SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS JUNE ... ·...

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(English Translation of Financial Report Originally Issued in Chinese)

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2012 AND 2011

(With Independent Accountants’ Review Report Thereon)

Address: No.3, Zhonghua Rd., Hukou Township, Hsinchu County 303, Taiwan (R.O.C.)

Telephone: 886-3-598-1911

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TABLE OF CONTENTS

Contents Page

Cover Page 1

Table of Contents 2

Review Report of Independent Accountants 3

Consolidated Balance Sheets 4

Consolidated Statements of Income 5

Consolidated Statements of Changes in Stockholders’ Equity 6

Consolidated Statements of Cash Flows 7

Notes to Consolidated Financial Statements

(1) Organization and Business 8

(2) Summary of Significant Accounting Policies 8～29

(3) Reasons for And Effects of Accounting Changes 30

(4) Summary of Major Accounts 30～56

(5) Related-Party Transactions 57～62

(6) Pledged Assets 63

(7) Significant Commitments and Contingencies 63～66

(8) Significant Catastrophic Losses 67

(9) Significant Subsequent Events 67

(10) Others 67～75

(11) Disclosures Required

1.Information on Significant Transactions 76～79

2.Information on Investee Companies 80～99

3.Information on Investment in Mainland China 100～101

4.Transaction between the Company and Its Subsidiaries 102～116

(12) Business segment financial information 117

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(English Translation of Financial Report Originally Issued in Chinese) Review report of independent accountants

To the Board of Directors of Sanyang Industry Co., Ltd. We have reviewed the accompanying consolidated balance sheets of Sanyang Industry Co., Ltd. and its subsidiaries (the “Consolidated Company”) as of June 30, 2012 and 2011, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the six months then ended. These consolidated financial statements are the responsibility of the Consolidated Company’s management. Our responsibility is to express the review report based on our review.

Except as discussed in the following paragraph, we conducted our audits in accordance with Statement of Auditing Standards No.36 “Engagements to Review Financial Statements.” A review consists principally of inquiries of company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit that is in accordance with the generally accepted auditing standards. The objective of which is the expression of an opinion regarding the financial statement taken as a whole. Accordingly, we do not express such an opinion.

The consolidated financial statements of certain subsidiaries were consolidated based on their unreviewed financial statements as of and for the six months ended June 30, 2012 and 2011, except for the Nanyang Industries Co., Ltd., SY International Ltd. and other subsidiaries. The total assets of these subsidiaries amounted to NT$10,337,580 thousands and NT$ 11,292,307 thousands, representing 26% and 29% of the related consolidated total assets and the total liabilities amounted to NT$3,241,820 thousands and NT$2,988,868 thousands, representing 15% and 13% of the related consolidated liabilities as of June 30, 2012 and 2011, respectively. The operating revenues of these subsidiaries amounted to NT$2,724,192 thousands and NT$2,318,621 thousands, representing 16% and 12% of the consolidated operating revenues for the six months ended June 30, 2012 and 2011, respectively, and their net income amounted to NT$33,024 thousands and NT$89,689 thousands, representing 9% of the related consolidated net income. As disclosed in Note 4(e) of the consolidated financial statement, the financial statements of certain long-term investments accounted for under the equity method were not reviewed by independent accountants. Long-term investments in these companies amounted to NT$2,013,287 thousands and NT$1,668,087 thousands as of June 30, 2012 and 2011, respectively, and the related investment income thereon, amounted to NT$88,633 thousands and NT$140,308 thousands, respectively. Besides, Note 11(b) “Information on investee Companies” was provided by the investee Company and the auditor did not adopt the above opinion review.

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Based on our reviews, except for the effects of such adjustments, if any, as might have been determined to be necessary had the financial statements of some consolidated subsidiaries and some equity-method investees been reviewed as described in the preceding paragraph, we are not aware of any material modifications that should be made to the consolidated financial statements referred to in the first paragraph that are inconformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and the accounting principles generally accepted in Republic of China.

As described in Note 4(p) and 10 of the financial statements, the Board of Directors agreed to the financial statements for the year ended December 31, 2011 on March 20, 2012 but the majority of the stockholders present at the meeting held on June 6, 2012 did not approve it. As of January 1, 2012, the balances of the assets, liabilities and stockholders’ equity were recognized by the board of directors. As described in Note 7 of the financial statements, Xiamen Xia Shing Motorcycle Sales Co., Ltd. and Xiamen Xia Shing Motorcycle Co., Ltd., which were the subsidiaries of Plassen International Limited and Qingzhou Engineering Co., Ltd. (a subsidiary of Cosmos System Inc.) were going through financial difficulties, so SY International Ltd. (a subsidiary held 100% by Sanyang Industry Co., Ltd.) decided to support them.

KPMG Taipei, Taiwan, R.O.C. August 30, 2012

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

For the convenience of readers, the accountants’ report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language accountants’ report and financial statements shall prevail. Also, please refer to the original Chinese version for certain disclosures not translated into English as they are not required under generally accepted accounting principles in the Republic of China.

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(English Translation of Financial Report Originally Issued in Chinese) Reviewed only, not audited in accordance with generally accepted auditing standards.

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES Consolidated Balance Sheets

June 30, 2012 and 2011 (All Amounts Expressed in Thousands of New Taiwan Dollars)

June 30, 2012 June 30, 2011

Assets Amount % Amount % Current assets:

Cash and cash equivalents (note 4(a)) $ 7,283,660 19 9,162,080 24 Financial assets reported at fair value through profit or loss－current (note 4(b)) 91,256 - 1,740 - Derivative financial assets for hedging－current (note 4(b)) 13,818 - - - Available-for-sale financial assets－current (note 4(b)) 16,955 - 56,245 - Held-to-maturity financial assets－current (note 4(b)) 228,579 1 - - Notes and accounts receivable－non-related parties, net of allowance for uncollectible accounts (note 4(c) and 6)

2,532,200

6

2,488,255

6

Accounts receivable－related parties, net of allowance for uncollectible accounts (note 5)

59,688

-

75,039

-

Other financial assets－current (note 5 and 6) 949,425 2 1,121,848 3 Inventories (note 4(d) and 6) 9,413,851 24 8,008,978 21 Prepayment 577,602 2 479,448 1 Other current assets 338,962 1 289,865 1 Deferred income tax assets－current (note 4(m)) 74,699 - 92,824 - 21,580,695 55 21,776,322 56

Financial Assets－noncurrent and long-term investments Long-term investments under equity method (note 4(e) and 6) 2,013,287 5 1,668,087 4 Other financial assets－noncurrent (note 6 and 7) 825,066 2 803,674 2 Available-for-sale financial assets－noncurrent (note 4(b)) 10,000 - 16,023 - Financial assets carried at cost－noncurrent (note 4(b)) 70,013 - 110,144 - Investments in debt security with no active market－noncurrent (note 4(b)) 20,000 - 20,000 -

2,938,366 7 2,617,928 6 Property, plant and Equipment (note 4(f) and 6):

Land 1,714,575 4 1,723,614 4 Buildings 4,962,776 13 5,063,050 14 Machinery and equipment 14,011,455 36 13,476,194 35 Utilities and transportation equipment 1,422,444 4 1,379,839 3 Office equipment 1,455,590 4 1,423,490 4 Appreciation in revaluation on fixed assets 5,369,857 14 5,527,052 15 Assets held for lease 938,336 2 859,498 2 29,875,033 77 29,452,737 77 Less: accumulated depreciation (17,031,568 ) (43 ) (16,447,813 ) (42 ) Less: accumulated impairment (278,729 ) (1 ) (252,600 ) (1 ) Construction in progress 159,503 - 117,793 - Prepayments for equipment 62,442 - 85,045 -

12,786,681 33 12,955,162 34 Intangible assets:

Deferred pension costs (note 4(n)) 111,726 - 157,016 - Land leasehold rights (note 4(g) and 6) 438,620 1 419,282 1

550,346 1 576,298 1 Other assets:

Assets held for hease (notes 4(h) and 6) 991,455 3 867,844 2 Idle assets (notes 4(i) and 6) 165,167 - 168,860 - Deferred charges 143,119 - 153,575 - Deferred income tax assets－noncurrent (note 4(m)) - - 145,489 - Other assets－other (note 6) 284,752 1 209,673 1 1,584,493 4 1,545,441 3

Total assets $ 39,440,581 100 $ 39,471,151 100

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

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

June 30, 2012 and 2011 (All Amounts Expressed in Thousands of New Taiwan Dollars)

June 30, 2012 June 30, 2011 Liabilities and Stockholders’ Equity Amount % Amount %

Current liabilities: Short-term loans (note 4(j)) $ 5,986,130 15 7,988,764 21 Short-term notes and bills payable (note 4(k)) 43,150 - - - Accounts payable－non-related parties 3,003,335 7 3,244,466 8 Accounts payable－related parties (note 5) 220,190 - 141,225 - Income tax payable 27,197 - 88,487 - Accrued expenses 1,007,952 3 1,031,800 3 Derivative financial liabilities for hedging－current (note 4(b)) - - 70,059 -

Unearned sales revenue (note 7) 457,826 1 402,159 1 Current portion of long-term loans (note 4(l)) 667,279 2 772,370 2 Other current liabilities 691,775 2 972,079 2 12,104,834 30 14,711,409 37

Long-term liabilities: Long-term loans (note 4(l)) 5,880,925 15 4,267,276 11

Reserve for operation and liabilities: Accrued liabilities for land tax revaluation increment 1,902,130 5 1,918,752 5

Other liabilities: Accrued pension liabilities (note 4(n)) 1,860,029 5 1,875,714 5 Guarantee deposit received 240,924 1 186,677 - Deferred income tax liabilities (note 4(m)) 53,168 - - - Other liabilities－other 204,702 - 105,852 -

2,358,823 6 2,168,243 5 Total liabilities 22,246,712 56 23,065,680 58 Stockholders’ equity:

Capital: Common stock (notes 4(o)) 8,963,768 23 8,456,385 22 Stock dividends to be distributed - - 507,383 1

8,963,768 23 8,963,768 23 Capital surplus:

Treasury stock transactions (note 4(p)) 63,334 - 61,892 - Long-term equity investments 2,141,845 5 2,117,500 5

2,205,179 5 2,179,392 5 Retained earnings (note 4(q)):

Legal reserve 1,631,881 4 1,631,881 4 Special reserve 1,125,135 3 1,125,135 3 Unappropriated earnings 1,591,969 4 922,080 2

4,348,985 11 3,679,096 9 Other adjustments to stockholders’ equity:

Cumulative translation adjustments (note 4(e)) (1,480,484 ) (4 ) (1,751,055) (4 ) Unrecognized loss on pension cost (562,205 ) (1 ) (582,829) (1 ) Unrealized loss on financial assets (110,410 ) - (68,374) - Unrealized revaluation increments 1,583,058 4 1,598,944 4 Treasury stock (note 4(p)) (102,363 ) - (102,363) -

(672,404 ) (1 ) (905,677) (1 ) Total parent company’s equity 14,845,528 38 13,916,579 36 Minority interest 2,348,341 6 2,488,892 6 Total stockholders’ equity 17,193,869 44 16,405,471 42 Commitments and contingencies (note 7) Total liabilities and stockholders’ equity $ 39,440,581 100 39,471,151 100


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

For the six months ended June 30, 2012 and 2011 (All Amounts Expressed in Thousands of New Taiwan Dollars, Except for per Share Data)

June 30, 2012 June 30, 2011 Amount % Amount % Operating revenue:

Sales revenue (notes 5) $ 16,635,857 98 19,196,571 99 Less: sales return (93,142) - (537) -

sales discounts and allowances (271,813) (2) (444,322) (2) Net sales 16,270,902 96 18,751,712 97

Rental income (note 5) 147,324 1 137,662 1 Other operating income (note 5) 549,302 3 454,069 2 16,967,528 100 19,343,443 100

Operating cost: Cost of goods sold (note 5) 12,600,854 74 14,194,195 73 Rental costs 72,750 - 66,780 - Other operating costs 302,928 2 323,669 2

12,976,532 76 14,584,644 75 Gross profit 3,990,996 24 4,758,799 25 Operating expenses:

Selling expenses 1,338,740 8 1,354,920 7 Commodity tax 1,081,130 6 1,129,478 6 General and Administrative expenses 847,043 5 935,844 5 Research and development expenses 388,138 2 344,895 2

3,655,051 21 3,765,137 20 Income from operations 335,945 3 993,662 5 Non-operating income:

Interest revenue 151,530 1 181,589 1 Investment income under the equity method (note 4(e)) 88,633 1 140,308 1 Dividend income 48,155 - 11,819 - Gain on disposal of fixed assets 22,327 - 18,124 - Foreign exchange gain 20,494 - - - Gain on valuation of financial assets (note 4(b)) 13,818 - 43,174 - Others 93,854 1 75,795 -

438,811 3 470,809 2 Non-operating expenses:

Interest expense 171,988 1 170,813 1 Foreign exchange loss - - 67,393 - Impairment loss (note 4(f)) 59,213 - - - Others 21,531 - 42,839 -

252,732 1 281,045 1 Income before income tax 522,024 5 1,183,426 6 Income tax expense (note 4(m)) 171,291 1 150,690 1 Consolidated income $ 350,733 4 1,032,736 5 Income attributable to:

Shareholders of parent company $ 322,685 4 890,821 4 Minority interest 28,048 - 141,915 1

$ 350,733 4 1,032,736 5

Earnings per share attributable to parent company (Note 4(r)) (dollars)

Before income tax

After income tax

Before income tax

After income tax

Primary earnings per share $ 0.52 0.37 1.10 1.08 Retroactive earnings per share $ 0.52 0.37 1.03 1.02

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

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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity

For the six months ended June 30, 2012 and 2011 (All Amounts Expressed in Thousands of New Taiwan Dollars)

Capital

Surplus

Cumulative

Translation

Adjustments

Unrealized

Loss on

Pension Cost

Unrealized

Loss on

Financial

assets

Unrealized

revaluation

increments

Treasury

Stock

Minority

interest

Total

Capital Retained Earnings

Common

Stock

Stock

dividends to be

distributed

Legal

Reserve

Special

Reserve

Unappropriated

Earnings

Balance, January 1, 2011 $ 8,456,385 - 2,176,972 1,562,636 1,125,135 692,450 (1,561,633 ) (582,829 ) (68,374 ) 1,598,944 (102,363 ) 2,334,533 15,631,856

Appropriations and distributions of 2010 earnings:

Legal reserve - - - 69,245 - (69,245 ) - - - - - - -

Cash dividends - - - - - (84,563 ) - - - - - - (84,563 )

Stock dividends - 507,383 - - - (507,383 ) - - - - - - -

Consolidated income for the six months ended June 30, 2011 - - - - - 890,821 - - - - - 141,915 1,032,736

Cumulative translation adjustments - - - - - - (189,422 ) - - - - - (189,422 )

Adjustment arising from long-term equity investments - - 2,420 - - - - - - - - - 2,420

Changes in interest of minority shareholders - - - - - - - - - - - 12,444 12,444

Balance, June 30, 2011 $ 8,46,385 507,383 2,179,392 1,631,881 1,125,135 922,080 (1,751,055 ) (582,829 ) (68,374 ) 1,598,944 (102,363 ) 2,488,892 16,405,471

Balance, January 1, 2012 $ 8,963,768 - 2,205,179 1,631,881 1,125,135 1,269,284 (1,338,489 ) (562,205 ) (110,410 ) 1,583,058 (102,363 ) 2,526,553 17,191,391

Consolidated income for the six months ended June 30, 2012 - - - - - 322,685 - - - - - 28,048 350,733

Cumulative translation adjustments - - - - - - (141,995 ) - - - - - (141,995 )

Changes in interest of minority shareholders - - - - - - - - - - - (206,260 ) (206,260 )

Balance, June 30, 2012 $ 8,963,768 - 2,205,179 1,631,881 1,125,135 1,591,969 (1,480,484 ) (562,205 ) (110,410 ) 1,583,058 (102,363 ) 2,348,341 17,193,869


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

For the six months ended June 30, 2012 and 2011 (All Amounts Expressed in Thousands of New Taiwan Dollars)

For the Six Months Ended June 30 2012 2011 Cash flows from operating activities:

Consolidated net income $ 350,733 1,032,736 Adjustments to reconcile net income to net cash used in operating activities:

Depreciation (including depreciation of assets held for lease and idle assets) 584,053 646,333 Amortization 50,608 40,268 Allowance for uncollectable accounts 49,414 22,711 Provision for inventory market price decline and obsolescence, and impairment loss 2,245 13,737 Loss on physical inventory 139 141 Investment income under equity method (88,633 ) (140,308 ) Gain on disposal of assets, net (22,327 ) (18,124 ) Gain on valuation of financial assets and liabilities (13,818 ) (43,174 ) Impairment loss 59,213 -

Changes in assets and liabilities: Notes and accounts receivable (908,077 ) (1,248,846 ) Accounts receivable－related parties (20,199 ) 26,371 Inventories (1,161,922 ) (1,138,166 ) Prepayment (297,594 ) (130,637 ) Other current assets (25,932 ) (252,723 ) Other financial assets 24,666 381,350 Deferred income tax assets and liabilities, net 127,947 (8,603 ) Other operating assets (28,019 ) (36,369 ) Accounts payable 954,660 862,238 Accounts payable－related parties 20,519 46,183 Income taxes payable (40,376 ) 17,456 Accrued expenses (213,604 ) (16,800 ) Unearned sales revenue (22,287 ) 15,567 Accrued pension liabilities 17,065 34,723 Other current liabilities (123,969 ) 148,691

Net cash (used in) provided by operating activities (725,495 ) 254,755 Cash flows from investing activities:

Acquisition of financial assets held-to-maturity (61,373 ) - Acquisition of financial assets available-for-sale - (6023 ) Acquisition of long-term investments under the equity method - (13,297 ) Purchases of property, plant and equipment (324,479 ) (455,610 ) Proceeds from disposal of assets 46,619 70,012 Increase in deferred charges (50,732 ) (65,541 ) Decrease (increase) in other financial assets－noncurrent 116,443 ) (1,455 )

Net cash used in investing activities (273,522 ) (471,914 )


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SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES Consolidated Statements of Cash Flows (Cont’d)

For the six months ended June, 2012 and 2011 (All Amounts Expressed in Thousands of New Taiwan Dollars)

For the Six Months Ended June 30 2012 2011 Cash flows from financing activities:

Increase (decrease) in short-term loans 204,634 (1,398,803 ) Decrease in short-term notes and bills payable (4,985) - Increase in long-term loans - 2,570,000 Decrease in long-term loans (162561 ) (1,249,360 ) Increase in guarantee deposit received 29,347 50,560 Increase in minority interest - 5,575

Net cash provided by (used in) financing activities 66,435 (21,938 ) Foreign exchange rate effects (361,100 ) (266,777 ) Net decrease in cash and cash equivalents (1,293,682 ) (505,874 ) Cash and cash equivalents, beginning of the period 8,577,342 9,667,954 Cash and cash equivalents, end of the period $ 7,283,660 9,162,080

Supplemental disclosures of cash flow information: Interest expense paid during the period (excluding capitalized interest) $ 163,815 168,986

Income tax paid during the period $ 54,168 121,326

Non-cash investing and financing Current portion of long-term loans $ 667,279 772,370

Reclassification of fixed assets to inventory $ 16,809 -

Reclassification of idle assets to fixed assets $ 5,681 112,095

Dividends payable $ 42,737 -



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

JUNE 30, 2012 AND 2011 (All Amount Expressed in Thousands of New Taiwan dollars, Unless Otherwise Stated)

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1.ORGANIZATION AND BUSINESS

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

As of June 30, 2012 and 2011, the Company and its subsidiaries (the “Consolidated Company”) had 7,811 and 7,902 employees, respectively.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

(a) Principles of preparing consolidated financial statements

When preparing the consolidated financial statements, stockholders’ equity of the subsidiary is eliminated against the investment of the Company. Unrealized gains or losses from upstream, downstream or sidestream sales transactions between the two consolidated entities are eliminated according to the recognition of such gains or losses.

Assets and liabilities of foreign subsidiaries are translated into New Taiwan dollars at the spot rate on the balance sheet date, while stockholders’ equity is translated at the historical rate except for the beginning balance of retained earnings, which is translated at the previous year-end rate. Income statement accounts are translated at the weighted- average exchange rate for the period, with any translation difference caused thereby recorded as cumulative translation adjustments and adjusted to stockholders’ equity.


SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES Notes To Consolidated Financial Statements (Cont’d)

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(b) Principles of consolidation

(1) The subsidiaries included in the consolidated financial statements are as follow:

Shareholding ratio

Investor Subsidiary 2012.6.30 2011.6.30 Nature of Business Notes

The Company Shan Young Assets

Management Co., Ltd.

(Shan Young)

100.00% 100.00% Lease, sale and

development of real

estate

Investee company

directly held over

50% by the

Company

The Company Youth Taisun Co., Ltd.

(Youth Taisun)

89.39% 89.39% Manufacture of

motorcycle parts

Investee company

held 99.39% by

the Company and

its subsidiaries

The Company Jin Yang Motorcycles

Co., Ltd. (Jin Yang)

100.00% 100.00% Sale of cars,

motorcycles and

related parts

Investee company

directly held over

50% by the

Company

The Company Hsu Mao Investment

Corporation

(Sheng Mao)

49.50% 49.50% Investing activities Investee company

held 85% by the

Company and its

subsidiaries

The Company Nanyang Industry Co.,

Ltd. (Nanyang)

89.58% 89.58% Sale, repair and

maintenance of cars

and related parts

Investee company

directly held over

50% by the

Company

The Company Nanchen Industry Co.,

Ltd. (Nanchen)

19.85% 19.85% Sale of cars Investee company

held 89.90% by

the Company and

its subsidiaries

The Company Nova Design Co., Ltd.

(Nova Design)

62.26% 60.10% Design of products Investee company

held 92.34% by

the Company and

its subsidiaries

The Company Sheng Mao Investment

Corporation

(Sheng Mao)


held 100% by the

Company and its

subsidiaries



～10～

Shareholding ratio


The Company Chao Yang Car Leasing

Co., Ltd. (Chao Yang)

16.27% 16.27% Rental of cars Investee company

held 98.85% by

the Company and

its subsidiaries

The Company

Ching Ta Investment

Corporation

(Ching Ta)


directly held over

50% by the

Company

The Company

Profit Source Investment

Ltd. (Profit Source)

100.00% 100.00% Investment in and

control of overseas

company and its

subsidiaries

Investee company

directly held over

50% by the

Company

The Company

Sanyang Deutschland

GmbH(SYDE)

100.00% 100.00% Sale of motorcycles

and related parts

Investee company

directly held over

50% by the

Company

The Company

Sun Goal Limited

(Sun Goal)


control of overseas

company and its

subsidiaries

Investee company

directly held over

50% by the

Company

The Company SY International Ltd.

(SYI)


control of overseas

company and its

subsidiaries

Investee company

directly held over

50% by the

Company

The Company

Sanyang Italia S.R.L.

(SYIT)


and related parts

Investee company

directly held over

50% by the

Company

Nova Design Nova LLC (Nova LLC) 42.30% 42.30% Investment in and

control of overseas

company and its

subsidiaries

Investee company

held 100% by the

Company and its

subsidiaries

Nanyang

Li Yang Industry Ltd.

(Li Yang)

51.00% 51.00% Sale of automobile

parts

Investee company

directly held over

50% by the

subsidiary



～11～

Shareholding ratio


Nanyang

Star & Sun Investment

Corporation

(Star & Sun Investment)


directly held over

50% by the

subsidiary

Nanyang

Nanyang Holding

Co.,Ltd.(NY Samoa)


control of overseas

company and its

subsidiaries

Investee company

directly held over

50% by the

subsidiary

Ching Ta Three Brothers

Machinery Industrial

Co., Ltd. (TBM)


motorcycles and

related parts

Investee company

directly held over

50% by the

subsidiary

Ching Ta

Yi Yang Motarcycles

Co.,Ltd (Yi Yang)

68.92% 68.92% Sale of automobile,

motorcycles, and

related parts

Investee company

directly held over

50% by the

subsidiary

Ching Ta

Ching Jiun Co., Ltd.

(Ching Jiun)

64.38% 64.38% Metal machinery,

iron materials

manufacturing,

processing and sale

Investee company

directly held over

50% by the

subsidiary

Ching Ta

Ching Zhao Investment

Co., Ltd.

(Ching Zhao)

- % 21.41% Investing activities Note (ii)

Profit Source Chong Hing

International Limited

(Chong Hing)


control of overseas

company and its

subsidiaries

Investee company

directly held over

50% by the

subsidiary

Sun Goal Jiyang Machinery

Industry Co., Ltd.

(Jiyang)


automobile parts

Investee company

directly held over

50% by the

subsidiary

SYI Billion Ally Ltd.

(Billion)


directly held over

50% by the

subsidiary



～12～

Shareholding ratio


SYI Cosmos System Inc.

(Cosmos)


control of overseas

company and its

subsidiaries

Investee company

directly held over

50% by the

subsidiary

SYI New Path Trading Ltd.

(New Path)


control of overseas

company and its

subsidiaries

Investee company

directly held over

50% by the

subsidiary

SYI Plassen International

Ltd. (PIL)


control of overseas

company and its

subsidiaries

Investee company

directly held over

50% by the

subsidiary

SYI Sanyang Motor Vietnam

Co., Ltd. (SMV)

100.00% 100.00% Product engine and

parts of cars; under

3.5 ton transport

vehicle and 6-9

seats cars.

Investee company

directly held over

50% by the

subsidiary

SYI Vietnam Manufacturing

and Export

Processing(Holdings)

Ltd.(VMEPH)


control of overseas

company and its

subsidiaries

Investee company

directly held over

50% by the

subsidiary

SYI Shinny Way Ltd

(Shinny Way)


control of overseas

company and its

subsidiaries

Investee company

directly held over

50% by the

subsidiary

Chao Yang Jau Ryh Leasing Co.,

Ltd.

65.00% 65.00% Rental of cars Investee company

directly held over

50% by the

subsidiary

NY Samoa Suzhou Hui Ying Motor

Sales and Service

Limited

(Sazhou Hui Ying)

100.00% 100.00% Sale of cars related

parts

Investee company

directly held over

50% by the

subsidiary



～13～

Shareholding ratio


NY Samoa Nanyang (Changzhou)

automobile sale and

service Co.,Ltd

(Changzhou Nayang)


parts

Investee company

directly held over

50% by the

subsidiary

(Note (i))

NOVA LLC Nova Design

(Shanghai) Co., Ltd.

(Nova Shanghai)


directly held over

50% by the

subsidiary

NOVA LLC Nova Design

(Xiamen) Co., Ltd.

(Nova Xiamen)

- % 60.00% Design of products Investee company

directly held over

50% by the

subsidiary

(Note (iii)

NOVA LLC Nova Design (Italy)

Co., Ltd. (Nova Italy)


directly held over

50% by the

subsidiary

TBM Vietnam Three Brothers


Co., Ltd. (VTBM)


motorcycles and

related parts

Investee company

directly held over

100% by the

company and

subsidiary

TBM Three Brothers


(BVI) Co., Ltd.

(TBM BVI)


control of overseas

company and its

subsidiaries

Investee company

directly held over

50% by the

subsidiary

TBM Full Ta Co., Ltd.

(Full Ta)


control of overseas

company and its

subsidiaries

Investee company

directly held over

50% by the

subsidiary

Cosmos Qingzhou Engineering

Co., Ltd.

(Qingzhou Engineering)

100.00% 100.00% Manufacture and

sale of motorcycle

parts

Investee company

directly held over

50% by the

subsidiary



～14～

Shareholding ratio


New Path Sanyang Global

(Xiamen) Co., Ltd.

(Sanyang Global)


motorcycles and

related parts

Investee company

directly held over

50% by the

subsidiary

VMEPH Chin Zong Trading Co.,

Ltd. (Chin Zong)


parts

Investee company

directly held over

50% by the

subsidiary

VMEPH Vietnam Manufacturing

and Export Processing

Co., Ltd. (VMEP)


cars, motorcycles

and related parts

Investee company

directly held over

50% by the

subsidiary

VMEPH PT. Sanyang Industri

Indonesia.

(SY Indonesia)


motorcycles and

related parts

Investee company

directly held over

100% by the

subsidiary

PIL Xiamen Xia Shing

Motorcycle Co., Ltd.

(Xia Shing Motor)


motorcycles and

related parts

Investee company

directly held over

50% by the

subsidiary

TBM (BVI) Xiamen Three Brothers


Co., Ltd. (XTBM)


motorcycles and

related parts

Investee company

directly held over

50% by the

subsidiary

TBM (BVI) Guaugzhou Three

Brothers Machinery

Industrial Co., Ltd.

(GTBM)


motorcycles and

related parts

Investee company

directly held over

50% by the

subsidiary

Xia Shing

Motor

Xiamen Xia Shing

Motorcycle Sales Co.,

Ltd. (Xia Shing Motor

Sales)


and related parts

Investee company

directly held over

50% by the

subsidiary

VMEP Duc Phat Molds

Inc.(Duc Phat)

100.00% 100.00% Process model Investee company

directly held over

50% by the

subsidiary



～15～

Shareholding ratio


VMEP Vietnam Casting Forge

Precision Ltd.(VCFP)


motorcycles and

related parts

Investee company

directly held over

50% by the

subsidiary

Shinny Way Hangzhou Xia Shing

Sanyang Electric

Vehicle apricot Co., Ltd.

(Hangzhou Xia Shing)

72.00% 72.00% Sale of electric

vehicles

Investee company

directly held over

50% by the

subsidiary

Ching Zhao Sunny Mind High

Technology Inc.

(Sunny Mind)

- % 100.00% Investment in and

control of overseas

company and its

subsidiaries

Note (ii)

Sunny Mind Yang Run Hotel and

construction Co., Ltd.

(Yang –Ran Hotel)

- % 100.00% Hotel development,

Real development,

lease, sale and

Logistic

management

Note (ii)

Suzhou Huei

Ying

Shanghai Huei Ying

automobile sale and

service Co., Ltd.

(Shanghai Huei Ying)


parts

Investee company

directly held over

50% by the

subsidiary

Suzhou Huei

Ying

Changzhou Huei Ying

automobile sale and

service Co., Ltd.

(Changzhou Huei Ying)

100.00% - % Sale of cars related

parts

Investee company

directly held over

50% by the

subsidiary

Full Ta Ha Noi Full Ta Precision

Co., Ltd.

(Vietnam Full Ta)


motorcycles and

related parts

Investee company

directly held over

50% by the

subsidiary

Note : (i) For the year ended December 31, 2011, Nanyang Automobile Sale and Service Co., Ltd. (Changzhou) and Huei Ying Automobile Sale and Service Co., Ltd. (Changzhou) were established to expand the business of automobiles in China by Nanyang Holding Co., Ltd. (Samoa), a subsidiaries of Nanyang Industry Co., Ltd.



～16～

(ii) As of July 28, 2011, Ching Ta held a shareholders’ meeting, and it approved to convert the perferred stock of Ching Zhao into common stock. Thus, the equity holding ratio had changed to 37.98%. Because of the by-election of the directors of Ching Zhao, Ching Ta did not win the majority of the directors, it lost the controlling interest over Ching Zhao. Therefore, Ching Zhao was not included in the Company’s consolidated financial statements for the six months ended on June 30, 2012.

(iii) For the purpose of the organization restructuring, Nova Design Ltd. (Xiamen) completed the legal process of its liquidation.

(2) Change in subsidiaries included in consolidated financial statements: none.

(3) Subsidiaries not included in the consolidated financial statements: none.

(4) Accounting year of subsidiary different from the holding company: none.

(5) Accounting policies of subsidiary different from the holding company: none.

(6) Special risk of foreign subsidiary’s operations: none.

(7) Restriction on subsidiary’s distribution of earnings by law or contract: none.

(8) Method and term of amortization of consolidated debits (credits): If the consolidated debits (credits) could not be identified, it would be amortized by the straight-line method over 10 years, otherwise over the estimated useful lives.

(c) Use of estimates

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



～17～

(d) Foreign currency transations and financial report translation

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

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

(e) Basis for classifying assets and liabilities as current or non-current

Unrestricted cash, cash equivalents, assets held for trading, or other assets that the Company will convert to cash or use within in a relatively short period of time － one year or one operating cycle, whichever is longer － are classified as current assets; other assets are classified as non-current assets. Debts due within one year or one operating cycle, whichever is longer, are classified as current liabilities; other liabilities are classified as non-current liabilities.



～18～

(f) Asset impairment

Effective January 1, 2005, the Consolidated Company adopted Statement of Financial Accounting Standards No. 35 (SFAS 35) “Accounting for Asset Impairment”. In accordance with SFAS 35, the Consolidated Company assesses at each balance sheet date whether there is any indication that an asset (individual asset or cash-generating unit) other than goodwill may have been impaired. If any such indication exists, the Consolidated Company estimates the recoverable amount of the asset. The Consolidated Company recognizes impairment loss for an asset whose carrying value is higher than the recoverable amount.

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

The Consolidated Company assesses the cash-generating unit to which goodwill is allocated on an annual basis and recognizes an impairment loss on the excess of carrying value over the recoverable amount.

(g) Cash and cash equivalents

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

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

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



～19～

(i) Available-for-sale financial assets

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

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

(j) Held-to-maturity financial assets

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

(k) Hedge accounting

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

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



～20～

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

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

(l) Financial assets carried at cost

Financial assets with no quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost. If objective evidence of impairment exists, impairment loss is recognized thereon, which is not reversed in subsequent periods, unless the assets are sold.

(m) Investment in Debt Security with No Active Market

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

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



～21～

(n) Notes and Accounts receivable and other receivables

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

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

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

If, in a subsequent period, the amount of the impairment loss decreases, and the decrease can be related objectively to an event occurring after the impairment was recognized, the reversal shall not result in a carrying amount of the financial asset that exceeds what the amortized cost would have been had the impairment not been recognized at the date impairment is reversed. The amount of the reversal shall be recognized in profit or loss.

(o) Inventories

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



～22～

(p) Long-term equity investments

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

(i) If the cause of the difference is attributable to a specific transaction, the difference is accounted for using the original accounting treatment. However, goodwill is no longer amortized and the amortization expense recognized in previous years is not reversed.

(ii) If the difference is related to a difference that is originally amortized for a certain period, the unamortized portion relating to the excess of investment cost over the investee’s net equity is accounted for as goodwill.

(iii) Long-term equity investment credit is amortized over the remaining period previously used for the amortization.

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

The difference between the selling price and the book value of long-term equity investments under the equity method is recognized as disposal gain or loss in the accompanying consolidated statements of income. If there is a capital surplus arising from long-term equity investments, such capital surplus is debited against the disposal gain or loss based on the disposal ratio. Unrealized gains and losses resulting from transactions between the Consolidated Companies and their investee companies and among investee companies are deferred. Gains and losses arising from transactions relating to depreciable or amortizable assets are recognized over their useful lives. Gains and losses from transactions relating to other assets are recognized when realized.

When investee companies issue common stock and the Consolidated Companies do not purchase the equity shares in accordance with their ownership holding ratio, the Consolidated Companies adjust their capital surplus based on the net changes in the capital surplus and long-term equity investments. If the capital surplus arising from long-term investment accounted for under the equity method is insufficient, the deficiency is debited to retained earnings.



～23～

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

(q) Property, plant and equipment, assets held for lease, idle assets and depreciation

Property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Interest expense related to the purchase and construction of property and equipment is capitalized and included in the cost of the related assets. Significant additions, improvements and replacements are capitalized. Maintenance and repair costs are expensed in the period incurred. Gains or losses upon the disposal of property, plant and equipment are accounted for as non-operating income or expense currently.

The Consolidated Companies account for the removal and recovery costs for fixed assets that are accrued during the period when they are not used in operations as costs of fixed assets. If a component of fixed assets is a significant part of the total cost, such component is depreciated individually.

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

Buildings 20-40 years

Machinery and equipment 3-15 years

Utilities and transportation equipment 3-10 years

Furniture and office equipment 3-5 years

The residual useful lives, the depreciation method, and the residual value are evaluated at each financial year-end and changes thereof are accounted for as changes in accounting estimates.

Property, plant and equipment leased to other parties through operating lease arrangements are classified as rental assets. Depreciation expenses of rental assets are recorded as a reduction of rental income.



～24～

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

(r) Land leasehold rights

Land leasehold rights should be amortized by straight-line method over the operating lives after registrations of land rights changes are completed. Land leasehold rights not currently used in operation are reclassified as idle assets and are stated at the lower of carrying value or net realizable value. Amortization expenses of idle assets are recorded as non-operating expenses and losses. The Consolidated Companies assess at each balance sheet date in accordance with SFAS 35.

(s) Intangible assets

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

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

Computer Software cost 2 to 5 years

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



～25～

(t) Pension plan

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

(i) employees covered by the original Plans who opted to be subject to the pension mechanism under the New Act; and

(ii) employees who commenced working after the enforcement date of the New Act.

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

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



～26～

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

(u) Earnings per Share (“EPS”)

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

(v) Employee Bonuses and Remuneration to Directors and Supervisors

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

(w) Share-based payment transactions

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



～27～

1. An equity-settled share-based payment transaction is measured based on the fair value of the award at grant date, and recognized as expenses over the vesting period with a corresponding increase in equity. The vesting period is estimated based on the vesting conditions under the share-based payment arrangement. Vesting conditions include service conditions and performance conditions (including market conditions). In estimating the fair value of an equity-settled share-based award, only the effect of market conditions is taken into consideration.

2. A cash-settled shared-based payment transaction is measured at the balance sheet date and the settlement date based on the fair value of the award as of those dates and is recorded as a liability incurred for the goods and services received. Changes in fair values are recognized in profit or loss for the period.

3. The fair value of employee share options and similar instruments at grant date is estimated using the Black-Scholes option-pricing model, taking into account the exercise price, the current market price of the underlying shares, management’s best estimation of the expected term, the expected volatility, the expected dividends, and the risk-free interest rate.

4. According to SFAS No. 39 “Share-based Payment”, the Consolidated Company did not need to apply SFAS No. 39 retroactively to the share-based payments that were granted before January 1, 2008; however, the pro forma net income and net income per share should be disclosed.

(x) Treasury Stock

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



～28～

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

(y) Recognition of revenue

Revenue is recognized when title to the product and the risks and rewards of ownership are transferred to the customer. Also, allowances for sales returns and discounts are estimated based on historical experience. Such allowances are recognized in the same period in which sales are made.

(Z) Technical service and cost

Technical service revenues include consulting service revenues, technical development revenues from assisting foreign companies to develop new motorcycle products, and royalties based on the number of motorcycles sold by foreign sales agents. Consulting service revenues, technical development revenues, and related costs are recognized when services have been performed. Technical service costs refer to the remuneration both for the employees providing consulting service and for the technical development assistance.

(aa) Income tax

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



～29～

Deferred income tax assets or liabilities are classified as current and non-current in accordance with the nature of the related assets and liabilities or the length of time to their reversal. Income taxes credits from purchase of equipment, technical research and development, and personnel training are recognized by the flow-through method.

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

(ab) Commitments and Contingencies

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

(ac) Operating Segment

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



～30～

3. Reasons for and Effect of Accounting Changes:

Effective from January 1, 2011, the Consolidated Company adopted the third revision of SFAS No. 34 “Financial Instrument Recognition and Measurement” on the recognition, subsequent measurement and impairment testing of originated loans and receivables and on trouble debt restructuring and modification of debt agreement commencing from January 1, 2011. The adoption of this amended accounting principle disclosed no significant influences on the consolidated income for the six months ended June 30, 2011.

Effective from January 1, 2011, the Consolidated Company adopted SFAS No. 41 “Operating Segments.” In accordance with SFAS No. 41, information is disclosed to enable users of the Consolidated Company’s financial statements to evaluate the nature and financial effects of the business activities in which the Consolidated Company engages and the economic environment in which it operates. Accordingly, the Consolidated Company determines and presents operating segments based on the information that internally is provided to the chief operating decision maker. This new accounting Standard superseded SFAS No. 20 “Segment Reporting.” The adoption of this accounting standard did not have any cumulative effect for the six months ended June 30, 2011.

4. Summary of Major Accounts

(a) Cash and cash equivalents

2012.06.30

2011.06.30

Cash on hand

$ 3,621

56,582 Bank deposit

Demand deposits

3,723,977

6,714,548

Cheque deposits

58,878

43,363 Time deposits

3,446,979

2,217,721

Sub-total

7,229,834

8,975,632 Securities notes with repurchase agreement

50,205

129,866

Total

$ 7,283,660

9,162,080



～31～

(b) Financial assets

2012.06.30

2011.06.30

Financial assets at fair value through profit or loss－current

Beneficiary certificates

$ 1,198

1,740

Financial instruments

90,058

-

$ 91,256

1740

Derivatives financial assets for hedging－current

Forward exchange swap agreements

$ 13,818

-

Available-for-sale financial assets- current

Stock investments

$ 16,955

56,245

Held-to-maturity financial assets

Financial instruments－varibale maturity- Bank of China

$ 141,956

-

Financial instruments－Digital Binary Deposit

86,623

-

$ 228,579

-

Available -for-sale financial assets－ non current

Bank debentures

$ 10,000

10,000

Government bonds

-

6,023

Total

$ 10,000

16,023

Financial assets carried at cost－non current

Stock investments

$ 110,013

110,114

Less: Accumulated impairment

(40,000)

-

Net

$ 70,013

110,114

Investment in debt security with no active market－

noncurrent

Bank debentures

$ 20,000

20,000

Derivative financial liabilities for hedging－ current

Forward exchange swap agreements

$ -

70,059

(i) As of June 30, 2012 and 2011, the interest rate of bank debentures with no active market held were both 5.5%.



～32～

(ii) The Consolidated Company recognized gain on valuation of the derivative financial assets and liabilities for hedging amounted to $13,818 thousands and $43,174 thousands for the six months ended June 30, 2012 and 2011, respectively.

(iii) Due to the accumulated deficit of LICO Technology Corporation, the Company recognized the provisions for impairment loss of financial assets carried at cost which amounted to $40,000 thousands in 2011.

(iv) The Company entered into derivative contracts to manage the exposure due to the fluctuations of exchange rate in financing activities. These transactions meet the criteria for fair value hedge accounting. As of June 30, 2012 and 2011, the details of derivative financial liabilities for hedging were as follows:

2012.06.30

2011.06.30

Notional Principal

(USD thousands)

Maturity

date/Contract Period

Notional Principal

(USD thousands)

Maturity

date/Contract Period

Buying USD/

Selling NTD $ 65,772 2012.07.02~ 012.12.24 75,453 2011.07.08~ 2011.09.21

(c) Notes and accounts receivable, net

2012.06.30

2011.06.30

Notes receivable

$ 92,305

130,051 Installment notes receivable

22,704

28,302

Less: Unrealized interest income from installment sales

(2,141)

(2,831) Sub-total

112,868

155,522

Accounts receivable

2,555,572

2,407,447 Installment notes receivable

76,230

90,992

Less: Unrealized interest income from installment sales

(9,496)

(11,518) Sub-total

2,622,306

2,486,921

Rents receivable

194,425

132,044 Less: Unrealized interest income

(19,528)

(9,264)

Sub-total

174,897

122,780 Less: Allowance for uncollectible accounts

(377,871)

(276,968)

Total

$ 2,532,200

2,488,255

As of June 30, 2012 and 2011, notes receivables were pledged as collateral for loans, please refer to note 6.



～33～

(d) Inventories

2012.06.30

2011.06.30

Finished goods

$ 4,633,511

1,562,775 Less: Allowance for inventory market decline and obsolescence

(33,236)

(57,367)

Sub-total

4,600,275

1,505,408 Work in progress

1,942,648

3,093,134

Less: Allowance for inventory decline and obsolescence

(7,698)

(15,676) Sub-total

1,934,950

3,077,458

Raw material

2,215,991

3,050,171 Less: Allowance for inventory decline and obsolescence

(178,076)

(213,258)

Sub-total

2,037,915

2,836,913 Inventory in transit

840,711

491,404

Construction in progress

-

97,795

$ 9,413,851

8,008,978

(i) For the six months ended June 30, 2012 and 2011, the components of the cost of goods sold were as follows:

For the Six Months Ended June 30

2012

2011

Manufacturing costs

$ 12,627,251

14,208,733 Revenue from sales of scraps

(28,781)

(28,416)

Loss on physical inventory

139

141 Loss on disposal of inventories

16,269

36,543

Reversal price decline of inventory market

(14,024)

(22,806)

$ 12,600,854

14,194,195

(ii) As of June 30, 2012 and 2011, the inventories of Light Tactical Vehicle amounted to $4,021,116 thousands and $3,760,365 thousands, respectively.



～34～

(e) Long term equity investments

Name of Investee Company

Original

investment

Equity

Holding %

Ending

balance

Investment

income

(loss)

Cumulative

translation

adjustments

credit (debit)

2012.06.30

Xiamen King Long United

Automotive Industry Co., Ltd.

$ 855,409 25% 1,652,371 90,043 (23,066)

Zoeng Chang Industry Co., Ltd.

33,200

40%

243,051

7,808

-

Vietnam HongZheng Technology

Co., Ltd. 27,433

38%

25,461

(1,307)

(1)

Chongging Kuayue Sanyang Co.,

Ltd. 13,297

30%

8,093

(2,177)

(217)

Ching Zhao Investment

Corporation 96,000

37.98%

84,311

(5,734)

(1,774)

Total

$ 2,013,287

88,633

(34,058)

2011.06.30

Xiamen King Long United

Automotive Industry Co., Ltd.

$ 855,409 25% 1,396,674 130,711 5,707

Zoeng Chang Industry Co., Ltd.

33,200

40%

237,886

8,212

-

Vietnam HongZheng Technology

Co., Ltd. 27,433

38%

22,510

3802

(488)

Chongging Kuayue Sanyang Co.,

Ltd. 13,297

30%

11,017

(2,417)

406

Total

$ 1,668,087

140,308

5,625

(i) Ching Ta (a subsidiary of the Company) converted the preferred stock of Ching Zhao into common stock according to the agreement decided upon during the shareholders’ meeting held in 2011. Therefore, the percentage of the stock changed to 37.98%. Because of the by-election of the directors of Ching Zhao, Ching Ta did not win the majority of the directors, it lost the controlling interest over Ching Zhao. As a result, Ching Zhao was not included in the Company’s consolidated financial statements for the six months ended on June 30, 2012.



～35～

(ii) In order to expand the business of research and development of the engines by the Company itself in Mainland China, the Consolidated Company indirectly invested in Chongqing Kuayue Sanyang Co., Ltd., which was formed by SYI, Chongqing Kuayue Property Investment Co. and Shanxi Xiang Chi Trading Co., in the first half of 2011. As of June 30, 2011, the Consolidated Company has remitted an amount of US$452 thousands, and the proportion of the stock holding was 30%.

(iii) The long term equity investments were pledged as collateral for loans as of June 30, 2012 and 2011, please refer to note 6.

(f) Property, plant and equipment

Items Cost Revaluation

increments Total Accumulated

depreciation Net book

value

2012.06.30

Land

$ 1,714,575

5,367,169

7,081,744

-

7,081,744

Buildings

4,962,776

2

4,962,778

2,752,475

2,210,303

Machinery and equipment

14,011,455

2,519

14,013,974

11,708,726

2,305,248

Utilities and transportation

equipment 1,422,444 155 1,422,599 1,168,949 253,650

Office equipment

1,455,590

12

1,455,602

1,027,839

427,763

Leased assets

938,336

-

938,336

373,579

564,757


159,503

-

159,503

-

159,503

Prepayment for equipment

62,442

-

62,442

-

62,442

Total

$ 24,727,121

5,369,857

30,096,978

17,031,568

13,065,410


(278,729)

Net book value

$ 12,786,681



～36～

Item Cost Revaluation

increments Total Accumulated

depreciation Net book

value

2011.06.30

Land

$ 1,723,614

5,515,477

7,239,091

-

7,239,091

Buildings

5,063,050

8,767

5,071,817

2,779,043

2,292,774


13,476,194

2,612

13,478,806

11,232,232

2,246,574

Utilities and transportation

equipment 1,379,839 172 1,380,011 1,114,225 265,786

Office equipment

1,423,490

24

1,423,514

993,364

430,150

Leased assets

859,498

-

859,498

328,949

530,549


117,793

-

117,793

-

117,793

Prepayment for equipment

85,045

-

85,045

-

85,045

Total

$ 24,128,523

5,52,7052

29,655,575

16,447,813

13,207,762


(252,600)

Net book value

$ 12,955,162

(i) For the six months ended June 30, 2012 and 2011, the capitalized interest amounted to $1,221 thousands and $53 thousands, and the interest rates used in computing capitalized interest were 2.969% and 3.129%, respectively.

(ii) Based on the results of its evaluation of the recoverability of property, plant and equipment, the Company recognized a impairment loss on assets amounting to $59,213 thousands for the six months ended June 30, 2012.

(iii) Property, plant and equipment were pledged to financial institutions as collateral for loan as of June 30, 2012 and 2011, please refer to note 6.



～37～

(g) Land leasehold rights Location

Maturity period

2012.06.30

2011.06.30

Chang Jia Gang City, Jiang Su, China

1998.01.01~2045.12.24

$ 37,978

37,016 Xing Lin District, Xiamen City,China

1993.01.01~2043.01.01

138,809

135,697

Ji Mei District, Xiamen City, China

1996.05.30~2046.05.30

11,376

11,078 Fan Yu District, Guangzhou City, China

2006.11.01~2044.11.27

5,777

5,663

Shanghai City, Jiang Su, China

2007.12.31~2057.12.31

10,075

9,850 South of Zonglu Road, Changzhou, China and East of Zhongwu Avenue, Changzhou, China

2011.04.08~2051.02.27

47,920

-

No.CN7, Fu Yi Industrial Park, Chang Mei County, Hanoi City, Vietnam

2011.03.28~2057.10.19

186,685

188,719

Xian Nu Township, Jiangdo City – for food service and accommodation

2008.07.30~2048.07.24

-

31,259

Xian Nu Township, Jiangdo City –for accommodation

2008.07.30~2048.07.24

-

20,275

Less: Construction in Process

-

(20,275) Total

$ 438,620

419,282

Please refer to note 6 for details of land leasehold rights pledged to financial institutions as collateral for loans as of June 30, 2012 and 2011.

(h) Assets held for lease

Items Cost

Revaluation

increments

Total

Accumulated

depreciation

Net book value

2012.06.30

Land

$ 133,605

788,682

922,287

-

922,287

Buildings

250,528

-

250,528

140,547

109,981


389

-

389

389

-

Other equipment

19,268

-

19,268

19,268

-

Total

$ 403,790

788,682

1,192,472

160,204

1,032,268


(40,813)

Net book value

$ 991,455



～38～

Items Cost

Revaluation

increments

Total

Accumulated

depreciation

Net book value

2011.06.30

Land

$ 120,201

674,730

797,931

-

794,931

Buildings

250,645

-

250,645

136,947

113,698


389

-

389

389

-

Other equipment

19,652

-

19,652

19,624

28

Total

$ 390,887

674,730

1,065,617

156,960

908,657


(40,813)

Net book value

$ 867,844

Please refer to note 6 for details of above leased assets pledged to financial institutions as collateral for loans as of June 30, 2012 and 2011.

(i) Idle assets

Items Cost

Revaluation

increments

Accumulated

depreciation

Accumulated

impairment Net book value

2012.06.30

Land

$ 64,960

44,990

109,950

-

109,950


1,486,485

-

1,486,485

1,376,737

109,748

Other equipment

22,771

-

22,771

22,523

248

Total

$ 1,574,216

44,990

1,619,206

1,399,260

219,946


(54,779)

Net book value

$ 165,167

2011.06.30

Land

$ 64,961

44,990

109,951

-

109,951


1,678,963

-

1,678,963

1,571,336

107,627

Other equipment

22,828

-

22,828

22,331

497

Total

$ 1,766,752

44,990

1,811,742

1,593,667

218,075


(49,215)

Net book value

$ 168,860

Idle assets were pledged to financial institutions for loan as of June 30, 2012 and 2011, please refer to note 6.



～39～

(j) Short- term loans Items

2012.06.30

2011.06.30

Material purchase loans

$ 2,950,036

3,500,374 Credit loans

149,786

525,162

Collateralized loans

2,317,053

3,365,220 Bankers’ acceptance payable, net

569,255

598,008

$ 5,986,130

7,988,764

The maturity period of short-term loans was within one year. For the six months ended June 30, 2012 and 2011, interest rates ranged 1.03% to7.61% and 1.03% to 6.969%, respectively.

(k) Short-term notes and bills payable 2012.06.30

2011.06.30

Short-term notes and bills payable $ 43,150

-

For the six months ended June 30, 2012, interest rate of short-term notes and bills payable was 3.075%.

(l) Long-term loans Item

2012.06.30

2011.06.30

Material purchase loans

$ 847,534

914,938 Credit loans

95,830

276,894

Syndicated loans

5,565,000

3,755,000 Long-term commercial paper payable, net

39,840

92,814

Less: current portion of long-term loans

(667,279)

(772,370) Net value

$ 5,880,925

4,267,276

(i) For the six months ended June 30, 2012 and 2011, interest rates for long-term loans were floating and ranged from 2.08% to 7.11% and 2.579 to 6.80%, respectively.



～40～

(ii) Details of syndicated loans

(1) The Company Financial Institution Type of Loan Maturity Period Interest rate

Usage and redemption duration 2012.06.30 2011.06.30

Land Bank and 5 other banks

Syndicated loan－long- term accommodation with collateral Credit line of NTD$1,500,000 thousands

2010.02~ 2015.02 without revolving usage

Benchmark at annual rate plus 1.70%, and if the rate is lower than 2.6% in commencing or upon the coupon reset date, 2.6% will be the appropriate rate for syndicated loan .

Credit line is repayable in 9 semi annual installments starting from first time use. The Company shall pay 145,000 thousands in term 1to term 7; 240,000 thousand for term 8; 245,000 thousands for term 9, and all redemption amount and interest shall be paid back in the last term.

$ 1,065,000 1,355,000

Land Bank, TC Bank and 5 other banks

Syndicated loan－long- term accommodation with collateral Credit line of NTD$ 3,500,000 thousands

2011.06~ 2015.06, installment usage available, but without revolving uage

Benchmark at annual rate plus 1.15%

Interest shall be redempted each month, and the guarantor (Shan Young Assets Management Co., Ltd.) shall pay the redemption amount based on the joint venture contract with certain equity proportion. While the house, that is under construction and owned by Shan Yang Assets Management Co., Ltd., is going to be sold in the future, at least 70% of the sales revenue will be used to pay the unpaid portion of the loan. All redemption amount has to be paid on the due date.

3,500,000 1,400,000

Accommodation with collateral NTD 1,000,000 thousands (B contract)

2011.06~ 2015.06, installment and revolving usage available

" " 1,000,000 1,000,000

Total 5,565,000 3,755,000 Less: current portion of long- term loans (290,000) (290,000)

$ 5,275,000

3,465,000



～41～

(aa) Due to the reimbursement of the long- term loan to the financial institute, and the increasing operating turnover, the Company has signed a loan contract in syndication format with Land Bank and 5 other banks for 5 years as of February 2010. During the syndication period, these banks offered a total amount of $ 1,500,000 thousands which is not revolved use.

(ab) Due to the reimbursement of the long- term loan to the financial institute, and increasing operating turnover, the Company has signed a loan contract in syndication format with Land Bank, TC Bank and 5 other banks for 4 years as of June 2011. During the syndication period, these banks offered a total amount of $ 4,500,000 thousands which included a credit line of A contract that amounted to $3,500,000 thousands and is not revolved use and B contract of $1,000,000 thousands that is revolved use.

(ac) According to the regulation of syndication contract with Land Bank, TC bank and 5 other banks, the annual and semi- annual consolidated financial statements are required to be audited by the independent auditors to maintain a certain financial ratio or limitation. If the Company does not meet the regulation, it shall improve the situation within 5 months starting from October 1st of the audit year and May 1st of the subsequent year, and the date should be based on the report provided by the accountant. Otherwise, the company will have to pay the interest base on the original interest rate provided in the contract plus 0.25%, and it will also be fined on the remaining balance of the syndication loan by applying 0.05% interest rate. Besides, if the Company does not meet every single financial ratio or limitation after adopting IFRS, the violation should not be treated as breaking the commitment and it has the right to renegotiate the agreement.

(ad) According to regulation of the syndication contract, the financial ratio and limitation of the annual and semi- annual consolidated financial statement were as followed: Land Bank and 5 other banks

Current ratio ≧100% Debt ratio ≦180% Interest coverage ratio (EBITDA+ depreciation and amortization expense/ interest expense) ≧ 2 Stockholders’ equity ＞ 10,000,000 thousands



～42～

Land Bank, TC Bank and 5 other banks Current ratio ≧100% Debt ratio ≦ 200% Interest coverage ratio (EBITDA+ depreciation and amortization expense/ interest expense) ≧2 Stockholders’ equity ≧10,000,000 thousands

(ae) For the six months ended June 30, 2012 and 2011, the average interest rate of the Company as mentioned above ranged from 2.664% to 3.250% and 2.579% to 3.070%, respectively.

(af) As of June 30, 2012, the consolidated financial statement had complied with the regulation of syndication contract as mentioned above.

(ag) As of June 30, 2012, the consolidated financial statement had complied with regulation of syndication contract as mentioned above.

(2) Please refer to note 6 for details of the Consolidated Company’s assets pledged to financial institution as collateral for loans mentioned above.

(m) Income tax

(i) Effective January 1, 2010, according to the revised Income Tax Law announced on June 15, 2010, the statutory income tax rate is reduced further to 17%. Therefore, the Company and its domestic consolidated subsidiaries are subject to a statutory income tax rate of 17% for both the six months ended June 30, 2011 and 2010. The Company and its domestic consolidated subsidiaries also comply with the Basic Income Tax Act when calculating its income tax.

The income tax rates of VMEP, VCFP and Duc Phat are 18%. As for SMV, the income tax rate for the first 12 years of operation is 15%, and then it rised to 28% after that. In addition, SMV also has a favorable treatment of 3 year tax-exemptation since it started to gain from its operation, and 50% tax free for the following 7 years.

The subsidiaries in Mainland China adopted the Enterprise Income Tax which was approved in 2007 by the People's Republic of China. The income tax rate has risen annually since 2008 for 18%, 20%, 22%, 24% and 25%; a general tax rate of 25% will be adopted after 2012.



～43～

(ii) The majority of stockholders present at the Company’s shareholders’ meeting did not approve the distribution of 2011 earnings. The Company has estimated a 10% surtax on undistributed earnings which amounted to $123,803 thousands for conservative. For the six months ended June 30, 2012 and 2011, the components of the income tax were as follows:


2012

2011

Current income tax expense $ 52,185

172,740 Deferred income tax expense (benefit) 1,436

(30,580)

Prior years income tax adjustment (6,133)

8,530 10% surtax on undistributed earnings 123,803

-

Income tax expense $ 171,291

150,690

The components of deferred income tax expense (benefit) were as follows:


2012

2011

Unrealized gross profit/ gain on disposal of fixed assets

$ (236) (654)

Investment tax credit/ loss carry-forward 10,895

95,923 Gain on foreign investment under equity method (14,091)

62,804

Cumulative translation adjustments (16,973)

(31,997) Valuation on allowance-deferred income tax assets 5,881

(110,662)

Unrealized exchange gain 11,952

(33,854) Others 3,972

(12,140)

Total $ 1,436

(30,580)

(iii) The income tax calculated on pretax financial income at a statutory income tax rate was reconciled with the income tax expense as reported in the consolidated financial statement for the six months ended June 30, 2012 and 2011were as follows:


2012

2011

Income tax calculated on pre-tax financial income $ 115,729 333,281 Prior years income tax adjustment (6,133)

8,530

10% surtax on undistributed earnings 123,803

- Dividends income (8,150)

(1,973)

Investment gain under equity method (domestic) (38,080)

(53,625) Investment tax credit -

(39,154)

Valuation on allowance-deferred income tax assets 5,881

(110,662) Others (21,759)

14,293

Income tax expense $ 171,291

150,690



～44～

(iv) As of June 30, 2012 and 2011, the temporary differences, loss-carry forwards and income taxes credits and the related income tax effect thereof resulting in deferred income tax assets (liabilities) were as follows:

2012.06.30

2011.06.30

Amount

Income Tax

Effect Amount

Income Tax

Effect

Current:

Overrun of allowance for uncollectible accounts $ 142,246

24,182

126,115

21,440

Sales discount and allowance─bonus 85,873

14,599

209,055

35,539

Unrealized gross profit and gain on disposal of property,

plant and equipment 4,667

7,924

68,578

11,659

Estimated warranty expense 120,565

20,496

98,021

16,664

Allowance for loss on inventory market price decline and

obsolescence 122,655

20,851

138,570

23,557

Loss carry-forward 142

24

10

-

Others 46,945

10,206

45,205

7,684

Valuation on allowance

(23,583)

(23,719)

Deferred income tax assets─current

74,699

92,824

Deferred income tax assets─current, net

$ 74,699

92,824

Non- current:

Loss carry-forward 95,033

16,156

1,371,764

233,200

Accrued pension liabilities 41,296

7,020

-

-

Investment tax credits: deductible 156,486

156,486

430,041

430,041

Pension expense over the limited amount 1,106,138

188,043

1,063,422

180,781

Cumulative translation adjustments 1,440,399

244,868

1,754,291

298,230

Others 223,722

38,032

38,080

6,474

Valuation on allowance

(48,847)

(332,965)

Deferred income tax assets─non-current

601,758

815,761

Reserve for foreign investment loss (12,336)

(2,097)

(130,376)

(22,164)

Gain on foreign investment gain (3,666,758)

(623,349)

(3,812,398)

(648,108)

Others (173,410)

(29,480)

-

Deferred income tax liabilities ─ noncurrent

(654,926)

(670,272)

Deferred income tax (liabilities) assets─ noncurrent, net

$ (53,168)

145,489



～45～

(v) For the years through 2010, Shan Young Assets and Nanyang Industry’s income tax returns had been examined by the tax authorities. Also, for the years through 2009, the Company’s and other subsidiaries’ income tax returns had been examined by the tax authorities. According to the Income Tax Act, taxation may be made on its net income after deduction of losses incurred in the preceding ten years as verified and determined by the tax authority.

As of June 30, 2012, the amounts of the prior year loss carry-forward to the Company and its domestic consolidated subsidiaries were as follows:

Year of occurrence Expiry year Amount 2003 2013 $ 25,664 2004 2014 7,501 2007 2017 356 2008

2018

28,794

2009

2019

16,897 2010

2020

15,963

Total

$ 95,175

(vi) The Company and its domestic consolidated subsidiaries are entitled to investment tax credits for investments in automatic equipment, pollution prevention equipment, research and development, employee training expenditures, etc. As of June 30, 2012, according to R.O.C. Income Tax Act, the unused investment tax credits which may be applied to offset against income tax in the future are as follows:

Years of occurrence

Unused balance

Expiry year 2008

$ 34654

2012

2009

121832

2013

$ 156,486



～46～

(vii) Shareholders’ imputation tax credit account and tax rate:

2012.06.30

2011.06.30

Accumulated earning in 1998 and thereafter $ 1,591,969 922,080 Balance of stockholders’ imputation credit account $ 70,555 24,259

For the six months ended June 30

2012 2011

Expected or actual deductible tax ratio (expected) 3.34%

(actual) 5.51%

(viii) Related information on subsidiaries in Mainland China

The subsidiaries in Mainland China adopted the Enterprise Income Tax which was approved in 2007 by the People's Republic of China. The income tax rate has been rising annually since 2008 to 18%, 20%, 22%, 24% and 25%. A normal tax rate of 25% will be adopted after 2012.

(n) Pension Plan

For the six months ended June 30, 2012 and 2011, the related information of pension fund were as follows:


2012

2011

Balance of pension fund─ending

$ 1,052,817

973,540

Current pension expenses:

Defined benefit pension plan

$ 104,246

100,657

Defined contribution pension plan

$ 27,058

26,403

Accrued pension liability

$ 1,860,029

1,875,714

(o) Common Stock

As of June 30, 2012 and 2011, the authorized common stock of the Company and the outstanding common shares of stocks amounted to $9,500,000 thousands, $8,963,768 thousands, $8,500,000 thousands and $8,456,385 thousands, respectively.



～47～

(p) Treasury stock

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

(ii) As of June 30, 2012 and 2011 the Company’s shares held by its subsidiaries were as follows:

2012.06.30

Number of stocks holding

(thousands)

Amount

Market value

Name of subsidiaries

2012.01.01

2012.06.30

Hsu Mao Investment Co., Ltd.

12,556

12,556

$ 242,331

19.30

Sheng Mao Investment Co., Ltd.

5,046

5,046

$ 97,388

19.30

Ching Ta Investment Co., Ltd.

981

981

$ 18,933

19.30

Nanyang Industries Co., Ltd.

4,751

4,751

$ 91,694

19.30

2011.06.30

Number of stocks holding

(thousands) Amount

Market value

Name of subsidiaries

2012.01.01

2012.06.30

Hsu Mao Investment Co., Ltd.

11,845

11,845

$ 206,695

17.45

Sheng Mao Investment Co., Ltd.

4,760

4,760

$ 83,062

17.45

Ching Ta Investment Co., Ltd.

926

926

$ 16,159

17.45

Nanyang Industries Co., Ltd.

4,482

4,482

$ 78,211

17.45



～48～

(q) Earnings Distribution and Dividend Policy

(i) Dividend Policy:

(1) The Company’s Article of Incorporation requires that all after-tax earnings shall first offset the cumulative losses, and then 10% of the remaining balance should be appropriated as legal reserve. In addition, special reserve should be provided in accordance with the relevant laws. The remainder, together with the unappropriated earnings from prior years and the reversal from special reserve are accounted for as distributable earnings which could be appropriated in accordance with the distribution proposal submitted by the board of directors to the stockholders for resolutions. Stockholders’ dividends shall not be greater than 10% of current issued capital. The remaining earnings may be distributed in the following percentages: up to 2% as remuneration to directors and supervisors, 1% as employees bonuses. The rest, if any, may be distributed as stockholders’ bonuses.

(2) The Company is operating in a mature stage of the life cycle, but the circumstances will change because of other external factors, and the Company will still aggressively seek to continue to expand in domestic and foreign markets. Therefore, the amount of dividends appropriated should be based on the current earnings first and then take into account the Company’s funding demand in the future. Also, the tax regulation and the effect on stockholders have to be considered in order to meet the objective of maintaining stable dividends. Dividends were paid in cash or stocks, and the cash dividends distributed in a year shall not be lower than 10% of stock bonus payout in the year. When the Company is flushed with earnings and working capital, the percentage of distribution will be raised. Dividends appropriation shall be proposed by the Board of Directors, and it should be submitted to the stockholders’ meeting for approval .



～49～

(ii) Earning Distribution:

(1) In pursuant to the with Regulation of Securities and Future Bureau Commission, a special reserve is set aside from the current year’s net income after tax and the prior year’s unappropriated earnings at an amount equal to debit balance of contra accounts in the shareholders’ equity such as unrealized loss on financial instruments and cumulative translation adjustments. When the debit balance of any of these contra accounts in the shareholders’ equity is reserved, the related special reserve can be reserved.

(2) The meetings of the board of directors and the Company’s shareholders’ resolved the distribution of 2011 and 2010 earnings on April 26, 2012 and May 27, 2011, respectively. Moreover, the majority of shareholders present at the meeting held on June 6, 2012 did not approve the financial statements for the year ended December 31, 2011, and as well as the distribution of 2011 and 2010 earnings, so the Company expects to hold another shareholders’ meeting to approve the two cases above. The information related to the financial statements and the distribution of the Company’s earnings is available on the Market Observation Post System website of the Taiwan Stock Exchange. The relevant information of earnings distributed as dividends, employees’ bonuses and remuneration to directors and supervisors were as follows:


2011

2010

Common stock dividends per share(dollars)－Cash

$ 0.45

0.1

Common stock dividends per share(dollars)－Shares

$ -

0.6

Employee bonus－Cash

$ 7,421

313

Remuneration to directors and supervisors

14,842

625

Total

$ 22,263

938



～50～

For the year ended December 31, 2010, the expected amount of remuneration to directors and supervisors and employees’ bonus compared with actual amount were as follows:

For the years ended of

December 31, 2010

Actual distribution

amount

Amount recognized in

financial statement

Variance

Remuneration to directors

and supervisors $ 625

2,282

(1,657)

Employee bonus － Cash

313

1,141

(828)

$ 938

3,423

(2,485)

The differences between the amounts approved in the shareholders’ meeting and those accrued and recognized in the financial statements were accounted for as changes in accounting estimates and recognized in profit or loss (recorded as other income) in 2011. For the year ended December 31, 2011, the directors’ and supervisors’ remuneration and the employee bonus were not approved by the majority of stockholders present at the meeting. Therefore, the Company would like to hold another shareholders’ meeting. The management is expecting that the differences between the amounts which are yet to be approved in the shareholders’ meeting and those recognized in the financial statements, if any, will be treated-as changes in accounting estimates and charged to profit or loss.

(3) Based on the resolutions passed by the Company’s board of directors, the directors’ and supervisors’ remuneration and the employee bonuses should be appropriated at 2% and 1% of net income after tax, respectively. The estimated directors’ and supervisors’ remuneration and the employee bonuses are $295 thousands, $7,742 thousands, $148 thousands, and $3,871 thousands for the six months ended June 30, 2012 and 2011, respectively. If the bonus shares are resolved to be distributed to employees, the number of shares is determined by dividing the amount of bonus by the closing price (after considering the effect of cash and stock dividends) of the shares of the day immediately preceding the stockholders’ meeting. The differences between the amounts approved in the shareholders’ meeting and those recognized in the financial statements, if any, are to be accounted for as changes in accounting estimates and recognized in profit or loss.



～51～

(r) Earnings per Share (EPS)

For the six months ended June 30, 2012 and 2011, calculations of primary share were as follows:


2012

2011

Primary earnings per share－current

Before

income tax

After

income tax

Before

income tax

After

income tax

Net income

$ 455,709

322,685

902,086

890,821

Weighted- average common shares outstanding

(in thousands) 873,042

873,042

823,625

823,625

Primary earnings per share (in dollars)

$ 052

0.37

1.10

1.08

Primary earnings per share－retrospective

Weighted- average common shares outstanding

(in thousands) 873,042

873,042

873,042

873,042

Primary earnings per share－retrospective

(in dollar) $ 0.52

0.37

1.03

1.02

(s) Employee stock option

In order to attract and retain excellent employees as well as to enhance the motivation and coherence of the staff, the Company’s subsidiary (VMEPH) had issued employee stock options covering a total number of 20,000 units in February, 2008,. Each unit may subscribe for one common stock share at an exercise price of HK$607 per share. VMEPH recognized the compensation cost under fair value method. As of December 31, 2008, the company had recognized a compensation cost of US$1,274 thousands. The employee stock options are valid within five years, and certain percentage for its holders who are eligible to exercise the right are as follows:

Expiration

6 months

20% 1 year

45%

2 years

70% 3 years

100%



～52～

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


2012

2011

Quantity of

stock option

(thousand shares)

Weighted-average

exercise price (HKD)

Quantity of

stock option

(thousand shares)

Weighted-average

exercise price (HKD)

Outstanding at the

beginning of the period

11,874 $ 2.9 13,512 2.9

Granted

-

-

-

-

Forfeited

-

-

-

-

Outstanding at the, end

of the period 11,874

$ 2.9

13,512

2.9

Exercisable, at the end of

the period 11,874

9,458

As of June 30, 2012 and 2011, the information about the exercise price of stock option outstanding were as followed:

Share option outstanding

Exercisable option outstanding

Granted

date

Exercise price

(HKD)

Quantity of

stock option

(thousand shares)

Weighted-

average

expected life of

the options

Weighted-

average

exercise price

(HKD)

Quantity of

stock option

(thousand shares)

Weighted-

average

exercise price

(HKD)

2012.06.30 2008.02.04

$ 2.9

11,874

0.5

2.9

-

-

2011.06.30 2008.02.04

2.9

20,000

1.50

2.9

-

-

The estimate of the fair value of the share options granted is measured based on the binomial option pricing model. The contractual life of the option is used as an input into this model. Expectations of early exercise are incorporated into the binomial option pricing model.

2012.06.30

2012.06.30

Expected volatility

55.15%

55.15% Risk free interest rate

2.06%

2.06%

Option life

0.5 year

1.5 years



～53～

(t) Information on financial Instruments

(i) Fair value of financial instruments

The Non-derivative short-term financial instruments include cash and cash equivalents, notes and accounts receivable, accounts receivable and account payable from related parties, short-term debt, other payables and accrued expenses payables. The carrying values on the report date of these financial instruments approximate to their fair values. Because of their short maturities, the carrying value can be reasonably estimated.

As of June 30, 2012 and 2011, except for the financial assets and liabilities described above, the information on the Consolidated Company’s other financial assets and liabilities were as follows:

2012.06.30

2011.06.30

Book value

Fair value

Book value

Fair value

Financial Assets:

Financial assets reported at fair value through profit or loss－current

$ 91,256 91,256 1,740 1,740

Available-for-sale financial assets－current

16,955 16,955 56,245 56,245

Held-to-maturity financial assets －current

228,579 228,579 - -

Available-for-sale financial assets－noncurrent

10,000 10,000 16,023 16,023

Financial assets carried at cost －noncurrent

70,013 - 110,144 -

Investment in debt security with no active market-noncurrent

20,000 - 20,000 -

Other financial assets－noncurrent

825,066 825,066 803,674 803,674 Financial Liabilities:

Long-term loans (including current portion of long- term loans)

6,548,204 6,548,204 5,039,646 5,039,646

Derivatives financial instrument:

Financial assets:

Forward exchange swap contracts

13,818 13,818

- -

Financial liabilities:

Forward exchange swap contracts

- -

70,059 70,059



～54～

Methods and assumptions used by the Consolidated Company to evaluate the fair value of financial instruments were as follows:

(1) Financial assets reported at fair value through profit or loss, available-for-sale financial assets and held-to-maturity financial assets :

The fair values are based on their quoted prices in an active market. For those with no quoted market prices, their fair values are determined using valuation techniques incorporating estimates and assumptions consistent with those generally used by other market participants to price financial instruments, and the information is obtainable by the Consolidated Company.

(2) Financial assets carried at cost

Financial assets carried at cost are those companies not publicly traded. As a result, the fair value thereof cannot be estimated in practice.

(3) The fair value of investment in debt security with no active market is determined by using valuation techniques, under which, the estimates and assumptions used are consistent with the prevailing market conditions.

(4) Other financial assets－non-current, such as guaranteed refundable deposits that are indispensable for the ongoing operation of the Consolidated Company. It is impossible to estimate the time necessary to accomplish the exchange of assets. Consequently, the fair market value of such financial instruments cannot be established. Therefore, the book value is used as the fair market value.

(5) The fair market value of long-term loan is determined by the present value of the future cash flow.

(6) The fair value of the derivative financial instrument is determined by using the valuation techniques, under which, the estimates and assumptions used are consistent with the prevailing market conditions.

(ii) Please refer to note 6 for financial assets were pledged as collateral as of June 30, 2012 and 2011.



～55～

(iii) Information on financial risks

As of June 30, 2012 and 2011, the information on financial risk of the Consolidated Company were as follows:

(1) Market risk

As of June 30, 2012 and 2011, the financial assets carried at fair value with floating interest rate are $10,000 thousands and $16,023 thousands, respectively. Because the interest rates for bond investments are fixed, the fair value may be influenced by the fluctuation of the market’s interest rate. One percentage decline in market rate will cause the fair value of bond investments to decline approximately by $100 thousands and $160 thousands, respectively.

(2) Credit Market

Credit risk represents the potential loss that would be incurred by the Consolidated Company if the counter-parties breach the contracts. The counter-parties are domestic reputable financial institutions. Therefore, the management does not expect to be defaulted by those parties. The primary implicit credit risk of the Consolidated Company arises from cash, cash equivalents, and accounts receivable. Cash and cash equivalents are deposited in various financial institutions. The Consolidated Company further controls its credit risk from the possibility of being exposed to each financial institution, and it makes sure that there is no significant concentration of credit risk.

Since the clients of the motorcycle departments of the Consolidated Company are well-diversified, there is no concentration of transactions with any single client. In order to reduce its credit risk, the Consolidated Company continually evaluates the financial position of the clients, the indication of the impairment of the accounts receivable, as well as the features of credit risk (in separate and groups), and requests collateral from certain clients if necessary.

(3) Liquidity risk

The capital and operating funds of the Consolidated Company are sufficient to meet all current contract obligations. Therefore, management believes its liquidity risk is minimal.



～56～

(4) Cash flow risk arising from fluctuation in interest rates

As of June 30, 2012 and 2011, the financial liabilities exposed to the cash flow risk amounted to $12,534,334 thousands and $13,028,410 thousands, respectively. Because of the Consolidated Company’s short-term and long-term loans carried floating interest rates, the effective rate changes along with the fluctuation of the market interest rate thereby influence the future cash flow.

(iv) Risk control, hedge strategies and activities The Company entered into derivative contracts to manage the exposures due to the fluctuations of exchange rate in operating and financial activities. In accordance with the regulation, the main purpose of holding derivative financial assets for hedging is to avoid risk. If the hedge transaction does not comply with appropriate accounting principle, the Company shall recognize those as held for trading financial assets or liabilities.

As of June 30, 2012 and 2011, the Company adopted the fair value hedge accounting and applied it on its material purchase loans-foreign currency, which could be influenced by the risk arising from the fluctuations of the exchange rate. The risk evaluated by the Company may be significant, thus forward exchange agreement was bought for hedging. For details of the derivative financial instruments for the hedge designation as of June 30, 2012 and 2011, please refer to Note 4(b).

(u) Others The Consolidated Company's significant foreign currency denominated financial assets and liabilities were as follows:

June 30, 2012 June 30, 2011

Foreign Currency

Exchange Rate

NTD

Foreign Currency

Exchange Rate

NTD

Financial Assets Monetary Items USD 97,998 29.8700 2,927,200 155,992 28.7500 4,484,770

EUR 21,158 37.5800 795,118 22,607 41.6600 941,808

JPY 79,223 0.3749 29,701 62,384 0.3576 22,309

HKB 712 3.8530 2,743 8,443 3.6950 31,197

CNY 352,590 4.7319 1,668,421 324,988 4.4782 1,455,361

VND 1,276,228,724 0.0014 1,786,720 1,454,606,486 0.0014 2,036,449 Long-term Equity Investments RMB 350,910 4.7319 1,660,464 314,343 4.4782 1,407,691

VND 18,220,169 0.0014 25,461 16,079,126 0.0014 22,510 Financial Liabilities Monetary Items USD 136,524 29.8700 4,077,972 106,248 28.7500 3,05,4630

EUR 4,158 37.8500 156,258 299 41.6600 12,456

CNY 200,852 4.7319 950,412 229,855 4.4782 1,029,337



～57～

5. RELATED-PARTY TRANSACTIONS (a) Name of related party and relationship with the Company

Name of Related Party Relationship with the Company

Zoeng Chang Industry Co., Ltd. (Zoeng Chang) Subsidiary’s investee company under equity

method

King Long United Automotive Industry Co. Ltd

(Xiamen King Long)

〃

Vietnam HongZheng Technology Co.,Ltd

(Vietnam HongZheng)

〃

Chongqing Kuayue Sanyang Co.,Ltd

(Chongqing Kuayue)

〃

Chinlead Co., Ltd. (Chinlead) The same chairman of the Company

Chinfon Global Co.,Ltd (Chinfon) 〃

Fang Ta Trading Co., Ltd. (Fang Ta) 〃

Henchun Industrial Co., Ltd. (Henchun Industrial) 〃 Teamworld Industry Co., Ltd. (Teamworld) The same chairman of the board of directors

Nanyang Insurance Proxy Co. Ltd.

(Nanyang Insurance)

〃

Guang Zhou Ching Jung Co., Ltd.

(Guang Zhou Ching Jung)

Its main stockholder is a director of the Company

XiangXin Industrial Co., Ltd. (Xiang Xin) The same board of directors of Chao Cin

Taiwan Keihin Carburetor Co., Ltd.

(Taiwan Keihin)

The Company is the board of director

Hsu Yang Technology Co. Ltd.

(Hsu Yang Technology)

The board of director is same as the vice

chairman of Nanyang

ChaoCin Industrial Co., Ltd. (Chao Cin) The chairman of board of directors is the same as

the vice chairman of Nanyang

King Zone Co. Ltd. (King Zone) The supervisor is the same as the board of

director of Ching Ta

King Profit Enterprises Limited Join company of the Company

Hangzhou Sanyang Trading Co., Limited

(Hangzhou Sanyang)

Join company of the Company (Disposed on

October 5, 2011)



～58～

(b) Significant transactions with related parties

(i) Sales (1) Significant sales transactions with related parties as of June 30, 2012 and 2011 were

summarized as follows: For the six months ended June 30 2012 2011 % of % of

Name of related parties Amount net sales Amount net sales Teamworld $ 97,014 1 121,213 1 King Zone 641 - - - Fong Ta 156 - 587 - Hangzhou - - 505 - Others 184 - 811 - $ 97,995 1 123,116 1

The collection period for the Consolidated Company’s related parties is 15 to 45 days after shipment was made. In addition, for delays in payment upon agreement, the average interest rates on loans of the Company will have on addition of 0.25%.

(2) Technical service

Technical and consulting services revenues from related parties as of June 30, 2012 and 2011, were stated below: For the six months ended June 30 2012 2011 % of technical % of technical

Amount service revenue Amount

service revenue

Teamworld $ 9,718 2 8,820 2 Zoeng Chang 1,660 - 1,654 - King Zone 1,153 - 1,163 - Chongqing Kuayue 820 - - - Others - - 3,055 1 Total $ 13,351 2 14,692 3



～59～

(3) Notes and accounts receivable resulting from sales transactions and technical service with related parties as of June 30, 2012 and 2011, were as follows: 2012.06.30 2011.06.30 Amount % Amount % Teamworld $ 58,086 97 70,390 94 Guangzhou Ching Jung 27,717 46 26,231 35 Hsu Yang Technology 14,031 24 14,031 19 HangZhou Sanyang - - 32,517 43 Others 1,602 3 4,649 6 Total 101,436 170 147,818 197 Less: allowance for uncollectible accounts (41,748) (70) (72,779) (97) Net $ 59,688 100 75,039 100

(ii) Purchases

(1) Purchases from related parties as of June 30, 2012 and 2011, were as follows: For the six months ended June 30 2012 2011

Name of % of net % of net related parties Amount purchases Amount purchases

Taiwan Keihin $ 240,304 2 216,294 2 Shian Shin 110,479 1 98,746 1 Zoeng Chang 104,546 1 85,743 1 ChinFong 61,666 1 52,700 - King Zone 40,593 - 22,450 - Chinlead 38,572 - 40,528 - Fong Ta 10,964 - 10,318 - King Long - - 2,731 - Hangzhou - - 3,807 - Others - - 13 - Total $ 607,124 5 533,330 4

The payment term was 45 days after examination for the Consolidated Company’s related parties, and the purchase prices were according to market price with no significant differences from general suppliers.



～60～

(2) Notes and accounts payable resulting from the purchase transactions with related parties as of June 30, 2012 and 2011, were as follows: 2012.06.30 2011.06.30 Amount % Amount % Taiwan Keihin $ 97,824 45 36,775 26 Zoeng Chang 40,073 18 31,468 22 Shian Shin 28,987 13 24,990 18 ChinFong 21,013 10 18,152 13 Chinlead 13,617 6 14,658 10 King Zone 11,993 5 6,752 5 Others 6,683 3 8,430 6 $ 220,190 100 141,225 100

(iii) Others 2012.06.30 2011.06.30 Other Receivables(Accounted as other

financial assets-current)

Amount % Amount % Hsu Yang $ 4,903 1 4,903 - Nanyang 1,632 - 605 - Guo Yang 1,858 - 1,858 - Shian Shin 1,123 - 3,505 - Total 9,516 1 10,871 - Less: allowance for uncollectible accounts (6,761) (6,761) NET $ 2,755 4,110



～61～

(iv) Service incomes and fees

(1) Service incomes and fees from related parties as of June 30, 2012 and 2011, were as follows:

Nature Related party June

30,2012 June

30,2011 Consulting、commission and other incomes

Shian Shin $ 10,325 11,293

Nanyang 8,839 7,572 Others 26 62 Total $ 19,190 18,927

Consulting and other expenses ChaurChin 897 1,278 Shian Shin 2,398 1,608 Hangzhou - 749 Others - 465 Total $ 3,295 4,100

Maintenance and warranty Teamworld $ 4,631 7,823

(2) The Consolidated Company signed a service contract with Guang Zhou Ching Jung, for Guang Zhou Ching Jung to collect information on investments, technologies, and other related aspects of the market environment in Mainland China in 2012 and 2011 and the contract price amounted to CNY$300 thousands and CNY$2,000 thousands, respectively. The Company had fully paid CNY$180 thousands and CNY$1,000 thousands as of June 30, 2012 and 2011, respectively.

(v) Lease of real estate

(1) The Consolidated Company leased a portion of their land and buildings to related parties as automobile repair shops, and receive the rent monthly. The rental income for the six months ended June 30, 2012 and 2011 were as follows:

For the six months ended June 30 Lessee 2012 2011

ChaurChin $ 34 124 ShianShin 494 640 Total $ 528 764



～62～

(2) As of June 30, 2012 and 2011, the subsidiaries’ monthly rental expenses of renting land and building for operating activities from related parties were both $34 thousands.

(vi) Property transactions

As of June 30, 2012 and 2011, the Consolidated Company purchased machinery and miscellaneous equipment from related parties, and related information was as follows:

Name of For the six months ended June 30 related parties Description 2012 2011

Zoeng Chang Machinery and Mold $ 480 2737 King Zone 〃 1,634 120 Taiwan Keihin 〃 290 1,876 Chinlead 〃 496 - Total $ 2,900 4,733

(vii) Others

(1) As of June 30, 2012 and 2011, the Consolidated Company’s receivable for advertisement allowance and warranty from Xiamen King Long amount to $137 thousands and $238 thousands, respectively. (Accounted as other financial assets-current)

(2) As of June 30, 2012, the Company deposited $1,654 thousands for the proposal regarding the low-floor bus with Xiamen King Long accounted as other financial assets-current.

(3) Rewards Income

For the six months ended June 30, 2012 and 2011, NanChen received rewards income by purchasing with Xiang Xin for $687 thousands and $873 thousands, respectively.



～63～

6. PLEDGED ASSETS

Accounts Pledged to Secure June 30, 2012 June 30, 2011

Accounts and notes receivables Short-term loans $ 174,897 122,780

Other financial assets－current 〃 606,834 622,077

Inventory 〃 61,543 20,275

Long term equity investments 〃 153,094 234,005

Other financial assets－non-current Letter of credit on financing guarantee、security

deposit and long-term and short-term loans for

grand sub-subsidiaries-Xiashing and Qingzhou

Engineering

449,992 468,625

〃 Security deposit for custom clearance and arms

purchasing from National Defense Department

303,300 265,984

Plant, Property and Equipment Long-term and short-term loans 8,652,914 8,481,767

Assets held for lease 〃 816,830 738,282

Land leasehold rights 〃 138,809 135,697

Idle assets 〃 64,480 104,534

Other assets 〃 159,441 191,740

Total $ 11,582,134 11,385,766

7. MAJOR COMMITMENTS AND CONTINGENCIES

(a) As of June 30, 2012 and 2011, the Company and Nanyang Industry’s unused letters of credit were amounted to USD$18,898 thousands and USD$28,308 thousands, respectively.

(b) As of June 30, 2012 and 2011, the Consolidated Company’s unpaid portion of construction in process, and software contracts amounted to $32,199 thousands and $22,842 thousands, respectively.

(c) As of June 30, 2012 and 2011, the promissory notes issued by the Company for finance guarantee amounted to $27,922 thousands and $16,924 thousands, respectively.

(d) As of June 30, 2012 and 2011, Nanyang Industry issued promissory and installment notes for loans were amounted to $7,104 thousands and $333,860 thousands, respectively.

(e) As of June 30, 2012 and 2011, the project contracts of Nova Design amounted to $96,129 thousands and $198,067 thousands, respectively, and the unearned revenues amounted to $62,212 thousands and $137,068 thousands, respectively.



～64～

(f) As of June 30, 2012, the Consolidated Company’s rent payable expires in the next five years:

Periods Amount 2012.07.01~2013.06.30 $ 109,808 2013.07.01~2014.06.30 80,129 2014.07.01~2015.06.30 63,279 2015.07.01~2016.06.30 47,656 2016.07.01~2017.06.30 28,563

$ 329,435

As of June 30, 2012 and 2011, Nanchen Industry’s installment notes payable for rental contracts amounted to $964 thousands and $3,856 thousands; Nanyang Industry’s refundable deposits for renting service factories and business sites, accounted for as other financial assets－noncurrent, amounted to $22,449 thousands and $22,938 thousands, respectively.

(g) In June, 2009, the Company acquired a contract with the the Ministry of National Defense Producing Light Tactical Vehicles, and the total amount of this contract was $4,851,903 thousands. As of June 30, 2012 and 2011, the Company’s sales revenue received in advance were both $77,500 thousands, and the amounts of the performance bond and the advance payment bond applied from the bank were $242,595 thousands and $77,500 thousands, respectively. $101,800 thousands and $39,800 thousands were deposited at the bank by the Company as guarantee for the above contract bonds. According to the contract, the Company ought to deliver the vehicle samples for testing in advance, and the vehicles must be delivered in batches separately within 15, 19 and 23 months after the contract is signed. If there is a batch-delivery delay, 0.1 ‰ of total amount of the batch will be accumulated day by day as liability for the delay, and 20% will be the maximum amount for the liability. According to the contract on December 1, 2009, the Company delivered the Light Tactical Vehicle samples for testing. However, during this period, the mediation for disputation regarding the low beam headlights’ aiming angle was applied by the Company to the Public Construction Commission, Executive Yuan. Afterwards, on January 6, 2012, the Public Construction Commission suggested that the reason why the product performance testing didn’t qualify was because the vehicle samples was tested with no adjustment. Both parties shall re-deliver and re-test the samples according to the contract within seven days after the mediation is settled.



～65～

The Company and the Procurement Center of Armaments Bureau both agreed on the mediation proposed by the Public Construction Commission. The vehicle samples qualified the testing procedure performed by both parties on August 14, 2012. In addition, the Armaments Bureau claimed that the delay of the first batch was 372 days which should be used to calculate the penalty. However, according to the attorney’s evaluation on the contract, the Company claimed that they could begin mass producing only if the vehicle samples were qualified, and the testing period should not be included in the performance period. Therefore, the actual performance period (including the six contracts period and testing period) had been extended reasonably and it should not be the same as the one shown on the contract.

(h) Regarding to the investigation on tariff evasion of the Company’s substantially relative subsidiary, Xia Shing Motorcycle Co. Ltd, the local government decided on January 10, 2011 that the tariff and the value-added tax, which amounted to $320,304 thousands (RMB$71,965 thousands) must be paid. The case was closed after Xia Shing Motorcycle paid the tax on time.

(i) In March, 2011, Taipei Revenue Service indicated that the preferential tax rate for parking lots is no longer applied to Shan Young Asset’s six parcels of land which are located at 3rd Subsection of Tanmei Section. Instead, the normal tax rate will be applied to the said parcels of land starting 2011 based on the inspection result of the land usage. The total tax amounted to $40,741. However, Shan Young Asset applied for reassessment, and Taipei Revenue Service has not replied yet. As of June 30, 2012, the land value tax payable of $40,741 was estimated by Shan Young Asset.

(j) On November 17, 2011, Taipei Revenue Service (Neihu Branch) sent a letter to the Company’s subsidiary, Shan Young Asset Management Co. Ltd, claiming that the land Nos. 323, 324, 345 and 346, which are located at 3th Subsection of Tanmei Section, Neihu District, Taipei City, was settled as trust registration to Ta Chong Bank Co., Ltd. on May 6, 2011. According Article 34 of Business Mergers And Acquisitions Act, the Company should pay the land value increment tax amounting $697,882 thousands which was registered under Shan Young Asset. Those lands, other real estates and relative operations were segmented from the Company to its subsidiaries for efficient asset management which was approved by the board of directors on June 24, 2004. Afterwards, on November 5, 2004, the Company reported the current land value to the tax authority, and the unpaid land value increment tax was registered under Shan Young Asset which was approved by Bei-Shi-Ji-Nei-Hu-Zeng-Zi Order No.09360911600.

The Company had legally applied for the tax record review which is still currenting waiting for the assessment of Taipei Revenue Service’s.



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(k) Shan Young Asset together with Meifu Construction Co., Ltd. have been constructing luxurious buildings at lands located at 3rd Subsection of Tanmei Section, Neihu District, Taipei City since January, 2008. Shan Young Asset gets 46% of the portion and Meifu Construction Co., Ltd. gets 54% of it. As of June 30, 2012, Shan Young Asset applied for a land trust registration in order to successfully complete the construction project:

Item

Trustee Trust

Period

Area of Trust Six land No. 323, etc, located at 3rd Subsection of Tanmei Section

Ta Chong Bank Note Land Trust

Note: The period of the land trust registration started from April 25, 2011 and will end until all of the following conditions are met: (1) When the construction project and the ownership registration of the building (which

is applied for the first time) are completed. (2) When the land trust registration is cancelled and the distribution of the earnings is

completed. In addition, the buildings appropriated to Shan Young Asset should be pledged to Ta Chong Bank as top priority when the restricted right of the land appropriated to Meifu Construction is cancelled.

(l) The Company’s sub-subsidiaries, Plassen International Limited, and Cosmos System Inc. and its investee companies, Xiashing Motorcycles Co.Ltd., Qingzhou Engineering Co., Ltd. and Xiashing Motorcycle Sales Co., Ltd., had been in a poor financial situation since 2011, thus, the Company’s subsidiary, SY International Ltd., had made commitments of supporting those companies.

(m) On 25 January 2011, the Board of Directors of VMEPH (a sub-subsidiary of the Company) resolved to relocate one of its factories from Ha Tay province to a new location in Hanoi, because VMEPH has been informed that the Vietnamese government intends to redevelop Ha Tay province. The relocation is expected to be completed by the end of September, 2012. The approved budget for the relocation and construction of the new factory is $677,437 thousands (US$22,676 thousands). The authorized amount is an initial estimate that will be subject to a regular review by VMEPH’s Board of Directors. As of June 30, 2012, the condition of relocation project as follow:

2012.06.30 Contracted $ 4,492 Approved but not contracted 672,945 $ 677,437



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8. MAJOR CATASTROPHIC LOSSES: None.

9. MAJOR SUBSEQUENT EVENTS: None.

10. OTHERS:

(a) The total personnel, depreciation, depletion and amortization expenses incurred, are summarized below:

For the six months ended June 30, 2012 For the six months ended June 30, 2011

Categorized as Nature

Operating

Cost

Operating

Expense Total

Operating

Cost

Operating

Expense Total

Employee expenses

Salary expense $ 599,406 962,681 1,562,087 555,091 937,227 1,492,318

Labor and health insurance

expense

46,269 64,337 110,606 40,998 56,005 97,003

Pension expense 64,327 69,919 134,246 61,213 67,129 128,342

Other employee expenses 40,274 42,319 82,593 38,426 40,367 78,793

Depreciation expenses 363,472 218,895 582,367 413,517 225,256 638,773

Depletion expenses - - - - - -

Amortization expenses 23,951 26,657 50,608 13,648 26,620 40,268

Note: For the six months ended June 30, 2012 and 2011, the depreciation of idle assets amounted to $125 and $5,899, respectively, accounted for as non-operating expense. The depreciation of assets held for lease amounted to $1,561 and 1,661, respectively, accounted for as a reduction of rental income.

(b) The board of directors of the Company approved the financial statements and the appropriation of earnings in 2011, and on March 20, 2012 and April 26, 2012, respectively. The appropriation of earnings was not approved by the majority of shareholders present at the Company’s meeting held on June 6, 2012, so the Company expects to hold another meeting to approve the above two cases. Therefore, as of January 1, 2012, the balance of the assets, liabilities and stockholders’ equity as the same amount approved by the board of the directors.

(c) Reclassifications

In order to conform to the presentation of the consolidated financial statements for the six months ended June 30, 2012, certain items in the consolidated financial statements for the six months ended June 30, 2011 have been reclassified. Such reclassifications have no significant effect on the presentation of the consolidated financial statements.



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(d) Under the order No. 0990004943 issued by the Financial Supervisory Commission Executive Yuan on February 2, 2010, starting 2013, the Corporation is required to prepare the financial report in conformity with the International Financial Reporting Standards (IFRSs), Standing Interpretations Committee (which is the predecessor of IFRIC), and the International Financial Reporting Interpretations Committee accepted by the Financial Supervisory Commission. To assist the adjustment, the Corporation had established an ad hoc group which is in charged of developing the plan for adopting IFRSs that is being led by the supervisor of the Finance Group. The content of the plan, the expected completion date, and the implementation situation are listed in the table below.

Content of the plan Implementation

Units Implementation

Situation 1. Evaluation Phase (from January 1, 2010 to December

31, 2011)

Setting up a plan relative to the Company’s transition to IFRSs and formation of an IFRSs group

Accounting Division Completed

Proceeding the first phase of employees’ internal training

Human Resource Division

Completed

Identification of the differences between current accounting policies and IFRSs


Assessment of adjustments of the current accounting policies


Assessment of the impact of each exemption and option of the Company under IFRS 1 – First-time Adoption of International Financial Reporting Standards


Assessment of changes required in the information systems and internal controls related to adoption of IFRSs

Internal Control Division and Information Division

Completed

2. Preparing Phase (from January 1, 2011 to December 31, 2012)

Decision to adjusting current accounting policies by IFRSs


Decision to adoption of IFRS 1 – First-time Adoption of International Financial Reporting Standards


Adjustments of information systems and internal controls related

Internal Control Division and Information Division

In progress

Proceeding the second phase of employees’ internal training

Human Resource Division

In progress

3. Practicing Phase (from January 1, 2012 to December 31, 2013)

Testing the operating status of related information system

Information Division

In progress

Preparation of opening date statement of financial position and comparative financial information under IFRSs

Accounting Division In progress

Preparation of financial statements under IFRSs Accounting Division In progress



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(e) As of December 31, 2011, the potential significant differences of preparing financial statements between current accounting policies and IFRSs as evaluated by the Consolidated Company are listed below :

(i) Significant differences reconciliation of the consolidated balance sheet as of January 1, 2012: Item R.O.C. GAAP Adjustments IFRSs

Other financial assets－current $ 1,255,326 - 1,255,326 Inventories 8,254,313 - 8,254,313 Notes and accounts receivable,net((including related parties)

1,713,026 - 1,713,026

Deferred income tax assets－current(note 1) 97,954 (97,954) - Other current assets 9,170,380 - 9,170,380 Financial Assets－non-current and long-term investments

2,896,359 - 2,896,359

Property, plant and Equipment 13,151,591 - 13,151,591 Deferred pension costs (note 2) 111,726 (111,726) - Land use right (note 3) 486,145 (486,145) - Lease Prepayment (note 3) - 486,145 486,145 Investment Property (note 4) - 1,134,957 1,134,957 Assets held for lease (note 4) 961,854 (961,854) - Idle assets (note 4) 173,103 (173,103) - Deferred income tax assets－noncurrent (note 1) 51,524 767,096 818,620 Other assets 399,728 - 399,728 Total assets $ 38,723,029 557,416 39,280,445 Other current liabilities (note 5) $ 11,271,240 85,365 11,356,605 Long-term liabilities 6,111,081 - 6,111,081 Accrued liabilities for land tax revaluation increment (note 6)

1,902,130 (1,902,130) -

Accrued pension liabilities (note 2) 1,842,964 478,183 2,321,147 Deferred income tax liabilities－land tax revaluation increment (note 6)

- 1,902,130 1,902,130

Deferred income tax liabilities－noncurrent (note 1) - 669,142 669,142 Other liabilities 404,223 - 404,223 Total liabilities 21,531,638 1,232,690 22,764,328 Common stock 8,963,768 - 8,963,768 Capital Surplus (note 7) 2,205,179 (717,959) 1,487,220 Legal reserve 1,631,881 - 1,631,881 Special reserve (note 10) 1,125,135 1,397,866 2,523,001 Unappropriated earnings (note 9 and 10) 1,269,284 - 1,269,284 Cumulative translation adjustments (1,338,489) - (1,338,489) Unrecognized loss on pension cost (note 2) (562,205) 562,205 - Unrealized loss on financial assets (110,410) - (110,410) Unrealized revaluation increments (note 6) 1,583,058 (1,583,058) - Treasury stock (note 8) (102,363) (282,228) (384,591) Minority interest (note 9) 2,526,553 (52,100) 2,474,453 Total stockholders’ equity and minority interest 17,191,391 (675,274) 16,516,117 Total liabilities and stockholders’ equity $ 38,723,029 557,416 39,280,445



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(ii) Significant differences reconciliation of the consolidated balance sheet as of June 30, 2012:

Item R.O.C. GAAP Adjustments IFRSs Other financial assets－current $ 1,300,033 - 1,300,033 Inventories 9,413,851 - 9,413,851 Notes and accounts receivable,net((including related parties)

2,591,888 - 2,591,888

Deferred income tax assets－current(note 1) 74,699 (74,699) - Other current assets 8,200,224 - 8,200,224 Financial Assets－non-current and long-term investments

2,938,366 - 2,938,366

Property, plant and Equipment 12,786,681 - 12,786,681 Deferred pension costs (note 2) 111,726 (111,726) - Land use right (note 3) 438,620 (438,620) - Lease Prepayment (note 3) - 438,620 438,620 Investment Property (note 4) - 1,156,622 1,156,622 Assets held for lease (note 4) 991,455 (991,455) - Idle assets (note 4) 165,167 (165,167) - Deferred income tax assets－noncurrent (note 1) - 676,457 676,457 Other assets 427,871 - 427,871 Total assets $ 39,440,581 490,032 39,930,613 Other current liabilities (note 5) $ 12,104,834 85,365 12,190,199 Long-term liabilities 5,880,925 - 5,880,925 Accrued liabilities for land tax revaluation increment (note 6)

1,902,130 (1,902,130) -

Accrued pension liabilities (note 2) 1,860,029 423,305 2,283,334 Deferred income tax liabilities－land tax revaluation increment (note 6)

- 1,902,130 1,902,130

Deferred income tax liabilities－noncurrent (note 1) 53,168 601,758 654,926 Other liabilities 445,626 - 445,626 Total liabilities 22,246,712 1,110,428 23,357,140 Common stock 8,963,768 - 8,963,768 Capital Surplus (note 7) 2,205,179 (717,959) 1,487,220 Legal reserve 1,631,881 - 1,631,881 Special reserve (note 10) 1,125,135 1,397,866 2,523,001 Unappropriated earnings (note 9 and 10) 1,591,969 53,299 1,645,268 Cumulative translation adjustments (1,480,484) - (1,480,484) Unrecognized loss on pension cost (note 2) (562,205) 562,205 - Unrealized loss on financial assets (110,410) - (110,410) Unrealized revaluation increments (note 6) 1,583,058 (1,583,058) - Treasury stock (note 8) (102,363) (282,228) (384,591) Minority interest (note 9) 2,348,341 (50,521) 2,297,820 Total stockholders’ equity and minority interest 17,193,869 (620,396) 16,573,473 Total liabilities and stockholders’ equity $ 39,440,581 490,032 39,930,613



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(iii) Significant differences reconciliation of consolidated statements of income for the six months ended June 30, 2012:

Item R.O.C. GAAP Adjustments IFRSs Operating revenue $ 16,967,528 - 16,967,528 Cost of sales 12,976,532 - 12,976,532 Gross Profit 3,990,996 - 3,990,996 Operating expenses 3,655,051 (54,878) 3,600,173 Income from operations 335,945 54,878 390,823 Non-operating income 438,811 - 438,811 Non-operating expenses 252,732 - 252,732 Income before income tax 522,024 54,878 576,902 Income tax expense 171,291 - 171,291 Net income 350,733 54,878 405,611 Income attributable to: Shareholders of parent company 322,685 53,299 375,984 Minority interest 28,048 1,579 29,627 Consolidated income $ 350,733 54,878 405,611

(iv) Notes to the reconciliation:

(1) Deferred Income Tax Assets When the Consolidated Company estimates the income tax, it should consider the investment tax credit, temporary difference, and other factors for estimating the differed income tax assets and liabilities. According to the provisions of IFRSs, the differed income tax assets and liabilities should be classified as non-current assets and liabilities and should be considered the right to a statutory tax offset, and the expected year of realization of the differed income tax assets and liabilities should be taken into consideration for reclassifying. Therefore, the differed income tax assets that amounted to $97,954 thousands and $74,699 thousands, respectively, were reclassified from current assets to non-current assets as of January 1 and June 30, 2012. The differed income tax assets and liabilities which were originally expressed in net amount amounted to $51,503 thousands and $71,212 thousands, respectively, and were reclassified as income tax liabilities-non-current based on the expected length of time before it was realized as of January 1and June 30, 2012.



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(2) Employee benefits－post-employment defined benefit pension plan

The Consolidated Company provide a defined benefit pension plan in which the postretirement benefit obligations are measured using the actuarial techniques. Under the R.O.C. GAAP, the actuarial gains or losses arising from the adjustment out of experience and the changes in actuarial assumptions are recognized as profit or loss and are amortized over the remaining employee’s service period. According to IFRS No. 1 “ First-time Adoption of International Financial Reporting Standards”(“IFRS 1”), the Consolidated Company elected the exemption from the provisions, and immediately recognized the actuarial gains or losses amounted to both $1,152,114 thousands in the stockholders’ equity as of January 1, 2012, which was the conversion date. Moreover, different from IFRSs, there were no provisions about the amortization the actuarial gains or losses under the R.O.C. GAAP. Therefore, the unrecognized loss on pension cost was increased by $562,205 thousands , the deferred pension costs and the accrued pension liabilities decreased by $111,726 thousands and $673,931 thousands as of January 1, 2012.

(3) Land leasehold rights

The accounting treatments of the land leasehold rights that are acquired by leasing are based according to the operating lease treatments. Lease payments under an operating lease shall be amortized over the lease term by the time pattern of the user’s benefit and should be recorded as lease prepayment in accordance with IFRSs. Accordingly, the land leasehold rights which were originally classified as intangible assets amounted to $486,145 thousands and $438,620 thousands, respectively, were reclassified as lease prepayment as of January 1 and June 30, 2012.

(4) Investment Property

In accordance with current accounting standards in the R.O.C., The Consolidated Company’s property that is leased to others is presented in the ‘Assets held for lease’ accounts. In accordance with the “Rules Governing the Preparation of Financial Statements by Securities Issuers”, idle assets are accounted for as other assets-idle assets. In accordance with IAS 40, “Investment Property”, property that meets the definition of investment property is classified and accounted for as ‘Investment property’. Based on the amendment of the “Rules Governing the Preparation of Financial Statements by Security Issuers”, idle assets shall be transferred to other assets. Therefore, the Consolidated Company reclassified the account from the assets held for lease amounting to $961,854 thousands and $991,455 thousands and the idle assets which amounted to $173,103 thousands and $165,167 thousands to Investment property of $1,134,957 thousands and $1,156,622 thousands, respectively.



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(5) Employee Benefits-compensated absences

The Consolidated Company has a present legal or constructive paid obligation if the obligation is related to the accumulated compensated absences arising from the employees’ past service. Therefore, the expected cost of accumulated compensated absences should be recognized as accrued liabilities, and the amount of $85,365 thousands as of January 1, 2012 should be adjusted as retained earings.

(6) Accrued liabilities for land tax revaluation increment

The Consolidated Company revalued its land based on related laws and regulations, which requires it to estimate the land value incremental tax on the revaluation date. In Pursuant to the current accounting standards in the R.O.C., such tax is treated as a reserve and presented as “Accrued liabilities for land tax revaluation increment ” under long-term liabilities. The nature of such estimated future tax is deferred tax and should be presented as “Deferred tax liabilities” in accordance with IAS 12, “Income Taxes”. Therefore, the Company reclassified the land value incremental reserve of $1,902,130 thousands to deferred income tax liabilities -noncurrent at the conversion date.

(7) Capital Surplus -long-term equity investments

Under the R.O.C. GAAP, the proportion of share equity arising from additional share issued by the affiliated companies in which the original shareholders acquire new shares un-proportionately will be adjusted as additional paid-in capital or retained earnings. However, in accordance with IAS 28, “Investments in Associates”, an increase in investment percentage is accounted for as an acquisition of investment; while, decrease in investment percentage is accounted for as a disposal of investment and any related disposal gain or loss is recognized. The Company elected the exemption of business combination and did not retrospectively apply IFRSs to its investment transactions before January 1, 2012. As a result, the Company was reclassified to “Retained earnings” with the amount of $717,959 thousands from “Capital Surplus-long-term equity investments” due to changes in shareholding percentage of equity method investees.



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(8) Treasury stock

In accordance with the Financial Accounting Standard No. 30 “Accounting for Treasury Stock,” the Company’s shares held by its subsidiaries are accounted as treasury stock, which are stated at original cost. According to IFRS No. 1 “ First-time Adoption of International Financial Reporting Standards”(“IFRS 1”), the Consolidated Company elected the exemption from the provisions, and the treasury shares shall be accounted for as carried amount from the Company. As of January 1, 2012(which was the conversion date), the increased treasury stock and the retained earnings both amounted to $282,228 thousands.

(9) The adjustments of the “Retained earnings” and the “Minority interest” accounted for in the consolidated balance sheets are prepared in conformity with the International Financial Reporting Standards (IFRSs) as of January 1and June 30, 2012. They are as follows:

2012.01.01

Retained Earnings

Minority interest

Total

Employee benefits－post-employment defined benefit pension plan

$ (1,103,058) (49,056) (1,152,114)

Employee Benefits-compensated absences

(82,321) (3,044) (85,365)

Capital Surplus -long-term equity investments

717,959

-

717,959

Unrealized revaluation increments 1,583,058

-

1,583,058 Treasury stock 282,228

-

282,228

Total $ 1,397,866 (52,100) 1,345,766

2012.6.30

Employee benefits－post-employment defined benefit pension plan

$ (1,049,759) (47,477) (1,097,236)

Employee Benefits-compensated absences

(82,321) (3,044) (85,365)

Capital Surplus -long-term equity investments

717,959

-

717,959

Unrealized revaluation increments 1,583,058

-

1,583,058 Treasury stock 282,228

-

282,228

Total $ 1,451,165 (50,521) 1,400,644



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(10) Under the order No.1010012865 issued by Financial Supervisory Commission Executive Yuan on April 6, 2012, the Consolidated Company set aside a special reserve of $1,397,866 thousands, and the Consolidated Company selected to reclassify the transition differences of item 9 above to the “retained earnings” account.

(f) The Consolidated Company conducted the evaluation above is in accordance with the 2010 version of IFRSs, the Standing Interpretations Committee, and the International Financial Reporting Interpretations Committee accepted in the Financial Supervisory Commission. The preliminary decisions of the aforementioned assessment results are all based on the current environment and circumstances of the Group. The principles may be impacted by the addition or the amendment of IFRSs issued or proposed by the International Accounting Standards Board and the possible future rules issued by the R.O.C authorities.

(English Translation of Financial Report Originally Issued in Chinese) SANYANG INDUSTRY CORPORATION

Notes to Financial Statements (Cont’d)

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11. DISCLOSURES REQUIRED (a) Information on significant transactions

(i) Schedule 1: Loans to others: None. (ii) Schedule 2: Endorsements/guarantees to others: None.

(iii) Schedule 3: Marketable securities held on June 30, 2012: Holding

Company Types and names of marketable

securities Relationship with the

issuer of securities Account 2012.06.30

Note Shares Book Value Shareholding ratio

Market value/equity

The Company

Shan Young Assets Management Co.,Ltd.

An investee company accounted for under the equity method

Long-term investment under the equity method

60,000 1,927,415 100.00 1,927,415

" Youth Taisun Co., Ltd " " 14,976 182,821 89.39 185,597 " Jin Yang Motorcycles

Co., Ltd. " " 2,900 35,204 100.00 35,204

" Sheng Mao investment corporation " " 7,425 8,074 49.50 128,025 " Nanyang Industry Co., Ltd. " " 109,507 1,311,508 89.58 1,381,924 " Nanchen Industry Co., Ltd. " " 1,369 17,762 19.85 17,762 " Nova Design Co., Ltd. " " 11,205 142,001 62.26 143,824 " Hsu Mao investment corporation " " 4,620 4,617 77.00 79,598 " Chao Yang Car Leasing Co., Ltd. " " 4,436 52,586 16.27 52,586 " Ching Ta Investment corporation " " 59,070 765,043 94.73 833,264 " Profit Source Investment Ltd. " " - 1,797,562 100.00 1,798,264 " Sanyang Deutschland GmbH " " - 143,948 100.00 143948 " Sun Goal Ltd. " " - 288,860 100.00 288,860 " SY International Ltd. " " - 6,188,261 100.00 6,188,261 " Sanyang Italia S.R.L. " " - 138,309 100.00 138,309 " Taiwan Keihin Carburetor Co., Ltd. The company is the board

of director Financial assets carried at cost－noncurrent

5,339 9,970 19.94 235,253

" Lico Technology Corp. " " 8,861 48,610 7.13 38,465



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Holding Company

Types and names of marketable securities

Relationship with the issuer of securities Account

2012.06.30 Note Shares Book Value Shareholding

ratio Market

value/equity The Company

Bank Debentures – Bank Debenture by TC Bank

- Available-for-sale financial assets - current

- 10,000 - 10,000

" Bank Debentures – Subordinated Debenture by TC Bank

- Bond investments with no active market

- 20,000 - 20,000

Note: The stockholders’ equity of subsidiaries held by the Company was written off when compiling the consolidated financial statements.

(iv) Schedule 4: Cumulative purchases or sales of the same marketable securities exceeding $100,000 thousands or 20% of paid-in capital: None.

(v) Schedule 5: Acquisition of real estate exceeding $100,000 thousands or 20% of paid-in capital: None.

(vi) Schedule 6: Disposal of real estate exceeding $100,000 thousands or 20% of paid-in capital: None.

(vii) Schedule 7: Sales to or purchases from related parties exceeding $100,000 thousands or 20% of paid-in capital:

Company name Related party

Nature of relationship

Transaction detail Non-arm’s length transaction Notes/Accounts payable or

receivable

Note Purchases

/Sales Amount % to total Payment term Unit price Payment term Ending balance % to total The Company Nanyang Industry Co., Ltd. Subsidiary of the

Company Sales (4,168,739) (35%) Amount of credit is

$800,000. Collection period is immediate or within 90 days after delivered.

According to the Company’s pricing policy.

No comparison with normal transactions

536,493 24% charged interest for delays in payment

〃 Nanchen Industry Co., Ltd. " " (649,390) (5%) Amount of credit is $100,000. Collection period is immediate or within 90 days after delivered.

" " 11,784 1% "



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receivable

Note Purchases

/Sales Amount % to total Payment term Unit price Payment term Ending balance % to total

The Company Sanyang Italia S.R.L. Subsidiary of the Company

Sales (243,618) (2%) Collection period is within 120 days after delivered in

principle.

The cost plus11%~14%

No comparison with normal transactions

172,432 8% charged interest for delays in paymen

〃 Chin Zong Trading Company Limited

Grand sub- subsidiary of the Company

" (175,789) (1%) Collection period is within 15-45 days

after delivered.

The cost plus11%~14% "

42,601 2%

〃 Jin Yang Motorcycles Co., Ltd.

Subsidiary of the Company

" (134,051) (1%) Collection period is within 180 days after delivered in

principle.


"

139,527 6%

〃 Vietnam Manufacturing and Export Processing Co., Ltd.

Grand sub- subsidiary of the Company

" (155,133) (1%) Collection period is within 45-90 days after delivered in

principle.


No comparison with normal transactions and of engine sale

88,786 4%

〃 Xiamen Xiashing Mortocycle Co., Ltd.

" Purchases 781,771 8% Payment term is 80% of total amount in

advanced, the rest is paid within 45 days after examination

According to the agreed price

" (116,064) (7%)

〃 Ching Jiun Co., Ltd. Subsidiary of the Company

" 457,584 5% Payment term is 45 days after

examination

No comparison with normal transactions "

(98,324) (6%)

〃 Taiwan Keihin Carburetor Co., Ltd.

The Company is the board of director

" 240,304 3% " " " (97,824) (6%)



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receivable

Note Purchases

/Sales Amount % to total Payment term Unit price Payment term Ending balance % to total The Company Three Brothers Machinery

Industrial Co., Ltd. Grand sub- subsidiary of the Company purchases

Purchases 160,325 2% Payment term is 45 days after

examination

No general transactions to

compare

No comparison with normal transactions and of engine sale

(60,592) (4%)

〃 Zoeng Chang Industry Co., Ltd.

Subsidiary’s investee company under equity method

" 104,546 1% " " " (40,073) (2%)

Note: The transaction was written off when compiling the consolidated financial statements. (viii) Schedule 8: Receivables from related parties exceeding $100,000 thousands or 20% of paid-in capital:

Company name Related party Nature of relationship Ending balance Turnover rate

Overdue Amount received in subsequent period

Allowance for uncollectible

accounts Amount Dealing Method The Company Nanyang Industry Co.,

Ltd. Subsidiary of the

Company 536,493 23.59

- - - -

〃 Sanyang Italia S.R.L. 〃 172,432 3.83

- - - -


″ 139,527 3.14 - - - -

Note: The transaction was written off when compiling the consolidated financial statements.

(ix) Schedule 9: Transactions involving financial derivatives: Please refer to Note 4(b).



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(b) Information on investee companies (i) Schedule 1: Names and addresses of, and relevant information on, investee companies:

Investor company Investee company Address Main business and

products

Original investment amount 2012.12.31 Net income (loss) of the

investee

Investment income (loss) recognized

Note 2012.06.30 2011.12.31 Shares % to ownership Amount

The Company Shan Young Assets Management Co., Ltd.

Rm. 4, 5F., No.160, Sec. 6, Minquan E. Rd., Neihu Dist., Taipei City 114, Taiwan (R.O.C.)

Real estate development and management

643,889 643,889

60,000 100.00% 1,927,415 32 32 Subsidiary of the Company

〃 Youth Taisun Co., Ltd

No.18, Wenhua Rd., Hukou Township, Hsinchu County 303, Taiwan (R.O.C.)

Automobile and motorcycle parts production

158,745 158,745 14,976 89.39% 182,821 12,978 11,601 〃



Automobile, motorcycle and parts sale

29,000 29,000 2,900 100.00% 35,.204 4,250 4,250 〃

〃 Hsu Mao investment corporation


Investing 76,225 76,225 7,425 49.50% 8,074 45 22 〃

〃 Nanyang Industry Co., Ltd.


Automobile and parts sale, repair and maintain

833,136 833,136 109,507 89.58% 1,311,508 167,575 150,131 〃

〃 Nanchen Industry Co., Ltd.

No.437, Bo’ai 1st Rd., Gushan Dist., Kaohsiung City 804, Taiwan (R.O.C.)

Automobile sale 6,501 6,501 1,369 19.85% 17,762 15,659 3,108 〃

〃 Nova Design Co., Ltd.

8F., No.96, Sec. 1, Xintai 5th Rd., Xizhi Dist., New Taipei City 221, Taiwan (R.O.C.)

Product design 114,778 114,778 11,205 62.26% 142,001 6,850 4,501 〃

〃 Sheng investment corporation


Investing 69,714 69,714 4,620 77.00% 4,617 (15) (12) 〃



～81～


products


investee


Note 2012.06.30 2011.12.31 Shares % to

ownership Amount

The Company Chao Yang Car Leasing Co., Ltd.


Class-1passenger car rental and leasing

35,178 35,178 4,436 16.27% 52,586 18,479 3,006 Subsidiary of the Company

〃 Ching Ta Investment corporation


Investing 530,267 530,267 59,070 94.73% 765,043 26,039 24,667 〃

〃 Profit Source Investment Ltd.

Offshore Chambers, P.O. Box 217, Apia, Samoa

Investor company of Xiamen King Long

USD 25,877 USD 25,877 - 100.00% 1,797,562 USD 3,041

90,278 〃

〃 Sanyang Deutschland GmbH

Starkeburgstr. 12 D-64546 Moerfelden-Walldorf, Germany

Motorcycle and parts sale

EUR 3,000 EUR 3,000 - 100.00% 143,948 EUR 197

7,586 〃

〃 Sun Goal Limited Offshore Chambers,P.O. BOX217,Apia,Samoa

Investor company USD 10,000 USD 10,000 - 100.00% 288,860 USD (7)

(221) 〃

〃 SY International Ltd.

Offshore Chambers,P.O. BOX217,Apia,Samoa

Investor company USD 112,328 USD 112,328 - 100.00% 6,188,261 USD (4,054)

(120,023) 〃

〃 Sanyang Italia S.R.L.

Via Vittor Pisani 2720124 Milano Italy

Motorcycle and parts sale

EUR 4,000 EUR 4,000 - 100.00% 138,309 EUR (42)

(1,616) 〃

Youth Taisun Co., Ltd

Hsu Mao investment corporation


Investing 750 750 75 0.50% 1,435 45 Not applicable 〃

〃 Sheng Mao investment corporation


Investing 3,600 3,600 360 6.00% 7,794 (15) 〃〃

Nanyang Industry Co., Ltd.

Nanchen Industry Co., Ltd.

No.437, Bo’ai 1st Rd., Gushan Dist., Kaohsiung City 804, Taiwan (R.O.C.)

Automobile sale 24,228 24,228 4,834 70.05% 62,682 15,659 〃〃

〃 Chao Yang Car Leasing Co., Ltd.



91,926 91.926 16,763 61.46% 198,648 18,479 〃〃



～82～

Investor company

Investee company Address Main business and

products


investee


Note 2012.06.30 2011.12.31 Shares

% to ownership

Amount

Nanyang Industry Co., Ltd.

Li Yang Industry Ltd.

1F., No.21, Sec. 2, Zhongyang N. Rd., Beitou Dist., Taipei City 112, Taiwan (R.O.C.)

Automobile sale and automobile ,motorcycle and parts sale

6,120 6,120 612 51.00% 5,934 678 Not applicable Sub-subsidiary of the Company

〃 Star & Sun investment corporation


Investing 15,000 15,000 1,500 100.00% 15,473 22 〃〃

〃 Nanyang Holding Co., Ltd.

Equity Trust Chambers., P.O. Box 3269, Apia, Samoa

Investor company 423,487 379,631 - 100.00% 397,448 USD (270) 〃〃

Nova Design Co., Ltd.

NOVA LLC Texas,USA Investing 86,500 86,500 - 42.30% 111,198 9,893 〃〃



Investing 3,000 3,000 300 5.00% 5,169 (15) 〃 Subsidiary of the Company

Chao Yang Car Leasing Co., Ltd.

Jau Ryh Leasing Co., Ltd.


Pickup truck rental and leasing

4,385 4,385 669 65.00% 7,966 1,275 〃 Sub- subsidiary of the Company

Ching Ta Investment corporation

Three Brothers Machinery Industrial Co., Ltd.

No. 16, Wangjian Village, Xinwu Township, Taoyaun County 327, Taiwan (R.O.C.)

Investing 157,000 157,000 9,750 50.00% 153,166 458 〃〃

〃 Zoeng Chang Industry Co., Ltd.

No.355, Shun’an Rd., Luzhu Dist., Kaohsiung City 821, Taiwan (R.O.C.)

Automobile, motorcycle and parts production and sale

33,200 33,200 9,020 40.00% 243,051 19,520 〃 With significant influence

〃 Chao Yang Car Leasing Co., Ltd.



19,680 19,680 5,760 21.12% 68,263 18,479 〃 Subsidiary of the Company



～83～


products


investee


Note 2012.06.30 2011.12.31 Shares % to

ownership Amount

Ching Ta Investment corporation

Ching Jiun Co., Ltd. No.65, Guangfu Rd., Hukou Township, Hsinchu County 303, Taiwan (R.O.C.)

Metal machinery, iron materials manufacturing, processing and sale

56,840 56,840 5,150 64.38% 150,240 21,051 Not applicable Sub- subsidiary of the Company



Investing 816 816 60 1.00% 1,034 (15) 〃 Subsidiary of the Company



Investing 30,580 30,580 3,000 20.00% 51,727 45 〃〃

〃 Nova Design Co., Ltd.

8F., No.96, Sec. 1, Xintai 5th Rd., Xizhi Dist., New Taipei City 221, Taiwan (R.O.C.)

Product design 65,134 65,134 5,415 30.08% 69,497 6,850 〃〃

〃 Youth Taisun Co., Ltd

No.18, Wenhua Rd., Hukou Township, Hsinchu County 303, Taiwan (R.O.C.)


24,638 24,638 1,675 10.00% 20,763 12,978 〃〃

〃 Yi Yang Motorcycles Co., Ltd.

No.168, Jianguo Rd., Hualien City, Hualien County 970, Taiwan (R.O.C.)

Automobile and motorcycle parts and equipments wholesale

5,100 5,100 510 68.92% 6,577 960 〃 Sub- subsidiary of the Company

〃 NOVA LLC Texas,USA Investing 113,002 113,002 - 57.70% 151,682 9,893 〃〃〃 Ching Zhao

Investment corporation

1F., No.548, Yuanhuan E. Rd., Fengyuan Dist., Taichung City 420, Taiwan (R.O.C.)

Investing 96,000 96,000 9,600 37.98% 84,311 (15,098) 〃 With significant influence

Profit Source Investment Ltd.

Chong Hing International Limited

AKARA BULDING, 24 DE CASTRO STREET, WICKHAMS CAY I, ROAD TOWN, TORTOLA, BRITISH VIRGIN ISLANDS

Investing USD 25,878 USD 25,878 - 100.00% USD 60,168 USD 3,041 〃 Sub- subsidiary of the Company



～84～

Investor company


products


investee


Note 2012.06.30 2011.12.31 Shares

% to ownership

Amount

SY International Ltd.

Billion Ally Ltd. Offshore Chambers,P.O. BOX217,Apia,Samoa

Investing USD 3,957 USD 3,957 - 100.00% USD 568 USD - Not applicable Sub- subsidiary of the Company

〃 Cosmos System Inc. P.O Box957, Offshore Incoporations Centre Road Town, Tortola,British Virgin Islands

Investing USD 13,226 USD 13,226 - 100.00% USD (15,216) USD (274) 〃〃

〃 Vietnam Manufacturing and Export Processing (Holdings) Ltd.

Scotia Centre, 4th Floor P.O Box 2804 George Town, Grand Cayman, Cayman Islands

Investing USD 98,984 USD 98,984 608,818 67.07% USD 116,494 USD (515) 〃〃

〃 New Path Trading Limited

Offshore Chambers,P.O. BOX217,Apia,Samoa

Investing USD 9,207 USD 9,207 - 100.00% USD 12,498 USD (112) 〃〃

〃 Plassen International Limited

P.O Box957,Offshore Incoporations Centre Road Town, Tortola,British Virgin Islands

Investing USD 13,836 USD 13,836 - 100.00% USD (20,079) USD 57 〃〃

〃 Shinny Way Ltd. Offshore Chanmbers.P.O. Box217, Apia, Samoa

Investing USD 1,255 USD 1,255 - 100.00% USD (557) USD (43) 〃〃

〃 Sanyang Motor Vietnam Co., Ltd.

Location 4, 5C RD, Nhon Trach Industry Zone 2, Nhon Trach, Dong Nai Province, Vietnam

Automobile engines and parts production and installation; Transport vehicles under 3.5 tons and 6 to 9-seater automobile

USD 39,000 USD 39,000 - 100.00% USD 11,803 USD (3,703) 〃〃

〃 Chongqing Kuayue Sanyang Co., Ltd

1F ~3F,TianZiWei, WanZhou Dist.,ChongQing City

Automobile engines and parts development, manufacturing, sales and service

USD 452 USD 452 - 30.00% USD 271 USD (245) 〃 With significant influence

Sun Goal Limited

Jiyang Machinery Industry Co., Ltd.

No.3, HaiFeng Rd., NanFengTownship, ZhangJiaGang City

Automobile parts production

USD 10,000 USD 10,000 - 100.00% USD 9,670 USD (7) 〃 Sub- subsidiary of the Company



～85～

Investor company


products


investee


Note 2012.06.30 2011.12.31 Shares

% to ownership

Amount

Three Brothers Machinery Industrial Co., Ltd.

Three Brothers Machinery Industrial (BVI) Co., Ltd.

British Virgin Islands Investing USD 5,119 USD 5,119 - 100.00% 155,060 USD 64 Not applicable Sub- subsidiary of the Company

〃 Vietnam Three Brothers Machinery Industrial Co., Ltd.

TongNai Province, Vietnam Motorcycles and related parts production

USD 691 USD 691 - 69.00% 47,170 USD (2) 〃〃

〃 Vietnam HongZheng SongMei Industry Dist., ZhanPeng County, TongNai Province, Vietnam

Motorcycles, automobile parts and molds production

USD 836 USD 836 - 38.00% 25,508 USD (116) 〃 With significant influence

〃 Full Ta Co.,Ltd, Somoa

No. 24, Lesperonce, Providence Industrial Lstate, MAHE Seychelles.

Investing USD 765 USD 765 - 51.00% 9,539 USD (9) 〃 Sub- subsidiary of the Company



Investing 7,645 7,645 - 5.00% 12,932 45 〃 Subsidiary of the Company



Investing 8,156 8,156 - 10.00% 10,337 (15) 〃〃

Cosmos System Inc.

Qingzhou Engineering Co., Ltd.

ZhangJiaGang City,JiangSu Province,China

Motorcycle parts production and sale

USD 23,040 USD 23,040 - 100.00% USD (11,420) USD (274) 〃 Sub- subsidiary of the Company

Plassen International Limited

Xiamen Xia Shing Motorcycle Co., Ltd.

1F, No.99, XingLin XiBin Rd.,JiMei Dist., XiaMen City, FuJian Province, China

Motorcycles and related parts assembling, production and sale; Maintaining and repairing after sale.

USD 23,000 USD 23,000 - 76.67% USD (21,576) USD 57 〃〃



～86～


products


investee



Vietnam Manufacturing and Export Processing (Holdings) Ltd.

Chin Zong Trading Co., Limited


Motorcycles and related parts production

150,000 150,000 15,000 100.00% USD 6,015 USD 555 Not applicable Grand sub- subsidiary of the Company

〃 Vietnam Manufacturing and Export Processing Limited

Sec 5, Tam Hiep Ward, Bien Hoa City, Dong Nai Province, Vietnam


USD 120,433 USD 120,433 - 100.00% USD 101,389 USD (514) 〃〃

〃 PT. Sanyang Industri Indonesia

Kawasam Industri MM2100 Blok Ⅱ No.1 Ciditung Bekasi 17520 Barat Indonesia

Motorcycle parts and molds development and wholesale

USD 2,624 USD 2,624 - 90.00% USD 411 USD 38 〃〃

New Path Trading Limited

Sanyang Global (Xiamen) Co., Ltd

1F, No.99, XingLin XiBi Rd.,JiMei Dist., XiaMen City, FuJian Province, China

Product design USD 9,000 USD 9,000 - 100.00% USD 12,292 USD (114) 〃〃

Nova LLC Nova Design (Shanghai ) Co., Ltd.

No.46,WeiDa Rd.,ShangHai International Automobile City, China

Product design USD 5,000 USD 5,000 - 100.00% USD 7,711 USD 358 〃〃

〃 Nova Design (Italy) Co., Ltd.

Italy Product design USD 109 USD 109 - 90.00% USD 91 USD 2 〃〃

Shinny Way Ltd.

HangZhou XiaXing No.2, TongJiaHui Rd., XiaoShan Economic &Technical Development Dist.

Electric motorcycles and bicycles production, development and sale

USD 1,255 USD 1,255 - 72.00% USD (557) USD (60) 〃〃

Three Brothers Machinery Industrial (BVI) Co., Ltd.

Guangzhou Three Brothers Machinery Industrial Co., Ltd.

GuangZhou City, GuangDong Province, China


USD 932 USD 932 - 100.00% USD 2,269 USD 65 〃〃

〃 Xiamen Three Brothers Machinery Industrial Co., Ltd.

XiaMen City, FuJian Province,China


USD 4,400 USD 4,400 - 100.00% USD 2,148 USD 1 〃〃

Full Ta Co., Ltd. Somoa

Ha noi Full Ta Precision Company Limited

Pot 37, Quang Minh Industry, Me Linh Ha No i, Vietnam.


USD 1,500 USD 1,500 - 100.00% USD 628 USD (9) 〃〃



～87～


products


investee



Xiamen Xia Shing Motorcycle Co., Ltd.

Xiamen Xia Shing Motorcycle Sales Co., Ltd.

1F, No.99, XingLin XiBi Rd.,JiMei Dist., XiaMen City, FuJian Province, China

Motorcycles and related parts sale

CNY 1,060 CNY 1,060 - 100.00% CNY(20,910) CNY (1,722) Not applicable Grand sub- subsidiary of the Company

Vietnam Manufacturing and Export Processing Limited

Duc Phat Molds Inc. Lots 1X-1, Chochieu St. Thanhhoa Hamlet, Hanoi 3 Industrial Zone, Thongnhat Dist, Dong Nai Province, Vietnam

Molds production USD 840 USD 840 - 100.00% - USD - 〃〃

〃 Vietnam Casting Forge Precision Limited

Ho Nai Industrial Zone Thong Nhat District Dong Nai Province

Motorcycle parts production

USD 4,500 USD 4,500 - 100.00% - USD - 〃〃

Chong Hing International Limited

Xiamen King Long United Automotive Industry Co.,Ltd.

No.5, JinHu Rd., FangHu Industry Dist., XiaMen City


USD 20,465 USD 20,465 - 25.00% USD 55,319 USD 12,165 〃 With significant influence

Ching Zhao Investment corporation

Sunny Mind High Technology Inc.

Level 2, Lotemau Centre,Vaea Street, Apia Samoa

Investing 255,951 255,951 - 100.00% 220,715 USD (497) 〃〃

Nayang Holding Co., Ltd

Suzhou HuiYing Automobile Sales and Service Limited

No.201, DanFeng Rd.,MuDuTownship, WuZhong Dist., SuZhou City

Automobile parts retail s USD 9,600 USD 8,150 - 100.00% USD 9,297 USD (270) 〃 Grand sub- subsidiary of the Company

〃 ChangZhou NanYang Automobile Sales and Service Limited

No. 213, YuLong Rd., ZhongLou Economic Development Dist., ChangZhou

Automobile parts retail USD 4,050 USD 4,050 - 100.00% USD 4,009 USD - 〃〃

Suzhou HuiYing Motor Sales and Service Limited

Shanghai HuiYing Motor Sales and Service Limited

1F~2F, No.58, RongShu Rd.,SongJiang Dist. ShangHai City

Automobile parts retail CNY 16,000 CNY 16,000 - 100.00% CNY 16,396 CNY 161

〃〃

〃 Changzhou HuiYing Automobile Sales and Service Limited

No. 213, YuLong Rd., ZhongLou Economic Development Dist., ChangZhou

Automobile parts retail CNY 14,000 CNY 2,700 - 100.00% CNY 13,825 CNY (176) 〃〃



～88～

Investor company


products


investee


Note 2012.06.30 2011.12.31 Shares

% to ownership

Amount

Sunny Mind High Technology Inc.

Yang-Run hotel and construction Co., Ltd.

N. XinCheng Rd., ShuangGou Township JiangDou City, YangZhou City, JiangSu Province, China

Hotel development, real estate development, leasing, sales and property management

USD 7,500 USD 7,500 - 100.00% USD 7,769 USD (497) Not applicable With significant influence

Yang-Run hotel and construction Co.,Ltd.

Yang-Run Property N. XinCheng Rd., ShuangGou Township JiangDou City, YangZhou City, JiangSu Province, China

Residential area property management, housing maintenance, building materials and general merchandise sales

CNY 500 CNY 500 - 100.00% CNY 492 CNY - 〃〃

Note: The stockholders’ equity of subsidiaries held by the Company was written off when compiling the consolidated financial statements. (ii) Schedule 2: Loans to others:

Financing company

Counter-party Financial statement account

Maximum balance for the period

Ending balance

Actual disbursement

balance for the period

Interest rate

Nature of loans Amount of commercial

dealings Financing purpose


accounts

Pledges Maximum amount to individual

Maximum total

financing amount

Item Value

PIL Cosmos Long-term receivables

USD7,210 USD 7,210 USD 7,210 (Note 2) In response to the Cosmos’ capital request

- Original loan - - - 1,484,553 5,938,211

SYI PIL 〃 USD16,326

USD16,326 (Note 3)

USD16,326 (Note 3)

〃 In response to the subsidiary’s capital request

- Investment transfer USD 14,813 - - 〃〃

〃 Cosmos 〃 USD9,118 USD9,118 (Note 3)

USD9,118 (Note 3)

〃〃 - 〃 - - - 〃〃

〃 Xia Shing Motorcycle

〃 USD2,944 USD2,944 (Note 3)

USD2,944 (Note 3)

〃〃 - 〃 - - - 〃〃

〃〃 Other receivables

USD11,700 USD11,700 USD11,700 1.80%~ 1.87%

〃 - Business requirements

- - - 〃〃



～89～

Financing company

Counter-party Financial statement account

Maximum balance for the period

Ending balance

Actual disbursement

balance for the period

Interest rate

Nature of loans Amount of commercial

dealings Financing purpose


accounts

Pledges Maximum amount to individual

Maximum total

financing amount

Item Value

SYI Qingzhou

Engineering

Long-term

receivables

USD6,554 USD6,554

(Note 3)

USD6,554

(Note 3)

(Note 2) In response to the

subsidiary’s

capital request

- Investment transfer - - - 1,484,553 5,938,211

〃 The Company Other

receivables

USD30,000 USD28,720 USD28,720 〃 In response to the

Parent company’s

capital request

- Business requirements - - - 〃〃

〃 SMV 〃 USD3,000 USD3,000 USD3,000 〃 In response to the

subsidiary’s

capital request

- 〃 - - - 〃〃

TBM Vietman Full Ta 〃 22,000 22,000 22,000 4% 〃 - 〃 - machinery

and

equipment

USD 736 $ 23,668 $ 122,560

〃 XTBM prepayment

for purchases

30,000 30,000 29,544 〃〃 - 〃 - 〃 CNY 10,681 $ 85,515 $ 122,560

Note 1: The amount loaned from SYI, PIL, Cosmos and VMEPH to individual parties is limited to 10% of the current net assets of the

Company, and the total amount loaned to other parties is limited to 40% of the current net assets of the Company. The subsidiaries abroad owned directly or indirectly by the Company which give financial support to each other is not limited by the policy above.

Note 2: Both parties made an agreement not to charge an interest to each other. In addition, in 2008, the loan to Xiashing, and its interest is calculated based on the 12 month US dollar LIBOR rate plus 0.75% on loans.

Note 3: Long-term receivables from related parties have been offset against long-term stock investment to $0.

Note 4: The transaction was written off when compiling the consolidated financial statements.



～90～

(iii) Schedule 3: Endorsements/guarantees to others:

Guarantor Guaranteed party Limits on

guarantees provided to a

single business

Maximum balance of

endorsements/ guarantees of the

period

Ending balance of endorsements/

guarantees Collateral

Cumulative guarantee as percentage of net worth of the most recent financial

statements

Maximum amount of

endorsements/guarantees

Name of the company Name of the company Relationship

with the Company

Shan Young The Company Parent company

$ 7,422,764 5,400,000 5,400,000 5,400,000 36.37% 7,422,764

SYI Xia Shing Sub-subsidiary 7,422,764

USD 13,500 1,411,000 - 0.09% 7,422,764

〃 Qingzhou Engineering 〃〃 USD 2,800 USD -

- - % 〃

Chao Yang Jau Ryh Subsidiary 161,608 42,527 42,527 - 13.16% 161,608

Suzhou HuiYing Shanghai HuiYing 〃 CNY 29,508 CNY 9,000 CNY 9,000 - 14.75% CNY 29,508

Note 1: The total guarantee amount given to the subsidiaries whose common stock is owned 100% by the Company shall not exceed 50% of the Company’s current net assets.

Note 2: The total amount that SY International Ltd. guarantee for the specific company shall not exceed 50% of the Company’s current net assets.



～91～

(iv) Schedule 4: Marketable securities held on June 30, 2012:

Holding company Kinds and names of securities Relationship with the

issuer of securities Account in Books

2012.06.30 Note

Shares Book Value Shareholding

Ratio Market Value

(Equity) Youth Taisun Stock-Hsu Mao investment

corporation An investee company accounted for under the equity method

Long-term investment under equity method

75 1,435 0.50% 1,435

〃 Stock-Sheng Mao 〃〃 360 7,794 6.00% 7,794 Hsu Mao Stock-the Company Parent company of the

holding company Available for sale financial assets- noncurrent

12,556 242,334 1.40% 242,334

Sheng Mao Stock-the Company 〃〃 5,046 97,382 0.56% 97,382 Nanyang Stock-the Company 〃〃 4,751 91,693 0.53% 91,693

〃 Stock-Nanchen An investee company accounted for under the equity method


4,834 62,682 70.05% 62,682

〃 Stock-Chao Yang 〃〃 16,763 198,648 61.46% 198,648 〃 Stock-Li Yang 〃〃 612 5,934 51.00% 5,934 〃 Stock-Star & Sun 〃〃 1,500 15,473 100.00% 15,473 〃 Stock-Nanyang Holding 〃〃 - 397,448 100.00% 397,448 〃 Stock-HuiYang An investee company

accounted for under the cost method

Financial assets carried at cost - noncurrent

27 249 0.44% 249

Nanyang. Stock-XiangXin An investee company accounted for under the cost method

Financial assets carried at cost - noncurrent

76 1,254 1.05% 1,254

〃 Stock-ChaoCin 40 676 0.28% 676 Nova Design Stock-NOVA LLC An investee company

accounted for under the equity method


- 111,198 42.30% 111,198



～92～



2012.06.30 Note


Ratio Market Value

(Equity) Nova Design Stock-Sheng Mao An investee company



300 5,169 5.00% 5,169

Chao Yang Stock-Jau Ryh 〃〃 515 7,966 65.00% 7,966 Ching Ta The Company Parent company of the

holding company Available for sale financial assets- non current

982 18,943 0.11% 18,943

〃 Stock-TBM An investee company accounted for under the equity method


9,750 153,166 50.00% 153,166

〃 Stock-Zoeng Chang 〃〃 9,020 243,051 40.00% 243,051

〃 Stock-Chao Yang 〃〃 5,760 68,263 21.12% 68,263

〃 Stock-Ching Jiun 〃〃 5,150 150,240 64.38% 154,956

〃 Stock-Sheng Mao

〃〃 60 1,034 1.00% 1,034

〃 Stock-Hsn Mao 〃〃 3,000 51,727 20.00% 51,727

〃 Stock-Nova Design An investee company accounted for under the equity method


5,415 69,497 30.08% 69,497

〃 Stock-Youth Taisun 〃〃 1,675 20,763 10.00% 20,763 〃 Stock-Yi Yang 〃〃 510 6,577 68.92% 6,577 〃 Stock-Nova LLC 〃〃 - 151,682 57.70% 151,682 〃 Stock-Ching Zhao 〃〃 9,600 84,311 37.98% 84,311 〃 Stock-King Rong Fa 〃 Financial assets

carried at cost - no current

800 5,200 10.00% 8,706



～93～



2012.06.30 Note


Ratio Market Value

(Equity) Ching Ta Stock-Sino Swearingen An investee company


Financial assets carried at cost - no current

83 - 0.11% -

〃 Stock-TaiXiang Space Industrial Co., Ltd.

〃〃 17 - - -

〃 Stock-SanShunWang Motorcycles

〃〃 100 1,000 7.14% 1,078

Profit Source Investment Ltd.

Stock-Chong Hing 〃 Long-term investment under equity method

- USD 60,168 100.00% 55,340

SYI Stock- Billion 〃〃 - USD 568 100.00% USD 568 〃 Stock-Cosmos 〃〃 - USD (15,216) 100.00% USD (15,216) 〃 Stock-VMEPH 〃〃 608,818 USD 116,494 67.07% 117,682 〃 Stock-New Path 〃〃 - USD 12,498 100.00% USD 12,498 〃 Stock-PIL 〃〃 - USD (20,079) 100.00% USD (20,079) 〃 Stock-Shinny Way 〃〃 - USD (557) 100.00 USD (557) 〃 Stock-SMV 〃〃 - USD 11,803 100.00 USD 11,803 〃 Stock-Chongqing Kuayue 〃〃 - USD 271 30.00 USD 271 〃 Financial instrument-digital

binary deposit - Held-to-maturity

financial instrument－current

- USD 2,900 - USD 2,900

Sun Goal Stock- Jiyang



- USD 9,670 100.00% USD 9,670

Jiyang

Financial instrument-variable maturity-Bank of china

- Held-to-maturity financial assets－current

- CNY 30,000 - CNY 30,000



～94～



2012.06.30 Note


Ratio Market Value

(Equity) TBM Stock-TBM (BVI)



- 155,060 100.00% 155,060

〃 Stock-VTBM

〃〃 - 47,170 69.00% 47,170

〃 Stock-Vietnam HongZheng 〃〃 - 25,508 38.00% 25,508 〃 Stock-Full Ta 〃〃 750 12,932 5.00% 12,932 〃 Stock-Hsu Mao 〃〃 600 10,337 10.00% 10,337 〃 Stock-Sheng Mao 〃〃 - 9,539 51.00% 9,539 〃 Stock-BoLiYuan Technology An investee company

accounted for under cost method

Financial assets carried at cost - non current

- 58 -% 58

〃 Stock-Vietnam HongLi Technology

〃〃 - 2,996 -% 2,996

Cosmos Stock-Qingzhou Engineering 〃 Long-term investment under equity method

- USD (11,420) 100.00% USD (11,420)

PIL Stock-Xia Shing 〃〃 - USD (21,576) 76.67% USD (21,576) VMEPH Stock-Chin Zong 〃〃 15,000 USD 6,015 100.00% USD 6,015

〃 Stock-VMEP 〃〃 - USD 101,389 100.00% USD 101,389 〃 Stock-PT. Sanyang Industri

Indonesia 〃〃 - USD 411 99.00% USD 411

〃 Financial instrument-USD digital capital protected note

- Financial assets reported at fair value through profit or loss-current

- USD 3,015 -% USD 3,015



～95～



2012.06.30 Note


Ratio Market Value

(Equity)

New Path Stock-Sanyang Global (Xiamen) An investee company

accounted for under the

equity method

Long-term

investment under

equity method

- USD 12,292 100.00% USD 12,292

Nova LLC Stock-Nova Design (Shanghai ) 〃〃 - USD 7,711 100.00% USD 7,711

〃 Stock-Nova Design (Italy) 〃〃 - USD 91 90.00% USD 91

Shinny Way Stock-HangZhou Xia Shing 〃〃 - USD (557) 72.00% USD (557)

Billion Stock-KMCL - Available for sale

financial assets-

noncurrent

- USD 568 10.70% USD 568

TBM (BVI) Stock-GTBM An investee company

accounted for under the

equity method

〃 - USD 2,269 100.00% USD 2,269

〃 Stock-XTBM 〃〃 - USD 2,148 100.00% USD 2,148

Full Ta Stock-Vietnam Full Ta 〃〃 - USD 628 100.00% USD 628

Xia Shing Stock-Xia Shing Motor Sales 〃〃 - (20,910) 100.00% (20,910)

VMEP Stock-Duc Phat 〃〃 - - 100.00% -

〃 Stock-VCFP 〃〃 - - 100.00% -

Chong Hing Stock-Xiamen King Long

〃〃 - USD 55,319 25.00% USD 55,319

Ching Zhao Stock-Sunny Mind 〃〃 - 220,715 100.00% 220,715



～96～



2012.06.30 Note


Ratio Market Value

(Equity) Nanyang Holding Stock-Suzhou HuiYing



- USD 9,297 100.00% USD 9,297

〃 Stock-ChangZhou NanYang 〃〃 - USD 4,009 100.00% USD 4,009 Suzhou HuiYing Stock-Shanghai HuiYing 〃〃 - CNY 16,396 100.00% CNY 16,396

〃 Stock-Changzhou HuiYing 〃〃 - CNY 13,825 100.00% CNY 13,825 Sunny Mind Stock-Yang Run hotel 〃〃 - USD 7,769 100.00% USD 7,769 Yang Run hotel Stock-Yang-Run Property 〃〃 - CNY 492 100.00% CNY 492

Note: The stockholders’ equity of subsidiaries held by the Company was written off when compiling the consolidated financial statements.

(v) Schedule 5: Cumulative purchases or sales of the same marketable securities exceeding $100,000 thousands or 20% of paid-in capital: None.

(vi) Schedule 6: Acquisition of real estate exceeding $100,000 thousands or 20% of paid-in capital: None.

(vii) Schedule 7: Disposal of real estate exceeding $100,000 thousands or 20% of paid-in capital: None.



～97～

(viii) Schedule 8: Purchases from and sales to related parties exceeding $100,000 thousands or 20% of paid-in capital:

Company name Related party Nature of relationship

Transaction details Non-arm’s length transaction

Notes accounts payable for receivable

Note Purchases /Sales Amount % of total Payment term Unit price Payment

term Ending balance % of total

Nanyang The Company Parent company of the Company

Purchases 4,168,739 92% Payment term is immediate or within 90 days after delivered with interest.

As contract price

No general transactions

for comparison

(536,493) 36%

Nanchen 〃〃〃 649,390 74% 〃〃〃 (11,784) 17%

SYIT 〃〃〃 243,618

93%

Payment term is within 120 days after delivered in principle.

Cost plus 11%~14%

〃 (172,432) 71%

Chin Zong 〃 The ultimate parent company of the Company

〃 175,789 35%

Pay within 15 ~45 days after inspection

〃〃 (42,601) 47%

VMEP 〃〃〃 155,133

8%

Pay within 45 ~90 days after inspection

〃 No comparison with general transaction and engine parts sale.

(88,786) 25%

Jin Yang

〃 Parent company of the Company

〃 134,051 100% Pay within 180 days after inspection

As contract price

No general transactions for comparison

(139,527) 78%



～98～

Company name Related party Nature of relationship

Transaction details Non-arm’s length transaction

Notes accounts payable for receivable

Note Purchases /Sales Amount % of total Payment term Unit price Payment

term Ending balance % of total

Ching Jiun The Company The ultimate parent company of the Company

Sales (457,584) (82)% Pay within 45 days after inspection

As contract price


98,324 84%

Xia Shing 〃〃〃 (781,771) (49)% Some receive in advance, and the balance receive within 45days after inspection

〃 No comparison with general transaction and engine parts sale.

116,064 39%

Taiwan Keihin 〃 The board of director of the Company

〃 (240,304) (33)% Pay within 45 days after inspection

〃〃 97,824 39%

TBM 〃 The ultimate parent company of the Company

〃 (160,325) (67)% 〃 No general transactions for comparison


60,592 50%

Zoeng Chang 〃 An Investee company accounted for the under equity method of the Company

〃 (104,546) (25)% 〃〃〃 40,073 15%

Note: The transaction was written off when compiling the consolidated financial statements.



～99～

(ix) Schedule 9: Receivables from related parties exceeding $100,000 thousands or 20% of paid-in capital:

Company name Related-Party Nature of relationship Ending balance Turnover ratio

Overdue Amount received in subsequent period

Uncollectible for accounts Amount Treatment

PIL Cosmos The same parent company

Long-term financing USD 7,210 -

USD 7,210 Collection - Note

〃 Qingzhou Engineering

The subsidiary of Cosmos

Long-term financing

USD 5,573 -

USD 5,573 〃 - USD 2,461

S YI 〃 Sub-subsidiary of the Company

USD 6,554 -

USD 6,554 〃 - Note

〃 Xia Shing 〃 USD 14,644 -

USD 14,644 〃 - USD 14,716

〃 PIL Subsidiary of the Company

USD 16,326 -

USD 16,326 〃 - Note

〃 Cosmos 〃 USD 9,118 -

USD 9,118 〃 - 〃

Ching Jiun The Company The ultimate parent company of the Company

98,324 - - - - -

Note 1: Account receivable has been offset against long-term stock investment to $0.

Note 2: The transaction was written off when compiling the consolidated financial statements.

(x) Schedule 10: Transactions involving financial derivatives: None.


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

～100～

(c) Information on investment in Mainland China:

(i) Investee companies in Mainland China:

Investee company

Main businesses and

products

Total

amount of paid-in capital

Method of investment

(Note 1)

Accumulated outflow of

investment from Taiwan as of

January 1, 2012

Investment flows

Accumulated outflow of investment

from Taiwan as of June 30,

2012

Percentage of

ownership


Carrying amount as of

June 30, 2012

Accumulated inward

remittance of earnings as of June 30, 2012

Outflow

Inflow Xia Shing Motorcycles and

related parts assembling, production and sale; Maintaining and repairing after sale.

USD23,000 B USD13,836 - - USD13,836 76.67% USD57 (Note2)

USD(21,576) -

Qingzhou Engineering

Motorcycle parts production and sale

USD23,040 〃 USD13,226 - - USD13,226 100% USD(274) (Note2)

USD(11,420) -

Xiamen King Long

Automobiles, motorcycles and related parts assembling and production

USD94,351 〃 USD26,193 - - USD26,193 25% USD3,041 USD55,319 USD 15,707

Jiyang

Production and sale of aluminum castings, forgings blanks, reciprocating spark ignition internal combustion piston engine, cylinder block, valve conduit and cylinder head, etc


USD9,670 -

Sanyang Global

Motorcycles, electric motorcycles, electric bicycle, automobiles and related parts, molds, tooling, equipments and computer software research and development, design, and wholesale, import and export of products above


USD12,292 -

HangZhou Xia Shing

Electric motorcycles and bicycles production, development and sale

USD1,742 〃 USD1,255 - - USD1,255 72% USD(43) USD(557) -

Chongqing Kuayue

Automobile engines and parts development, manufacturing, sales and service

USD1,507 A USD452 - - USD452 30% USD(74) USD271 -

(ii) Limitation of investment in Mainland China:

Accumulated investment in Mainland China as of

June 30, 2012

Investment amount authorized by the Investment Commission,

MOEA

Upper limit on investment

USD 62,438 USD 82,662 8,907,317



～101～

Note 1: The methods of investment divided into 4 methods as follows: A. Investment in companies in Mainland China was transferred through the third

place. B. Investment in companies in Mainland China was invested by setting up

companies in the third place. C. Investment in companies in Mainland China was invested by the investee

companies in the third place. D. Other methods. (ex: Entrusted investment.)

Note 2: Investment income (loss) was recognized based on the investee companies’ financial statements, which were audited by an independent accountant for the six month ended June 30, 2012.

(iii) Information on significant transactions with investee companies in Mainland China through the third place directly or indirectly, and pricing, payment terms and unrealized revenue: Please refer to note 5.



～102～

(d) Intercompany business relationship and significant transactions (1) For the six months ended June 30, 2012

No. (Note 1)

Company Name Counter-Party

Nature of Relationship

(Note 2)

Intercompany Transactions

Financial Statement

Item Amount Terms

Percentage of

Consolidated Total Gross

Sales or Total Assets

0 Sanyang Industry Co., Ltd.

Youth Taisun Co., Ltd. (Youth Taisun)

1 Account Payable-related party

25,631 The same as those in general transactions

0.06%

0 〃 Ching Jiun Co., Ltd. (Ching Jiun)


98,324 〃 0.25%

0 〃 Three Brothers Machinery Industrial Co., Ltd. (TBM)


60,592 〃 0.15%

0 〃 Sanyang Global (Xiamen) Co., Ltd. (Sanyang Global)


352 〃 - %

0 〃 Xia Shing Xiamen Motorcycle Co., Ltd. (Xia Shing Motor)


116,064 〃 0.29%

0 〃 VMEP


1,728 〃 - %

0 〃 Qingzhou Engineering Co., Ltd. (CCK)


5,997 〃 0.02%

1.2.3.4.5 Nanyang, Nanchen, VMEP, Jin Yang Motorcycles, SYIT

Sanyang Industry Co., Ltd.


1,052,301 〃 2.67%

6 Xia Xiamen Shing Motorcycle Co., Ltd. (Xia Shing Motor)

Qingzhou Engineering Co., Ltd. (CCK)


15,483 〃 0.04%



～103～

No. (Note 1)



(Note 2)


Financial Statement

Item Amount Terms

Percentage of



3 VMEP Vietnam Three Brothers Machinery Industrial Co., Ltd. (VTBM)



0.02%

3 〃 Fa Noi Full Ta Precision Company Limited (Vietnam)


2,479 〃 0.01%

1 Nanyang Industry Co., Ltd. (Nanyang)



3,050 〃 0.01%

2 Nanchen Industry Co., Ltd. (Nanchen)

Nanyang Industry Co., Ltd. (Nanyang)


44,250 〃 0.11%

7 Ching Jiun Co., Ltd. (Ching Jiun)



2,550 〃 0.01%

3 VMEP Sanyang Global (Xiamen) Co., Ltd. (Sanyang Global)


55,748 〃 0.14%


Nanchen Industry Co., Ltd. (Nanchen)


6,223 〃 0.02%

6 Xia Xiamen Shing Motorcycle Co., Ltd. (Xia Shing Motor)

Xiamen Three Brothers Machinery Industrial Co., Ltd. (XTBM)


21,939 〃 0.06%

0


SYI 1 Other Account Payable

857,845 〃 2.18%



2 Other Account Payable

734 〃 - %



～104～

No. (Note 1)



(Note 2)


Financial Statement

Item Amount Terms

Percentage of




VMEP 1 Account Receivable-related party

88,860 The same as those in

general transactions

0.23%


Nanchen Industries Co., Ltd. (Nanchen)

1 Account Receivable-related party

11,784 〃 0.03%

0 〃 Nanyang Industry Co., Ltd. (Nanyang)


536,493 〃 1.36%

0 〃 SYIT 1 Account Receivable-related party

172,432 〃 0.44%

0 〃 Chin Zong Trading Co., Ltd. (Chin Zong)


42,601 〃 0.11%

0 〃 Jin Yang Motorcycles Co., Ltd. (Jin Yang)


139,527 〃 0.35%

0 〃 SYDE 1 Account Receivable-related party

33,091 〃 0.08%

0 〃 Youth Taisun Co., Ltd. (Youth Taisun)


1,021 〃 - %

0 〃 SYI 1 Account Receivable-related party

2,760 〃 0.01%

0 〃 SY Indonesia 1 Account Receivable-related party

19,224 〃 0.05%

0 〃 SMV 1 Account Receivable-related party

3,317 〃 0.01%



1,191 〃 - %



～105～

No. (Note 1)



(Note 2)


Financial Statement

Item Amount Terms

Percentage of



3.8.9.10. 7

VMEP, Three Brothers Machinery, Sanyang Global, Youth Taisun, Ching Jiun





0.78%

11 Xiamen Three Brothers Machinery Industrial Co., Ltd. (XTBM)

Xiamen Xia Shing Motorcycle Co., Ltd. (Xia Shing Motor)


21,939 〃 0.06%

12 Qingzhou Engineering Co., Ltd. (CCK)



15,483 〃 0.04%

13 Vietnam Three Brothers Machinery Industrial Co., Ltd. (VTBM)


6,373 〃 0.02%

14 Fa Noi Full Ta Precision Company Limited (Vietnam)


2,479 〃 0.01%

9 Sanyang Global (Xiamen) Co., Ltd. (Sanyang Global)


55,748 〃 0.14%




44,520 〃 0.11%



～106～

No. (Note 1)



(Note 2)


Financial Statement

Item Amount Terms

Percentage of








0.02%

10 Youth Taisun Co., Ltd. (Youth Taisun)



3,050 〃 0.01%

10 Youth Taisun Co., Ltd. (Youth Taisun)

Ching Jiun Co., Ltd. (Ching Jiun)


2,550 〃 0.01%



1 Other Receivable

734 〃 - %

15 SYI Sanyang Industry Co., Ltd.

2 Other Receivable

857,845 〃 2.18%



1 Sales Revenue 4,168,739 〃 24.05%

0 〃 Nanychen Industry Co., Ltd. (Nanchen)

1 Sales Revenue 649,390 〃 3.75%


1 Sales Revenue 134,051 〃 0.77%

0 〃 Yi Yang Car Industry Co.,Ltd

1 Sales Revenue 42,297 〃 0.24%

0 〃 SYIT 1 Sales Revenue 243,618 〃 1.41%

0 〃 VMEP 1 Sales Revenue 153,133 〃 0.88%

0 〃 SYDE 1 Sales Revenue 79,375 〃 0.46%

0 〃 Chin Zong Trading Co., Limited. (Chin Zong)

1 Sales Revenue 175,789 〃 1.01%

0 〃 SMV 1 Sales Revenue 516 〃 - %

0 〃 SYI 1 Sales Revenue 3,225 〃 0.02%



～107～

No. (Note 1)



(Note 2)


Financial Statement

Item Amount Terms

Percentage of





1 Sales Revenue 2,234 The same as those in


0.01%









9.8.10.12. 13.7.3

Sanyang Global, Three Brothers Machinery, Youth Taisun, Qingzhou Engineering, Ching Jiun, VMEP


2 Sales Revenue 1,573,401 〃 9.08%



1 Cost of good sold

457,584 〃 2.64%

0 〃 Xiamen Xia Shing Motorcycle Co., Ltd. (Xia Shing Motor)

1 Cost of good sold

781,771 〃 4.51%


1 Cost of good sold

160,325 〃 0.92%


1 Cost of good sold

70,947 〃 0.41%



～108～

No. (Note 1)



(Note 2)


Financial Statement

Item Amount Terms

Percentage of




VMEP 1 Cost of good sold



0.02%


1 Cost of good sold

86,477 〃 0.50%

0 〃 Sanyang Global (Xiamen) Co., Ltd. (Sanyang Global)

1 Cost of good sold

12,199 〃 0.07%



2 Cost of good sold

5,666,056 〃 32.69%



1 Other Expense 26,477 〃 0.15%



2 Other Revenue

26,477 〃 0.15%


SYIT 1 Other Expense 6,525 〃 0.04%

5 SYIT Sanyang Industry Co., Ltd.

2 Other Revenue

6,525 〃 0.04%


NOVA 1 Administrative expenses

31,918 〃 0.18%

16 NOVA Sanyang Industry Co., Ltd.

2 Manufacture and design revenue

31,918 〃 0.18%

3 VMEP NOVA 3 Administrative expenses

1,221 〃 0.01%

16 NOVA VMEP 3 Manufacture and design revenue

1,221 〃 0.01%



～109～

No. (Note 1)



(Note 2)


Financial Statement

Item Amount Terms

Percentage of





1 Prepayments 31,485 The same as those in


0.18%

6 Xiamen Xia Shing Motorcycle Co., Ltd. (Xia Shing Motor)


2 Prepayments 31,485 〃 0.18%



1 Prepayments 6,540 〃 0.04%



2 Prepayments 6,540 〃 0.04%


Nanyang Industries Company (Nanyang)

1 Interest Expense

3,463 〃 0.02%

1 Nanyang Industries Co., Ltd. (Nanyang)


2 Interest Revenue

3,463 〃 0.02%



1 Interest Expense

5,015 〃 0.03%



2 Interest Revenue

5,015 〃 0.03%



1 Interest Expense

77 〃 - %



2 Interest Revenue

77 〃 - %



～110～

For the six months ended June 30, 2011

No. (Note 1)

Company Name

Counter-Party


(Note 2)


Financial Statement

Item Amount Terms

Percentage of Consolidated Total Gross






0.08%



233,038 〃 0.59%



71,183 〃 0.18%



49,725 〃 0.13%

0 〃 VMEP 1 Account Payable-related party

7,414 〃 0.02%



51,394 〃 0.13%




992,434 〃 2.51%




57,547 〃 0.15%




17,990 〃 0.05%


Xiamen Three Brothers Machinery Industrial Co., Ltd. (XTBM)


19,780 〃 0.05%



～111～

No. (Note 1)

Company Name

Counter-Party


(Note 2)


Financial Statement

Item Amount Terms



3 VMEP Vietnam Three Brothers Machinery Industrial Co., Ltd. (VTBM)




0.04%




62 〃 - %




544 〃 - %



167,086 〃 0.42%




23,056 〃 0.06%

0 〃 Nanyang Industry Co., Ltd. (Nanyang)


374,829 〃 0.95%

0 〃 SYIT 1 Account Receivable-related party

228,730 〃 0.58%



23,871 〃 0.06%



67,544 〃 0.17%

0 〃 SYDE 1 Account Receivable-related party

50,550 〃 0.13%



4,030 〃 0.01%

0 〃 SYI 1 Account Receivable-related party

8,684 〃 0.02%



～112～

No. (Note 1)

Company Name

Counter-Party


(Note 2)


Financial Statement

Item Amount Terms




SY Indonesia 1 Account Receivable-related party



0.05%

0 〃 SMV 1 Account Receivable-related party

24,830 〃 0.06%

3.8.9. 10.11

Vmep, Three Brothers Machinery, Sanyang Global,Youth Taisun, Ching Jiun,



442,507 〃 1.12%

12 Xiamen Three Brothers Machinery Industrial Co., Ltd. (XTBM)



19,780 〃 0.05%

13 Vietnam Three Brothers Machinery Industrial Co., Ltd. (VTBM)


16,716 〃 0.04%

1 Nanyang Industry Company (Nanyang)



57,547 〃 0.15%




17,990 〃 0.05%



2 Other Receivable-related party

544 〃 - %

0 〃 Nanchen Industry Co., Ltd. (Nanchen)

2 Other Receivable-related party

62 〃 - %



～113～

No. (Note 1)

Company Name

Counter-Party


(Note 2)


Financial Statement

Item Amount Terms




Nanyang Industry Company (Nanyang)

1 Sale Revenue 4,131,175 The same as those in


27.60%

0 〃 Nanchen Industry Co., Ltd. (Nanchen)

1 Sale Revenue 695,527 〃 4.65%


1 Sale Revenue 50,975 〃 0.34%

0 〃 Yi Yang Car Industry Co.,Ltd

1 Sale Revenue 45,982 〃 0.31%

0 〃 SYIT 1 Sale Revenue 225,275 〃 1.51%

0 〃 VMEP 1 Sale Revenue 399,446 〃 2.67%

0 〃 SYDE 1 Sale Revenue 105,293 〃 0.70%


1 Sale Revenue 130,923 〃 0.87%

0 〃 SMV 1 Sale Revenue 12,105 〃 0.08%

0 〃 SYI 1 Sale Revenue 17,788 〃 0.12%


1 Sale Revenue 12,915 〃 0.08%

0 〃 1 Sale Revenue 2,070 〃 0.01%

9.8.10. 14.11.13

Sanyang Global, Three Brothers Machinery, Youth Taisun, Qingzhou Engineering, Ching Jiun, VMEP


2 Sale Revenue 1,569,316 〃 10.48%



～114～

No. (Note 1)

Company Name

Counter-Party


(Note 2)


Financial Statement

Item Amount Terms





1 Cost of good sold



3.53%


1 Cost of good sold

618,763 〃 4.13%


1 Cost of good sold

162,401 〃 1.09%


1 Cost of good sold

81,036 〃 0.54%

0 〃 VMEP 1 Cost of good sold

9,560 〃 0.06%


1 Cost of good sold

168,956 〃 1.13%

1.2. 4 .5.3.15

Nanyang, Nanchen, Jin Yang Motorcycles, SYIT, VEMP Chin Zong

Sanyang Industry Co.,Ltd.,

2 Cost of good sold

5,829,474 〃 38.95%

0 Sanyang Industry Co., Ltd.,


1 Other Expense 3,919 〃 0.03%



2 Other Revenue

3,919 〃 0.03%


SYIT 1 Other Expense 6,130 〃 0.04%

5 SYIT Sanyang Industry Co., Ltd.

2 Other Revenue

6,130 〃 0.04%


NOVA 1 Administrative expenses

46,701 〃 0.31%



～115～

No. (Note 1)

Company Name

Counter-Party


(Note 2)


Financial Statement

Item Amount Terms



16 NOVA Sanyang Industry Co., Ltd.,

2 Manufacturing and design revenue



0.31%


VMEP 1 Prepayments 3 〃 - %

3 VMEP Sanyang Industry Co., Ltd.

2 Prepayments 3 〃 - %



1 Prepayments 201,933 〃 1.41%



2 Prepayments 201,933 〃 1.41%



1 Prepayments 25,451 〃 0.17%



2 Prepayments 25,451 〃 0.17%



1 Interest Revenue

1,643 〃 0.01%



2 Interest Expense

1,643 〃 0.01%



1 Interest Revenue

309 〃 - %



2 Interest Expense

309 〃 - %



～116～

No. (Note 1)

Company Name

Counter-Party


(Note 2)


Financial Statement

Item Amount Terms





3 Interest Revenue

37 The same as those in


- %



2 Interest Expense

37 〃 - %



1 Rent Revenue 5,024 〃 0.03%



2 Rent Expense 5,024 〃 0.03%



1 Rent Revenue 99 〃 - %



2 Rent Expense 99 〃 - %


Jin Yang Motorcycles Co., Ltd. (Jin Yang)

1 Rent Revenue 252 〃 - %

4 Jin Yang Motorcycles Co., Ltd. (Jin Yang)


2 Rent Expense 252 〃 - %



1 Rent Revenue 2,115 〃 0.03%



2 Rent Expense 2,115 〃 0.03%

Note 1: For transactions between the Company and its subsidiaries, numbers are assigned as follows: a. 0 represents the Company. b. serial numbers for the subsidiaries begin from number 1.

Note 2: Relationships are as follows: 1. the Company to subsidiary. 2. subsidiary to the Company. 3. subsidiary to other subsidiary.



～117～

12. BUSINESS SEGMENT FINANCIAL INFORMATION: June 30, 2012

Automobile

Segment Motorcycle

Segment Others Total

Segment revenues from external customers $ 6,267,125 10,258,093 433,310 16,967,528

Intersegment revenues $ 434,977 37,369 49,678 522,024

Segment total assets $ 10,044,572 18,016,725 11,379,284 39,440,581

June 30, 2011

Automobile

Segment Motorcycle

Segment Others Total

Segment revenues from external customers $ 6,314,045 12,545,751 483,647 19,343,443

Intersegment revenues $ 529,539 687,560 (33,673) 1,183,426

Segment total assets $ 8,325,278 22,773,794 8,372,079 39,471,151

SANYANG INDUSTRY CO., LTD. AND ITS SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS JUNE ... ·...

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