriated accordingly. Upon earnings distribution, other shareholder’s equity deduction as of the ending day of reporting period as well as special reserve appropriated during first adoption of IFRSs shall also be recognized. In the event that there is a subsequent reversal on other shareholder’s equity reduction balance, distribution of earnings can then be conducted on the reserval portion.

(5) Non-Controlling Interest

Non-Controlling Interest
Balance, Beginning of Year
Portion for Non-Controlling
Interest
Current Net Loss
Exchange Difference on
Translation of Foreign
Financial Statements
Non-Controlling Interest
Increased by Acquisition		 2016
$ 111,775
(
10,879)
(
5,485)
204,000		 2015
$ 120,018
(
1,594)
(
6,649)
-
  • 70 -

of New Power Team Technology Inc.

Non-Controlling Interest
Increased by Acquisition
of Shanghai No. 1
Machine Tool Co., Ltd.

Balance, End of Year
4,747

$ 304,158
-
$ 111,775

20. Net Profit

(1) Depreciation, Amortization and Employee Benefit Expense

Employment Benefit Expense

Post-Employment Benefit

Other Employment Benefit
Depreciation

Amortization
 2016 Total
$ 58,768

1,236,741
$ 1,295,509
$ 466,995
$ 5,617		 2015
Business
Cost
$ 43,441

830,467
$ 873,908
$ 406,958
$ -		 Business
Expense
$ 15,327

406,274
$ 421,601
$ 60,037
$ 5,617		 Business
Cost
$ 41,183

846,470

$ 887,653

$ 412,025

$ 25
 Business
Expense
$ 9,049

292,751
$ 301,800
$ 52,897
$ 2,900		 Total
























$ 50,232
1,139,221

$ 1,189,453

$ 464,922

$ 2,925

Aforementioned depreciation expense does not include depreciation expenses of NTD852,000 and NTD642,000 for investment real property for 2016 and 2015 (included under non-operating revenue and expense – other benefits and losses).

Based on Company Act which was modified in May, 2015 and Articles of Incorporation modified under shareholder’s meeting resolution in June 2016, the Company shall appropriate employee compensation and

director/supervisor compensation in accordance with respective distribution zones of 2%~15% and no higher than 3% after current year pre-tax benefits prior to the distribution of employee and director/supervisor compensation are deducted. Employee compensation and director/supervisor compensation for 2016 are recognized in accordance with aforementioned respective pretax benefits of 2% and 0%.

As per Articles of Incorporation prior to modification, current year after tax distributable earnings are used to distribute employee bonus and

director/supervisor compensation in accordance with respective distribution zones of 2%~15% and no higher than 3%. The Company’s recognized employee bonus and director/supervisor compensation in 2015 were calculated

  • 71 -

in accordance with Articles of Incorporation prior to modification and based on 2% and 0% of after-tax net profits (with employee bonus and director/supervisor compensation amount already deducted).

This Company held regular shareholder’s meeting on March 9, 2017 and June 7, 2016 respectively. Resolutions for 2016 and 2015 employee

bonus/compensation and director/supervisor compensation were passed during the meetings as follows:

the meetings as follows:
Employee Bonus/Compensation
Director/Supervisor Compensation		 2016
Share
Bonus
$		 2015
Cash
Bonus
$ 21,000
-		 Cash
Bonus
$ 27,700
-		 Share
Bonus
$ -

-

Changes in amounts after annual consolidated financial Statements approval and release date shall be processed in accordance with changes in accounting estimates and adjustment entry shall be made accordingly in the next year.

There are no differences between employee bonus and director/supervisor compensation to be distributed through resolutions from shareholder’s meetings in 2015 and employee bonus and director/supervisor compensation recognized on 2015 consolidated Statements.

For information regarding the Company’s employee and director/supervisor compensation approved by Board of Director meeting in 2017 and the Company’s employee bonus and director/supervisor compensation approved by shareholder’s meeting resolution in 2016, please refer to “Market Observation Post System” of Taiwan Stock Exchange.

  • (2) This Company held regular shareholder’s meeting on June 2, 2015. Resolution for 2014 employee bonus and director/supervisor compensation was passed during the meetings as follows:
during the meetings as follows:
Employee Bonus
Director/SupervisorCompensation		 2014
Cash Bonus

$ 18,200

-		 Share Bonus
$ -
-
  • 72 -

There are no differences between employee bonus and director/supervisor compensation to be distributed through resolution from shareholder’s meetings on June 2, 2015 and employee bonus and director/supervisor compensation recognized on 2014 consolidated Statements. For information regarding the Company’s employee bonus and director/supervisor compensation approved by shareholder’s meeting resolution in 2015, please refer to “Market Observation Post System” of Taiwan Stock Exchange.

  • (3) Foreign Currency Exchange Profit/Loss
) Foreign Currency Exchange Profit/Loss
Foreign Currency Exchange Profit Total
Amount
Foreign Currency Exchange Loss Total
Amount
Net Loss		 2016
$ 612,511

462,212)
$ 150,299		 2015

(
(
 $ 500,459

337,717)
$ 162,742

22. Income Tax

  • (1) Income Tax Recognized As Profit/Loss Major items for income tax expense are as follows:
22.Income Tax
(1) Income Tax Recognized As Profit/Loss
Major items for income tax expense are		 as follows:
Current Income Tax
Income tax incurred in current year
Undistributed Earnings Taxed
Previous Adjustments
Deferred Income Tax
Income tax incurred in current year
Income Tax Expense Recognized in
Profit/Loss
Adjustments of accounting income
are as follows:
Pre-tax net profit		 2016
2015
$ 369,146
$ 414,343
13,106
16,457

3,569

5,444
385,821
436,244
(
58,582)

3,146
$ 327,239
$ 439,390
and income tax expenses
2016
2015
$ 1,324,658
$ 1,788,513		 2015
$ 414,343
16,457

5,444
436,244

3,146
$ 439,390
  • 73 -
Income tax expense calculated from pre-tax
net profit under mandatory tax rate
$337,800
Undeductible expense of tax
(
3,189 )
Unrecognized deductible temporary
difference
4,644
R&D tax credit
(
3,627 )
Loss carry-forward
(
24,662 )
Undistributed earnings taxed
13,106
Current adjustment using previous year’s
current income tax expense
3,569
Others
(
402)
Income Tax Expense Recognized in Profit /
Loss
$ 327,239		 $ 427,013
(
889)
1,275
(
10,527)
-
16,457
5,444
617
$ 439,390

Consolidated company’s entities under Republic of China Income Tax Law apply 17% tax rate, while subsidiaries in China apply 25% tax rate. Given the uncertainty over 2017 shareholder meeting’s determination on

earnings distribution, it is impossible to determine, in a reliable way, potential income tax consequences if 10% income tax is imposed on 2016 undistributed earnings.

  • (2) Current Income Tax Liability
earnings.
Current Income Tax Liability
Current Income Tax Liability (included in
other Current Assets)
Income Tax Refund Receivable
Income Tax Liabilities in Current Period
Income Tax Payable		 Dec. 31st,
2016
$ 268
$ 93,153		 Dec. 31st,
2015


$ 17
$ 132,756
  • (3) Deferred Income Tax Assets and Liabilities

Changes in deferred income tax assets and liabilities are as follows:

follows:
2016
Deferred Income Tax Assets		 Beginning
Balance		 Recognized
in P/L		 Exchange
Difference		 Other Ending
Balance
  • 74 -
Temporary Difference
Allowance for Inventory Valuation and
Obsolescence Loss

Bad Loan Allowances
Loss Carryforward
Others


Deferred Income Tax Liability
Temporary Difference
Adjustments of Unrealized Financial
Instrument Evaluation Gain or Loss

Unrealized Exchange Net Profit
Capitalized Interest
Others


2015
Deferred Income Tax Assets		 $
6,790
$ 8,548
( $ 814 )
$ 2,107
2,259
(
266 )
777
47,089
(
2,042 )
(
3,205

3,551
(
129)


12,879
$ 61,447
($ 3,251)
$
-
$ 1,418
( $ 3 )
$ 980
(
414 )
19
10,485
1,230
(
894 )
675

631
(
81)

12,140
$ 2,865
($ 959)
$ Beginning
Balance
Recognized
in P/L
Exchange
Difference
$ 10,114
( $ 3,122 )
( $ 202 )

2,467
(
306 )
(
54 )
-
777
-

4,705
(
1,537)

37

$ 17,286
($ 4,188)
($ 219)

$ 331
( $ 326 )
( $ 5 )

-
1,010
(
30 )
11,663
(
916 )
(
262 )

1,513
(
810)
(
28)

$ 13,507
($ 1,042)
($ 325)
6,790
$ 8,548
( $ 814 )
$ 2,107
2,259
(
266 )
777
47,089
(
2,042 )
(
3,205

3,551
(
129)


12,879
$ 61,447
($ 3,251)
$
-
$ 1,418
( $ 3 )
$ 980
(
414 )
19
10,485
1,230
(
894 )
675

631
(
81)

12,140
$ 2,865
($ 959)
$ Beginning
Balance
Recognized
in P/L
Exchange
Difference
$ 10,114
( $ 3,122 )
( $ 202 )

2,467
(
306 )
(
54 )
-
777
-

4,705
(
1,537)

37

$ 17,286
($ 4,188)
($ 219)

$ 331
( $ 326 )
( $ 5 )

-
1,010
(
30 )
11,663
(
916 )
(
262 )

1,513
(
810)
(
28)

$ 13,507
($ 1,042)
($ 325)
 1,658

23

777 )

87


991


-

-

-

-


-

Other
$ -

-

-


-

$ -

$ -

-

-


-

$ -
 $


16,182
4,123
45,047
6,714

72,066

1,415
585
10,821
1,225

14,046
Ending
Balance
$ $ $
$ $ $

$ $ $




















$ 10,114
2,467
-

4,705
$ 17,286
$ 331
-
11,663

1,513
$ 13,507		 $ 6,790

2,107

777

3,205
Temporary Difference
Allowance for Inventory Valuation and
Obsolescence Loss
Bad Loan Allowances
Loss Carryforward
Others
Deferred Income Tax Liability
$ 12,879
$ -

980

10,485

675
Temporary Difference
Adjustments of Unrealized Financial
Instrument Evaluation Gain or Loss
Unrealized Exchange Net Profit
Capitalized Interest
Others
$ 12,140
  • (4) Items not recognized as Deferred Income Tax Asset

Dec. 31[st] , 2016

Dec. 31[st] , 2015

  • 75 -
Loss Carry-Forward

Due in 2017
Due in 2018
Due in 2019
Due in 2020

Due in 2021
 $ 9,529

22,655
5,091
3,279

4,644

$ 45,198
 $ -
-
270
1,275

-
$ 1,545

  • (5) Related Information of Unused Loss Carry-Forwards and Tax Exemption

  • As of December 31[st] , 2016, related information on loss carry-forward is as follows:

As of December 31st, 2016, related i
carry-forward is as follows:		 nformation on loss nformation on loss
Last Carry-Forward Year
2017
2018
2019
2010
2011		 Balance yet to be credited
against


$ 36,463
86,689
81,880
47,661

112,666
$ 365,359
  • (6) Related Integrated Income Tax Information on Subsidiary Yeong Chen Asia Pacific Co., Ltd.
Chen Asia Pacific Co., Ltd.
Dec. 31st, 2016 Dec. 31st, 2015
Undistributed Earnings
Undistributed Earnings Before
1997 $ - $
-
Undistributed Earnings Before
1998 678,041
 544,797
$ 678,041
 $
544,797
Shareholder Deductible Tax Account $ 162,030
 $
128,676
2016 (estimated) 2015 (actual)
Earnings Distribution Tax Deduction Rate 23.90% 27.87%

  • (7) Income Tax Approval

  • 76 -

Yeong Chen Asia Pacific Co., Ltd.’s filings prior to 2014 have all been approved by tax bureau.

23. Earnings per Share

Earnings and common share weighted average shares used in earnings per share calculation are as follows:

Current Net Profit
Potential common share influence which
has dilution effect and is used to calculate
net profit for basic earnings per share:
Convertible corporate bond
Net profit used to calculate diluted earnings
per share
Number of Shares
Weighted average common shares used to
calculate basic earnings per share
Potential common share influence with
dilution effect :
Employee Bonus or Compensation
Convertible Corporate Bond
Weighted average common shares used to
calculate diluted earnings per share		 2016
$1,008,298


34,414

$1,042,712

2016
118,673
3

13,224

132,208		 2015
$ 1,350,717

15,789
$ 1,366,506
2015
110,323

6,861
117,534		 2015
$ 1,350,717

15,789
$ 1,366,506
2015
110,323

6,861
117,534		 2015
$ 1,350,717

15,789
$ 1,366,506
2015
110,323

6,861
117,534








110,323

6,861
117,534

When calculating diluted earnings per share, if the consolidated company is entitled to choose to distribute employee bonus in stock or cash and if stocks will be distributed as employee bonus, then weighted average outstanding shares will be added when such potential common shares come with dilution effect for the purpose of calculating diluted earnings per share. When calculating diluted earnings per share prior to next year shareholder meeting’s resolution over the number of shares to be distributed as employee

  • 77 -

bonus, such potential common share dilution will continue to be considered.

24. Business Merger and Acquisitions

  • (1) Acquisition of Subsidiary
New Power Team
Technology Inc.

Shanghai No. 1 Machine
Tool Co., Ltd.
 Major Operation
Activities
Processing,
Manufacturing and
Transaction of Various
Machinery Hardware
Manufacturing and
Selling of High Quality
Casting Products of
Spherical Graphite Cast
Iron and Grey Cast Iron		 Acquisition
Date
January 7th,
2016
January 25th,
2016		 Voting Rights
Interest
/Acquisition
Percentage(%)
52%

90%
 Transfer
Consideration
$ 221,000
$ 56,502

The consolidated company acquired New Power Team Technology Incorporation and Shanghai No. 1 Machine Tool Co., Ltd. Limited respectively in 2016 for the purpose of continuous expansion of the consolidated company’s production capacity.

  • (2) Considerations of Transfer
Cash New Power Team
TechnologyInc.
$ 221,000		 Shanghai No. 1
Machine Tool Co.,
Ltd.		 Shanghai No. 1
Machine Tool Co.,
Ltd.
$ 56,502
  • (3) Assets Obtained and Liabilities Assumed on Acquisition Day

New Power Team Shanghai No. 1

  • 78 -
Current Assets
Cash and Cash Equivalent
Notes Receivables and Net Account
Receivables
Net Inventory
Prepaid Payment
Other Current Assets
Non-Current Assets
Real Property, Factory and Equipment
Other Non-Current Assets
Current Liabilities
Short Term Loan
Notes Payable and Account Payable
Other Account Payables
Other Current Liabilities
Non-Current Liabilities
Long Term Loan
(4) Goodwill Incurred from Acquisition
Transfer Consideration
Plus: Non-Controlling Interest
Minus: Fair Value for Identifiable Net Assets
Obtained
Goodwill Incurred from Acquisition		 Technology Inc.










Machine Tool Co.,
Ltd.
$ 20,580
-

4,174

15,413

87,288

509,473

96,434
(
11,469 )
(
148,062 )
(
525,965 )
(
400 )

-
$ 47,466
Shanghai No. 1
Machine Tool Co.,
Ltd.

(
(
 $ 56,502
4,747
47,466)
$ 13,783
  • 79 -

Goodwill incurred from acquisition of New Power Team Technology Inc. and Shanghai No. 1 Machine Tool Co., Ltd. mainly comes from control premium. Additionally, consideration paid for the merger includes

consolidated synergy, revenue growth, future market development expected to be incurred, New Power Team Technology Inc. and Shanghai No. 1 Machine Tool Co., Ltd. Limited employees’ value. Nevertheless, such benefits do not fit with recognition terms for identifiable intangible assets. As such, there is no need for a separate recognition.

Goodwill incurred from merger is not expected to serve as a tax deductible item.

(5) Net Cash Outflow from Acquisition of Subsidiary

Cash Payment Consideration
Minus: Balance of Cash and
Cash Equivalent Obtained		 New Power Team
Technology Inc.
$ 221,000
(
257,857)
($ 36,857)		 Shanghai No. 1
Machine Tool
Co.,Ltd.

(
(
 $ 56,502

20,580)
$ 35,922

(6) Business Merger’s Impact on Operation Result Operating result from the acquisitioned company starting from the day of acquisition is as follows:

Business Revenue
Current Net Loss		 New Power Team
Technology Inc.
Shanghai No. 1
Machine Tool Co.,Ltd.
$ 67,800
$ -
$ 7,961)
($ 28,308)		 New Power Team
Technology Inc.
Shanghai No. 1
Machine Tool Co.,Ltd.
$ 67,800
$ -
$ 7,961)
($ 28,308)

(		 $ -
$ 28,308)

In the event that business merger occurred on the beginning day of accounting year for the acquisition day, the consolidated company’s constructive operating revenues from 2016 shall therefore be NTD67,800,000

  • 80 -

and NTD0, and constructive losses of NTD7,961,000 and NTD31,453,000 respectively. Such amounts cannot reflect the consolidated company’s revenue and operating result which can actually be generated if business merger completes on the beginning day of the year of acquisition. Neither shall they be used to forecast future operating results.

25. Business Lease Agreement

(1) Consolidated Company as Lessee

Business lease shall mean and refer to leasing of land building with lease term from 1 to 5 years. Consolidated company does not enjoy favorable purchase rights over leased land/building when lease term expires.

Irrevocable Business Lease Future Minimum Lease Payment Total Amount:

Less than 1 year
1～5 years		 Dec. 31st, 2016
$ 3,513

1,810
$ 5,323		 Dec. 31st, 2015




$ 4,074

140
$ 4,214

(2) Consolidated Company as Lessor

Business lease shall mean and refer to consolidated

company’s renting out of its investment property with lease term from 1 to 5 years. Lessee does not enjoy favorable purchase rights over such property when lease term expires.

Irrevocable Business Lease Future Minimum Lease Payment Total Amount:

Less than 1 year
1～5 years		 Dec. 31st, 2016
$ 477

60
$ 537		 Dec. 31st, 2015




$ 181

84
$ 265
  • 81 -

26. Capital Risk Management

Consolidated company engages itself in capital management to ensure necessary finance resources and operation plan for the purpose of meeting the needs for future 12-month operation capital, capital expenditure, debt repayment as well as dividend payment. Under the premise that respective enterprise of the Group will be able to operate continuously, shareholder’s compensation will be

Consolidated company’s major management regularly review the Group’s capital structure. Contents of review include consideration of various capital costs as well as their related risks. With major management’s suggestions, the consolidated company balances its overall capital structure through dividend payment, new share issuance, new debt issuance or repayment of existing debt.

27. Financial Instruments

(I) Fair Value Information ─ Financial Instruments not Measured at Fair Value With respect to financial liabilities not measured at fair value, material differences between book value and fair value are as follows:

Financial Liability
Liability Measured in Amortized Costs:
-Convertible Corporate Bond		 Dec. 31,2016
BookValue
FairValue
$ 2,538,135
$ 2,684,265		 Dec. 31, 2015 2015
BookValue
$ 2,538,135
 BookValue
$ 2,612,358		 FairValue
$ 2,854,421

Levels for aforementioned fair values are as follows:

Dec. 31[s t] , 2016

Financial Liability
Liability Measured in Amortized Costs:		 Level 1 Level 2 Level3 Total
  • 82 -
-Convertible Corporate Bond

Dec. 31st, 2015
Financial Liability
Liability Measured in Amortized Costs:
-Convertible Corporate Bond		 $ 2,684,265
Level 1
$ 2,854,421		 $ -

Level 2
$		 $ -

Level3
$		 $ 2,684,265
Total
$ 2,854,421
(II) Fair Value Information ─ Financial Instruments Measured at Fair Value
1. Fair Value Levels
Dec. 31, 2016
Level 1
Level 2
Level3
Financial Assets Held for Trading with
Profit/Loss Measured at Fair Value

$ -
$ 8,386
$ -
Financial Liabilities Held for Trading
with Profit/Loss Measured at Fair
Value

$ -
$ 22,690
$ -
Dec. 31st, 2015
Level 1
Level 2
Level3
Financial Assets Held for Trading with
Profit/Loss Measured at Fair Value

$ -
$ 1,024
$ -
Financial Liabilities Held for Trading
with Profit/Loss Measured at Fair
Value

$ -
$ 3,000
$ -		 Total

$ 8,386
$ 22,690

Total

$ 1,024
$ 3,000
  • 83 -

There are no cases of transfer of fair value measurements between Level 1 and Level 2 for 2016 and 2015.

  1. Assessment Techniques and Input Values for Level 2 Fair Value

  2. Measurement

Types of Financial

Instruments Assement Techniques and Input Values Forward Exchange Contract This is measured by forward exchange contract quotation and yield rate curve which is inferred from quotation interest rate matching contract expiring period. Domestic First Unsecured Under the assumption that corporate Convertible Corporate bond will be redeemed on April 24[th] , Bond 2019, discount rate adopted is calculated via interpolation method using government bond yield rates from public offer 2-year and 5-year period. Domestic Second Unsecured Under the assumption that corporate Convertible Corporate bond will be redeemed on August 18[th] , Bond 2020, discount rate adopted is calculated via interpolation method using government bond yield rates from public offer 5-year and 10-year period.

(II) Types of Financial Instruments

  • 84 -
Financial Asset
Loans and account receivables (note 1)
Financial assets at fair value through profit and loss
Financial Liability
Measured in amortized costs (note 2)
Financial liabilities at fair value through profit and loss		 Dec. 31st,2016

$ 6,485,758
8,386
4,783,145
22,690		 Dec. 31st,2015
$ 7,945,597
1,024
4,748,413
3,000

Note. 1: Balance includes loans and account receivables of cash and cash equivalents, bond investments without active market, note receivables, account receivables, other account receivables and refundable deposits, all of which are measured in amortized costs.

Note. 2: Balance includes financial liabilities of short term loan, notes payable, account payable, corporate bond payable, other account payable, and refundable deposit, all of

which are measured in amortized costs.

  • (IV) Purpose and Policy of Finance Risk Management

  • Consolidated company’s major financial instruments include cash and cash equivalents, account receivable, account payable, corporate bond payable, and loan. Consolidated company’s finance management department provides services to respective business units, and coordinates practices to enter domestic and international financial markets, and supervise and manage financial risks related to consolidated company’s operation through internal risk reports which are based on exposure analysis over risk levels and scope. Such risks include market risks (including exchange rate risk, interest rate risk and other price risks), credit risk and liquidity risk. Consolidated company avoids risk exposure through derivative financial instruments in order to mitigate influences from such risks. Utilization of

  • 85 -

derivative financial instruments is regulated by policies approved by the Company’s Board of Directors Meeting. Such policies are principles in writing for exchange rate risk, interest rate risk, credit risk, utilization of derivative financial instruments and non-derivative financial instruments as well as investments of residual current capital. Internal audit staff shall continuously conduct audits over policy compliance and exposure amounts. Consolidated company is not engaged in financial instrument (including derivative financial instruments) transactions out of speculation purpose. After completion of derivative financial instrument transaction, finance department will file report to the Board of Directors Meeting accordingly.

1. Market Risk

Consolidated company’s operation activities result in the Company’s assuming of major financial risks of foreign currency exchange rate change risk (please refer to note 1 below) and interest rate change risk (please refer to note 2 below).

There are no changes as to consolidated company’s exposure related to financial instrument market as well as its methodologies to manage and measure such exposure.

(1) Exchange Rate Risk

Several of the Company’s subsidiaries are engaged in foreign currency denominated purchase and sales transactions. This has exposed the consolidated company to exchange rate change risks. The consolidated company’s exchange rate exposure management is to utilize forward exchange contract to manage risks within the scope permitted by policies.

  • 86 -

Please refer to notes 7 and 29 for the consolidated company’s non-functional currency denominated currency assets and currency liabilities (including non-functional currency denominated currency items already offset on consolidated financial Statements) book values as well as book values for derivative financial instruments with exchange rate risk exposure on the balance sheet day.

Sensitivity Analysis

Consolidated company is mainly affected by fluctuations in USD and EUR exchange rates.

The table below offers a detail explanation on consolidated company’s sensitivity analysis when NTD (functional currency) appreciates or depreciates 1% against respective relevant foreign currency exchange rates. 1% is the sensitivity percentage utilized by group internal units to report exchange rate risks to major managements. It also represents management’s estimate over the scope of possible changes for foreign currency exchange rates. Sensitivity analysis only includes outstanding foreign currency items and forward exchange contracts designated for cash flow hedge. Adjustments over year-end exchange will be made accordingly based on changes in exchange rates. Positive numbers in the table below refer to increases of pre-tax net profit amounts when NTD appreciates 1% against respective relevant currencies. When NTD depreciates 1% against respective relevant foreign currencies, influences over pre-tax net profit are shown as negative numbers of the same amounts.

Profit or Loss
 USD Influence
2016
2015
( $ 26,030 )
( $ 43,005 )		 EUR Influence EUR Influence
2016
( $ 26,030 )		 2016
( $ 6,854 )		 2015

( $ 5,401 )
  • 87 -

Aforementioned foreign currency’s influence over profit or loss mainly comes from fair value changes, on the balance sheet day, of consolidated company’s outstanding USD and EUR denominated account receivables/payables without cash flow hedge as well as total amount investment hedge derivatives.

Management doesn’t think sensitivity analysis will be able to represent exchange rate inherent risks because foreign currency exposure on balance sheet day cannot reflect exposure during mid-year.

(2) Interest Rate Risk

Interest rate exposure results from an entity’s, which is within consolidated company, borrowing of funds in fixed and floating interest rates at the same time.

Book values for consolidated company’s financial assets and financial liabilities affected by interest rate exposure on balance sheet day are as follows:

Fair Value Interest Rate Risks
-Financial Assets
-Financial Liabilities
Cash Flow Interest Rate Risks
-Financial Assets
-Financial Liabilities		 Dec. 31,2016
$ 616,152
2,925,100
3,754,478
338,730		 Dec. 31,2015
$ 552,693
2,769,400
5,014,312
500,375

Sensitivity Analysis

Sensitivity analysis below is determined based on derivatives and non-derivatives’ interest rate exposures on balance sheet day. As for liabilities with floating interest rates, analysis assumes that

  • 88 -

outstanding liability amounts on balance sheet day all remain outstanding during report period. Variable rates utilized by Group internal units when reporting interest rates to management will be plus or minus 100 basis points over interest rates. This also represents management’s assessment of reasonable and possible range for interest rate changes.

In the event of plus/minus 100 basis points over interest rate while other variables remain unchanged, consolidated company’s pre-tax net profit for 2016 and 2015 will decrease/increase NTD34,157,000 and NTD45,139,000 respectively. This mainly comes from consolidated company’s variable interest rate loans.

  1. Credit Risk

Credit risk means the risk of group’s financial loss from transaction counterparty’s default of contract obligation. As of balance sheet day, consolidated company’s biggest credit risk exposure from transaction counterparty’s possible failure of obligation performance which leads to financial loss mainly comes from financial asset book values recognized on consolidated financial Statements.

To mitigate credit risk, management of consolidated company assigns a specific team responsible for credit extension amount determination, credit extension approval as well as other monitoring processes to ensure that appropriate actions have been taken to recover overdue account receivables. Additionally, consolidated company will, on balance sheet day, re-verify each account receivable recoverable amount to ensure unrecoverable account receivables have already been recognized as appropriate impairment losses. With this, the Company’s management considers that consolidated company’s credit risks have been reduced dramatically.

Account receivable entity encompasses numerous clients scattered in different industries and geographical areas. Consolidated company

  • 89 -

continues to conduct assessment over account receivable client’s financial status.

Current capital transaction counterparties are financial institutions and company organizations with good credit ratings, and therefore their credit risks are limited.

Consolidated company has a big clientele without inter-relations to one another. Therefore, degree of credit risk aggregation is not high.

  1. Liquidity Risk

Through management and maintenance of sufficient positions of cash and cash equivalents, consolidated company is able to pay for the Group’s operations and mitigate impact from cash flow fluctuation. Management of consolidated company monitors utilization of bank financial facility and ensures compliance with loan agreement terms.

For consolidated company, bank loan is an important source of liquidity. As of Dec. 31, 2016 and 2015 respectively, consolidated company’s short term bank financing amounts are listed bellow, please see (3) Credit Line.

  • (I) Liquidity and Interest Rate Risk Table for Non-Derivative Financial

Liability

Non-derivative financial liability residual contract maturity analysis is prepared based on the earliest possible repayment date the consolidated company will be requested as well as financial liability’s undiscounted cash flow (including principal and estimated interest). Therefore, bank loans which consolidated company may be requested to repay immediately are listed in the earliest periods of the following table, with the possibility of bank’s immediate execution of such rights not considered. Maturity analysis for other non-derivative financial

For interest cash flow paid in floating interest rates, its undiscounted interest amounts are derived from yield rate curve on the balance sheet day.

Dec. 31[st] , 2016

Immediate payment Payment in 1 Payment in 3 Payment Payment in

  • 90 -
Non-derivative financial liability
Interest-free liability
Floating interest rate instrument
Fixed interest rate instrument
Dec. 31st, 2015
Non-derivative financial liability
Interest-free liability
Floating interest rate instrument
Fixed interest rate instrument		 or payment in less
than 1 month

to 3 months months to 1
year
$ 285,140
177,430

145,100

$ 607,670

Payment in 3
months to 1
year
$ 283,798
$ 262,640
392,000

$ 938,438
 in 1 to 5
years		 m ore than 5
years
$ -
-
-
$ -
Payment in
more than 5
years		 ore than 5
years
$ -
-
-
$ -
Payment in
more than 5
years
$ 610,662
64,520

280,000
$ 955,182
Immediate payment
or payment in less
than 1 month		 $ 486,550
96,780

-
$ 583,330
Payment in 1
to 3 months
$ 620,593

30,000

-

$ 650,593		 $
451,879

109,245

-

$ 561,124		 $

-
98,490
2,500,000
$2,598,490		 $
-
-
-
$

Differences between floating interest rate and interest rate estimated on balance sheet day will lead to changes in floating interest rate instrument amounts for aforementioned non-derivative financial liability.

(2) Liquidity and Interest Rate Risk Table for Derivative Financial Liability

Liquidity analysis on derivative financial instrument is, as far as derivative instrument adopting net amount settlement is concerned, prepared based on undiscounted contract net cash inflow and outflow. As for derivative instrument adopting gross amount settlement, it is prepared based on undiscounted total cash inflow and outflow. When payable or receivable amounts are not fixed, amounts disclosed are determined based on estimated interest rate derived from balance sheet day yield rate curve.

  • 91 -

Dec. 31[st] , 2016

Immediate payment

or payment in less
than
1 month
Payment in 1 to 3
months
Payment in 3
months to1year
Gross Amount Settlement
Forward Exchange Contract
- Inflow
$ 132,961
$ 90,975 $ 49,516
- Outflow

129,762

90,015

47,523
$ 3,199
$ 960
$ 1,993
Credit Line
Dec. 31st,2016
Dec. 31st,2015
Secured Bank Credit Line
(Extendable If Agreed by the Parties)
－Amount Drawn
$ 618,730
$ 500,375
－Amount Not Drawn

4,405,856

605,280
$ 5,024,586
$ 1,105,655		 or payment in less
than
1 month
Payment in 1 to 3
months
Payment in 3
months to1year
Gross Amount Settlement
Forward Exchange Contract
- Inflow
$ 132,961
$ 90,975 $ 49,516
- Outflow

129,762

90,015

47,523
$ 3,199
$ 960
$ 1,993
Credit Line
Dec. 31st,2016
Dec. 31st,2015
Secured Bank Credit Line
(Extendable If Agreed by the Parties)
－Amount Drawn
$ 618,730
$ 500,375
－Amount Not Drawn

4,405,856

605,280
$ 5,024,586
$ 1,105,655		 or payment in less
than
1 month
Payment in 1 to 3
months
Payment in 3
months to1year
Gross Amount Settlement
Forward Exchange Contract
- Inflow
$ 132,961
$ 90,975 $ 49,516
- Outflow

129,762

90,015

47,523
$ 3,199
$ 960
$ 1,993
Credit Line
Dec. 31st,2016
Dec. 31st,2015
Secured Bank Credit Line
(Extendable If Agreed by the Parties)
－Amount Drawn
$ 618,730
$ 500,375
－Amount Not Drawn

4,405,856

605,280
$ 5,024,586
$ 1,105,655		 or payment in less
than
1 month
Payment in 1 to 3
months
Payment in 3
months to1year
Gross Amount Settlement
Forward Exchange Contract
- Inflow
$ 132,961
$ 90,975 $ 49,516
- Outflow

129,762

90,015

47,523
$ 3,199
$ 960
$ 1,993
Credit Line
Dec. 31st,2016
Dec. 31st,2015
Secured Bank Credit Line
(Extendable If Agreed by the Parties)
－Amount Drawn
$ 618,730
$ 500,375
－Amount Not Drawn

4,405,856

605,280
$ 5,024,586
$ 1,105,655
$


$ 500,375

605,280
$ 1,105,655

(3) Credit Line

28. Related Party Transaction

Transaction, account balance, profit and expense impairment between the Company and its subsidiaries (the Company’s related party) have all been cancelled during consolidation. That is why they are not disclosed in this note. Transactions between consolidated company and other related parties are as follows:

(1) Operating Income

Item Recognized
Type of Related
Party
Sales Revenue
Associate
 2016
$ 469
 2015
$ 410
  • 92 -

Sales prices for transactions between consolidated company and related party

are not obviously different from the ones for transactions between consolidated company and non-related party.

  • (2) Purchase

==> picture [442 x 34] intentionally omitted <==

----- Start of picture text -----

Type of Related Party 2016 2015
Associate $ 2,870 $ 541
----- End of picture text -----

Purchase prices for transactions between consolidated company and related party are not obviously different from the ones for transactions between consolidated company and non-related party.

  • (3) Account Receivable – Related Party (excluding loans extended to related party)
party)
Item Recognized
Notes Receivable
Account Receivable
Other Account Payable		 Type of Related Party
Associate
Associate
Associate		 Dec. 31st,2016
$ 325
79

5

$ 409
 Dec. 31st,2015





$ 113

73

-
$ 186

Payment collection terms between consolidated company and related party are not obviously different from the ones between consolidated company and non-related party. No guarantees have been obtained on outstanding account receivable – related party. Bad debt expenses have not been appropriated for account receivable-related party for periods from January 1st to December 31st of 2016 and 2015.

  • (4) Account Payable – Related Party (excluding loans extended to related party)

Item Recognized Type of Related Party Dec. 31[st] , 2016 Dec. 31[st] , 2015

  • 93 -
Notes Payable
Associate

Account Payable
Associate
Other Account Payable
Associate

 $ 1,139
44

284

$ 1,467
 $ 562

19

67
$ 648

Payment delivery terms between consolidated company and related party are not obviously different from the ones between consolidated company and non-related party. No guarantees have been obtained on balances of outstanding account payable – related party.

  • (5) Others
Others
Item Recognized

Manufacturing Expense


Rent Income
 Type of Related Party
Associate
Major Management Levels
Associate		 2016
$ 888

240

$ 1,128

$ 516
 2015






$ 1,076

240
$ 1,316
$ 60

For lease contract with related party, rent is determined under reference of market prices and payment is processed in line with average terms.

Item Recognized
Refundable Deposits
(included in other non-current assets)		 Type of RelatedParty
Major Management
Levels		 Dec. 31st,
2016
$ 20		 Dec. 31st,
2015		 Dec. 31st,
2015
$ 20

(6) Major Management Remuneration

Short-term Employee Benefit
Post-Employment Benefit		 2016
$ 18,541


458

$ 18,999
 2015




$ 17,982

437
$ 18,419
  • 94 -

Remuneration for director and other major management levels is determined by Remuneration Committee based on individual performance as well as market trend.

29. Assets Pledged

Consolidated company’s following assets have been pledged as collaterals for bank loans:

Property, Factory and Equipment Net
Amount
Prepaid Lease Payment
Investment Property Net Amount
Other Financial Assets – Current (included
in other current assets)		 Dec. 31st,2016
$ 1,106,831
101,546
17,319
135,844
$ 1,361,540		 Dec. 31st,2015




$ 1,067,445
169,324
8,083

161,419
$ 1,406,271

30 . Information of Foreign Currency Assets and Liabilities with significant Impact

Information of consolidated company’s financial asset and liability with significant impact is as follows:

Dec. 31[st] , 2016

Financial Assets
Currency Item
USD

USD
EUR
EUR
EUR		 ForeignCurrency
$ 100,820
42,337
7,348
2,820
16,243		 ExchangeRate
6.937 (USD: RMB)

32.26 (USD: NTD)
7.3068 (EUR: RMB)
1.051 (EUR: USD)
33.89 (EUR: NTD)		 BookValue
$ 3,252,453
1,365,792
249,024
95,570
550,475

Financial Liability

  • 95 -
Currency Item
USD
USD
EUR
EUR
Dec. 31st, 2015

Financial Assets
Currency Item
USD

USD
EUR
EUR
EUR
Financial Liability
Currency Item
USD
USD
EUR		 36,873
25,528
366
6,065
ForeignCurrency
$ 147,101
76,247
1,993
2,505
10,730
54,395
37,960
172		 6.937 (USD: RMB)
32.26 (USD: NTD)
1.051 (EUR: USD)
33.89 (EUR: USD)
ExchangeRate
6.4936 (USD: RMB)

32.83 (USD: NTD)
7.0952 (EUR: RMB)
1.093 (EUR: USD)
35.87 (EUR: NTD)
6.4936 (USD: RMB)
32.83 (USD: NTD)
1.093 (EUR: USD)		 1,189,523
823,533
12,404
205,543
BookValue
$ 4,829,326
2,503,189
71,489
89,854
384,885
1,785,788
1,246,227
6,170

The consolidated company’s realized and un-realized foreign currency exchange net profits (losses) for 2016 and 2015 are NTD150,299,000 and NTD162,742,000 respectively. Given the fact that there are numerous kinds of foreign currency transactions and Group individual entities’ functional currencies, it is therefore impossible to disclose exchange profit/loss based on respective foreign currencies of material impact.

  • 96 -

31. Note Disclosure

  • (I) Major transactions and (II) reinvestment business related information is as follows:

  • Capital lending to others: Appendix 1.

  • Endorsement/Guarantee for Others: Appendix 2.

  • Securities on Hand (excluding investments in subsidiary, affiliate enterprise and controlling portion in a joint venture), Ending: None.

  • Purchase or selling of the same securities with accumulated amount exceeding NTD300 million or 20% of paid-in capital: None.

  • Property acquisition amount exceeding NTD300 million or 20% of paid-in capital: None

  • Property disposal amount exceeding NTD300 million or 20% of paid-in capital: None.

  • Purchase/sales amount with related party exceeding NTD100 million or 20% of paid-in capital: Appendix 3.

  • Account receivable – related party exceeding NTD100 million or 20% of paid-in capital: Appendix 4.

  • Derivatives Transaction: Note 7 “Financial Instruments at Fair Value through Profit and Loss.”

  • Others: Business relationship and critical transaction/amount between parent company and subsidiaries and among subsidiaries: Appendix 7.

  • Information of invested company: Appendix 5.

  • (III) Information of investment in China:

  • Name, major business item, paid-in capital, investment method, capital remittance, ownership percentage, investment profit/loss, investment book value-ending and investment profit/loss already remitted for invested companies in China as well as investment limits for investing in China: Appendix 6.

  • 97 -

  • Major transactions, prices, payment terms and unrealized profit/loss from direct or indirect transactions with invested companies in China, or transaction through third region: Appendix 1 through 7.

  • (1) Purchase amount and percentage, and related account payable ending balance and percentage;

  • (2) Sales amount and percentage, and related account receivable ending balance and percentage;

  • (3) Property transaction amount and profit/loss amount incurred accordingly;

  • (4) Ending balance and purpose for notes endorsement/guarantee or provision of collateral;

  • (5) Maximum balance, ending balance, interest rate range and current interest total amount for capital financing;

  • (6) Other transactions with major impact on current profit/loss or financial status, such as provision or accepting labor.

32. SEGMENT INFORMATION

Consolidated company provides information to major operating decision makers for them to distribute resources and assess department performance. Such information is focused on product and service types provided. Departments shall be reported by consolidated company are casting processing and other.

  • (1) Department Income and Operating Result

  • Income and operating results for consolidated company’s continuous operating units are analyzed based on departments to be reported as follows:

Casting Processing Dept.
Other

Continuous Operating
Unit Net Amount

Interest Income		 Department Department Income
2015
$ 8,033,397

89,073
$ 8,122,470		 DepartmentProfit DepartmentProfit DepartmentProfit
2016
$ 7,304,920

68,968
$ 7,373,888		 2016
$ 1,749,104

14,535)

1,734,569
150,299		 2015





(
(		 $ 2,076,007

33,669)
2,042,338
162,742
  • 98 -
Rent Income 66,047 70,026
Other Profit or Loss 39,682 56,784
Financial Product Net
Profit(Loss) at Fair
Value through Profit
and Loss 1,344 1,232
Foreign Currency
Exchange Net Loss ( 18,004 ) 25,781
Interest Expense ( 58,591 ) ( 43,960 )
Management and
Administration Expense ( 590,688) ( 526,430)
Pre-tax Net Profit $ 1,324,658
$ 1,788,513

Income for aforementioned departments reported are all generated from transactions with exterior clients. There were no inter-department sales for 2016 and 2015.

Department profit means profits made by respective departments, excluding amortized management and administration expense, interest income, financial product net profit (loss) at fair value through profit and loss, rent income, other profits or loss, interest expense, foreign currency exchange net loss as well as income tax expense. This measurement amount is mainly provided to operating decision makers for the purpose of distributing resources to departments as well as assessing department performance.

(2) Department Asset

Measurement of consolidated company’s assets is not provided to operating decision makers, and therefore measurement amount for assets is zero.

(3) Other Department Information

Other Department Information
Casting Processing Dept.
Other		 Depreciation and Amortization
2016
$ 456,751

15,861
$ 472,612		 2015




$ 435,964

31,883
$ 467,847
  • 99 -

(4) Major Product Income

Major products for consolidated company’s continuous operating units are analyzed as follows:

analyzed as follows:
Energy Castings
Injection Molding Machine
Castings
Industry Machine Castings
Medical Devices Castings		 2016
$ 3,893,540
1,863,685
1,419,404

197,259
$ 7,373,888		 2015




$ 4,757,759
1,784,435
1,221,393

358,883
$ 8,122,470
  • (5) Information of Regions

Two major business regions for consolidated company – China and Taiwan Information of consolidated company’s operating unit income from exterior clients is classified as follows based on operating regions as well as asset locations for non-current assets:

China

Taiwan
Other

 Income from Exterior Clients
2016
2015
$ 3,077,524
$ 3,763,633
3,862,981
4,011,047

433,383

347,790
$ 7,373,888
$ 8,122,470		 Income from Exterior Clients
2016
2015
$ 3,077,524
$ 3,763,633
3,862,981
4,011,047

433,383

347,790
$ 7,373,888
$ 8,122,470		 Non-Current Non-Current Assets
2016
$ 3,077,524
3,862,981

433,383
$ 7,373,888		 Dec. 31st,2016
$ 5,458,935
631,538

762,084
$ 6,852,557		 Dec. 31st,2015








$ 4,999,449
195,084

825,054
$ 6,019,587

Non-current assets do not include assets classified as financial instrument or deferred income tax asset.

  • (6) Information of Major Clients

Information of income from a single client exceeding 10% of

consolidated company’s total income is as follows:

Client A
Client B		 2016
$ 1,270,743
1,065,662		 2015
$ 1,400,788
1,143,188
  • 100 -

YEONG GUAN ENERGY TECHNOLOGY GROUP CO., LTD. AND SUBSIDIARIES

Capital Lending to Others

Year 2016

Appendix 1

Unit: NTD in thousands unless otherwise prescribed

Serial
No		 Financing Company Borrower Financial
Statements Account		 Related
Party		 Maximum Balance
for the Year		 Ending Balance Balance Used Interest
Rate		 Type of Financing Transaction
Amount		 Reason for
Short-term
Financing		 Bad Debt
Allowance		 Collateral Collateral Financing limit
for each
borrowing
company		 Financing
Amount Limits		 Note
Item Value
0
1
2
3		 Yeong Guan Energy
Technology Group
Co., Ltd
Yeong Guan Energy
Holding Company
Yeong Guan
International
Company
Dongguan YeongGuan		 Yeong Guan Energy Holding
Company
Yeong Guan Energy Holding
Company
Yeong Chen Asia Pacific
Co., Ltd.
Yeong Guan International
Company
Yeong Chen Asia Pacific
Co., Ltd.
Yeong Guan International
Company
Shanghai No. 1 Machine
Tool Co., Ltd.
Shanghai No. 1 Machine
Tool Co., Ltd.
Shanghai No. 1 Machine
Other Account
Receivable－
Related Party

Other Account
Receivable－
Related Party
Other Account
Receivable－
Related Party
Other Account
Receivable－
Related Party
Other Account
Receivable－
Related Party
Other Account
Receivable－
Related Party
Other Account
Receivable－
Related Party
Other Account
Receivable－
Related Party
Other Account		 Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes		 $ 54,195
( USD
1,680 thousands )
806,469
( USD 25,000 thousands )
441,300
( USD 13,680 thousands )
451,622
( USD 14,000 thousands )
161,294
( USD
5,000 thousands )
774,210
( USD 24,000 thousands )
186,010
( RMB 40,000 thousands )
186,010
( RMB 40,000 thousands )
158,108		 $ -
-
-
-
161,294
( USD
5,000 thousands )
774,210
( USD 24,000 thousands )
186,010
( RMB 40,000 thousands )
186,010
( RMB 40,000 thousands )
158,108		 $ -
-
-
-
161,294
( USD
5,000 thousands )
774,210
( USD 24,000 thousands )
186,010
( RMB 40,000 thousands )
186,010
( RMB 40,000 thousands )
158,108		 -
-
-
-
-
-
1
1
4		 Short Term Financing
Capital
Short Term Financing
Capital
Short Term Financing
Capital
Short Term Financing
Capital
Short Term Financing
Capital
Short Term Financing
Capital
Short Term Financing
Capital
Short Term Financing
Capital
Short Term Financing		 $ Business
Turnover
Business
Turnover
Business
Turnover
Business
Turnover
Business
Turnover
Business
Turnover
Business
Turnover
Business
Turnover
Business		 $







-
－
-
－
-
－
-
－
-
－
-
－
-
－
-
－
-
－		 －
－
－
－
－
－
－
－
－		 $ 2,932,245
2,932,245
11,912,588
11,912,588
11,912,588
11,912,588
2,564,100
2,564,100
189,060		 $ 4,887,075
4,887,075
11,912,588
11,912,588
11,912,588
11,912,588
17,093,988
17,093,988
1,260,402
  • 101 -
4
5		 Mould Factory Co.,
Ltd.
Ningbo Yeong Shang
Casting Iron Co., Ltd.
Ningbo Lu Lin Machine
Tool Foundry Co.,
Ltd.		 Tool Co., Ltd.
Shanghai No. 1 Machine
Tool Co., Ltd.
Jiangsu Bright Steel Fine
Machinery Co., Ltd.
Jiangsu Bright Steel Fine
Machinery Co., Ltd.
Shanghai No. 1 Machine
Tool Co., Ltd.		 Receivable－
Related Party
Other Account
Receivable－
Related Party
Other Account
Receivable－
Related Party
Other Account
Receivable－
Related Party
Other Account
Receivable－
Related Party		 Yes
Yes
Yes
Yes		 ( RMB 34,000 thousands )
186,010
( RMB 40,000 thousands )
93,005
( RMB 20,000 thousands )
93,005
( RMB 20,000 thousands )
372,020
( RMB 80,000 thousands )		 ( RMB 34,000 thousands )
186,010
( RMB 40,000 thousands )
-
93,005
( RMB 20,000 thousands )
186,010
( RMB 40,000 thousands )		 ( RMB 34,000 thousands )
116,256
( RMB 40,000 thousands )
-
93,005
( RMB 20,000 thousands )
186,010
( RMB 40,000 thousands )		 4
4.2
4.2
4		 Capital
Short Term Financing
Capital
Short Term Financing
Capital
Short Term Financing
Capital
Short Term Financing
Capital		 Turnover
Business
Turnover
Business
Turnover
Business
Turnover
Business
Turnover		 -
－
-
－
-
－
-
－		 －
－
－
－		 913,761
3,859,830
3,859,830
578,975		 6,091,742
3,859,830
3,859,830
3,859,830

Note 1: Maximum balance and ending balance for this year are calculated based on exchange rate on Dec. 31, 2016.

Note 2: Aforementioned transactions have all been cancelled during preparation of consolidated financial Statements.

  • 102 -

YEONG GUAN ENERGY TECHNOLOGY GROUP CO., LTD. AND SUBSIDIARIES

Endorsement/Guarantee for Others

Year 2016

Appendix 2 Appendix 2 Unit: NTD in thousands unless otherwise prescribed Unit: NTD in thousands unless otherwise prescribed Unit: NTD in thousands unless otherwise prescribed Unit: NTD in thousands unless otherwise prescribed Unit: NTD in thousands unless otherwise prescribed Unit: NTD in thousands unless otherwise prescribed Unit: NTD in thousands unless otherwise prescribed Unit: NTD in thousands unless otherwise prescribed Unit: NTD in thousands unless otherwise prescribed Unit: NTD in thousands unless otherwise prescribed Unit: NTD in thousands unless otherwise prescribed Unit: NTD in thousands unless otherwise prescribed Unit: NTD in thousands unless otherwise prescribed
Serial No. Endorsement /
Guarantee Provider		 Guaranteed Party Endorsement
/guarantee amount
limit to each company		 Maximum endorsement
/guarantee balance for this
year		 Ending Endorsement
/guarantee balance		 Balance Used Endorsement
/guarantee amount
collateralized by
property		 Ratio of
Accumulated
Endorsement/
Guarantee to Net
Equity Per Latest
Financial
Statements		 Endorsement
/guarantee amount
limit		 Parent
company’s
endorsement
/guarantee
for subsidiary		 Subsidiary’s
endorsement
/guarantee
for Parent
company		 endorsement
/guarantee
for China
region
Note
Name Relationship
0
1		 Ningbo Yeong Shang Casting
Iron Co., Ltd.
Yeong Guan Energy
Technology Group Co., Ltd		 Ningbo Yeong Chia Mei Trade
Co., Ltd.
Shin Shang Trade Co., Ltd.
Shin Shang Trade Co., Ltd.
Shin Shang Trade Co., Ltd.
Shin Shang Trade Co., Ltd.
Yeong Chen Asia Pacific Co., Ltd.
Yeong Chen Asia Pacific Co., Ltd.
Yeong Chen Asia Pacific Co., Ltd.
Yeong Chen Asia Pacific Co., Ltd.
Yeong Chen Asia Pacific Co., Ltd.
Yeong Chen Asia Pacific Co., Ltd.
Yeong Chen Asia Pacific Co., Ltd.
Yeong Chen Asia Pacific Co., Ltd.
Yeong Guan Energy Holding
Company
Yeong Guan Energy Holding
Company
Yeong Guan Energy Holding
Company
Jiangsu Bright Steel Fine
Machinery Co., Ltd.
Jiangsu Bright Steel Fine
MachineryCo.,Ltd.		 Same parent company
Sub-subsidiary
Sub-subsidiary
Sub-subsidiary
Sub-subsidiary

Sub-subsidiary

Sub-subsidiary

Sub-subsidiary

Sub-subsidiary

Sub-subsidiary

Sub-subsidiary

Sub-subsidiary

Sub-subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary of
Sub-subsidiary
Subsidiary of
Sub-subsidiary		 $ 30,458,710

4,887,075
4,887,075
4,887,075

4,887,075

4,887,075


4,887,075
4,887,075

4,887,075
4,887,075

4,887,075

4,887,075
4,887,075

4,887,075
4,887,075
4,887,075
4,887,075

4,887,075		 $ 225,964
( RMB
48,590 thousands )
64,520
( USD
2,000 thousands )

137,750
( JPY
500,000 thousands )

22,371
( JPY
81,200 thousands )

87,102
( USD
2,700 thousands )

62,260
( USD
1,000 thousands )
( NTD
30,000 thousands )

200,000

258,080
( USD
8,000 thousands )

50,000

161,300
( USD
5,000 thousands )

161,300
( USD
5,000 thousands )

200,000

258,080
( USD
8,000 thousands )

135,000

300,000

845,000

48,390
( USD
1,500 thousands )

48,390		 $ 225,964
( RMB
48,590 thousands )
-
16,530
( JPY
60,000 thousands )
22,371
( JPY
81,200 thousands )
87,102
( USD
2,700 thousands )
-


-
-

50,000
161,300
( USD
5,000 thousands )
161,300
( USD
5,000 thousands )
200,000
258,080
( USD
8,000 thousands )
135,000
-
845,000
-

-		 $ -

-
16,530
( JPY
60,000 thousands )
3,196
( JPY
11,600 thousands )
-

-
-
-
-
-

-

-
-

-
-
-
-
-		 $-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-		 2.31%
-
0.17%
0.23%
0.89%
-
-
-
0.51%
1.65%
1.65%
2.05%
2.64%
1.38%
-
8.65%
-
-		 $ 30,458,710

7,819,320

7,819,320

7,819,320

7,819,320

7,819,320

7,819,320

7,819,320

7,819,320

7,819,320

7,819,320

7,819,320

7,819,320

7,819,320

7,819,320

7,819,320

7,819,320

7,819,320		 No

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes
Yes

Yes
Yes
Yes
Yes		 No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No		 Yes
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
Yes
Yes
  • 103 -
Jiangsu Bright Steel Fine
Machinery Co., Ltd.
Jiangsu Bright Steel Fine
Machinery Co., Ltd.
Jiangsu Bright Steel Fine
Machinery Co., Ltd.
Jiangsu Bright Steel Fine
Machinery Co., Ltd.
Jiangsu Bright Steel Fine
Machinery Co., Ltd.
Jiangsu Bright Steel Fine
Machinery Co., Ltd.
Jiangsu Bright Steel Fine
Machinery Co., Ltd.
Jiangsu Bright Steel Fine
Machinery Co., Ltd.
Ningbo Yeong Shang Casting Iron
Co., Ltd.
Ningbo Yeong Shang Casting Iron
Co., Ltd.		 Subsidiary of
Sub-subsidiary
Subsidiary of
Sub-subsidiary
Subsidiary of
Sub-subsidiary
Subsidiary of
Sub-subsidiary
Subsidiary of
Sub-subsidiary
Subsidiary of
Sub-subsidiary
Subsidiary of
Sub-subsidiary
Subsidiary of
Sub-subsidiary

Subsidiary of
Sub-subsidiary

Subsidiary of
Sub-subsidiary
4,887,075

4,887,075

$ 4,887,075

4,887,075

4,887,075

4,887,075

4,887,075

4,887,075

4,887,075

4,887,075		 ( USD
1,500 thousands )

64,520
( USD
2,000 thousands )

80,650
( USD
2,500 thousands )
$ 129,040
( USD
4,000 thousands )

64,520
( USD
2,000 thousands )

96,780
( USD
3,000 thousands )

129,040
( USD
4,000 thousands )

145,170
( USD
4,500 thousands )

161,300
( USD
5,000 thousands )

96,780
( USD
3,000 thousands )

96,780
( USD
3,000 thousands )
-

-

$ -

64,520
( USD
2,000 thousands )
96,780
( USD
3,000 thousands )
129,040
( USD
4,000 thousands )
145,170
( USD
4,500 thousands )
161,300
( USD
5,000 thousands )
96,780
( USD
3,000 thousands )
96,780
( USD
3,000 thousands )		 -
-
$ -
64,520
( USD
2,000 thousands )
96,780
( USD
3,000 thousands )
-

80,650
( USD
2,500 thousands )
-

-

96,780
( USD
3,000 thousands )		 -
-
$-
-
-
-
-
-
-
-
 -
-
-
0.66%
0.99%
1.32%
1.49%
1.65%
0.99%
0.99%
7,819,320

7,819,320
$ 7,819,320

7,819,320

7,819,320

7,819,320

7,819,320

7,819,320

7,819,320

7,819,320		 Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes		 No
No
No
No
No
No
No
No
No
No		 Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
  • 104 -

YEONG GUAN ENERGY TECHNOLOGY GROUP CO., LTD. AND SUBSIDIARIES

Purchase/Sales Amount with Related Party exceeding NTD100 Million or 20% of Paid-In Capital Year 2016

Appendix 3 Unit: NTD thousands Unit: NTD thousands Unit: NTD thousands
Purchase (Sales)
Company		 Transaction
Counterpart		 Relationship Transaction Details Cases and Reasons for
Transaction Terms
Different Those of
Average Transactions		 Notes/Accounts Receivable (Payable) Note
Purchase
(Sales)		 Amounts Percentage of
Total Purchase
(Sales)		 Credit
Extension
Period		 Unit
Price		 Credit
Extension
Period		 Balance Percentage of Total
Notes/Accounts
Receivables (Payables)
Ningbo Yeong Shang Casting Iron Co., Ltd.
Ningbo Lu Lin Machine Tool Foundry Co., Ltd.
Ningbo Lu Lin Machine Tool Foundry Co., Ltd.
Jiangsu Bright Steel Fine Machinery Co., Ltd.
Shin Shang Trade Co., Ltd.
Yeong Chen Asia Pacific Co., Ltd.
Yeong Chen Asia Pacific Co., Ltd.
Yeong Chen Asia Pacific Co., Ltd.
Yeong Chen Asia Pacific Co., Ltd.
Ningbo Yeong Shang Casting Iron Co., Ltd.
Ningbo Yeong Shang Casting Iron Co., Ltd.
Ningbo Lu Lin Machine Tool Foundry Co., Ltd.
Ningbo Lu Lin Machine Tool Foundry Co., Ltd.
Ningbo Lu Lin Machine Tool Foundry Co., Ltd.
Jiangsu Bright Steel Fine Machinery Co., Ltd.
Jiangsu Bright Steel Fine Machinery Co., Ltd.
Dongguan Yeong Guan Mould Factory Co., Ltd.
Dongguan YeongGuan Mould FactoryCo.,Ltd.		 Ningbo Lu Lin Machine Tool Foundry Co., Ltd.
Ningbo Yeong Shang Casting Iron Co., Ltd.
Jiangsu Bright Steel Fine Machinery Co., Ltd.
Ningbo Lu Lin Machine Tool Foundry Co., Ltd.
Dongguan Yeong Guan Mould Factory Co., Ltd.
Dongguan Yeong Guan Mould Factory Co., Ltd.
Ningbo Yeong Shang Casting Iron Co., Ltd.
Jiangsu Bright Steel Fine Machinery Co., Ltd.
Ningbo Lu Lin Machine Tool Foundry Co., Ltd.
Ningbo Lu Lin Machine Tool Foundry Co., Ltd.
Yeong Chen Asia Pacific Co., Ltd.
Ningbo Yeong Shang Casting Iron Co., Ltd.
Jiangsu Bright Steel Fine Machinery Co., Ltd.
Yeong Chen Asia Pacific Co., Ltd.
Ningbo Lu Lin Machine Tool Foundry Co., Ltd.
Yeong Chen Asia Pacific Co., Ltd.
Yeong Chen Asia Pacific Co., Ltd.
Shin ShangTrade Co.,Ltd.		 Same parent company
Same parent company
Same parent company
Same parent company
Same parent company
Same parent company
Same parent company
Same parent company
Same parent company
Same parent company
Same parent company
Same parent company
Same parent company
Same parent company
Same parent company
Same parent company
Same parent company
Sameparent company		 Purchase
Purchase
Purchase
Purchase
Purchase
Purchase
Purchase
Purchase
Purchase
（Sales）
（Sales）
（Sales）
（Sales）
（Sales）
（Sales）
（Sales）
（Sales）
（Sales）		 $ 137,479
143,483
147,200
（Note 2）
138,754
293,367
129,504
756,192
2,010,081
（Note 3）
189,737
( 143,483 )
( 756,192 )
( 137,479 )
( 138,754 )
( 189,737 )
( 147,200 )
( 2,010,081 )
( 129,504 )
(293,367)		 8%
11%
11%
6%
71%
4%
21%
57%
5%
7%
38%
8%
8%
11%
5%
65%
23%
51%		 （Note 1）
（Note 1）
（Note 1）
（Note 1）
（Note 1）
（Note 1）
（Note 1）
（Note 1）
（Note 1）
（Note 1）
（Note 1）
（Note 1）
（Note 1）
（Note 1）
（Note 1）
（Note 1）
（Note 1）
（Note 1）		 $ $ ( $ 70,069 )
(
11,937 )
(
2,064 )
( 102,499 )
(
87,812 )
(
28,501 )
( 233,588 )
( 536,602 )
(
63,311 )
11,937
233,588
70,069
102,499
63,311
2,064
536,602
28,501
87,812		 17%
9%
2%
18%
59%
3%
25%
58%
7%
2%
34%
21%
31%
19%
-
54%
17%
52%

Note 1: Price and payment terms for transactions with related party are determined in accordance with the parties’ agreement. Note 2: This includes operating cost NTD 142,399 (thousands) and purchase of fixed assets NTD 4,801 (thousands). Note 3: This includes operating cost NTD 2,009,850 (thousands) and purchase of fixed assets NTD 231 (thousands). Note 4: Aforementioned transactions have all been cancelled during preparation of consolidated financial Statements.

  • 105 -

YEONG GUAN ENERGY TECHNOLOGY GROUP CO., LTD. AND SUBSIDIARIES

Account receivable – Related Party Exceeding NTD100 Million or 20% of Paid-In Capital

December 31, 2016

Appendix 4 Unit: NTD thousands
Account Receivable
Recognizing Company		 Transaction Counterparty Relationship Account Receivable –
Related Party Balance		 Turnover
Rate		 Overdue Account Receivable
–Related Party		 Account Receivable
– Related Party
Subsequent
Recovered Amount		 Bad Debt
Allowance
Amount Processing
Method
Ningbo Yeong Shang Casting Iron
Co., Ltd.
Ningbo Yeong Shang Casting Iron
Co., Ltd.
Ningbo Lu Lin Machine Tool
Foundry Co., Ltd.
Ningbo Lu Lin Machine Tool
Foundry Co., Ltd.
Jiangsu Bright Steel Fine
Machinery Co., Ltd.
Dongguan Yeong Guan Mould
Factory Co., Ltd.
Yeong Guan International
Company
Shin Shang Trade Co., Ltd.
Yeong Guan Energy Holding
Company
Yeong Guan Energy Holding
Company		 Yeong Chen Asia Pacific
Co., Ltd.
Shanghai No. 1 Machine
Tool Co., Ltd.
Jiangsu Bright Steel Fine
Machinery Co., Ltd.
Shanghai No. 1 Machine
Tool Co., Ltd.
Yeong Chen Asia Pacific
Co., Ltd.
Shanghai No. 1 Machine
Tool Co., Ltd.
Shanghai No. 1 Machine
Tool Co., Ltd.
Jiangsu Bright Steel Fine
Machinery Co., Ltd.
Yeong Guan International
Company
Yeong Chen Asia Pacific
Co., Ltd.		 Same ultimate parent
company
Same ultimate parent
company
Same ultimate parent
company
Same ultimate parent
company
Same ultimate parent
company
Same ultimate parent
company
Subsidiary
Same ultimate parent
company
Subsidiary
Subsidiary		 $233,588
117,550 Note 1
196,107 Note 2
192,944 Note 3
536,602
163,896 Note 4
373,615 Note 5
103,700 Note 6
774,240 Note 7
161,300 Note 7		 -

-

-

-
-

-

-

-

-

-		 $ -

-

-

-

-

-

-

-

-

-
-

-

-

-

-

-

-

-

-

-		 $ -

-

-

-

-

-

-

-

-

-		 $ -

-

-

-

-

-

-

-

-

-

Note 1: This includes financing amount NTD 116,261(thousands) and interest receivable of NTD1,289 (thousands).

Note 2: This includes Account Receivable –Related Party NTD 102,499 (thousands), financing amount of NTD 93,009 (thousands) and interest receivable of NTD599 (thousands).

  • 106 -

Note 3: This includes financing amount NTD 186,017(thousands) and interest receivable of NTD 6,927 (thousands). Note 4: This includes financing amount NTD 158,114(thousands) and interest receivable of NTD 5,782 (thousands). Note 5: This includes financing amount NTD 372,034(thousands) and interest receivable of NTD 1,581 (thousands). Note 6: Purshcase of Machine Equipment on behalf of others.

Note 7: This is financing amount.

Note 8: Aforementioned transactions have all been cancelled during preparation of consolidated financial Statements.

  • 107 -

YEONG GUAN ENERGY TECHNOLOGY GROUP CO., LTD. AND SUBSIDIARIES

Related Information of Invested Company Information and Location

Year 2016

Appendix 5 Unit: NTD thousands Unit: NTD thousands Unit: NTD thousands
Name of Investing
Company		 Name of Invested Company
Location		 Major Business Items Original Investment Amount Year End Ownership Current (Loss)
Profit for Invested
Company
Recognized
Current
Investment (Loss)
Profit
Note
Dec. 31st, 2016 Dec. 31st, 2015 Number of Shares Percentage
(％)		 Book Value
Yeong Guan
Energy Technology Group
Co., Ltd
Yeong Guan Holding Co., Ltd.
New Power Team Technology
Inc.		 Yeong Guan Holding Co., Ltd.
Yeong Guan Heavy Industry
(Thailand) Co., Ltd.
Yeong Guan International
Co. , Ltd.
Shin Shang Trade Co., Ltd.
Yeong Chen Asia Pacific Co.,
Ltd.
New Power Team Technology
Inc.
Lizhan Limited		 British Virgin
Islands
Thailand
Hong Kong
British Virgin
Islands
Taiwan
Taiwan
Samoa		 Investment Holding Business
Manufacturing and selling of
high quality casting
products of spherical
graphite cast iron and grey
cast iron
Investment Holding Business
Manufacturing and selling of
high quality casting
products of spherical
graphite cast iron and grey
cast iron
Manufacturing and selling of
high quality casting
products of spherical
graphite cast iron and grey
cast iron
Processing, manufacturing
and selling of various of
machinery and hardware
Investment Holding Business		 $ 4,525,878
348,375
4,137,489
226,069
95,000
221,000
32,237		 $ 4,525,878

348,375

4,137,489

226,069

95,000
-
-
146,000,000

37,500,000

506,000,000

50,000

-
13,000,000
-
100.00

75.00

100.00

100.00

100.00
52.00
100.00		 $ 11,912,588

330,830

8,546,232

117,463

830,874
208,613
27,825		 $ 1,192,301
(
1,542 )

893,517

146

150,692
(
15,641 )
(
3,422 )		 $ 1,192,301
(
1,157 )

893,507

2,291

149,648
(
7,961 )
(
3,416 )		 Note 1
Note 1
Note 1
Note 1
Note 1
Note 1
Note 1

Note 1: Calculation is based on invested company’s CPA certified financial Statements in the same period and the Company’s ownership percentage.

Note 2: Investment profit/loss among invested companies, investment company’s long term equity investment and equity net value among invested companies have all been cancelled during preparation of consolidated financial Statements.

  • 108 -

YEONG GUAN ENERGY TECHNOLOGY GROUP CO., LTD. AND SUBSIDIARIES China Investment Information

Year 2016

YEONG GUAN ENERGY TECHNOLOGY GROUP CO., LTD. AND SUBSIDIARIES
China Investment Information
Year 2016		 YEONG GUAN ENERGY TECHNOLOGY GROUP CO., LTD. AND SUBSIDIARIES
China Investment Information
Year 2016		 YEONG GUAN ENERGY TECHNOLOGY GROUP CO., LTD. AND SUBSIDIARIES
China Investment Information
Year 2016		 YEONG GUAN ENERGY TECHNOLOGY GROUP CO., LTD. AND SUBSIDIARIES
China Investment Information
Year 2016		 YEONG GUAN ENERGY TECHNOLOGY GROUP CO., LTD. AND SUBSIDIARIES
China Investment Information
Year 2016		 YEONG GUAN ENERGY TECHNOLOGY GROUP CO., LTD. AND SUBSIDIARIES
China Investment Information
Year 2016		 YEONG GUAN ENERGY TECHNOLOGY GROUP CO., LTD. AND SUBSIDIARIES
China Investment Information
Year 2016		 YEONG GUAN ENERGY TECHNOLOGY GROUP CO., LTD. AND SUBSIDIARIES
China Investment Information
Year 2016		 YEONG GUAN ENERGY TECHNOLOGY GROUP CO., LTD. AND SUBSIDIARIES
China Investment Information
Year 2016		 YEONG GUAN ENERGY TECHNOLOGY GROUP CO., LTD. AND SUBSIDIARIES
China Investment Information
Year 2016		 YEONG GUAN ENERGY TECHNOLOGY GROUP CO., LTD. AND SUBSIDIARIES
China Investment Information
Year 2016		 YEONG GUAN ENERGY TECHNOLOGY GROUP CO., LTD. AND SUBSIDIARIES
China Investment Information
Year 2016		 YEONG GUAN ENERGY TECHNOLOGY GROUP CO., LTD. AND SUBSIDIARIES
China Investment Information
Year 2016		 YEONG GUAN ENERGY TECHNOLOGY GROUP CO., LTD. AND SUBSIDIARIES
China Investment Information
Year 2016		 YEONG GUAN ENERGY TECHNOLOGY GROUP CO., LTD. AND SUBSIDIARIES
China Investment Information
Year 2016		 YEONG GUAN ENERGY TECHNOLOGY GROUP CO., LTD. AND SUBSIDIARIES
China Investment Information
Year 2016
Appendix 6
Unit: NTD thousands
Names of Invested Companies
in China		 Main Business Items Paid-In Capital Investment
Methods
(Note 1)		 Accumulated
Investment
Amounts
Remitted from
Taiwan,
Beginning of
This Year		 Current Year Investment
Amounts Remitted Out or
Retrieved Back		 Current Year
End
Accumulated
Investment
Amount
Remitted from
Taiwan		 Invested
Company’s
Profit/Loss for
Current Year		 The
Company’s
Direct or
Indirect
Ownership
Percentage		 Current
Investment
Profit (Loss)
Recognized
(note 2)		 Year End
Investment
Book Value		 Investment
Yield Remitted
Back as of Year
End		 Note
Remitted
Out		 Retrieved
Back
Ningbo Yeong Shang Casting Iron
Co., Ltd.
Dongguan Yeong Guan Casting
Iron Factory Co., Ltd.
Ningbo Lu Lin Machine Tool
Foundry Co., Ltd. Casting Co.,
Ltd.
Jiangsu Bright Steel Fine
Machinery Co., Ltd.
Ningbo Yeong Chia Mei Trade
Co., Ltd.
Shanghai No. 1 Machine Tool
(Suzhou) Co., Ltd.
Shanghai No. 1 Machine Tool and
Marketing Co., Ltd.
Ningbo New Power Team
Technology Co., Ltd.		 Manufacturing and selling of high quality
casting products of spherical graphite
cast iron and grey cast iron
Manufacturing and selling of high quality
casting products of spherical graphite
cast iron and grey cast iron
Manufacturing and selling of high quality
casting products of spherical graphite
cast iron and grey cast iron
Manufacturing and selling of high quality
casting products of spherical graphite
cast iron and grey cast iron
Transaction of various steel castings and
casting molds as well as related
import/export businesses
Manufacturing and selling of high quality
casting products of spherical graphite
cast iron and grey cast iron
Trading, importing and exporting of
various steel and iron castings and
casting mold
Manufacturing and selling of medial
equipment, wind turbine hub and
semiconductor equipmentproducts		 $ 1,390,406
128,955
442,123
2,580,800
32,260
759,400
162,765
32,260		 (5)
(5)
(5)
(5)
(5)
(5)
(5)		 $ -
-
-
-
-
-
-
-		 $






32,26		 $ $ -
-
-
-
-
-
-
32,260		 $ 189,047

84,404

307,648

453,439

1,100
(
43,602 )
(
4,279 )
(
3,424 )		 100%
100%
100%
100%
100%
90%
90%
52%		 $ 193,559
83,694
304,732
451,071
855
(
28,308 )
(
4,279 )
(
3,424 )		 $ 3,076,084

624,574

1,915,272

3,994,782

34,739

24,400

12,465

27,817		 $ -

-

-

-

-

-

-

-
Year End Accumulated Investment Amount
Remitted from Taiwan to China
Investment Amount Approved by Investment
Commission of the Ministry of Economic
Affairs
Limits for Investment in China Stipulated by
Investment Commission of the Ministry of Economic
Affairs
NT$32,260 (US$1,000)
NT$32,260 (US$1,000)
NT$5,864,490
Year End Accumulated Investment Amount
Remitted from Taiwan to China		 Investment Amount Approved by Investment
Commission of the Ministry of Economic
Affairs		 Limits for Investment in China Stipulated by
Investment Commission of the Ministry of Economic
Affairs
NT$32,260 (US$1,000) NT$32,260 (US$1,000) NT$5,864,490

  • Note 1: Methods of investments are classified into the following 5 types. A simple mark on type will do:

  • (1) Investment in company in China through remittance from third party region;

  • (2) Investing companies in China through setting up a company in third party region first;

  • (3) Investing companies in China through investments in an existing company in the third party region;

  • 109 -

(4) Direct investment in companies in China;

(5) Others

  • Note 2: Calculation is based on Taiwan parent company CPA certified financial Statements and the Company’s ownership percentage.

  • Note 3: Investment profit/loss among invested companies, investment company’s long term equity investment and equity net value among invested companies have all been cancelled during preparation of consolidated financial Statements.

YEONG GUAN ENERGY TECHNOLOGY GROUP CO., LTD. AND SUBSIDIARIES

Business Relationship and Critical Transaction/Amount between Parent Company and Subsidiaries and Among Subsidiaries

Year 2016

Appendix 7

Unit: NTD thousands

Serial No.
(Note 1)		 Name of Transaction Entity Transaction Counterparty Relationship with
Transaction
Counterparty
(Note 2 )		 Details of Transactions Details of Transactions
Items Amounts Transaction Terms Percentage of
Consolidated Total
Revenue or Total Assets
(Note 3)
1
1
1
1
1
1
1
1
1
2
2
2
2
2
2
2
2
3
3
3
3
3
3
3
4
4
4
4
4
4
4
5
6		 Ningbo Yeong Shang Casting Iron Co., Ltd.
Ningbo Yeong Shang Casting Iron Co., Ltd.
Ningbo Yeong Shang Casting Iron Co., Ltd.
Ningbo Yeong Shang Casting Iron Co., Ltd.
Ningbo Yeong Shang Casting Iron Co., Ltd.
Ningbo Yeong Shang Casting Iron Co., Ltd.
Ningbo Yeong Shang Casting Iron Co., Ltd.
Ningbo Yeong Shang Casting Iron Co., Ltd.
Ningbo Yeong Shang Casting Iron Co., Ltd.
Ningbo Lu Lin Machine Tool Foundry Co., Ltd.
Ningbo Lu Lin Machine Tool Foundry Co., Ltd.
Ningbo Lu Lin Machine Tool Foundry Co., Ltd.
Ningbo Lu Lin Machine Tool Foundry Co., Ltd.
Ningbo Lu Lin Machine Tool Foundry Co., Ltd.
Ningbo Lu Lin Machine Tool Foundry Co., Ltd.
Ningbo Lu Lin Machine Tool Foundry Co., Ltd.
Ningbo Lu Lin Machine Tool Foundry Co., Ltd.
Jiangsu Bright Steel Fine Machinery Co., Ltd.
Jiangsu Bright Steel Fine Machinery Co., Ltd.
Jiangsu Bright Steel Fine Machinery Co., Ltd.
Jiangsu Bright Steel Fine Machinery Co., Ltd.
Jiangsu Bright Steel Fine Machinery Co., Ltd.
Jiangsu Bright Steel Fine Machinery Co., Ltd.
Jiangsu Bright Steel Fine Machinery Co., Ltd.
Dongguan Yeong Guan Mould Factory Co., Ltd.
Dongguan Yeong Guan Mould Factory Co., Ltd.
Dongguan Yeong Guan Mould Factory Co., Ltd.
Dongguan Yeong Guan Mould Factory Co., Ltd.
Dongguan Yeong Guan Mould Factory Co., Ltd.
Dongguan Yeong Guan Mould Factory Co., Ltd.
Dongguan Yeong Guan Mould Factory Co., Ltd.
Yeong Guan International Company
Shin ShangTrade Co.,Ltd.		 Ningbo Lu Lin Machine Tool Foundry Co., Ltd.
Jiangsu Bright Steel Fine Machinery Co., Ltd.
Yeong Chen Asia Pacific Co., Ltd.
Shin Shang Trade Co., Ltd.
Shanghai No. 1 Machine Tool Co., Ltd.
Ningbo Lu Lin Machine Tool Foundry Co., Ltd.
Jiangsu Bright Steel Fine Machinery Co., Ltd.
Yeong Chen Asia Pacific Co., Ltd.
Shin Shang Trade Co., Ltd.
Ningbo Yeong Shang Casting Iron Co., Ltd.
Jiangsu Bright Steel Fine Machinery Co., Ltd.
Yeong Chen Asia Pacific Co., Ltd.
Jiangsu Bright Steel Fine Machinery Co., Ltd.
Shanghai No. 1 Machine Tool Co., Ltd.
Ningbo Yeong Shang Casting Iron Co., Ltd.
Yeong Chen Asia Pacific Co., Ltd.
Jiangsu Bright Steel Fine Machinery Co., Ltd.
Ningbo Yeong Shang Casting Iron Co., Ltd.
Yeong Chen Asia Pacific Co., Ltd.
Shin Shang Trade Co., Ltd.
Yeong Chen Asia Pacific Co., Ltd.
Ningbo Yeong Shang Casting Iron Co., Ltd.
Ningbo Lu Lin Machine Tool Foundry Co., Ltd.
Yeong Chen Asia Pacific Co., Ltd.
Ningbo Yeong Shang Casting Iron Co., Ltd.
Yeong Chen Asia Pacific Co., Ltd.
Shin Shang Trade Co., Ltd.
Shanghai No. 1 Machine Tool Co., Ltd.
Ningbo Yeong Shang Casting Iron Co., Ltd.
Yeong Chen Asia Pacific Co., Ltd.
Shin Shang Trade Co., Ltd.
Shanghai No. 1 Machine Tool Co., Ltd.
Jiangsu Bright Steel Fine MachineryCo.,Ltd.		 3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3		 Account Receivable－Related Party
Account Receivable－Related Party
Account Receivable－Related Party
Account Receivable－Related Party
Other Account Receivable－Related Party
Operating Revenue
Operating Revenue
Operating Revenue
Operating Revenue
Account Receivable－Related Party
Account Receivable－Related Party
Account Receivable－Related Party
Other Account Receivable－Related Party
Other Account Receivable－Related Party
Operating Revenue
Operating Revenue
Operating Revenue
Account Receivable－Related Party
Account Receivable－Related Party
Other Account Receivable－Related Party
Equipment prepayments
Operating Revenue
Operating Revenue
Operating Revenue
Account Receivable－Related Party
Account Receivable－Related Party
Account Receivable－Related Party
Other Account Receivable－Related Party
Operating Revenue
Operating Revenue
Operating Revenue
Other Account Receivable－Related Party
Other Account Receivable－Related Party		 $ 11,937
21,690
233,588
31,400
117,550
143,483
38,921
756,192
98,546
70,069
102,499
63,311
93,608
192,944
137,479
189,737
138,754
11,700
536,602
19,356
111,586
78,509
142,399
2,009,850
11,082
28,501
87,812
163,896
37,873
$ 129,504
293,367
373,615
103,700		 Based on the parties’ agreement
Based on the parties’ agreement
Based on the parties’ agreement
Based on the parties’ agreement
Based on the parties’ agreement
Based on the parties’ agreement
Based on the parties’ agreement
Based on the parties’ agreement
Based on the parties’ agreement
Based on the parties’ agreement
Based on the parties’ agreement
Based on the parties’ agreement
Based on the parties’ agreement
Based on the parties’ agreement
Based on the parties’ agreement
Based on the parties’ agreement
Based on the parties’ agreement
Based on the parties’ agreement
Based on the parties’ agreement
Based on the parties’ agreement
Based on the parties’ agreement
Based on the parties’ agreement
Based on the parties’ agreement
Based on the parties’ agreement
Based on the parties’ agreement
Based on the parties’ agreement
Based on the parties’ agreement
Based on the parties’ agreement
Based on the parties’ agreement
Based on the parties’ agreement
Based on the parties’ agreement
Based on the parties’ agreement
Based on theparties’ agreement		 -
-
2%
-
1%
2%
1%
10%
1%
-
1%
-
1%
1%
2%
3%
2%
-
4%
-
1%
1%
2%
27%
-
-
1%
1%
1%
2%
4%
2%
1%
  • 110 -
7
7
7
8
8		 Yeong Chen Asia Pacific Co., Ltd.
Yeong Chen Asia Pacific Co., Ltd.
Yeong Chen Asia Pacific Co., Ltd.
Yeong Guan Energy Holding Company
YeongGuan EnergyHoldingCompany		 Ningbo Yeong Shang Casting Iron Co., Ltd.
Jiangsu Bright Steel Fine Machinery Co., Ltd.
Ningbo Yeong Shang Casting Iron Co., Ltd.
Yeong Guan International Company
YeongChen Asia Pacific Co.,Ltd.		 3
3
3
3
3		 Account Receivable－Related Party
Account Receivable－Related Party
Operating Revenue
Other Account Receivable－Related Party
Other Account Receivable－Related Party		 11,883
18,098
24,287
774,240
161,300		 Based on the parties’ agreement
Based on the parties’ agreement
Based on the parties’ agreement
Based on the parties’ agreement
Based on theparties’ agreement		 -
-
-
5%
1%

Note 1: 0 represents parent company, while serial numbers for subsidiaries start from 1 based on respective company categories. Note 2: 1 represents transaction entered by parent company with subsidiary; 2 represents transaction entered by subsidiary with parent company; 3 represents transactions between subsidiaries. Note 3: With respect to calculation for transaction amount’s percentage of consolidated total revenue or total assets, asset/liability items are based on ending balance’s percentage of consolidated total assets and liabilities, while income items are based on ending accumulated amount’s percentage over consolidated total revenue. Note 4: All transactions on aforementioned appendix have already been written-off when consolidated financial Statements are prepared.

  • 111 -

Stock Code: 1589

Yeong Guan Energy Technology Group Co., Ltd.

Chairman of the Board: Chang, Hsien-Ming

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