ABILITY — Annual Report 2019

Jul 2, 2019

Stock code: 2374

ABILITY ENTERPRISE CO., LTD.

2018 Annual Report

Search the annual on the website: http://mops.tse.com.tw ABILITY website: http://abilitycorp.com.tw Date of publication: May 2nd, 2019

PLEASE READ FOLLOWING NOTICE BEFORE USING THIS REPORT

Readers are advised that the original version of the report is in Chinese. If there is any conflict between these financial statements and the Chinese version or any difference in the interpretation of the two versions, the Chinese-language report shall prevail.

In addition, certain of our financial information have been published in accordance with requirements of the Republic of China Securities and Futures Commission and are presented in conformity with accounting principles generally accepted in the Republic of China. Readers should be cautioned that these accounting principles differ in many material respects from accounting principles generally accepted in other countries.

Except as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise.

The materials and information provided on this report have been issued by Ability and are posted solely for informational purposes and is not an offer to buy or sell or a solicitation of an offer to buy or sell any securities issued by us or otherwise.

SPOKESPERSON

Name: Tseng, Ming-Jen Title: Chairman & President Tel: +886-2-85229788 E-mail: Roger.Tseng@abilitycorp.com.tw

DEPUTY SPOKESPERSON

Name: CHENG, KO-JEN Title: Investor Relations Manager Tel: +886-2-85229788 E-mail: KC.Cheng@abilitycorp.com.tw

COMPANY HEADQUARTERS

Address: No.200, Sec. 3, Zhonghuan Rd., Xinzhuang Dist., New Taipei City 24242, Taiwan Tel: +886-2-85229788

Fax: +886-2-85229789

COMMON SHARES TRANSFER AGENT

Company: China Trust Commercial Bank Corporate Trust Operation and service Department Address: 5F, 83, Sec. 1, Chung-Ching S. Rd. Taipei 100, Taiwan Tel: +886-2-6636-5566 http://www.chinatrust.com.tw

AUDITORS

CPA Firm: PricewaterhouseCoopers Taiwan Name of CPA: JuanLu, Man-Yu and Audrey Tseng Address: 27F, No. 333, Sec. 1, Keelung Rd., Xinyi Dist., Taipei 11012, Taiwan Tel: +886-2- 27296666

https://www.pwc.tw

ABILITY WEBSITE

http://abilitycorp.com.tw

C o n t e n t s

1. Letter to Shareholders .................................................................................................................... 1 2. Company Profile .............................................................................................................................. 3 2.1 Date of Incorporation............................................................................................................ 3 2.2 Company History ................................................................................................................... 3 3. Corporate Governance Report ........................................................................................................ 4 3.1 Organization Structure .......................................................................................................... 4 3.2 Board of Directors and Management Team ......................................................................... 5 3.3 Implementation of Corporate Governance ........................................................................ 17 3.4 Audit Fee ............................................................................................................................. 48 3.5 Information on Change of CPA. .......................................................................................... 48 3.6 Audit Independence ............................................................................................................ 48 3.7 Status of Net Change in Shareholding and Shares Pledged ................................................ 49 3.8 Relationship among the Top Ten Shareholders........................................................... ...... 50 3.9 Ownership of Shares in Affiliated Enterprises .................................................................... 51 4. Capital Overview ........................................................................................................................... 52 4.1 Capital and Shares ............................................................................................................... 52 4.2 Bonds ................................................................................................................................... 56 4.3 Preferred Stock ................................................................................................................... 56 4.4 Global Depository Receipts ................................................................................................. 56 4.5 Employee Stock Options ..................................................................................................... 56 4.6 Employee Restricted Stocks ................................................................................................ 57 4.7 Status of New Shares Issuance in Connection with Mergers and Acquisitions .................. 59 4.8 Plans and Implentation of Funds Utilization ....................................................................... 59 5. Business Overview ........................................................................................................................ 60 5.1 Business Activities ............................................................................................................... 60 5.2 Market and Sales Overview ................................................................................................ 68 5.3 Status of Employees ............................................................................................................ 73 5.4 Expenditure on Environmental Protection ......................................................................... 74 5.5 Employee Relations ............................................................................................................. 74 5.6 Important Contracts ............................................................................................................ 79 6. Financial Information .................................................................................................................... 80 6.1 Five-Year Financial Summary .............................................................................................. 80 6.2 Five-Year Financial Analysis ................................................................................................ 84 6.3 Audit Committee’s Review Report .................................................................................... 87 6.4 Consolidated Financial Statements ..................................................................................... 88 6.5 Non-Consolidated Financial Statements ............................................................................. 88 6.6 Financial Difficulties ............................................................................................................ 88 7. Review of Financial Position, Management Performance and Risk Management ....................... 89 7.1 Analysis of Financial Status ................................................................................................. 89 7.2 Analysis of Operating Results .............................................................................................. 90 7.3 Analysis of Cash Flow .......................................................................................................... 91 7.4 Major Capital Expenditure Items and Impact on Finance and Business ............................ 91

7.5 Investment Policy ................................................................................................................ 91 7.6 Analysis of Risk Management ............................................................................................. 92 7.7 Other Major Risks. ............................................................................................................... 95 8. Other Special Notes ...................................................................................................................... 96 8.1 Summary of Affiliated Companies ...................................................................................... 96 8.2 Private Placement of Securities in the Most Recent Years ............................................... 103 8.3 The Shares of the Company Held or Disposed of by the Subsidiaries .............................. 103 8.4 Other Mentionable Items ................................................................................................. 103 9. Any Events in the Most Recent Years and as of the Date of this Annual Report that had Significant Impacts on Shareholders’ Right or Security Prices as Stated in Item 2 Paragraph 2 of Article 36 of Securities and Exchange Law of Taiwan: ................................. 103

1.Letter to Shareholders

Dear ladies and gentlemen:

Ability's core business of digital imaging products, both 360-degree camera and surveillance camera series, have launched new products this year. With those new products, Ability has not only acquired new clients, but also has expanded the fields of cooperation with current clients. However, the demand for digital camera continuously declines and it results in the deferred delivery for major brand. Therefore our operation revenue and profitability are relatively reduced. The consolidated operating revenue of 2018 was NT$7,635,028,000, which was approximately 30% less in comparison with the revenue of 2017. The operating loss was NT$739,861,000, and the net loss after tax attributed to the parent company was NT$463,048,000 which was equillent to NT$1.63 per share.

Look into the future, the global economy is uncertain. The consuming electronic products will face severe challenge. Only with competitive and creative capability, one enterprise can run the business in sustainable development. Ability keep devoting ourselves in adjusting business development, optizing management and improving the capital structure and cash flow. Meanwhile, the grand cost structure of products is aggressively reviewed and re-organized. We shall do our best to raise the shareholder equity and share our management performance with shoreholders, clients and employers.

1.1 Research and Development:

To against the fast developed and innovative mobile devices, the position of high resolution image quality, high ratio optical zoom, upgrade of video image quality, image processing speed, electric vibration reduction technology, and 8K high resolution image are the main theme of product development and tech. research.To satisfy various demand from different social group, we expand the feature of 360 degree surrounding camera in connecting with applications of VR, AR, AIOT, and …etc.. Ability has invested lots of resources in developing the improvement of image algorithm and hardware structure scheme. And, by return, our achievement on image taking module, software, APP and ToF is solid.

Ability will keep on building up the advantage of vertical intergrantion in cooperating our optical lens development with the supply chain with the AI technology. The video-image-taking module will be developed to be more thinner and high rank. As to the application of video-image-taking module, it shall be driven to the usage in the total solution system with the demand of optical video-imagetaking module for which Ability will invest more technology resources to develop.

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1.2 2019 BUSINESS DEVELOPMENT PLAN

Recently, information security is emphasized by most of people. The application of Edging computing avoid the invasion privacy. 5G & AI drive AIOT booming up fast. We can expand the development of image technique application due to our research and manufacture in image industry for years. Based on our opto-mechatronics integration and image processing technique, new components and new business models will be continuously created. We shall strengthen our core value and build up the competitive key component supply chain and the development on the wide range of optical image products will be the main theme of our business.

1.3 GREEN PRODUCT, ENVIROMENT PROTECTION, INFORMATION PROTECTION

The system of production, environment protection, information protection and security which meet the regulation of EU RoHS/WEEE/ErP has been properly merged into Ability management. This assists us to win the auditing certificate of green product from our customers. Ability execute the green product design, carbon footprint inventory, information protection, communication with our suppliers on the same global green environment protection. Wish our effort will help us to have a evergreen and long lasting world.

Deeply appreciate the strong and sincere support from all the shareholders. Wish you healthy and every thing developed as you expect.

Chairman & CEO : Tseng, Ming-Jen

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2. Company Profile

• 2.1 Date of Incorporation: May 21, 1965

2.2 Company History

In 1965,Mr. C. H. Tong, CEO of ABICO GROUP, got the agent right of Canon electronic calculator in the territory of Taiwan; since then, Ability’s Channel. Business started. Ability not only successfully grow into a business group but also assisted many cooperated companies in their relative business fields.

Ability created a tremendous sales performance of copy machine in 1977 and was the leading company in comparison with the other brands copy machine agent. During the next decade, Ability introduced many office business equipment, such as electronic typewriter, microfilm, printer, digital telephone system, color copier,…etc.. Ability was an outstanding company in the field of office business machines.

In 1991, Ability restructured the management to be Business Unit to face the trend of business; Canon Inc. became the shareholder of Ability in 1993. And, Ability went to public on Jan. 16, 1995. From now on, Ability steps onto another milestone of company management.

Viewquest Technologies Inc. (Viewquest), who was the largest webcam manufacturer and has started to develop digital camera, was merged into Ability on Jan. 1, 2003. From this turning point, Ability marches into the era of manufacture. Accordingly, the company management has been diversified to be Channel Business Unit, Optic Business Unit and Investment Business Unit. The specialized management team ran the manufacture business and the original owner family ran the distributor channel business. All three business units well cooperated and devoted to create profit for the company.

Asustek Computer Inc. (Asus), one of the largest computer manufactures, swap shares with ABICO Group in Sep. of 2007. This strategic alliance would like to utilize the mutual resources to expand the market scheme of other optical products and makes more development chance for Ability in the field of digital image product and other upstream components.

In Aug., 2007, the company ceded the rental and distribution business unit to its affiliated company-Ability International Co., Ltd. and in Nov., 2007, the company split Ability International Co., Ltd out and sold it to ABICO INVESTMENT GROUP.

To look back each important event- to merge Viewquest in 1993 and to sell the Copy machine channel business to the original family owner-ABICO GROUP, you will find Ability has transformed from family enterprise to be big ODM/OEM manufacturer run by the specialized management team in the ways of business model, product strategy, management policy, and shareholders structure. To execute the company philosophy of concentrating on core tech and business, Ability has been specializing in DMS manufacturer of digital image product and takes an role of DSC design in the world.

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3. Corporate Governance Report

3.1 Organization Structure

3.1.1 Organization Chart

	3.1 Organization Structure 3.1.1 Organization Chart	3.1 Organization Structure 3.1.1 Organization Chart	3.1 Organization Structure 3.1.1 Organization Chart	3.1 Organization Structure 3.1.1 Organization Chart	3.1 Organization Structure 3.1.1 Organization Chart	3.1 Organization Structure 3.1.1 Organization Chart	3.1 Organization Structure 3.1.1 Organization Chart	3.1 Organization Structure 3.1.1 Organization Chart	3.1 Organization Structure 3.1.1 Organization Chart	3.1 Organization Structure 3.1.1 Organization Chart
	Audit Committee Compensation Committee										Chairman Audit Office President Shareholders’ Meeting Board of Directors
	Optical Design Center		Operation Center			Imaging Systems Unit				Consumer Imaging Business unit				Research & Development Center			Imaging Module Business Unit			Manufacturing Center			Quality Center			Finance & Accounting Div			Information Technology. Div.
	3.1.2 Major business of each Div.
	Div. Name							Major Business
	Optical Design Center							Strategy plan and execution of Optic Lens and technique
	Operation Center							Consolidation of manufacture, sale and management. Material procurement,cost control, personnel,administration arrangement.
	Imaging System Business Unit							Marketing & Sales of Digital Imaging Product
	Consumer Imaging Business Unit							Marketing and Sales of DSC and other relative products
	Research and Development Center							Research and development on the brand new technique & advanced product and to support all business units onproduct development.
	Imaging Module Business Unit							RD, Product planning and marketing of optic module and component
	Manufacturing Center							Manage the manufacturing process, planning and its relative matters
	Quality Center							Quality assurance & maintenance on product development, manufacture and customers after sales.
	Finance & AccountingDiv							Planning and execution on company finance and accounting
	Information Tech Div							Information development & strategy, computer system development & setup & the relative management; promotion & maintenance on data security.

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3.2.Board of Directors and Management Team

3.2.1 Introduction of Board of Directors

						As of 04/16/2019	As of 04/16/2019	As of 04/16/2019	As of 04/16/2019	As of 04/16/2019	As of 04/16/2019	As of 04/16/2019	As of 04/16/2019	As of 04/16/2019	As of 04/16/2019
Title Name	Nationality	Gender	Date Elected	Term (Years)	Date First Elected	Shareholding when Elected		Current Shareholding		Current Shareholding of Spouse or Minor Children		Shareholding by Nominee Arrangement		Experience (Education)	Selected Current Positions
						Shares	%	Shares	%	Shares	%	Shares	%
Chairman Tseng, Ming-Jen	R.O.C.	Male	06/29/2016	3	10/03/2007	1,029,129	0.36	1,209,093	0.43	249,524	0.09	0	0.00	CEO: VIEWQUEST TECH. INC. CHARIMAN & CEO ABILITY ENT. CO., LTD. .MBA -TamKang University .EE Dept.,National Taiwan University.	.Chairman：ABILITY INTERNATIONAL INVESTMENT CO., LTD.、ABILITY ENTERPRISE (BVI) CO.,LTD.、VIEWQUEST TECH. (BVI) INC.、Ability Tech. (Dongguan) Co., Ltd、JIUJIANG VIEWQUEST ELECTRONICS INC.、VIEWQUEST TECHNOLOGIES (DONGGUAN) CO., LTD、 E-PIN OPTICAL INDUSRY CO.,LTD.、 ANDROVIDEO INC. .Director：VIEWQUEST TECHNOLOGIES INTERNATIONAL INC、ABILITY I VENTURE CAPITAL CORPORATION .Independent Director： Howteh Technology Co., Ltd. .Remuneration Committee： Flytech TechnologyCo.,Ltd
Director VIEWQUEST Investment Co., Ltd. Rep. : Tsay, Wen-Bin	R.O.C.	─	06/29/2016	3	06/29/2016	225,000	0.08	1,650,000	0.58	0	0.00	0	0.00	None	None
		Male	06/29/2016	3	10/03/2007	0	0.00	150,523	0.05	0	0.00	0	0.00	.VICE PRESIDENT ABILITY ENTERPRISE CO., LTD.IMAGING SYSTEM BUSINESS UNIT,CONSUMER IMAGING BUSINESS UNIT .Master EE, State University of New York .Bachelor EE, National Taiwan University	.Director： VIEWQUEST TECHNOLOGIES INTERNATIONAL INC、JIUJIANG VIEWQUEST ELECTRONICS INC.、 VIEWQUEST TECHNOLOGIES(DONGGUAN)CO., LTD .Consultant： ABILITY ENTERPRISE CO., LTD.

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Title Name	Nationality	Gender	Date Elected	Term (Years)	Date First Elected	Shareholding when Elected	Shareholding when Elected	Current Shareholding	Current Shareholding	Current Shareholding of Spouse or Minor Children	Current Shareholding of Spouse or Minor Children	Shareholding by Nominee Arrangement	Shareholding by Nominee Arrangement	Experience (Education)	Selected Current Positions
						Shares	%	Shares	%	Shares	%	Shares	%
Director VIEWQUEST Investment Co., Ltd. Rep. : Chou, Cheng-Wei	R.O.C.	─	06/29/2016	3	06/29/2016	225,000	0.08	1,650,000	0.58	0	0.00	0	0.00	None	None
		Male	06/29/2016	3	06/29/2016	0	0.00	291,159	0.10	0	0.00	0	0.00	.Vice President/R&D Center Ability Ent. Co., Ltd .Master /Information Engineering Dept., National Taiwan University	None
Director AVY Precision Tech. Inc Rep.:Tong, Chun-Jen	R.O.C.	─	06/29/2016	3	06/29/2016	288,544	0.10	4,138,544	1.47	0	0.00	0	0.00	None	None
		Male	06/29/2016	3	05/29/1998	0	0.00	548	0.00	88,548	0.03	0	0.00	.Chairman Avy Precision Tech. Inc. .Master New Jersey Institute of Technology. Information Dept.	.Chairman： Avy Precision Tech. Inc.、Avy Co., Ltd.、 Abico Plus Entertainment Ltd.、1 Production Film.Co. ARES Office Co., Ltd. . Vice Chairman： Abico NetCom Co., Ltd. .Director： Ability International Tenancy Co., Ltd、 Taishiba International Co., Ltd.、Taiwan Sanyo Electric Co., Ltd.、JaBon International Co., Ltd.、Seinoh Optical Co., Ltd.、Ability Venture Capital Corp.、 HONLYNN CO., LTD. .Supervisor：Sojean Intl.Co. .Remuneration Committee： Taisun Ent.,Ltd.
Director AVY Precision Tech. Inc Rep.: Huang, Li- An	R.O.C.	─	06/29/2016	3	06/29/2016	288,544	0.10	4,138,544	1.47	0	0.00	0	0.00	None	None
		Male	06/29/2016	3	06/29/2016	0	0.00	9,996	0.00	529	0.00	0	0.00	.MBA, IESE Business School	.Director：iCatch Technology, Inc.、ABICO NetCom Co, Ltd.、Avy Precision Tech. Inc.

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Title Name	Nationality	Gender	Date Elected	Term (Years)	Date First Elected	Shareholding when Elected	Shareholding when Elected	Current Shareholding	Current Shareholding	Current Shareholding of Spouse or Minor Children	Current Shareholding of Spouse or Minor Children	Shareholding by Nominee Arrangement	Shareholding by Nominee Arrangement	Experience (Education)	Selected Current Positions
						Shares	%	Shares	%	Shares	%	Shares	%
Director Lin Shih Investment Co., Ltd. Rep.: Chan,Wen- Hsiung	R.O.C.	─	06/29/2016	3	06/17/2010	3,163,799	1.12	5,433,757	1.92	0	0.00	0	0.00	None	.Director： iCatch Technology, Inc. .Supervisor：Sunplus mMobile Inc.
		Male	06/29/2016	3	06/17/2010	0	0.00	0	0.00	0	0.00	0	0.00	.MBA - National Taiwan University, .Department of Aeronautics and Astronautics , National Cheng Kung University	.Chairman： iCatch Technology, Inc.、(eChem Solutions Corp. .Director :SUNPLUS TECHNOLOGY CO.,LTD.、UNEXT TECHNOLOGY CO.,LTD.、ABILITY ENTERPRISE CO., LTD. .Independent Director：Ko Ja (Cayman) Co., Ltd.、BIOSTAR MICROTECH INTERNATIONAL CORP. .Supervisor：MILDEX OPTICAL INC.、E- Pin Optical Industry Co. Ltd.
Independent Director Lam,Tai-Seng	R.O.C.	Male	06/29/2016	3	06/29/2016	0	0.00	0	0.00	0	0.00	0	0.00	.EMBA Guanghua School of Management,Peking University .EMBA of National Chengchi University .Department of electronic engineering, National Taiwan University .Assistant manager of Hai Tong computer Co.,Ltd	Chairman of Flytech Technology Co.,Ltd
Independent Director Chen, Kuo-Hong	R.O.C.	Male	06/29/2016	3	06/29/2016	0	0.00	0	0.00	0	0.00	0	0.00	.Vice Chairman & CSO - Stark Technology Inc. .Chairman - Chaintel Technology Co., Ltd. .Chairman - Howteh Technology Co., Ltd. .Director -Tailyn Techonlogies, Inc. .Department of Electrical Engineering, National Taiwan University	.Director- Stark Technology Inc. .Chairman- Chaintel Technology Co., Ltd. .Chairman- Howteh Technology Co., Ltd. .Director-Tailyn Techonlogies, Inc. .Independent Director-Flytech Technology Co., Ltd

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Title Name	Nationality	Gender	Date Elected	Term (Years)	Date First Elected	Shareholding when Elected	Shareholding when Elected	Current Shareholding	Current Shareholding	Current Shareholding of Spouse or Minor Children	Current Shareholding of Spouse or Minor Children	Shareholding by Nominee Arrangement	Shareholding by Nominee Arrangement	Experience (Education)	Selected Current Positions
						Shares	%	Shares	%	Shares	%	Shares	%
Independent Director Lu,Chien-Min	R.O.C.	Male	06/29/2016	3	06/29/2016	0	0.00	0	0.00	0	0.00	0	0.00	.CFO, Sintronic Technology Co., Ltd.、CFO, Sintronic Technology Co., Ltd.、 Financial Manager,、 United Microelectronics Co. Financial Manager, Chiao Tung Bank Co., Singapore Branch、 .Supervisor: Hi-Light Tek Co., Ltd.、 Giantplus Technology Co., Ltd. .MBA, California State University、 .Department of Finance, National Chengchi University	.Chairman: Service & Quality Technology Co., Ltd.

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• a. Major shareholders of the institutional shareholders (top 10 shareholders and its shareholding percentages)

Name of Institutional Shareholders	Major Shareholders of the Institutional Shareholders	(%)
	Tseng,Ming-Jen	20.00
VIEWQUEST Investment Co.
	TSENG,FANG-HSUAN	60.00
Ltd.
	LIN,HUI-FEN	20.00
AVY Precision Technology Inc.	AbilityInvestment co.,Ltd.	22.23
	ABILITY ENTERPRISE CO.,LTD.	12.88
	TAISHIBA INTERNATIONAL CO.,LTD.	1.13
	KUO,CHING-SUNG	1.04
	Citibank Taiwan in custody for DFA Investments Group’s Emerging Market Core Securities Portfolio Funds	0.80
	Citibank (Taiwan) Commercial Bank entrusted custody of the emerging market assessment fund investment account	0.77
	AVY COMPANY LIMITED	0.73
	CHE AN integrated marketingCo.,Ltd.	0.73
	YEH,YUNG-HSIUNG	0.70
	HSBC Trusted Morgan Stanley International Co.,Ltd.	0.68
Lin Shih Investment Co.,Ltd.	SUNPLUS TECHNOLOGY CO.,LTD.	100.00

• b. Major shareholders of major corporate shareholders listed above

Name of Institutional Shareholders	Major Shareholders of the Institutional Shareholders	(%)
Ability Investment co., Ltd.	HENG NENG INVESTMENT CO.,LTD.	19.92
	CHIA NAI INVESTMENT CO.,LTD.	19.27
	CHIA MEI INVESTMENT CO.,LTD.	7.18
	TUNG,I-NAI	7.14
	TUNG,TENG-CHI-TZU	5.52
	CHIEH SHIH EN INVESTMENT CO.,LTD.	5.37
	KAI JUN INVESTMENT CO.,LTD.	5.22
	TUNG,I-CHIA	4.80
	SKY CENTURY CORP.	4.15
	YaChengInternational Investment Co.,Ltd.	3.17
AVY COMPANY LIMITED	AVY Precision TechnologyInc.	100.00

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Name of Institutional Shareholders	Major Shareholders of the Institutional Shareholders	(%)
	Huang,Chou-Chye	15.67
	LIU,TE-CHUNG	2.20
SUNPLUS TECHNOLOGY CO.,LTD.	Citibank (Taiwan) Commercial Bank is entrusted to custody of the Norwegian central bank	1.93
	Global View Co.,Ltd.	1.70
	KUNG,CHIH-HAO	1.39
	Citibank (Taiwan) Commercial Bank is entrusted to custody of the Emerging Markets Fund	1.31
	LI,WEN-CHIN	1.18
	Citibank (Taiwan) Commercial Bank entrusted custody of the emerging market assessment fund investment account	1.11
	Citibank Taiwan in custody for DFA Investments Group’s Emerging Market Core Securities Portfolio Funds	1.03
	JPMorgan Chase Bank N.A. Taipei Branch in Custody for Vanguard Total International Stock Index Fund, a series of Vanguard Star Funds	0.89

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c. Professional Qualifications and Independence Analysis of the Board Directors

As of 04/30/2019

Criteria Name	Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years Work Experience	Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years Work Experience	Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years Work Experience	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Number of Other Public Companies in Which the Individual is Concurrently Serving as an Independent Director
	An Instructor or Higher Position in a Department of Commerce, Law, Finance, Accounting, or Other Academic Department Related to the Business Needs of the Company in a Public or Private Junior College, College or University	A Judge, Public Prosecutor, Attorney, Certified Public Accountant, or Other Professional or Technical Specialist Who Has Passed a National Examination and Been Awarded a Certificate in a Profession Necessary for the Business of the Company	Have Work Experience in the Areas of Commerce, Law, Finance, or Accounting, or Otherwise Necessary for the Business of the Company	1	2	3	4	5	6	7	8	9	10
Tseng, Ming-Jen	N	N	Y			ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	1
Tsay,Wen-Bin	N	N	Y			ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ		0
Chou, Cheng-Wei	N	N	Y			ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ		0
Tong, Chun-Jen	N	N	Y	ˇ	ˇ	ˇ	ˇ		ˇ	ˇ	ˇ	ˇ		0
Huang,Li-An	N	N	Y	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ		0
Chan,Wen-Hsiung	N	N	Y	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ		2
Lam,Tai-Seng	N	N	Y	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	0
Chen, Kuo-Hong	N	N	Y	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	1
Lu,Chien-Min	N	N	Y	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	0

Note: Please tick the corresponding boxes that apply to the directors or supervisors during the two years prior to being elected or during the term of office.

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

2. Not a director or supervisor of the Company or any of its affiliates. Not applicable in cases where the person is an independent director of the Company, its parent company, or any subsidiary in which the Company holds, directly or indirectly, more than 50% of the voting shares.

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

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

5. Not a director, supervisor, or employee of a corporate shareholder who directly holds 5% or more of the total number of outstanding shares of the Company or who holds shares ranking in the top five holdings.

6. Not a director, supervisor, officer, or shareholder holding 5% or more of the shares, of a specified company or institution which has a financial or business relationship with the Company.

7. Not a professional individual who is an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that provides commercial, legal, financial, accounting services or consultation to the Company or to any affiliate of the Company, or a spouse thereof. These restrictions do not apply to any member of the Remuneration Committee who exercises powers pursuant to Article 7 of the “Regulations Governing the Establishment and Exercise of Powers of Remuneration Committees of Companies whose Stock is Listed on the TWSE or Traded on the TPEx”.

8. Not having a marital relationship, or a relative within the second degree of kinship to any other director of the Company.

9. Not been a person of any conditions defined in Article 30 of the Company Act.

10. Not a governmental, juridical person or its representative as defined in Article 27 of the Company Act.

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3.2.2 Introduction of the Management Team

As of 04/13/2018

											As of 04/13/201
Title Name	Nationality	Gender	Date First Elected	Current Shareholding		Spouse or Minor Children		Shareholding by Nominee Arrangement		Experience (Education)	Selected Current Positions
				Shares	%	Shares	%	Shares	%
Chairman and CEO Tseng, Ming-Jen	R.O.C.	Male	92.01	1,209,093	0.43	249,524	0.09	0	0.00	Refer to Introduction of Board of Directors
Vice President Chou, Cheng-Wei	R.O.C.	Male	101.01	291,159	0.10	0	0.00	0	0.00	Refer to Introduction of Board of Directors
Assistant Vice President Tommy Lee	R.O.C.	Male	92.08	0	0.00	0	0.00	0	0.00	. Assistant Vice President/R&D Center Ability Ent. Co., Ltd. .Dept. of EC,Taiwan Tech	None
Assistant Vice President Adams Chen	R.O.C.	Male	104.06	74,354	0.03	0	0.00	0	0.00	.Assistant Vice President/MFG Center Ability Ent. Co., Ltd .Dept. of EC,TPCU	Ability Tech. (Dongguan) Co., Ltd、 VIEWQUEST TECHNOLOGIES (DONGGUAN) CO.、JIUJIANG VIEWQUEST ELECTRONICS INC.
Assistant Vice President Vincent Lu	R.O.C.	Male	108.04	27,303	0.01	0	0.00	0	0.00	Assistant Vice President/IP Div. Ability Ent. Co., Ltd Dept. of PME, National Tsinghua University	None
Chief Financial Officer Lin, Hung-Tien	R.O.C.	Male	97.10	59,987	0.02	0	0.00	0	0.00	.CFO, Ability Ent. Co., Ltd、 .Assistant manager of Deloitte Audit Servcies Dept. of Accounting,CYUT	Supervisor：ABILITY INTERNATIONAL INVESTMENT CO., LTD.、Ability Tech. (Dongguan) Co., Ltd、ANDROVIDEO INC.

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3.2.3 Remuneration and Compensation Paid to Directors, the President, and Vice President

3.2.3.1 Remuneration Paid to Directors

As of 12/31/2018; Unit: NT$ thousands

Title Name									Total remuneration (A+B+C+D) as a % of net income	Total remuneration (A+B+C+D) as a % of net income	Compensation Earned by a Director Who is an Employee of Pegatron or its Consolidated Entities	Compensation Earned by a Director Who is an Employee of Pegatron or its Consolidated Entities	Compensation Earned by a Director Who is an Employee of Pegatron or its Consolidated Entities	Compensation Earned by a Director Who is an Employee of Pegatron or its Consolidated Entities	Compensation Earned by a Director Who is an Employee of Pegatron or its Consolidated Entities	Compensation Earned by a Director Who is an Employee of Pegatron or its Consolidated Entities	Compensation Earned by a Director Who is an Employee of Pegatron or its Consolidated Entities	Compensation Earned by a Director Who is an Employee of Pegatron or its Consolidated Entities	Total remuneration (A+B+C+D+E+F+G) as a % of net loss	Total remuneration (A+B+C+D+E+F+G) as a % of net loss	Compensation paid to directors from non- consolidated affiliates
	Base Compensation (A)		Severance Pay (B)		Bonus to Directors (C) (Note 1,3)		Allowances (D)				Base Compensation, Bonuses, and Allowances(E)		Severance Pay and Pensions (F) (Note 2)		Employee Compensation (G) (Note3)
	The Company	From all consolidated entities	The Company	From all consolidated entities	The Company	From all consolidated entities	The Company	From all consolidated entities	The Company	From all consolidated entities	The Company	From all consolidated entities	The Company	From all consolidated entities	From all consolidated entities		From all consolidated entities		The Company	From all consolidated entities
															Cash	Stock	Cash	Stock
Chairman Tseng, Ming-Jen	-	-	-	-	~~-~~	~~-~~	480	501	0.10%	0.11%	13,226	13,226	219	219	~~-~~	~~-~~	~~-~~	-	3.01%	3.01%	None
Director VIEWQUEST Investment Co. Ltd. Rep. : Tsay,Wen-Bin
Director VIEWQUEST Investment Co. Ltd. Rep. :Chou,Cheng-Wei
Director AVY Precision Technology Inc. Rep. : Tong,Chun-Jen
Director AVY Precision Technology Inc. Rep. : Huang, Li-An
Director Lin Shih Investment Co., Ltd. Rep. : Chan,Wen-Hsiung
Independent Director Lam,Tai-Seng
Independent Director Chen,Kuo-Hong
Independent Director Lu,Chien-Min

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Range of Remuneration

Range of Remuneration
Bracket	Name of Directors
	Total of(A+B+C+D)		Total of(A+B+C+D+E+F+G)
	The Company	Companies in the financial report	The Company	Companies in the financial report
Below NT$ 2,000,000	Lin Shih Investment Co., Ltd. VIEWQUEST Investment Co. Ltd. AVY Precision Technology Inc. Tseng, Ming-Jen Tsay, Wen-Bin Chou, Cheng-Wei Tong, Chun-Jen Huang, Li-An Chan,Wen-Hsiung Lam,Tai-Seng Chen, Kuo-Hong Lu,Chien-Min	Lin Shih Investment Co., Ltd. VIEWQUEST Investment Co. Ltd. AVY Precision Technology Inc. Tseng, Ming-Jen Tsay, Wen-Bin Chou, Cheng-Wei Tong, Chun-Jen Huang, Li-An Chan,Wen-Hsiung Lam,Tai-Seng Chen, Kuo-Hong Lu,Chien-Min	Lin Shih Investment Co., Ltd. VIEWQUEST Investment Co. Ltd. AVY Precision Technology Inc. Tong, Chun-Jen Huang, Li-An Chan,Wen-Hsiung Lam,Tai-Seng Chen, Kuo-Hong Lu,Chien-Min Tsay, Wen-Bin	Lin Shih Investment Co., Ltd. VIEWQUEST Investment Co. Ltd. AVY Precision Technology Inc. Tong, Chun-Jen Huang, Li-An Chan,Wen-Hsiung Lam,Tai-Seng Chen, Kuo-Hong Lu,Chien-Min Tsay, Wen-Bin
NT$2,000,000(Included) ~ NT$5,000,000(Excluded)	－	－	－	－
NT$5,000,000 (Included)~ NT$10,000,000(Excluded)	－	－	Tseng, Ming-Jen Chou,Cheng-Wei	Tseng, Ming-Jen Chou,Cheng-Wei
NT$10,000,000(Included)~ NT$15,000,000(Excluded)	－	－	－	－
NT$15,000,000(Included)~ NT$30,000,000(Excluded)	－	－	－	－
NT$30,000,000(Included)~ NT$50,000,000(Excluded)	－	－	－	－
NT$50,000,000(Included)~ NT$100,000,000(Excluded)	－	－	－	－
Over NT$100,000,000	－	－	－	－
Total	12	12	12	12

Note 1. Remunerations paid on earnings distribution of directors are appropriated to unincorporated representatives of corporate juridical person. Note 2. Actual payments of pensions for the most recent years: Nil; appropriated amounts of pensions expense for the most recent years: NT$219 thousand. Note 3. The company's annual profit after-tax is loss, so no remunerations for directors and remunerations for employees .

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3.2.3.2 Compensation Paid to President and Vice President

As of 12/31/2017; Unit: NT$ thousands

Title	Name	Salary(A)	Salary(A)	Severance Pay and Pensions (B) (Note 1)	Severance Pay and Pensions (B) (Note 1)	Bonuses and Allowances (C)	Bonuses and Allowances (C)	Employee Compensation (D) (Note 2)	Employee Compensation (D) (Note 2)	Employee Compensation (D) (Note 2)	Employee Compensation (D) (Note 2)	Total remuneration (A+B+C+D) as a % of net loss	Total remuneration (A+B+C+D) as a % of net loss	Compensation paid to directors from nonconsolidat ed affiliates
		The Company	From all consolidated entities	The Company	From all consolidated entities	The Company	From all consolidated entities	The Company		From all consolidated entities		The Company	From all consolidated entities
								Cash	Stock	Cash	Stock
President	Tseng, Ming-Jen	5,562	5,562	219	219	7,664	7,664	2,100	0	2,100	0	7.48%	7.48%	None
Vice President	Chou, Cheng-Wei

Range of Remuneration

Range of Remuneration
Bracket	Name of President and Vice President
	The company	Companies in the financial report
Below NT$ 2,000,000	－	－
NT$2,000,000(Included)~ NT$5,000,000(Excluded)	－	－
NT$5,000,000 (Included)~ NT$10,000,000(Excluded)	Tseng, Ming-Jen Chou,Cheng-Wei	Tseng, Ming-Jen Chou,Cheng-Wei
NT$10,000,000(Included)~ NT$15,000,000(Excluded)	－	－
NT$15,000,000(Included)~ NT$30,000,000(Excluded)	－	－
NT$30,000,000(Included)~ NT$50,000,000(Excluded)	－	－
NT$50,000,000(Included)~ NT$100,000,000(Excluded)	－	－
Over NT$100,000,000	－	－
Total	2	2

Note 1: Actual payments of pensions for the most recent years: Nil; appropriated amounts of pensions expense for the most recent years: NT$219 thousand. Note 2. The company's annual profit after-tax is loss, so no remunerations for directors and remunerations for employees .

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3.2.3.3 Employee Profit Sharing Granted to Management Team

Unit: NT$ thousands

					Unit: NT$ thousands
Title	Name	Stock (Fair Market Value) (Note 1)	Cash (Note 1)	Total	Ratio of Total Amount to Net loss(%)
President	Tseng,Ming-Jen	0	3,100	3,100	1.42%
Vice President	Chou, Cheng-Wei
Assistant Vice President	Tommy Lee
Assistant Vice President	Adams Chen
Chief Financial Officer	Lin, Hung-Tien

Note 1: The company's annual profit after-tax is loss, so no profit sharing for employees .

• 3.2.4 Compare and state the ratio of total remuneration paid to the Company’s Directors, President and Vice Presidents by the company and the companies in the consolidated financial statements to net income in the past two years. Please also describe the policy, criteria, packages and rules relating to the remuneration, as well as its relation to business performance and future risks.

• a.The ratio of total remuneration paid by the Company and by all companies included in the consolidated financial statements for the two most recent fiscal years to directors, presidents and vice presidents of the Company, to the net income ：

	Unit: NT$ thousands 2018 2017 Amount Ratio of Total Amount to Net loss (%) Amount Ratio of Total Amount to Net income (%) - - 3,659 1.68 13,445 2.90 16,282 7.48	Unit: NT$ thousands 2018 2017 Amount Ratio of Total Amount to Net loss (%) Amount Ratio of Total Amount to Net income (%) - - 3,659 1.68 13,445 2.90 16,282 7.48	Unit: NT$ thousands 2018 2017 Amount Ratio of Total Amount to Net loss (%) Amount Ratio of Total Amount to Net income (%) - - 3,659 1.68 13,445 2.90 16,282 7.48	Unit: NT$ thousands 2018 2017 Amount Ratio of Total Amount to Net loss (%) Amount Ratio of Total Amount to Net income (%) - - 3,659 1.68 13,445 2.90 16,282 7.48
Item position	2018		2017
	Amount	Ratio of Total Amount to Net loss (%)	Amount	Ratio of Total Amount to Net income (%)
directors	-	-	3,659	1.68
presidents and vice presidents	13,445	2.90	16,282	7.48

• b. Descriptions of remuneration policies, criteria, packages, rules relating to the remuneration, as well as its relation to business performance and future risks.

Remuneration of directors and supervisors, as well as salaries and remuneration of presidents and vice presidents are considered by the remuneration committee and presented to the Board of Directors for approval in accordance with relevant laws and regulations. The determination of remuneration of directors and supervisors is stipulated in the Articles of Incorporation of the company; the salaries and remuneration of presidents and vice presidents is paid based on the normal level in the industry.

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3.3 Implementation of Corporate Governance

3.3.1 Board of Directors

A total of 8 (A) meetings of the Board of Directors were held in 2018. The directors’ attendance status is as follows:

Title	Name	Attendance in person (B)	By Proxy	Attendance rate (%) 【Ｂ/Ａ】	Remarks
Chairman	Tseng, Ming-Jen	8	0	100%	06/29/2016 Newlyelected
Director	VIEWQUEST Investment Co. Ltd. Rep.:Tsay,Wen-Bin	8	0	100%	06/29/2016 Newlyelected
Director	VIEWQUEST Investment Co. Ltd. Rep.:Chou,Cheng-Wei	8	0	100%	06/29/2016 Newlyelected
Director	AVY Precision Technology Inc. Rep.:Tong,Chun-Jen	8	0	100%	06/29/2016 Newlyelected
Director	AVY Precision Technology Inc. Rep.:Huang,Li-An	4	2	50%	06/29/2016 Newlyelected
Director	Lin Shih Investment Co., Ltd. Rep.: Chan,Wen-Hsiung	8	0	100%	06/29/2016 Re-elected
Independent Director	Lam,Tai-Seng	8	0	100%	06/29/2016 Newly elected
Independent Director	Chen, Kuo-Hong	7	1	87.5%	06/29/2016 Newly elected
Independent Director	Lu,Chien-Min	8	0	100%	06/29/2016 Newly elected

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Other remarks: 1. In the event of either of the following situations, dates, sessions, contents of resolutions of the Board meetings, opinions from all independent directors, and how the company has responded to such opinion shall be noted: (1) Conditions described in Article 14-3 of the Securities and Exchange Act.	Other remarks: 1. In the event of either of the following situations, dates, sessions, contents of resolutions of the Board meetings, opinions from all independent directors, and how the company has responded to such opinion shall be noted: (1) Conditions described in Article 14-3 of the Securities and Exchange Act.	Other remarks: 1. In the event of either of the following situations, dates, sessions, contents of resolutions of the Board meetings, opinions from all independent directors, and how the company has responded to such opinion shall be noted: (1) Conditions described in Article 14-3 of the Securities and Exchange Act.
Period and Date	Contents of resolutions	Opinions from all independent directors and how the company has responded to such opinions
2018.8.9 3rd in 2018	1. The Company’s appointment of the CPA. 2. The Company’s 2018 1H financial statements. 3. Endorsements/guarantees for VIEWQUEST (BVI), a subsidiary of the Company, regarding the procurement payment to the supplier Sunny Optical Technology Co. Ltd. 4. The Company’s investment in ANDROVIDEO INC.	Passed unanimously by all independent directors in attendance.
2018.11.7 4th in 2018	1. The Company’s appointment of the chief audit executive. 2. The Company's “2019 internal audit plan”. 3. The Company’s 2018 3Q financial statements. 4. Bonus distribution plan for managers and employees of the company in 2018. 5. The company and the bank credit renewal related matters. 6. The company plans to fund the loan and ANDROVIDEO INC., a subsidiary of the Company. 7.Employee restricted new share cancellation and reduction and determination of the record date of the reduction in the thirdquarter of 2018	Passed unanimously by all independent directors in attendance.
2019.2.21 1st in 2019	1. Endorsements/guarantees for VIEWQUEST (BVI), a subsidiary of the Company, regarding the procurement payment to the supplier Panasonic Hong Kong Co. Ltd. 2. Endorsements/guarantees for VIEWQUEST (BVI), a subsidiary of the Company, regarding the procurement payment to the supplier Giantplus Technology Co., Ltd. 3. VIEWQUEST TECHNOLOGIES (DONGGUAN) CO., LTD. plans to fund the loan and Ability Tech. (Dongguan) Co., Ltd., both a subsidiary of the Company,	Passed unanimously by all independent directors in attendance.
2019.3.25 2nd in 2019	1. The Company’s 2018 financial statements. 2. The Company’s Business Reports and Financial Statements of 2018, submitted for Recognition. 3. The Company’s Earning Distribution of 2018, submitted for Recognition. 4. Evaluation of the CPA’s independence of the Company. 5. Re-election on all the Company's Directors (including independent directors) 6. Amendment of the Company's "Articles of Incorporation", submitted for Discussion. 7. Amendment of the Company's "Procedures for the Acquisition and Disposal of Assets", submitted for Discussion. 8. Amendment of the Company's "Procedures for Endorsement and Guarantee", submitted for Discussion 9. Amendment of the Company's "Procedures for Loaning Funds to Others", submitted for Discussion 10. The company and the bank credit renewal related matters. 11. “2018 Management's Reports on Internal Control System”.	Except for the proposal 3, the remaining proposals were attended by independent directors without objection. proposal 3: DirectorChan,Wen-Hsiung proposed: It is proposed to increase the distribution of dividends. Independent director Chen, Kuo-Hong 's proposed: It is recommended that the business operation be prudent for long-term. Resolution: The proposal was put on hold for the next time board of directors discussed it.

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2019.4.16 3rd in 2019	1. Nomination and review of the list of candidates for directors and independent directors. 2. Release the prohibition on the Company's newly-elected Directors from participation in competitive business. 3. New manager salary structure and remuneration. 4.The company's manager promotion, remuneration and salary adjustment. 5. The company's "standard operating procedures for handling directors' requirements”, submitted for Discussion. 6. Disposal of the Company’s factoryat NanGang.	1. Nomination and review of the list of candidates for directors and independent directors. 2. Release the prohibition on the Company's newly-elected Directors from participation in competitive business. 3. New manager salary structure and remuneration. 4.The company's manager promotion, remuneration and salary adjustment. 5. The company's "standard operating procedures for handling directors' requirements”, submitted for Discussion. 6. Disposal of the Company’s factoryat NanGang.	1. Nomination and review of the list of candidates for directors and independent directors. 2. Release the prohibition on the Company's newly-elected Directors from participation in competitive business. 3. New manager salary structure and remuneration. 4.The company's manager promotion, remuneration and salary adjustment. 5. The company's "standard operating procedures for handling directors' requirements”, submitted for Discussion. 6. Disposal of the Company’s factoryat NanGang.	Passed unanimously by all independent directors in attendance.
2019.5.2 4th in 2019	1. The Company’s appointment of the CPA and its fee for the year. 2. The company plans to increase the amount of funds to borrow and ANDROVIDEO INC., a subsidiary of the Company. 3. The company and the bank credit renewal related matters. 4. The Company’s Earning Distribution of 2018, submitted for Recognition. 5. Renew the list of candidates for directors and independent directors. 6. The Company’s 2019 operationplans.			Passed unanimously by all independent directors in attendance.
(2) Other issues opposed by independent directors or about which said directors have qualified opinions shall be recorded in writing in the meeting minutes of the Board: None 2. Should a director recuse himself or herself from a resolution about which he or she has a conflict of interest, the name of the director, contents of the resolution, reasons for recusal, and the results of the vote shall be noted:
Date	Resolution	Recused person	Implementation
2018.11.7	Bonus distribution plan for managers and employees of the company in 2018.	Tseng, Ming-Jen Chou, Cheng-Wei Lin, Hung-Tien	Other than the chairman Tseng, Ming-Jen, the director Chou, Cheng-Wei and financial manager Lin, Hung-Tien who recused themselves from the resolution due to conflicting interest, remaining directors (including independent directors) in attendance passed the resolution unanimously.
2019.4.16	1. The new manager’s salary structure and remuneration. 2. The company's manager promotion, remuneration and salary adjustment.	Tseng, Ming-Jen Chou, Cheng-Wei Lin, Hung-Tien	Other than the chairman Tseng, Ming-Jen, the director Chou, Cheng-Wei and financial manager Lin, Hung-Tien who recused themselves from the resolution due to conflicting interest, remaining directors (including independent directors) in attendance passed the resolution unanimously.
3. Enhancements to the functions of the Board of Directors in the current and the most recent year (e.g., establishment of an audit committee, improvement of information transparency etc.), and the progress of such enhancements: (1)An audit committee was established on June 29, 2016 to perform its duty as a supervisor as required by relevant laws and regulations. (2)The companyassigned a dedicatedperson to be responsible for monthlyrevenue and

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material information disclosure, and input information into the Market Observation Post System in accordance with relevant rules.

• (3)The company assigned a spokesperson and a deputy spokesperson to serve as communication channels for stakeholders.

• (4)The company formulated “Rules and Procedures of the Board Meeting” to enhance the functions of the Board of Directors and facilitate healthy development of the Board’s participation in decision-making.

• (5)To strengthen professional expertise, directors of the company continue to pursue advanced studies every year, the total hours of which meet relevant requirements imposed by competent authorities. Members of the Board are also encouraged to attend respective professional courses to keep acquiring up-to-date knowledge with an aim to maintain its professional advantages and capabilities.

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3.3.2 Audit Committee

A total of 6 (A) meetings of the audit committee were held in 2018. The independent directors’ attendance status is as follows:

	Title	Name	Attendance in person (B)	By Proxy	Attendance rate (%) 【Ｂ/Ａ】	Remarks
	Independent Director	Lam,Tai-Seng	6	0	100%	06/29/2016 Newlyelected
	Independent Director	Chen, Kuo- Hong	6	0	100%	06/29/2016 Newlyelected
	Independent Director	Lu,Chien-Min	6	0	100%	06/29/2016 Newlyelected
	Other remarks: 1. In the event of either of the following situations, dates, sessions, contents of resolutions of the Board meetings, opinions from audit committee's resolutions, and how the company has responded to audit committee's opinions shall be noted: (1)Conditions described in Article 14-5 of the Securities and Exchange Act: Period and Date Contents of resolutions Opinions from audit committee's resolutions and how the company has responded to audit committee's opinions 2018.8.09 12th of the 1st. 1. The Company’s appointment of the CPA. 2. The Company’s 2018 1H financial statements. 3. The Company’s investment in ANDROVIDEO INC. Passed unanimously by members in attendance. 2018.11.07 13th of the 1st. 1. The Company’s appointment of the chief audit executive. 2. The Company's “2019 internal audit plan”. 3. The Company’s 2018 3Qfinancial statements. Passed unanimously by members in attendance. 2019.3.25 14th of the 1st. 1.The Company’s 2018 financial statements. 2. The Company’s Business Reports and Financial Statements of 2018, submitted for Recognition. 3. The Company’s Earning Distribution of 2018, submitted for Recognition 4. Evaluation of the CPA’s independence of the Company. 5. Amendment of the Company's "Procedures for the Acquisition and Disposal of Assets", submitted for Discussion 6. Amendment of the Company's "Procedures for Endorsement and Guarantee", submitted for Discussion 9. Amendment of the Company's "Procedures for Loaning Funds to Others", submitted for Discussion 8. “2018 Management's Reports on Internal Control System”. Passed unanimously by members in attendance. 2019.5.02 15th of the 1st. 1. The Company’s 2019 1Q financial statements. 2. The Company’s appointment of the CPA and its fee for theyear. Passed unanimously by members in attendance. (2) Other than those described above, any resolutions unapproved by the audit committee but passed by more than two-thirds of directors: None.

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2. Avoidance of involvements in interest-conflicting resolutions by independent directors: None. 3. Communication between independent directors, the chief audit executive and accountants: (1) Summary on communication between independent directors, supervisors and the chief audit executive:	2. Avoidance of involvements in interest-conflicting resolutions by independent directors: None. 3. Communication between independent directors, the chief audit executive and accountants: (1) Summary on communication between independent directors, supervisors and the chief audit executive:	2. Avoidance of involvements in interest-conflicting resolutions by independent directors: None. 3. Communication between independent directors, the chief audit executive and accountants: (1) Summary on communication between independent directors, supervisors and the chief audit executive:	2. Avoidance of involvements in interest-conflicting resolutions by independent directors: None. 3. Communication between independent directors, the chief audit executive and accountants: (1) Summary on communication between independent directors, supervisors and the chief audit executive:	2. Avoidance of involvements in interest-conflicting resolutions by independent directors: None. 3. Communication between independent directors, the chief audit executive and accountants: (1) Summary on communication between independent directors, supervisors and the chief audit executive:	2. Avoidance of involvements in interest-conflicting resolutions by independent directors: None. 3. Communication between independent directors, the chief audit executive and accountants: (1) Summary on communication between independent directors, supervisors and the chief audit executive:
Date		Forms	Issues		Results
2018.11.7		Meeting	Discussions on the 2019 audit plan.		No material issues that required rectification.
2019.3.25		Meeting	“2018 Management's Reports on Internal Control system” resolution.		No material issues that required rectification.
(2) Communication between independent directors and accountants: Independent directors of the Company are responsible for overseeing financial reporting process in accordance with relevant laws and regulations, maintaining good mutual communication with the CPA of the company and communicating with the CPA matters in respect of the auditplan of 2018 financial statements as follows:
Date	Forms			Issues	Results
2018.12.20	Documents in writing			Annual audit plan -The role and responsibility of the chief accountant -Audit plan -Preliminary opinions on key audit matters -The independence of the CPA	1. Noted without other opinions and has replied to the accounting firm. 2. If there are any suggestions and material findings, the chief accountant and the manager shall be promptly notified to arrange further meeting.
2019.3.25	Documents in writing and meetings			Conclusion of the annual audit - Draft of the financial statements - Major findings of the auditing - Draft of the auditing reports (including key audit matters) - The independence of the CPA	1. Noted without other opinions and has replied to the accounting firm. 2. On March 16, 2018, the CPA and the manager had discussions and explanations on major issues prior to the audit committee’s meeting and the Board’s meeting.

2. Avoidance of involvements in interest-conflicting resolutions by independent directors: None. 3. Communication between independent directors, the chief audit executive and accountants: (1) Summary on communication between independent directors, supervisors and the chief audit executive:	2. Avoidance of involvements in interest-conflicting resolutions by independent directors: None. 3. Communication between independent directors, the chief audit executive and accountants: (1) Summary on communication between independent directors, supervisors and the chief audit executive:	2. Avoidance of involvements in interest-conflicting resolutions by independent directors: None. 3. Communication between independent directors, the chief audit executive and accountants: (1) Summary on communication between independent directors, supervisors and the chief audit executive:	2. Avoidance of involvements in interest-conflicting resolutions by independent directors: None. 3. Communication between independent directors, the chief audit executive and accountants: (1) Summary on communication between independent directors, supervisors and the chief audit executive:	2. Avoidance of involvements in interest-conflicting resolutions by independent directors: None. 3. Communication between independent directors, the chief audit executive and accountants: (1) Summary on communication between independent directors, supervisors and the chief audit executive:	2. Avoidance of involvements in interest-conflicting resolutions by independent directors: None. 3. Communication between independent directors, the chief audit executive and accountants: (1) Summary on communication between independent directors, supervisors and the chief audit executive:
Date		Forms	Issues		Results
2018.11.7		Meeting	Discussions on the 2019 audit plan.		No material issues that required rectification.
2019.3.25		Meeting	“2018 Management's Reports on Internal Control system” resolution.		No material issues that required rectification.
(2) Communication between independent directors and accountants: Independent directors of the Company are responsible for overseeing financial reporting process in accordance with relevant laws and regulations, maintaining good mutual communication with the CPA of the company and communicating with the CPA matters in respect of the auditplan of 2018 financial statements as follows:
Date	Forms			Issues	Results
2018.12.20	Documents in writing			Annual audit plan -The role and responsibility of the chief accountant -Audit plan -Preliminary opinions on key audit matters -The independence of the CPA	1. Noted without other opinions and has replied to the accounting firm. 2. If there are any suggestions and material findings, the chief accountant and the manager shall be promptly notified to arrange further meeting.
2019.3.25	Documents in writing and meetings			Conclusion of the annual audit - Draft of the financial statements - Major findings of the auditing - Draft of the auditing reports (including key audit matters) - The independence of the CPA	1. Noted without other opinions and has replied to the accounting firm. 2. On March 16, 2018, the CPA and the manager had discussions and explanations on major issues prior to the audit committee’s meeting and the Board’s meeting.

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3.3.3 Corporate Governance Implementation Status and Deviations from “the Corporate Governance Best-Practice Principles for TWSE/TPEx Listed Companies”

TWSE/TPEx Listed Companies”
Assessment Item			Implementation Status	Non-implementation and its reason(s)
	Y	N	Explanation
1. If the Company established and disclosed Corporate Governance Principles in accordance with Corporate Governance Best-Practice Principles for TWSE/GTSM Listed Companies?	V		The Company formulated the “Corporate Governance Principles” as disclosed on the Market Observation Post System and the company’s website.	No major deviation
2. Shareholding Structure & Shareholders’ Rights				No major deviation
(1) If the Company established internal procedures to handle shareholder suggestions, proposals, complaints and litigation and execute accordingly?	V		(1) The Company assigned spokesperson, investor relations contact, dedicated personnel for registrar and legal-related matters to address issues in relation to shareholders’ suggestions and disputes.
(2) If the Company maintained of a list of major shareholders and a list of ultimate owners of these major shareholders?	V		(2) The Company assigned dedicated personnel for registrar to keep abreast with the actual shareholdings of directors, managers and major shareholders holding 10% of the shares in the company.
(3) If risk management mechanism and “firewall” between the Company and its affiliates are in place?	V		(3) The Company formulated “Administrative Measures on the Operation of a Subsidiary”, “Procedures for Loans to Others”, "Endorsement and Guarantee Procedures", “Procedures for the Acquisition and Disposal of Assets” and other internal management measures to establish proper risk control mechanism and firewall.
(4) If the Company established internal policies that forbid insiders from trading based on non-disclosed information?	V		(4) The Company formulated control measures of “Insider Trading Prevention management operations” to regulate behavior and commence risk control.

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Assessment Item			Implementation Status	Non-implementation and its reason(s)
	Y	N	Explanation
3. Structure of Board of Directors and its responsibility
(1) If the Board consisted of members from diverse background?	V		(1) Appoint three independent directors in accordance with the company’s “Corporate Governance Principles” to enhance the Board’s functions. The composition of the Board of Directors shall be determined by taking diversity into consideration. The criteria for directors’ elections of the company is based on the company's business operations, operating dynamics and development needs, including but not limited to the following two major aspects: 1. Basic conditions and value: gender, age, nationality and cultural background, etc. 2. Professional expertise and skills: professional background (including laws, accounting, industry, finance, marketing or technology), skills, and industry experience. Directors of this session of the company are elected in accordance with the two major aspects listed above. Elected directors are equipped with professional expertise and experience covering finance, technology, industry and marketing.	No major deviation

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Assessment Item			Implementation Status	Non-implementation and its reason(s)
	Y	N	Explanation
(2) If the Company established any other functional committee in addition to Compensation Committee, Audit Committee as required by law? (3) If the Company established methods and procedures to assess the performance of the Board and conduct assessment on annual basis?	V	V	(2) The Company established the remuneration committee and assembled the audit committee at its discretion, while other functional committees are not yet established. There are no other functional committees set up for business operations. (3) The auditing office commenced auditing in accordance with the Company’s “Rules of Procedure for Board Meetings” of the company and prevailing regulations of the “Regulations Governing Procedure for Board of Directors Meetings of Public Companies”. It is known that currently the Company does not formulate relevant measures on performance evaluation of the Board of Directors.	The Company shall carry out prudent evaluation based on its internal development needs in the future. The Company shall carry out prudent evaluation based on its internal development needs in the future.
(4) If the Company assess the independence of CPA periodically?	V		(4) According to the Article 29 of the Company’s “Corporate Governance Principles”, it is required to assess CPA’s independence and capacity regularly (at least once per year). After internal self-assessment on the independence and capacity of the CPA, there was no matters that might have a possible impact on the independence of PwC Taiwan's CPA, JuanLu, Man-Yu and Audrey Tseng. It is also required that the CPA shall issue a declaration of independence; the resolution was considered and passed by the audit committee and the Board of Directors of the companyon March 25,2019.(Note)	No major deviation

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Assessment Item			Implementation Status	Non-implementation and its reason(s)
	Y	N	Explanation
4. If the Company established a unit or assigned a personnel to handle corporate governance related issues (including but not limited to providing assistance to board members and handling all tasks ass	V		The Company’s dedicated person for registrar is responsible for relevant matters concerning corporate governance, discussion and formulation of the Board’s meeting agenda and provision of sufficient information to enable directors to have a better understanding of relevant contents to be proposed at the meeting. The dedicated person shall convene shareholders’ meetings every year during the specific period required by laws and regulations, upload the notice of the meeting, the meeting agenda and the shareholders’ meeting’s minutes to the Market Observation Post System prior to the period as specified in the announcement and conduct registration and changes upon amendments to the Articles of Incorporation and re-election of directors.	No major deviation
5. If the Company established communication channel with stakeholders (including but not limited to shareholders, employee, customers, suppliers, etc.) and disclosed key corporate social responsibility issues frequently enquired by stakeholders on the designated area of the corporate website?	V		The Company established the public relation, registrar and legal departments depending on different situations to address issues and communicate with stakeholder. The Company also created company information, corporate governance, corporate social responsibility and stakeholders’ sections on the company’s website and provided contact information of the spokesperson so that stakeholders may be informed of latest issues on a timely basis.	No major deviation
6. If the Company engaged professional transfer agent to host annual general shareholders’ meeting?	V		The Company engaged the registrar agency department of CTBC Bank Co., Ltd. to handle shareholder meeting affairs	No major deviation
7 Information Disclosure				No major deviation

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Assessment Item			Implementation Status	Non-implementation and its reason(s)
	Y	N	Explanation
(1) If the Company set up a corporate website to disclose information regarding the Company’s finance, business and corporate governance? (2) If the Company adopted any other information disclosure channels (e.g., maintaining an English-language website, appointing designated personnel to handle information collection and disclosure, appointing spokespersons, webcasting investors conference, etc)?	V V		(1) The Company promptly discloses relevant information on its corporate website (http://www.abilitycorp.com.tw). (2) The collection and disclosure of investor relations, registrar and legal departments-related information. The Company builds website in both Chinese and English languages to regularly disclose information relating to the company’s finance, shares, product information and social engagement. The Company assigns a spokesman in accordance with regulations. Live broadcast of the Company’s investor seminars is available on its website (http://www.abilitycorp.com.tw).

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Assessment Item			Implementation Status	Non-implementation and its reason(s)
	Y	N	Explanation
8. If the Company had other important information to facilitate better understanding of the Company’s corporate governance practices (including but not limited to employee rights, employee wellness, investor relations, supplier relations, rights of stakeholders, directors’ and supervisors’ training records, the implementation of risk management policies and risk evaluation measures, the implementation of customer relations policies, and purchasing insurance for directors and supervisors)?	V		(1) Employee rights: The Company convenes labor- management disputes meeting on an irregular basis and establishes mailbox for employee complaints. (2) Employee care: The company establishes employee welfare committee to handle matters including employee welfare and group insurance. (3) Investor relations: The Company provides investors with transparent information as disclosed on the Company’s website with material issues published on the Market Observation Post System. (4) Supplier relations: The Company formulates measures governing supplier relations and the code of conduct for personnel who contact with outside firms to maintain fair trading with suppliers. (5) Rights of stakeholders: Both the Company and stakeholders perform respective rights and obligations in compliance with contracts or relevant operating procedures. (6) Directors’ training records. (7) Risk management policies and risk evaluation measures: The company commences internal control assessment for each department on regular basis to carry out preventive control. The audit unit assists members from the audit committee in supervising the Company’s business and the implementation of the internal control systems. Where possible malpractice is found, the Company shall promptly activate proper measures with an aim to lower operational risks.	No major deviation

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Assessment Item	Implementation Status	Implementation Status	Implementation Status	Non-implementation and its reason(s)
	Y	N	Explanation
9. Any improvement made in accordance with the result of the most recent corporate governance evaluation conducted by TWSE? Any measures to be taken on the outstanding items?	V		(8) Implementation of customer relations policies: (9) Purchasing insurance for directors: the Company has purchased liability insurance for directors. The Company conducts self-assessment in accordance with corporate governance evaluation items and considers viability for evaluated items that does not meet the criteria based on actual operation of the Company.	No major deviation

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Note: The Company evaluates the independence of CPA based on items stated in Article 46 & 47 of Certified Public Accountant Act. The Evaluation Criteria are as below:

Evaluation Criteria are as below:
Items Evaluated	Evaluation Finding	Independence
1. Does the CPA have direct or material indirect financial interest in the Company?	No	Yes
2. Does the CPA have loans or guarantees with the Company or directors of the Company?	No	Yes
3. Does the CPA have a close business relationship or a potential employment relationship with the Company?	No	Yes
4.Have the CPA and a member of the audit team been a director, a manager of the Company or been employed by the Company within the last two years in a position to exert significant influence over the subject matter of the engagement?	No	Yes
5. Does the CPA provide any non-audit services which if performed for the Company would affect directlya material item of the audit engagement?	No	Yes
6. Does the CPA promote or broker shares for the Company or other securities issued by the company.	No	Yes
7. Does the CPA serve as an advocate or representative for the company with third parties in the event of conflict.	No	Yes
8. Does the CPA have family ties with anyone who is a director, manager, or officer of with the company or any personnel who is in a position to exert significant influence over the subject matter of the engagement.	No	Yes
9. Is the CPA capable of performing its duties with its educational background and relevant experience.	Yes	Yes

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3.3.4 Status of Compensation Committee:

3.3.4.1 Professional Qualifications and Independence Analysis of Remuneration Committee Members

Title	Criteria Name	Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years’ Work Experience	Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years’ Work Experience	Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years’ Work Experience		Independence Criteria (Note 1)	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Number of Other Public Companies in Which the Individual is Concurrently Serving as a Remuneration Committee Member	Remark
		An Instructor or Higher Position in a Department of Commerce, Law, Finance,Accounting, or Other Academic Department Related to the Business Needs of the Company in a Public or Private Junior College, College or University	A Judge, Public Prosecutor, Attorney, Certified Public Accountant, or Other Professional or Technical Specialist Who Has Passed a National Examination and Been Awarded a Certificate in a Profession Necessary for the Business of the Company	Have Work Experience in the Areas of Commerce, Law, Finance, or Accounting, or Otherwise Necessary for the Business of the Company	1	2	3	4	5	6	7	8
Independent Director	Lam,Tai-Seng	-	-	V	V	V	V	V	V	V	V	V	0	None
Independent Director	Chen, Kuo-Hong	-	-	V	V	V	V	V	V	V	V	V	0	None
Independent Director	Lu,Chien-Min	-	-	V	V	V	V	V	V	V	V	V	0	None

Note 1: Please tick the corresponding boxes that apply to a member during the two years prior to being elected or during the term(s) of office.

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

• (2) Not a director or supervisor of affiliated companies. Not applicable in cases where the person is an independent director of the parent company, or any subsidiary set up in accordance with the act or local laws.

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

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

• (5) Not a director, supervisor, or employee of a corporate shareholder who directly holds 5% or more of the total number of outstanding shares of the Company, or who 27 holds shares ranking in the top five holdings.

• (6) Not a director, supervisor, officer, or shareholder holding 5% or more of the shares of a specified company or institution which has a financial or business relationship with the Company.

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

• (8) Not a person of any conditions defined in Article 30 of the Company Act.

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• 3.3.4.2 Attendance of Members at Remuneration Committee Meetings

• (1) There are 3 members in the Remuneration Committee.

• (2) Tenure of the third session of Compensation committee is from 29st June, 2016 to 28th

  • June, 2019. A total of 3 (A) meetings of the Compensation Committee were held in

• The status of attendance is as follows:

	Title	Name	Name	Attendance in person (B)	By Proxy	Attendance rate (%) B/A	Attendance rate (%) B/A	Remarks
	Chairman	Lam,Tai-Seng		3	0	100%		06/29/2016 Newlyelected
	Member	Chen, Kuo-Hong		3	0	100%		06/29/2016 Newlyelected
	Member	Lu,Chien-Min		3	0	100%		06/29/2016 Newlyelected
	Other Information to be disclosed: 1.If Board of Directors did not adopt or revise the proposal made by the Compensation Committee, please specify the date, session, agendas and resolutions of the Board of Directors meeting and how the Company handled the proposal made by the Compensation Committee (If amount of the compensation approved by the Board of Directors is higher than that proposed by the Compensation Committee, please specify the reasons and differences in proposals.): None. 2.If any members of the Compensation Committee were against or reserved their opinions towards the resolutions, please specify the date, session, agendas, opinions of all members and how the opinions were handled: None. Period and Date Contents of resolutions Resolution result Company's opinion on the Remuneration committee 2017.5.8 4th of the third 1.Bonus distribution plan for managers and employees of the company in 2017 Passed unanimously by members in attendance Passed unanimously by directors (including independent directors) in attendance. 2017.11.7 5th of the third 1.Bonus distribution plan for managers and employees of the company in 2018. Passed unanimously by members in attendance Passed unanimously by directors (including independent directors) in attendance. 2018.4.16 6th of the third 1. New manager salary structure and remuneration 2.The company's manager promotion, remuneration and salary adjustment Passed unanimously by members in attendance Passed unanimously by directors (including independent directors) in attendance.
	Period and Date		Contents of resolutions		Resolution result		Company's opinion on the Remuneration committee
	2017.5.8 4th of the third		1.Bonus distribution plan for managers and employees of the company in 2017		Passed unanimously by members in attendance		Passed unanimously by directors (including independent directors) in attendance.
	2017.11.7 5th of the third		1.Bonus distribution plan for managers and employees of the company in 2018.		Passed unanimously by members in attendance		Passed unanimously by directors (including independent directors) in attendance.
	2018.4.16 6th of the third		1. New manager salary structure and remuneration 2.The company's manager promotion, remuneration and salary adjustment		Passed unanimously by members in attendance		Passed unanimously by directors (including independent directors) in attendance.

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3.3.5 Social Responsibility Implementation Status as Required by the Taiwan Financial Supervisory Commission

.5 Social ResponsibilityImplementation Status as	Required bythe Taiwan Financial SupervisoryCommission	Required bythe Taiwan Financial SupervisoryCommission	Required bythe Taiwan Financial SupervisoryCommission
Assessment Item	Implementation Status			Non-implementation and its reason(s)
	Y	N	Explanation
1. Implementation of Corporate Governance
(1) Does the Company have a corporate social responsibility policy and evaluate its implementation?	V		(1) The Company established a corporate social responsibility policy and the code of conduct, information of which is disclosed on the company’s website (http://www.abilitycorp.com.tw).	No major deviation
(2) Does the Company hold regular CSR training?	V		(2) The Company organized trainings for new employees, education training on CSR responsibilities and education on relevant matters.	No major deviation
(3) Does the Company have a dedicated (or ad-hoc) CSR organization with Board of Directors authorization for senior management, which reports to the Board of Directors?		V	(3) The Company assembled the CSR organization, and disclosed the organization chart on the company’s website (http://www.abilitycorp.com.tw); the management representative is responsible for the organization and effectiveness of the environmental protection, safety and health management system, green product management system, greenhouse gas management system, and supervise the implementation and planning of each department.	Handle issues on a timely manner according to the Company’s actual needs.
(4) Does the Company set a reasonable compensation policy, integrate employee appraisal with CSR policy, and set clear and effective incentive and disciplinary policies?	V		(4) Other than the disclosure of the CSR code of conducts on the Company’s website (http://www.abilitycorp.com.tw), the Company also requires its employees to observe laws and regulation and the human resources management system. Mutual communication is carried out through performance appraisal. Fair and reasonable performance evaluation procedures becomes the basis for promotion, remuneration and training development for employees.	No major deviation

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Assessment Item			Implementation Status	Non-implementation and its reason(s)
	Y	N	Explanation
2. Environmentally Sustainable Development
(1) Is the Company committed to improving resource efficiency and to the use of renewable materials with low environmental impact? (2) Has the Company set an Environmental management system designed from its industry characteristics?	V V		(1) The Company is committed to promoting clean production and energy conservation, aiming to reduce expenses and lower operating costs, create profits as well as enhance overall competitiveness and operating results of the enterprise. Energy conservation is implemented based on aspects covering the management and technology, primarily including three major items of air-conditioners conservation, energy conservation and water conservation. The Company’s products are designed according to the concepts concerning high recoverability, high added values, low pollution and energy conservation, aiming to control resources utilization rate from the source of production. (2) The Company established ISO14001 environmental management system and IECQ QC080000 hazardous substance free product management system and obtained verification certificate from the thirdparty.	No major deviation No major deviation

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Assessment Item	Implementation Status	Implementation Status	Implementation Status	Non-implementation and its reason(s)
	Y	N	Explanation
(3) Does the Company track the impact of climate change on operations, carry out greenhouse gas inventories, and set energy conservation and greenhouse gas reduction strategy	V		(3) Climate change has an increasingly substantial impact on the global environment. As a citizen of the global community, Ability strives to accomplish following matters in an attempt to fulfill its corporate social responsibility: a. The Company is committed to the greenhouse gas checking to ensure overall emissions of the greenhouse gas from all factories. b. The Company continues to promote energy conservation and carbon reduction measures together with sustainable development so as to fulfill its corporate social responsibility. c. The Company complies with laws and regulations relating to environmental protection and satisfy its customer requirements. d. The Company initiate relevant plans regarding voluntary reduction of greenhouse gas emissions based on current economic condition and technology according to the checking results. The Company classifies the climate change as a corporate- level risk and exert efforts to control relevant risks. The policies include: a.Pay close attention to the trend of greenhouse gas-related issues around the world. b. Take care of green manufacturing, green products and green supply chain management. c. Carry out greenhouse gas measurement and carbon footprint measurement. The Company’s objectives and measures concerning energy conservation and environmental protection are disclosed on the Company’s website (http://www.abilitycorp.com.tw).	No major deviation

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Assessment Item			Implementation Status	Non-implementation and its reason(s)
	Y	N	Explanation
3. Promotion of Social Welfare
(1) Does the Company set policies and procedures in compliance with regulations and internationally recognized human rights principles? (2)Has the Company established appropriately managed employee appeal procedures?	V V		(1) With an aim to comply with relevant labor laws and regulations and safeguard employees’ legal rights, the Company formulated the “Administrative Measures Governing Leave Application”, “Administrative Measures Governing Holiday Application”, “Administrative Measures Governing Worker’s Compensation and Indemnity”, “Administrative Measures Governing Benefit Plan” and “Administrative Measures Governing Retirement”. (2) The Company established various complaint channels. Employees may raise complaints at any time when their rights are infringed or improperly handled. The Company formulated “Measures Governing Employee Complaints”, promoted sexual harassment prevention and provided employees with clear complaint channels to ensure employees’ rights are safeguarded. The Company irregularly convenes employees meeting and relevant forums to create a channel for employees to communicate directlyand express their opinions.	No major deviation No major deviation
(3) Does the Company provide employees with a safe and healthy working environment, with regular safety and health training?	V		(3) According to the labor safety law, it is required to inspect operating environment and ensure employee health checkups; special health checkups shall be arranged for employees working under special environment conditions. Please refer to 5. Labor Relations under the Operational Highlights as set out in the Annual Report for details regardingthe labor safety.	No major deviation
(4) Has the Company established a mechanism for regular communication with employees and use reasonable measures to notify employees of operational changes which may cause significant impact to employees?	V		(4) The Company irregularly convened employees meeting and carry out survey concerning employees’ satisfaction to enable all employees to have a better understanding of the company’s operation and future plans.	No major deviation

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Assessment Item			Implementation Status	Non-implementation and its reason(s)
	Y	N	Explanation
(5) Has the Company established effective career development training plans?	V		(5) The Company established an effective career development training plan for its employees with an aim to enhance their career development capabilities. A comprehensive training system targeting employee cultivation is in place. Through e-training and management, the system provided training step-by-step, including pre-employment training for new employees andprofessional training.	No major deviation
(6) Has the Company set polices and consumer appeal procedures in its R&D, purchasing, production, operations, and service processes?	V		(6) The Company does not sell products directly to consumers; in terms of client-side, the company handles complaints in accordance with its existing internal procedures.	No major deviation
(7) Does the Company follow regulations and international standards in the marketing and labelling of its products and services?	V		(7) The Company complies with relevant laws and regulations as well as international guidelines.	No major deviation
(8) Does the company evaluate environmental and social track records before engaging with potential suppliers? (9) Does the Company’s contracts with major suppliers include termination clauses if they violate CSR policy and cause significant environmental and social impact?	V V		(8) The Company promotes its green product policy, green procurement requirements and the CSR through supplier meetings, green electronic information platform website and other measures. Suppliers are also required to accept Ability’s green supplier verification with an aim to make concerted efforts to facilitate the fulfillment of the corporate social responsibility. (9) According to procurement contracts entered into between the company and its suppliers, there is no specific provision governing the public welfare. The company requires suppliers to complete a questionnaire regarding the CSR and new suppliers are required to return a questionnaire. The questionnaire does not have any binding effect.	No major deviation No major deviation

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Assessment Item	Implementation Status	Implementation Status	Implementation Status	Non-implementation and its reason(s)
	Y	N	Explanation
4. Enhanced Information Disclosure (1) Does the Company disclose relevant and reliable CSR information on its website and the Taiwan Stock Exchange website?	V		(1) Relevant information in respect of the CSR is disclosed on the Company’s website (http://www.abilitycorp.com.tw) and the Market Observation Post System (http://mops.twse.com.tw).	No major deviation
5. If the company has established its corporate social responsibility code of practice according to “Listed Companies Corporate Social Responsibility Code of Practice,” please describe the operational status and differences. The Company formulated its “Corporate Social Responsibility Code of Practice” in accordance with the “Listed Companies Corporate Social Responsibility Code of Practice” and disclosed relevant information on the Company’s website (http://www.abilitycorp.com.tw). The Company’s internal operation and products are in compliance with requirements set out in the Corporate Social Responsibility Code of Practice.

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6. Other important information to facilitate better understanding of the company’s implementation of corporate social responsibility:	6. Other important information to facilitate better understanding of the company’s implementation of corporate social responsibility:	6. Other important information to facilitate better understanding of the company’s implementation of corporate social responsibility:
The Company attaches great importance to environmental protection, social welfare and safety and health with a view to fulfil its social responsibility.
Please refer to the Company’s website (http://www.abilitycorp.com.tw) for relevant information.
In recentyears,the specificpromotionplans and implementation effects of corporate social responsibilityare as follows:
	Year	Project and implementation effectiveness
		1. The Mustard Seed Mission - Adoption of Taiwan Children's Project 44 people / month.
		2. 4 schools/63 sets of camera digital learning programs for local/weak groups.
	2017	3. The average income of the Yu-Cheng Social Welfare Foundation is 300 pieces per year.
		4. Genesis Social Welfare Foundation Invoice Donation.
		5. New Taipei City Government's "warm Christmas, hand in hand" music donation activities 64 people / time。
		1.The Mustard Seed Mission - Adoption of Taiwan Children's 41 people / month.
		2. 1 school/610 sets digital learning programs for the local/weak group.
		3. The average income of the Yu-Cheng Social Welfare Foundation is:
		a. The average product is 28 pieces / month
	2018	b. Bread average 280 pieces / month
		4.Genesis Social Welfare Foundation Invoice Donation.
		5.Hualien earthquake donated 155 people/time.
		6.New Taipei City Government's Weak School Children's Scholarship received a total of 97 families and 115 students received
		funding.
7. Other information regarding “Corporate Responsibility Report ” which is verified by certifying bodies: The Company has obtained the following
certification:
The Company formulated the “Corporate Social Responsibility Report”, which had not been verified by third party external verification institution. The
Company passed the “ISO14001 environmental management system” and the “OHSAS18001 occupational safety and health management system”.

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3.3.6 Implementation of Ethical Corporate Management Best Practice Principles:

Assessment Item			Implementation Status	Non-implementation and its reason(s)
	Y	N	Explanation
1. Establishment of Corporate Conduct and Ethics Policyand Implementation Measures				No specific deviation
(1) Does the company have bylaws and publicly available documents addressing its corporate conduct and ethics policy and measures, and the commitment regarding implementation of such policy from the Board of Directors and the management team?	V		(1) The Company formulated the “Ethical Corporate Management Best Practice Principles” and disclosed relevant information on the Company’s website (http://www.abilitycorp.com.tw); the members of the Board of the company and the management exercise due care of prudent administrators when performing duties and exercise its functions and powers with prudent attitude.
(2) Does the company establish relevant policies which are duly enforced to prevent unethical conduct and provide implementation procedures, guidelines, consequence of violation and complaint procedures in such policies?	V		(2) The Company’s “Employee Handbook”, “Working Rules”, “Management and Control Procedures Regarding Insider Trading Prevention” and respective internal management system stipulate guidelines and regulations concerning related behavior of an employee. All violations, rewards, penalties and complaints will be implemented in accordance with respectiveprocedures.
(3) Does the company establish appropriate compliance measures for the business activities prescribed in paragraph 2, article 7 of the Ethical Corporate Management Best Practice Principles for TWSE/GTSM Listed Companies and any other such activities associated with high risk of unethical conduct?	V		(3) The Company formulated procedures for legal department review contract and control contract to prevent any violation of laws. For employees who may engage in business activities that exhibit high integrity risks within the scope of business, the rules stipulate that the employees shall not receive and require any illegal benefit from suppliers, connected party or designated person or sign a contract with them.

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Assessment Item			Implementation Status	Non-implementation and its reason(s)
	Y	N	Explanation
2. Ethic Management Practice (1) Does the company assess the ethics records of whom it has business relationship with and include business conduct and ethics related clauses in the business contracts? (2) Does the company set up a unit which is dedicated to or tasked with promoting the company’s ethical standards and reports directly to the Board of Directors with periodical updates on relevant matters?	V	V	(1) The Company shall consider the legality and evaluate the ethical record of its business partner prior to any business relationship with them and avoid any trading with a partner with dishonest history. (2) The Company has not set up a unit, whether part-time or full-time, to promote the company’s ethical standards in business operation. The unit may be established in the future based on the governance.	No specific deviation
(3) Does the company establish policies to prevent conflict of interests, provide appropriate communication and complaint channels and implement such policies properly? (4) To implement relevant policies on ethical conducts, does the company establish effective accounting and internal control systems that are audited by internal auditors or CPA periodically?	V V		(3) The Company’s “Rules and Procedures of the Board Meeting” stipulates the principle of conflicting interests. Directors may express opinions and answer queries but are not allowed to participate in the discussion and voting and shall recuse from any discussions and voting on any resolution that presents a conflict against their own interests or interests of the corporate entities they represent to the extent that is likely to compromise the Company's interests, and shall not exercise their voting rights on behalf of other directors. (4) To ensure the implementation of ethical conducts, the company established effective accounting system and internal control system. The internal audit personnel also verify compliance of each procedure on both regular and irregular basis.	No specific deviation

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Assessment Item			Implementation Status	Non-implementation and its reason(s)
	Y	N	Explanation
(5) Does the company provide internal and external ethical conduct training programs on a regular basis?	V		(5) The Company organized training for new employees, external education training regarding the compliance with relevant laws and regulations as well as courses covering control and ethical conducts.
3. Implementation of Complaint Procedures				No specific deviation
(1) Does the company establish specific complaint and reward procedures, set up conveniently accessible complaint channels, and designate responsible individuals to handle the complaint received? (2)Does the company establish standard operation procedures for investigating the complaints received and ensuring such complaints are handled in a confidential manner?	V V		(1) The Company has established the "Reporting and Confidentiality Measures for Reporting Events", attaches significant importance to ethical mindset and encourages employees to report to the chief audit executive or other relevant personnel when suspected violations or violations of regulations or the rules of the company are found. (2) The Company has clearly stated in the “Reporting and Confidentiality Measures for Reporting Events” that it has a a complaints mailbox and carry out relevant procedures in relation to respective complaints. Information confidentiality is implemented in accordance with personal information confidentiality and information security policies.

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Assessment Item	Implementation Status	Implementation Status	Implementation Status	Non-implementation and its reason(s)
	Y	N	Explanation
(3)Does the company adopt proper measures to prevent a complainant from retaliation for his/her filing a complaint?	V		(3) The complaint window shall be in strict compliance with the confidentiality principle. Any disclosure of complaint issues without the consent of the person who lodges the complaint shall undergo disciplinary action in accordance with the company’s rules.
4. Information Disclosure				No specific deviation
(1) Does the company disclose its guidelines on business ethics as well as information about implementation of such guidelines on its website and Market Observation Post System (“MOPS”)?	V		(1) The “Ethical Corporate Management Best Practice Principles” formulated by the company are disclosed on the Company’s website(http://www.abilitycorp.com.tw); relevant information of which is disclosed on complete, appropriate, timely and accurate basis.
5. If the company has established corporate governance policies based on TSE Corporate Conduct and Ethics Best Practice Principles, please describe any discrepancy between the policies and their implementation: The Company established its “Ethical Corporate Management Best Practice Principles” in accordance with the “Ethical Corporate Management Best Practice Principles for TWSE/TPEx Listed Companies", information of which is disclosed on the company’s website (http://www.abilitycorp.com.tw). The Company’s internal operation and products are in compliance with requirements set out in the ethical corporate management requirements of the CSR.

1. If the company has established corporate governance policies based on TSE Corporate Conduct and Ethics Best Practice Principles, please describe any discrepancy between the policies and their implementation:

The Company established its “Ethical Corporate Management Best Practice Principles” in accordance with the “Ethical Corporate Management Best Practice Principles for TWSE/TPEx Listed Companies", information of which is disclosed on the company’s website (http://www.abilitycorp.com.tw). The Company’s internal operation and products are in compliance with requirements set out in the ethical corporate management requirements of the CSR.

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Assessment Item	Implementation Status	Implementation Status	Implementation Status	Non-implementation and its reason(s)
	Y	N	Explanation
6. Other important information to facilitate better understanding of the company’s corporate conduct and ethics compliance practices: The Company has upheld the principle of ethical business operation and pay attention to stakeholders’ needs, which are widely recognized by suppliers and consumers, thus, ensuring sustainable business operation.

1. Other important information to facilitate better understanding of the company’s corporate conduct and ethics compliance practices: The Company has upheld the principle of ethical business operation and pay attention to stakeholders’ needs, which are widely recognized by suppliers and consumers, thus, ensuring sustainable business operation.

3.3.7 Corporate Governance Guideline and Regulations:

Please refer to the Company’s website http://www.abilitycorp.com.tw for further details.

• 3.3.8 Other Important Information Regarding Corporate Governance:

Please refer to the “Item 8 under 3.3 Corporate Governance Implementation Status and Deviations from the Corporate Governance BestPractice Principles for TWSE/TPEx Listed Companies and its explanation” as set out in the annual report

• 3.3.9 Internal Control Systems

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ABILITY ENTERPRISE CO., LTD.

Statement of Internal Control System

Date: March 25, 2019

Based on the findings of self-assessment, ABILITY ENTERPRISE CO., LTD. (ABILITY) states the following with regard to its internal control system in 2018:

1. ABILITY is fully aware that establishing, operating and maintaining an internal control system are the responsibilities of its Board of Directors and management. The aim of the internal control system is to provide reasonable assurance to effectiveness and efficiency of operations (including profitability, performance and safeguarding of assets), reliability, timeliness, transparency and regulatory compliance of financial reporting and compliance with of applicable laws, regulations and bylaws.

2. An internal control system has inherent limitations. No matter how perfectly designed, an effective internal control system can only provide reasonable assurance of accomplishing the aforementioned three objectives. Moreover, the effectiveness of an internal control system may be subject to changes of environmental or circumstances. Nevertheless, the internal control system of ABILITY contains self-monitoring mechanism and ABILITY takes corrective actions whenever a deficiency is identified.

3. Ability evaluates the design and operating effectiveness of its internal control system based on the criteria provided in the Regulations Governing the Establishment of Internal Control System by Public Companies (herein below, the “Regulations”). The criteria adopted by the Regulations identify five constituent elements of internal control based on the process of management control: (1) control environment, (2) risk assessment, (3) control activities, (4) information and communications, and (5) monitoring activities. Each component further contains several items. Please refer to the Regulations for details.

4. ABILITY has evaluated the design and operating effectiveness of its internal control system according to the aforesaid criteria.

5. Based on the findings of the self-assessment mentioned in the preceding paragraph, ABILITY believes that, as of December 31, 2018, its internal control system (including its supervision and management of subsidiaries), as well as understanding the degree of achievement of its objectives concerning operational effectiveness and efficiency, reliability, timeliness, transparency and regulatory compliance of financial reporting, and compliance with the applicable laws, regulations and bylaws, were effective in design and operation, and reasonably assured the achievement of the above-stated objectives.

6. This Statement will be integral part of ABILITY’s Annual Report for the year 2018 and Prospectus, and will be made public. Any falsehood, concealment, or other illegality in the content made public will entail legal liability under Articles 20, 32, 171 and 174 of the Securities and Exchange Law.

7. This Statement has been passed by the Board of Directors in their meeting held on March 25, 2019 with none of the nine attending directors expressing dissenting opinions, and the remainder all affirming the content of this Statement.

ABILITY ENTERPRISE CO., LTD.

Tseng, Ming-Jen Chairman

Tseng, Ming-Jen President and Chief Executive Officer

45

• 3.3.9.1 If the Company is requested by the SEC to retain CPA’s service for examining internal control system, the Independent Auditor’s Report must be disclosed: None

• 3.3.10 The penalties delivered to the Company and the staffs of the Company, or the penalties delivered by the Company to the staffs for violations of internal control system, the major nonconformity, and the corrective action in the most recent years and up to the date of the annual report: None

3.3.11 Major Resolutions of Shareholders’ Meeting and Board Meetings

Date/ Decision Maker	Major resolutions (extracts)	Implementation
2018.6.11 Shareholders’ meetings	1.Approved the Company’s 2017 business report and financial statements. 2.Approved The Company’s 2017 earnings distribution.	To determine that the ex- dividend day shall be on August 25, 2018 and the cash dividend release day shall be on September 14, 2018. (cash dividend of NT$0.8per share.)
2018.8.9 Board meetings	1. The Company’s appointment of the CPA. 2. The Company’s 2018 1H financial statements. 3. Endorsements/guarantees for VIEWQUEST (BVI), a subsidiary of the Company, regarding the procurement payment to the supplier Sunny Optical Technology Co. Ltd. 4. The Company’s investment in ANDROVIDEO INC.
2018.11.7 Board meetings	1. The Company’s appointment of the chief audit executive. 2. The Company's “2019 internal audit plan”. 3. The Company’s 2018 3Q financial statements. 4. Bonus distribution plan for managers and employees of the company in 2018. 5. The company and the bank credit renewal related matters. 6. The company plans to fund the loan and ANDROVIDEO INC., a subsidiary of the Company. 7. Employee restricted new share cancellation and reduction and determination of the record date of the reduction in the third quarter of 2018.	Resolution 4. Other than the chairman Tseng, Ming-Jen, the director and financial manager Lin, Hung-Tien who recused themselves from the resolution due to conflicting interest, remaining directors (including independent directors) in attendance passed the resolution unanimously.
2019.2.21 Board meetings	1. Endorsements/guarantees for VIEWQUEST (BVI), a subsidiary of the Company, regarding the procurement payment to the supplier Panasonic Hong Kong Co. Ltd. 2. Endorsements/guarantees for VIEWQUEST (BVI), a subsidiary of the Company, regarding the procurement payment to the supplier Giantplus Technology Co., Ltd. 3. VIEWQUEST TECHNOLOGIES (DONGGUAN) CO., LTD. plans to fund the loan and Ability Tech. (Dongguan) Co., Ltd., both a subsidiaryof the Company,

46

Date/ Decision Maker	Major resolutions (extracts)	Implementation
2019.3.25 Board meetings	1.The Company’s 2018 financial statements. 2. The Company’s Business Reports and Financial Statements of 2018, submitted for Recognition. 3. The Company’s Earning Distribution of 2018, submitted for Recognition. 4. Evaluation of the CPA’s independence of the Company. 5. Re-election on all the Company's Directors (including independent directors) 6. Amendment of the Company's "Articles of Incorporation", submitted for Discussion. 7. Amendment of the Company's "Procedures for the Acquisition and Disposal of Assets", submitted for Discussion. 8. Amendment of the Company's "Procedures for Endorsement and Guarantee", submitted for Discussion 9. Amendment of the Company's "Procedures for Loaning Funds to Others", submitted for Discussion 10. Hold the date, time and place of the 2019 annual shareholders' meeting. 11. Formulate the 2019 Annual General Meeting to accept the nomination of directors (including independent directors) and the place of acceptance of the shareholders' proposal and the acceptance period. 12. The company and the bank credit renewal related matters. 13. “2018 Management's Reports on Internal Control System”.	Except for the proposal 3, the remaining proposals were attended by independent directors without objection. proposal 3: Director Chan,Wen- Hsiung proposed: It is proposed to increase the distribution of dividends. Independent director Chen, Kuo-Hong 's proposed: It is recommended that the business operation be prudent for long-term. Resolution: The proposal was put on hold for the next time board of directors discussed it.
2019.4.16 Board meetings	1. Nomination and review of the list of candidates for directors and independent directors. 2. Release the prohibition on the Company's newly-elected Directors from participation in competitive business. 3. New manager salary structure and remuneration. 4.The company's manager promotion, remuneration and salary adjustment. 5. The company's "standard operating procedures for handling directors' requirements”, submitted for Discussion. 6. Disposal of the Company’s factory at NanGang.	Resolution 3~4. Other than the chairman Tseng, Ming-Jen, the director and financial manager Lin, Hung-Tien who recused themselves from the resolution due to conflicting interest, remaining directors (including independent directors) in attendance passed the resolution unanimously.
2019.5.2 Board meetings	1. The Company’s appointment of the CPA and its fee for the year. 2. The company plans to increase the amount of funds to borrow and ANDROVIDEO INC., a subsidiary of the Company. 3. The company and the bank credit renewal related matters. 4. The Company’s Earning Distribution of 2018, submitted for Recognition. 5. Renew the list of candidates for directors and independent directors. 6. The Company’s 2019 operationplans.	The earnings distribution shall be implemented after passed at the annual shareholders’ meeting held on June 14, 2019.

47

• 3.3.12 Major Issues of Record or Written Statement Made by Any Director Dissenting to Important Resolutions Passed by the Board of Directors in 2017 and to the date of the annual report: None.

• 3.3.13 Resignation or Dismissal of Personnel Involved in the Company :

Position	Name	Date of Appointment	Date of Termination	Reasons for Resignation
chief audit executive	Dora Hsueh	2017.08.10	2018.09.07	Personal career planning

3.4 CPA Fees

CPA Firm	CPA Firm	CPA	CPA	CPA	CPA	CPA	Auditing Period	Auditing Period	Auditing Period	Auditing Period	Note	Note
PWC		JuanLu, Man-Yu			Audrey Tseng		Jan 1, 2018 ~ Dec 31, 2018
							Unit:
CPA Firm		CPA	Auditing Fees		Non-AuditingFees							Auditing Period
					System Design	Company Registration		Human Resources	Others (Note)	Subtotal
PWC	JuanLu, Man-Yu		3,320		0	35		0	1,145	1,180		1/1/2018 ~ 12/31/2018
	Audrey Tseng

Note ： Transfer pricing report.

• 3.4.1 Change of accounting firm and the audit fee paid is less than previous year before the change of accounting firm: None

• 3.4.2 Audit fee is 15% or more less than the previous year: None

• 3.5 Information on Change of CPA: In 2018, the company changed the CAP due to the internal rotation of the CPA firm in accordance with relevant laws and regulations.

• 3.6 If the chairman, president, and financial or accounting manager of the Company who had worked for the independent auditor or the related party in the most recent year, the name, title, and the term with the independent auditor or the related party must be disclosed: None.

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• 3.7 Information on Net Change in Shareholding and Net Change in Shares Pledged by Directors, Department Heads and Shareholders of 10% Shareholding or More:

3.7.1 Information on Net Change in Shareholding

Unit: Share

Title	Name	2018	2018	1/1/2019 ~ 4/16/2019	1/1/2019 ~ 4/16/2019
		Holding Increase (Decrease)	Pledged Holding Increase (Decrease)	Holding Increase (Decrease)	Pledged Holding Increase (Decrease)
Chairman and President	Tseng, Ming-Jen	-	-	-	-
Director	VIEWQUEST Investment Co. Ltd. Rep.:Tsay,Wen-Bin	-	-	-	-
Director	VIEWQUEST Investment Co. Ltd. Rep.: Chou,Cheng-Wei	-	-	-	-
Director	AVY Precision Technology Inc. Rep.:Tong,Chun-Jen	-	-	-	-
Director	AVY Precision Technology Inc. Rep.:Huang,Li-An	-	-	-	-
Director	Lin Shih Investment Co., Ltd. Rep.: Chan,Wen-Hsiung	-	-	-	-
Independent Director	Lam,Tai-Seng	-	-	-	-
Independent Director	Chen, Kuo-Hong	-	-	-	-
Independent Director	Lu,Chien-Min	-	-	-	-
Vice President	Chou, Cheng-Wei	-	-	-	-
Assistant Vice President	Tommy Lee	-	-	-	-
Assistant Vice President	Adams Chen	- (23,000)	-	-	-
Assistant Vice President	Vincent Lu (Promotion date：2019.04.16)	-	-	-	-
Chief Financial Officer	Lin, Hung-Tien	-	-	-	-
major stockholder	Pegatron Corporation	-	-	-	-

3.7.2 Information of Shares Transferred: None

3.7.3 Information of Equity Pledged: None

49

3.8 The Relations of the Top Ten Shareholders as Defined in the Finance Standard Article 6:

As of 04/16/2019

Name	Current Shareholding	Current Shareholding	Spouse or Minor Children	Spouse or Minor Children	Shareholding by Nominee Arrangement	Shareholding by Nominee Arrangement	Name and Relationship between the Company’s Top Ten Shareholders, or Spouses or Relatives within Two Degrees	Name and Relationship between the Company’s Top Ten Shareholders, or Spouses or Relatives within Two Degrees	Remark
	Shares	%	Shares	%	Shares	%	Name	Relationship
Pegatron Corporation Rep.: T.H. Tung	33,135,300	11.73	－	－	－	－	－	－
	－	－	－	－	－	－	－	－
CHIA NAI INVESTMENT CO., LTD. Rep.: TUNG,I- CHIA	8,831,767	3.13	－	－	－	－	－	－
	529	0.00	9,996	0.00	－	－	－	－
Lin Shih Investment Co., Ltd. Rep.: Huang ,Chou-Chye	5,433,757	1.92	－	－	－	－	－	－
	－	－	－	－	－	－	－	－
Lian-Cheng Investment Development Co. Ltd. Rep.：Lin Gao-Huang	4,924,000	1.74%	－	－	－	－	－	－
	－	－	－	－	－	－
AVY Precision Technology Inc. Rep.: Tong,Chun-Jen	4,138,544	1.47	－	－	－	－	－	－
	548	0.00	88,548	0.03
JPMorgan Chase Bank N.A.，Taipei Branch in custody for Vanguard Total International Stock Index Fund，a series of Vanguard Star Funds	3,587,491	1.27%	－	－	－	－	－	－
Citibank Taiwan in custody for DFA Investments Group’s Emerging Market Core Securities Portfolio Funds	3,175,974	1.12%	－	－	－	－	－	－
Citibank Taipei Branch in custody for Emerging Market Evaluation Fund	2,782,330	0.99%	－	－	－	－	－	－
JPMorgan Chase Bank N.A. Taipei Branch in Custody for Vanguard Total International Stock Index Fund, a series of Vanguard Star Funds	2,715,249	0.96%	－	－	－	－	－	－
Cyuan-Neng Investment Co. Ltd. Rep.：Lin Huei-Fen	2,303,000	0.82%	1,209,093	0.43%	－	－	－	－
	249,524	0.09%	－	－	－	－

• Note 1: All top 10 shareholders have been listed. For corporate shareholders, the name of the corporate entity and the name of the representative are shown separately.

• Note 2: The percentages of shares held under own name, spouse's name, underage children's names, or in the names of others are calculated separately.

• Note 3: Relations among the abovementioned shareholders (including corporate and natural-person shareholders) have been disclosed in accordance with the relationships defined in Regulations Governing the Preparation of Financial Reports by Securities Issuers.

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3.9 Long-Term Investment Ownership

Unit: shares; %; As of 12/31/2018

			Unit: shares;%;As	Unit: shares;%;As	of 12/31/2018	of 12/31/2018
Long-Term Investment	Ownership by the Company (1)		Direct or Indirect Ownership by Directors, Supervisors, Managers (2)		Total Ownership (1)+(2)
	Shares	%	Shares	%	Shares	%
ABILITY ENTERPRISE (BVI) CO., LTD.	-	100	-	-	-	100
ACTION PIONEER INTERNATIONAL LTD.	-	100	-	-	-	100
VIEWQUEST TECHNOLOGIES INTERNATIONAL INC.	-	100	-	-	-	100
VIEWQUEST TECHNOLOGIES (BVI) INC.	-	100	-	-	-	100
ABILITY INTERNATIONAL INVESTMENT CO.,LTD	1,300,000	100	-	-	1,300,000	100
ANDROVIDEO INC.	7,000,000	100%	-	-	7,000,000	100%
E-PIN OPTICAL INDUSTRY CO.,LTD.	12,888,334	54.61%	-	-	12,888,334	54.61%
CHIA PING INVESTMENT CO., LTD.	-	-	600,000	100%	600,000	100%
JIUJIANG VIEWQUEST ELECTRONICS INC.	-	-	-	100	-	100
ABILITY TECHNOLOGY (DONGGUAN)CO.,LTD.	-	-	-	100	-	100
VIEWQUEST TECHNOLOGIES (DONGGUAN)CO.,LTD	-	-	-	100	-	100
ALL VISION HOLDING LTD.	-	-	15,236,910	100	15,236,910	100
E-PIN OPTICAL INDUSTRY CO., LTD.	-	-	150,000	100	150,000	100
E-PIN OPTICAL INDUSTRY(M.) SDN. BHD.	-	-	5,000,000	100	5,000,000	100
ALL VISION TECHNOLOGY SDN. BHD.	-	-	72,243,894	100	72,243,894	100
EVERLIGHT DEVELOPMENT CORPORATION	-	-	58,494	100	58,494	100
E-SKY HOLDING LTD.	-	-	10,472,879	73.04	10,472,879	73.04
NANJING EVERLIGHT PHOTONICS TECHNOLOGY CO. LTD.	-	-	-	55.45	-	55.45
ZHONGSHAN SHANXIN ACCURATE INDUSTRY CO. LTD.	-	-	-	100	-	100
NANJING E-PIN OPTICAL CO.,LTD.	-	-	-	72.22	-	72.22

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4. Capital and Shares

4.1 Capital and Shares

4.1.1 Source of Capital

Unit: Share; NT$

								Unit: Share;NT$	Unit: Share;NT$	Unit: Share;NT$	Unit: Share;NT$
Month/ Year	Par Value	Authorized Capital			Paid-in Capital			Remark
		Shares		Amount	Shares	Amount		Source of Capital	Capital Increased by Assets Other than Cash		Other
12/2018	10	540,000,000		5,400,000,000	282,362,812	2,823,628,120		Cancellation of Issued RSA NT$21,600	None
Type of Share			Authorized Capital							Remark
			Issued Shares		Un-issued Shares		Total Shares
Common shares			282,362,812		257,637,188		540,000,000			Listed stock

4.1.2 Status of Shareholders

		As of 04/16/2019; Units: share Financial Institutions Other Juridical Persons Foreign nstitutions & Natural Persons Domestic Natural Persons Treasury stocks Total 5 174 121 50,581 - 50,881 236,930 71,805,415 24,995,810 185,324,657 - 282,362,812 0.08% 25.43% 8.85% 65.64% 0.00% 100.00%	As of 04/16/2019; Units: share Financial Institutions Other Juridical Persons Foreign nstitutions & Natural Persons Domestic Natural Persons Treasury stocks Total 5 174 121 50,581 - 50,881 236,930 71,805,415 24,995,810 185,324,657 - 282,362,812 0.08% 25.43% 8.85% 65.64% 0.00% 100.00%	As of 04/16/2019; Units: share Financial Institutions Other Juridical Persons Foreign nstitutions & Natural Persons Domestic Natural Persons Treasury stocks Total 5 174 121 50,581 - 50,881 236,930 71,805,415 24,995,810 185,324,657 - 282,362,812 0.08% 25.43% 8.85% 65.64% 0.00% 100.00%	As of 04/16/2019; Units: share Financial Institutions Other Juridical Persons Foreign nstitutions & Natural Persons Domestic Natural Persons Treasury stocks Total 5 174 121 50,581 - 50,881 236,930 71,805,415 24,995,810 185,324,657 - 282,362,812 0.08% 25.43% 8.85% 65.64% 0.00% 100.00%	As of 04/16/2019; Units: share Financial Institutions Other Juridical Persons Foreign nstitutions & Natural Persons Domestic Natural Persons Treasury stocks Total 5 174 121 50,581 - 50,881 236,930 71,805,415 24,995,810 185,324,657 - 282,362,812 0.08% 25.43% 8.85% 65.64% 0.00% 100.00%	As of 04/16/2019; Units: share Financial Institutions Other Juridical Persons Foreign nstitutions & Natural Persons Domestic Natural Persons Treasury stocks Total 5 174 121 50,581 - 50,881 236,930 71,805,415 24,995,810 185,324,657 - 282,362,812 0.08% 25.43% 8.85% 65.64% 0.00% 100.00%
Item Shares	Government Agencies	Financial Institutions	Other Juridical Persons	Foreign nstitutions & Natural Persons	Domestic Natural Persons	Treasury stocks	Total
Number of Shareholders	-	5	174	121	50,581	-	50,881
Shareholding (shares)	-	236,930	71,805,415	24,995,810	185,324,657	-	282,362,812
Percentage	0.00%	0.08%	25.43%	8.85%	65.64%	0.00%	100.00%

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4.1.3 Shareholding Distribution Status Common Share

(The par value for each share is NT$10) ； As of 04/16/2019

Class of Shareholding (Unit : Share)	Number of Shareholders	Shareholding (Shares)	Percentage
1-999	26,461	5,490,286	1.94%
1,000-5,000	17,610	38,433,423	13.61%
5,001-10,000	3,740	27,891,002	9.88%
10,001-15,000	1054	13,181,590	4.67%
15,001-20,000	621	11,404,657	4.04%
20,001-30,000	517	13,223,025	4.68%
30,001-40,000	255	9,100,957	3.22%
40,001-50,000	174	8,048,254	2.85%
50,001-100,000	238	16,889,378	5.98%
100,001-200,000	107	15,061,188	5.33%
200,001-400,000	54	15,383,755	5.45%
400,001-600,000	14	6,853,233	2.43%
600,001-800,000	7	4,655,212	1.65%
800,001-1,000,000	4	3,359,006	1.19%
Over 1,000,001	25	93,387,846	33.08%
Total	50,881	282,362,812	100.00%

4.1.4 List of Major Shareholder (The equity ratio is over 5%)

.1.4 List of Major Shareholder (The equity ratio is over 5%)
	As of 04/16/2019
Shareholder's Name	Shareholding (Shares)	%
Pegatron Corporation	33,135,300	11.74%

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4.1.5 Market Price, Net Worth, Earnings and Dividends Per Common Share

Unit: NT$, except for weighted average shares and return on investment ratios

As of 04/16/2019; Units: 1,000 share

Item	Year	Year	Year	2017 (Note 5)	2018 (Note 5)	01/01/2019~ 05/02/2019
Market Price per Share	Highest			26.50	22.80	16.15
	Lowest			16.35	11.70	13.60
	Average			19.81	16.43	13.80
Net Worth per Share	Before Distribution			30.16	25.72	26.08	Note 1
	After Distribution			-	-	-
Earnings per Share	Weighted Average Shares (thousand shares)			281,061	282,347	282,359	Note 1
	EPS	Before adjustment (Note 6)		0.77	(1.64)	(0.34)	Note 1
		After adjustment (Note 6)		0.77	(1.64)	(0.34)	Note 1
Dividends per Share	Cash Dividends			0.80	0.5(Note6)	-
	Stock Dividend		Dividends from Retained Earnings	-	-	-
			Dividends from Capital Surplus	-	-	-
	Accumulated Undistributed Dividends			-	-	-
Return on Investment	Price/Earnings Ratio			25.73	(10.02)	(40.59)	Note 2
	Price/Dividend Ratio			24.76	32.86(Note6)	-	Note 3
	Cash Dividend Yield Rate			4.04%	3.04(Note6)	-	Note 4

Note 1: For net worth per share and earnings per share, data audited (approved) by CPA from the last quarter up to the printing date of the annual report should be listed. For other columns, data from the current year up to the printing date of the annual report should be listed.

Note 1: Listed the highest and the lowest market price per share in every year and the average market price were calculated based on the trading amount and volume.

Note 2: Price / Earnings Ratio = Average Market Price / Earnings per Share Note 3: Price / Dividend Ratio = Average Market Price / Cash Dividends per Share Note 4: Cash Dividend Yield Rate = Cash Dividends per Share / Average Market Price Note 5: The year stated above is the year when dividends are yielded. Note 6:Until the printing date of the annual report, the proposal of 2018 earnings distribution has not yet been resolved in Shareholders’ Meeting.

54

4.1.6 Dividend Policy and Implementation

• 4.1.6.1 The dividend policy stipulated by the Company’s Articles of Incorporation is as follows:

The amendment to the dividend policy in the Articles of Incorporation passed by the Company’s Shareholders’ Meeting as of June 29, 2016 is as follows:

Article 29

If the Company's general annual report has surpluses, in addition to paying taxes in accordance with the law, shall make up for past losses and allocate 10% of statutory surplus reserves based on the balance. However, if statutory surplus reserves have reached the total capital, this limit does not apply. If necessary, after the allocation or turnaround special surplus reserve according to the regulations, the rest incorporates initial undistributed earnings as shareholders' cumulative distributed earnings.The Board of Directors may propose earnings allocation motion and report it to shareholders' meeting for resolution.

Article 29-1

The implementation of the Company's dividend policy requires consideration of the Company's future capital budget planning, meeting the needs of shareholders for cash inflow, and ensuring market competitiveness, etc., in which the cash dividends should be no less than 10% of the total of shareholders' dividends. Its method of distribution is handled according to Article 29.

• 4.1.6.2 Based on the dividend distribution policy implemented in the past 10 years except for the year when cash was distributed through capital reduction, at least 50% has been allocated annually for shareholders’ dividends. In the future, if the Company makes profit, the dividend distribution policy implemented in the past will be continued to allocate at least 50% for shareholders’ dividends, in which cash dividends will be no less than 50% of the total dividends.

4.1.6.3 The dividend distribution proposed at the Shareholder’s Meeting:

  - The 2018 Shareholders’ Meeting proposed to distribute cash dividends of NT$0.50 per share.

• 4.1.7 Influence from free allocation of shares on the Company's business performance and earnings per share: Not applicable due to the fact that the Company does not issue bonus shares this year.

• 4.1.8 Employees’ and Directors’ Remuneration Distribution

• 4.1.8.1 Percentage or range of employees’ and directors’ remuneration stipulated by the Company’s Articles of Incorporation

Articles regarding the percentage of employees’ and directors’ remuneration in the Company’s Articles of Incorporation is as follows:

Article 28-1

If the Company's final accounting of revenue and expenditure is profitable, the remunerations of employees, directors shall be allocated as follows. However, if the Company still has accumulated losses, it shall reserve the profits in advance and make up for the losses, and then allocate:

55

• (1)The employees' compensation is not less than 8% and not more than 15%. The objects offered employees' compensation in cash or shares have to meet certain requirements of subsidiaries. The relevant measures are authorized to the Board of Directors to regulate.

(2)The directors' remuneration is not more than 1.5%.

The aforementioned profits refer to the profits before that pre-tax profit deducts the remuneration distributed to employees and directors.

• 4.1.8.2 Calculation basis for estimated employees’ and directors’ remuneration and for numbers of shares distributed as employees’ remuneration as well as accounting measures against the discrepancy between actual distribution and estimates:

  • The estimated employees’ and directors’ remuneration is based on the pretax income up to the current period. Within the percentage regulated by the Company’s Articles of Incorporation, 8% and 1.5% are respectively listed as estimated operating expense. When discrepancy between actual distribution and estimates occurs later, it will be regarded as a change in accounting estimates and counted as profit and loss of the year of actual distribution.

• 4.1.8.3 The employees’ and directors’ remuneration distribution passed by the Board of Directors for the year of 2018: None.

• 4.1.8.4 The actual remuneration distribution for employees and directors for 2017 and the discrepancy between which and the recognized amount as well as exact amount of difference, causes and responses:

  • (1) The 2017 employees’ and directors’ remuneration distribution:

    • a. Employees’ remuneration: NT$19,517,626.

    • b. Directors’ remuneration: NT$3,659,555.

  • (2) Discrepancy between the abovementioned amount and the recognized amount as well as exact amount of difference, causes and responses:

    • a. The employees’ remuneration amount recognized in the financial statements of 2017 was NT$19,517,626, which was the same as the numbers resolved by the Board of Directors.

    • b. The directors’ remuneration amount recognized in the financial statements of 2017 was NT$3,659,555, which was the same as the numbers resolved by the Board of Directors.

• 4.2 Issuance of Corporate Bond: None.

• 4.3 Preferred Stock: None.

• 4.4 Global Depository Receipts: None.

• 4.5 Employee Stock Options: None.

56

As of 05/02/2019

4.6 Employee Restricted Stocks

4.6.1 Issuance of Employee Restricted Stocks

	As of 05/02/2019
Type of Restricted Shares	Grant of 2013
Approval Date bythe Authority	2013/07/01
Grant Date	2014/06/03
Number of Employee Restricted Stock Granted	22,000,000
Price of Issuance	NT$10
Percentage of Employee Restricted Stocks to Outstanding Common Shares	4.65%
Conditions for Exercise of Employee Restricted Stocks	If employees remain employed for particular years from the issuance date, the following percentage of stocks will be granted accordingly: 1. One year: 40%. 2. Two years: 30%. 3. Threeyears: 30%.
Custody of Employee Restricted Stocks	A total of 22,000,000 shares delivered to the Trust
Procedures for Non-Compliance of the Conditions	The Company can buy back and cancel all restricted stocks from any employee whom received restricted stocks but fail to complywith the conditions.
Number of Employee Restricted Stocks Bought Back	2,675,437
Number of Employee Restricted Stocks Free from Custody	14,704,214
Number of Employee Restricted Stocks under Custody	3,960
Number of Employee Restricted Stocks under Custody to OutstandingCommon Shares(%)	0.001%
Impact on Shareholders’Equity	1.Possible expensing amount for three years is estimated to be NT$300,000 thousand. 2.Average possible impact on EPS per year is NT$0.22 Yet, it is overall estimated that dilution to EPS for future years will be limited, thus causing no significant impact on the equity of current shareholders.

Note 1: Announced numbers of buyback shares from employees.

Note 2: The number of restricted new restricted employee shares is the number of shares after cash capital reduction.

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4.6.2 Information on Name of Managers and Top 10 Employees obtaining Employee Restricted Stocks

										As of 05/02/2019	As of 05/02/2019	As of 05/02/2019
	Title	Name	Number of New Restricted Shares	New Restricted Shares as a Percentage of Shares Issued		Released				Unreleased
					Number of Shares	Issed Price (NT$)	Amount (NT$ Thousands)	Released Restricted Shares as a Percentage of Shares Issued	Number of Shares	Issed Price (NT$)	Amount (NT$ Thousands)	Released Restricted Shares as a Percentage of Shares Issued
Manager	CEO	Tseng, Ming-Jen	940,000 (Note 5)	0.33%	940,000 (Note 5)	10	9,400,000	0.33%	-	10	-	0.00%
	Vice President	Tsay, Wen-Bin(Note 4)
	Vice President	Chou, Cheng-Wei
	Vice President	F.J. Chiang (Note 1)
	Assistant Vice President	Tommy Lee
	Assistant Vice President	Y.C. Chou(Note 2)	845,820 (Note 6)	0.30%	845,820 (Note 6)	10	8,458,200	0.30%
	Assistant Vice President	Adams Chen
	Chief Financial Officer	PC Chen (Note 3)
	Chief Financial Officer	Lin, Hung-Tien
Employee	Senior Director	Jason Yeh	969,240 (Note 5)	0.34%	969,240 (Note 5)	10	9,692,400	0.34%	-	10	-	0.00%
	Senior Director	Roger Chiang
	Director	Terence Chang
	Director	JE Chang
	Director	Jonny Wu
	Director	Mike Leu
			872,128 (Note 6)	0.31%	872,128 (Note 6)	10	8,721,280	0.31%
	Director	KK Lin
	Vice Director	Sean Chao
	Special Assistant	C. K. Wang
	Special Assistant	Nicole Lee

Note 1: Vice President F.J. Chiang retired on May 30, 2016. Note 2: Assistant Vice President Y.C. Chou retired on April 28, 2016.

Note 3: CFO PC Chen resigned on September 30, 2016. Note 4: Vice President Tsay, Wen-Bin retired on June 30, 2017.

Note 5: The number of restricted new restricted employee shares obtained and the number of unrestricted shares are the number of shares after cash capital reduction. Note 6: The number of restricted new restricted employee shares obtained and the number of unrestricted shares are the number of shares after cash capital reduction.

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• 4.7 Status of New Share Issuance in Connection with Mergers and Acquisitions

• 4.7.1 New share issuance in connection with mergers and acquisitions that has been complete during the current year up to the printing date of this annual report: None.

• 4.7.2 New share issuance in connection with mergers and acquisitions that has been adopted as a resolution during the current year up to the printing date of this annual report: None.

• 4.8 Plans and Implentation of Funds Utilization ： None.

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5. Business Overview

5.1. Business Activities

• 5.1.1 Business Scope

• Main content of the business

  • (1) Design, production and sale of digital cameras and video cameras.

  • (2) Design, production and sale of other digital image capture devices.

  • (3) Undertake the professional design and OEM manufacturing business commissioned by international digital camera manufacturers.

• 5.1.1.2 Breakdown of Sales by Major Products

Breakdown of Sales by Major Products	Breakdown of Sales by Major Products	Breakdown of Sales by Major Products
Unit: NT$thousands
2018
Major Products	amount	%
Opticproducts	7,635,028	100%

1. Current Company Products (Services)

The manufacturing and sale of DSC(Digital Still Camera), DV(Digital Video Camcorder), digital surveillance cameras and camera modules.

1. Planned Development of New Products (Services)

2. (1) High-resolution, small-scale, professional digital cameras equipped with larger photosensitive elements and large aperture lenses.

3. (2) Multi-lens 360-degree panoramic camera.

4. (3) Wearable camera combined with mobile application platform, 4k2k animation product with live broadcasting function.

5. (4) Professional surveillance security cameras and NAS (Network Attached Storage).

6. (5) Miniaturized lens image module.

7. (6) Home video cameras combined with smart home applications.

8. (7) Unmanned aerial camera equipped with an image module and a camera.

9. (8) Camera equipped with a 4G module.

10. (9) High-power zoom Bridge Cameras.

11. (10) >10m waterproof, shockproof and weatherproof camera.

12. (11) Auto-assisted driving system camera module.

13. (12) Image software with added value.

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5.1.2 Industry Overview

5.1.2.1 Current Status and Development of the Industry

In 2018, the camera of the smart phone continued to improve in the function of the camera. The mobile phone companies introduced new cameras to promote the camera function. The mobile phone camera is almost synonymous with the camera. One of the most compelling products was Apple's iPhone X with 3D facial recognition technology, which aroused tremendous market attention. In addition, mobile phones of various brands eagerly tried to appeal to the high demand of camera and video functions on mobile phones, as well as providing simpler and more convenient sharing functions for consumers. These demands have a great impact on the traditional non-exchange lens digital camera.

The sales of traditional digital cameras continued to decline in 2018 and are expected to keep declining in 2019. The camera functions of smart phones continue to improve. For example, lens quality and 3D imaging technology may further reduce the traditional camera market. As in the past few years, traditional digital cameras will continue to shrink in number if goods in progress cannot have breakthrough technologies. Main sales will continue to be dominated by the product segmentation with better optical functions that can be differentiated from smart phones, such as high magnification ratios, large photosensitive elements and submersible cameras. These types of functional product can still have a stable sales volume, so it is estimated that the market can still maintain a bottom line demand quantity in the next few years.

The digital camera industry has clearly entered recession since several years ago, and the overall market has clearly seen the huge decline in industry participation and some industry players have even dropped out. There are only a few suppliers and brands struggling to survive in the market. Even some brands or suppliers whose scale is not large enough will gradually exit the center of the market, and turn to a small number of highly differentiated innovative products, or shift the industry focus to other product areas that continue to grow.

Looking at the sluggish performance of the handheld digital imaging product market, new technologies and applications are still unclear, and the sports video cameras that were booming in the past few years have also begun to experience a significant decline in sales performance with market saturation. Diversified wearable cameras have not grown as expected due to unclear positioning, but their application market is gradually being penetrated by the consumer personal market into the professional application market of producers. The 360-degree panoramic camera with internet live broadcasting function has a great market potential, but based on its growth in the past year, this type of products are still relatively unknown to the clients and the application and understanding of such products needs to be further strengthened.

In short, the digital imaging product market is currently in a period that lacks mainstream technologies and applications. Only new technologies and applications will enable the market to rise again. The hope is that with the development of Internet of Things (IoT), big data or human-machine interface, the demand for artificial intelligence and machine vision will increase year by year. The industry will also develop in these directions. Cameras with AI function will slowly appear, and these smart cameras will be the future growth momentum of the industry.

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5.1.2.2 The correlation among industry upstream, midstream and downstream sectors

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Flash Memory, battery..…
Digital Signal Processor (DSP), IC...
LCD panel…
CCD, CMOS sensor
PCB, passive
Lens module, OLPF...
Precision stamping shell and other machine components,
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----- End of picture text -----

5.1.2.3 Various product development trends

Under the current state of industrial development described as above, product development trends can be described in several directions.

In terms of traditional non-exchangeable lens digital cameras, almost all plants are not investing in new models, and most of them are updating their local functions, or continuing the sales of existing product lines. They expect to use the lowest manufacturing costs to maintain the visibility of their brands in the market. Therefore, it is foreseeable that more and more brands will withdraw from this market and the mutual merger effect will continue.

In terms of the technology development of goods in progress, instant sharing has become an indispensable requirement for current consumers. Therefore, wireless networks and even cameras equipped with 4G communication capabilities have been mentioned more and more. Last year, social media such as Facebook and Twitter even launched the 360-degree panoramic live broadcasting feature, and therefore the adoption of a camera that supports live broadcasting has gradually become a mainstream development technology.

Smartphones are constantly improving but inherent limitations such as lightness and small size are also required. Most smartphones carry ultra-thin cameras with fixedfocus lenses. However, such cameras have inherent limitations that make it impossible to clearly photograph distant objects or people. Therefore, thin and light high-power zoom digital cameras or commonly known as Bridge Cameras will likely

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become the second priority for consumers other than mobile phone cameras. The zoom for such cameras is more than 20 times, at the same time, they are lightweight and easy to carry. They have strong optical performance for long-distance shooting and optical image stabilization performance. Its appearance is closer to the light and small entry product DSLR single lens reflex camera. The waterproof and shockproof digital camera will use 4 to 5 times zoom, and waterproof >10 meters. These two types of camera products form special categories, and can be differentiated from smart phones in terms of functional segmentation. Their special types and functions cannot be replaced by smart phones, so their demand will continue to exist in the market.

The 360 product was a hot topic in the market, but the consumer market faced a slight stagnation due to consumer unfamiliarity in terms of its application. However, the professional 3D 360 product still has a steady growth in the market. These types of cameras has high unit price and high quality, and it is mainly used in professional live broadcasting or commercial applications. Although the number of such cameras is not as high as the consumer type, they have stable customer demands. Furthermore, it also requires special image mosaic software, so there is more potential to make profit for both the brands and the manufacturers.

The drone camera market has experienced great ups and downs in the past two years. Many drone companies have ended their operations successively last year. Currently, it is almost certain that the Chinese brand DJI dominates the market. Although there are still a few companies with their own special technologies or specific commercial applications trying to find a place in the market, general consumer drones will be further squeezed out. In current drone camera market, most drone manufacturers develop their own shockproof camera modules carried by the aircraft, so it is difficult for traditional digital camera manufacturers to enter this market, and they only play the role of the lens module suppliers.

In addition, with the rise of dual-lens mobile phone cameras, 3D cameras are also a possible development direction for the market. Using components equipped with ranging functions will make images no longer just 2D. Such products are also expected to be in demand in the mobile phone market.

Finally, it is worth mentioning that many large manufacturers are now trying to import AI into cameras, mainly for security monitoring or smart home imaging applications. Creating artificial intelligence imaging products through the analysis of big data, such as the impressive PIXEL from Google. In addition, the smart home system created by the combination of AI and big data analysis in home monitoring or entertainment imaging demands has also been a highly competitive market sector in the past two years. Such products will no longer be dominated by hardware, but will require a series of algorithms including cloud computing and big data analysis. This

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will be an opportunity for future development.

5.1.2.4 Competition

Under the above mentioned industry situation and product trends, the competition faced by each factory can be divided into the following aspects.

As for brand factory, it is difficult to support many existing brands in the current market due to the rapid decline in market size, so it is foreseeable that brand factories cannot rely on the existing digital camera market alone to maintain business operations. Therefore, the consolidation within the company and the search for new products and technology opportunities become a top priority. The former brand factory with a high market share was able to obtain more market share due to the withdrawal of other brands to maintain basic operations and actively seek the development opportunities for new technologies. Brands with smaller market share tends to turn to special product positioning to avoid direct price competition, or shift their business focus to non-digital camera fields. Japanese brand factories will also face further pressure from new overseas products, challenging its ability to introduce new products.

The ODM plant, together with the supply chain of various plants, is currently facing the problem of insufficient economic scale and rising costs. Therefore, it also face the situation that plants with higher-ranking scale are more likely to maintain its business. In order to survive, all manufacturers must continue to invest and innovate in addition to the original product market. Therefore, they need to deal with the decision to invest, and test the firm's confidence in the industry. In addition, the appreciation of New Taiwan dollar, raw material costs, continuous rising labor costs in mainland China, and other unfavorable conditions for ODM is not easy to lift at the moment. ODM is paying a relatively high price, facing the competition of the brand factory, ODM factories will face greater pressure.

In terms of traditional small and thin digital cameras, high-power zoom digital cameras and waterproof and shock resistant digital cameras, the niche is less obvious, and its success relies highly on the scale of production. Most Japanese brand-based client will give up on their own design and development, which will increase ODM opportunities and will still be competed and pursued by ODM factories. ODM factories with larger scale of camera-related operations is more likely to succeed.

With respect to high specification compact digital cameras, ODM factories face competition from internal resources of Japanese brand clients. Unless ODM offered price are attractive and ODM factories have solid technical capabilities, otherwise fighting for ODM opportunities will be very difficult.

360 cameras are still emerging markets, and competition is still uncertain. In the future, such products should be combined with 4G or WiFi to provide live broadcasting functions to meet the needs of the young consumer group's real-time sharing habits. Live broadcasting platform combined with Internet companies should

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have a certain market potential.

SMART CAMERA, which has front-end AI (Edge AI) computing in the past year, has been widely discussed and attracted attention in the market. Although it still needs mainstream application introduction to be used in large quantities, many companies have started in the market. Importing front-end intelligence and matching with cloud computing, We believe that cameras with AI intelligence will become an important mainstream in the market in the near future.

5.1.3 Research and Development

5.1.3.1 Research and Development Expense in Recent Year

h and Development arch and Development Expense in Recent Year	h and Development arch and Development Expense in Recent Year	h and Development arch and Development Expense in Recent Year
Unit: NT$thousands
Year Item	2018	1/1/2019 ~ 3/31/2019 (Note 1)
R&D Expense (A)	727,055	153,759
Net Revenue(B)	7,635,028	1,944,773
(A)/(B)	9.52%	7.91%

Note 1 : Consolidated financial reports reviewed by CPA.

• 5.1.3.2 Successfully developed technologies or products in the most recent fiscal year up to the publication date of this annual report

The company R&D area extends from the early CCD VGA type of computer camera to CMOS and CCD digital camera products, continuing the knowledge and accumulated experience acquired from the cooperation with renowned international manufacturers, along with excellent production management and cost advantages, sparing no effort in the strengthening of technology.

The research and development direction is based on the integration of optical, mechanical and electrical technologies in the optical lens and electronic ASICs. Effectively integrate vertically and control specifications, and develop in cooperation with upstream major component manufacturers, and reduce design costs and increase elastic competitiveness through design-in. Canon has the ability to synchronize with the global digital camera development technology, providing solution for 3A image quality and the optical zoom function and control ability that is difficult to breakthrough, and received accreditation from international manufacturers. Offering miniature models, ultra-thin models, MPEG4 and H. 264 models with video recording functions. The connection between wireless communications and smart phones has become increasingly important. Bluetooth and NFC have significantly improved the speed and convenience of operation and connection. In view of the market demand for sporty and wearable cameras and the use of self-made lenses for integrated opto-mechanics in the use of related imaging products.

The company is committed to the application of research and development product patent, and promote the effective application of intellectual property to products, increase financial intelligence to strengthen the professional capabilities of research and development, and R&D of the imaging industry.

With regard to the product development of vehicle camera modules, the follow-up has been actively investing more resources in the development of a wider range of

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automotive camera modules. Its applicable areas include ADAS, surveillance camera, driver fatigue monitoring, electronic rear view mirror and so on. Focusing on the future, we hope to create higher added value and gross profit, and expand the product line with longer lifespan.

5.1.3.3 Future Research and Development Plans and Estimated Expenses

In addition to the input and development of existing products, future investment in R&D projects and resources will be gradually adjusted according to the industrial development trend.

The Specific Research and Development Future Plans and Progress are as follows:

Unit: NT$ thousands

Research and Development Project	Current %	The R&D funding that should be further invested	Time expected to complete mass- production	Main factors affecting the success of R&D in the future
New Lens Module	70%	5,000~10,000	First half of 2019	Comply with the diversified product development demands of clients
Virtual Reality (VR) -360 degree automobile driving recorder -360 degree panoramic camera -Android/iPhone dedicated 360 degree panoramic camera	90%	30,000~40,000	First half of 2019	Customer product specification alteration, authentication time and cost structure
Artificial Intelligence (AI) -visual image -camera self-learning -smart learning	85%	30,000~35,000	First half of 2019	Satisfy the needs of customers in terms of camera diversity
Artificial Intelligence (AI) -visual image -camera self-learning -smart learning	10%	5,000~15,000	Second half of 2019	Product revision and adjustment for market conditions
Automobile camera module -Advanced Driver Assistance System (ADAS) - Surveillance Camera - Driver Fatigue Monitoring	50%	85,000~95,000	Second half of 2022	Customer needs, changes in customer specifications, long authentication time
Internet of Things (IoT) at home -HOME CAM -IP CAM -IoT CAM	53%	50,000~65,000	First half of 2019	Customer product specification alteration, authentication time and cost structure
Pocket Printer	87%	9,000~12,000	First half of 2019	Customer Demand
Pocket Printer	23%	3,000	Second half of 2019	Product revision and adjustment for market conditions
Quicksnap camera	95%	8,000~10,000	First half of 2019	Customer Demand

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Research and Development Project	Current %	The R&D funding that should be further invested	Time expected to complete mass- production	Main factors affecting the success of R&D in the future
4K Quicksnap camera	5%	1,000	Second half of 2019	Market Demand
4K60P with SIS action CAM 8K30P 360 CAM 8K30P SIS with 1 axis Gimbal action CAM	30%	5,000~8,000	First half of 2019	In response to Action Cam diversity
4K60P with SIS action CAM 8K30P 360 CAM 8K30P SIS with 1 axis Gimbal action CAM	70%	5,000~8,000	Second half of 2019	In response to Action Cam diversity

5.1.4 Long-term and Short-term Business Development Plans

5.1.4.1 Short-term business development plans:

In view of the aforementioned industry overview, the decline in industrial scale and industrial centralization is an irreversible trend. The short-term business development will focus on the maintenance of the original consumer camera scale, adhere to customer relationships, implement the customer project one by one, in order to achieve effective merger and solidify the supplier partners, and pursue higher market share to stabilize the foundation.

Based on this foundation, we aim to further diversify the image application products in different industries, providing customized services, and establishing a small variety of high gross margin and high adhesion customer base, in order to create new sources of stable profitability and disperse the risk of adhering to the original market. Specifically, breakthroughs will be sought in the following product areas:

• (1)High specification, small scale, professional digital cameras equipped with larger photosensitive elements and large aperture lenses.

• (2)Multi-lens 360-degree panoramic camera.

• (3)Wearable camera combined with mobile application platform, 4k2k animation product with live broadcasting function.

• (4)Professional surveillance security cameras and NAS(Network Attached Storage).

• (5)Miniaturized lens image module.

• (6)Home video cameras combined with smart home applications.

• (7)Unmanned aerial camera equipped with an image module and a camera.

• (8) SMART CAMERA with AI operation.

At the same time, enhancing the technical strength in the following sectors to maintain competitive advantage:

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• (1)Integrate low energy consumption machine photoelectric technology and new material mechanism design to achieve a compact and lightweight design.

• (2)Invest in the optical design industry and provide customized optical technology services.

• (3)Combine 4G LTE with wireless communication hardware and software design.

• (4)Video streaming technology provides customers with instant sharing function.

• (5)Continue to invest in open platforms such as embedded Linux to facilitate streaming with the outside world.

• (6)Instant cloud image system design and services.

• (7)Automotive image system design and services.

• (8)Design cost control and automated production.

In terms of marketing, in addition to the cooperation with traditional camera brand factories, actively develop the opportunity of cooperation with leading enterprises of different industrial imaging products, in order to develop non-consumer electronic customer base. In addition, it will also actively cooperate with the mobile phone and internet companies in mainland China in order to improve the current customer structure based on Japanese customers, and create a long-term stable operation of the company through a diversified and stable customer base.

5.1.4.2 Long-term business development plans

Continuously deepen the investment and mastery of key technologies, focusing mainly on optics, image processing, software development, wireless communication, live broadcasting, and production automation, to provide customers with professional and customized services with technical value. In conjunction with external partners, we actively join the ecological chain of the industry, jointly expand the market and participate in the early technical discussions and formulation, in order to stand at the commanding heights of technology and industry.

5.2 Market and Sales Overview

5.2.1 Market Analysis

5.2.1.1 Sale of major commodities (services) in provided areas.

The company's customers are mainly famous digital camera and surveillance security product selling brands in Japan, Europe, the United States, and Asia, with professional ODMs and OEMs as our core business.

1.2.1.2 Market Overview

According to data provided by market analysis company, the shipment of global digital cameras (including interchangeable lenses and non interchangeable lenses) have

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fallen below 20 million units in 2018, and the shipment number in 2019 is expected to fall continuously.

The non-handheld sports camera gradually replacing the digital video recorder has seen the slow down of its shipment growth. This market is still dominated by GoPro but recently there are other Japanese and Chinese brands joining the market fray. Price competition intensifies. It is still expected to grow but at a slower pace and gross margin will be affected due to falling prices. Since the beginning of 2015, the 360 panoramic camera that has emerged with VR have sprung up like mushrooms. Customer demand for live broadcasting function is brewing. The professional 3D 360 cameras used in various industries are also invested by many companies, but whether they can drive a large market demand is yet to be observed.

5.2.1.3 Future supply and demand of the market and its growth

As mentioned in the previous paragraph, the demand for traditional forms of non interchangeable lens digital cameras has been reduced, but the market still has a basic needs that is estimated to maintain a bottom line demand for the next three years. In terms of market supply, there are only a few remaining OEMs still working on digital cameras, and Canon is one of the largest professional foundries. It is expected that there will still be manufacturers in several remaining foundries who will stopped their investment due to lack of profit, or shifting their business focus to products other than digital cameras. The reduction of the supply side result in the balance between supply and demand, under this circumstances, the company operation will no longer be quantity oriented. Instead, the focus will be shifted to mid-to-high end compact digital cameras, and image solutions commercial applications. Through providing customer with customized services to achieve market differentiation and qualitative growth.

The market growth of sports camera that tie-in with Japanese customers clearly slowed down and price competition intensifies. Creating technology and market differentiation is the only way to survive in the market. The emerging 360 degree panoramic camera is an imaging product worthy of attention in the future. Focusing on this aspect, the company has also invested resources in this production project. We have also started cooperation with mobile phone plants other than non traditional Japanese camera companies and European and American consumer products brands, including consumer and professional panoramic cameras. It is expected that the company will have the opportunity to occupy a place in this market.

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5.2.1.4 Competitive Niche

Our current competitive niche mainly lies in:

• (1) The established mutual interdependence structure with our current clients as well as the relative procurement scale. Most of the competitors in the industry is no longer focused on the digital camera industry. Therefore, Canon has the most competitive advantage in this industry.

• (2) Our long term focus on the accumulation of experience in integrated photoelectric software and firmware technologies allows us to cope with the market demand in diversified imaging products technology and mass production. Our long term cooperation with a number of brands enables us to be familiar with the needs of major manufacturers, and therefore is more competitive in terms of technology.

• (3) Long-term and stable supplier partnerships.

• (4) Long-term investment in imaging and optics related technologies The establishment of specialized image tuning techniques for optical modules has been incompatible with other competitors and can be widely applied to the needs of various imaging and optical products.

Favorable and Unfavorable Factors of Development Prospect and Strategies

• (1)Favorable Factors

• a.Digital imaging plays an important role in the networking and smart home environment. With the development of an open internet environment, the demand for digital imaging will continue to grow.

• b.After several digital cameras such as decentralized and customized products produced by a small number of diversified applications have entered the plateau period, most brand manufacturers or start-up companies cannot afford to invest in developing resources. ODM manufacturers with mature technologies have become important partners for customers.

• c.Limitations of mobile camera fail to meet consumer market demand for image quality, performance, and applications. The increasing demand for differentiated products is an opportunity for ODMs.

• d. Social media sharing, webcasting, and online economics will drive the demand for new types of cameras.

(2)Unfavorable Factors

• a.The traditional non interchangeable lens digital camera industry has entered recession.

• b.Continued currency depreciation in various countries.

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c.Rapidly rising labor costs and slower economic growth in mainland China.

d.The new type digital camera products alternate rapidly.

• (3)Response measures

• a.On the basis of the current digital cameras business scale, we will actively explore new markets for personal cameras, industrial cameras, security, automotive, and panoramic products, strengthen innovative product capabilities, and actively create new imaging product needs.

• b.Actively join in various types of imaging product ecological chain such as smart homes, automatic application of machine vision industry, and other related imaging products, as well as early participation in product and specification development.

• c.To develop diversified customer groups and deepen cooperation with Japanese brand factories, and actively expand the development of the Chinese market and emerging market customers around the world.

• d.Adjust and simplify the manufacturing system and supply chain, and accelerate the automation of production lines.

• e.Simplify the development process of new products based on the existing technology, and shorten the product development cycle to respond to rapidly changing industrial needs.

5.2.2 Major Uses and Production Process of Major Products

• 5.2.2.1 Important use: The digital camera sold by our company is a consumer electronics product for shooting and storing images.

• 5.2.2.2 Production process: The company product manufacture is carried out by subsidiaries.

5.2.3 Supply of Major Raw Materials

With the continuous decline in the scale of digital camera shipments, the supply chain management department actively developed different types of raw material supply chains in line with the company's product transformation and diversification to enhance competitiveness.

In 2018, under the market risk crisis of rising raw material supply prices, shortage of passive components, and active IC production capacity, all the colleagues in the supply chain management department cooperated with the relevant units of the company to fully support the various materials supply difficulties. Risk damage is minimized, and the delivery status of the overall supply chain is in line with the demand for factory production and shipment. However, due to the relatively large fluctuations in the raw material market price, there is relatively large fluctuation pressure on cost control. Looking forward to the price of raw materials in 2019. Under the condition of slowing down and benefiting from the preferential conditions of tax reduction in Mainland China, it is expected that the cost pressure can be simultaneously controlled, and at the same

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time, with the company's strategic direction to increase the proportion of shipments of high-end products and actively develop new applications in the field of optics in response to the development trend of AIOT. Products, and continue to develop quality and competitive suppliers.

• 5.2.4 Major Customers with over 10% Net Sales and Suppliers with over 10% Net Purchases of the Last Two Fiscal Years

5.2.4.1 Major Suppliers of the Last Two Fiscal Years

NT$ thousands

									NT$thousands	NT$thousands	NT$thousands	NT$thousands
Item	2017				2018				As of 2019 Q1
	Company Name (note 3)	Amount	%	Relation with Issuer	Company Name (note 3)	Amount	%	Relation with Issuer	Company Name (note 3)	Amount	%	Relation with Issuer
1	Supplier A	894,992	9.15%	None	Supplier B	340,477	4.87%	None	Supplier B	45,881	2.65%	None
2	Others	8,890,436	90.85%	-	Others	6,648,260	95.13%,	-	Others	1,688,505	97.35%	-
	Net Total Purchases	9,785,428	100.00%	-	Net Total Purchases	6,988,737	100.00%	-	Net Total Purchases	1,734,386	100.00%	-

Note 1: Consolidated base with IFRS

Note 2: List of suppliers who account for more than ten percent of the total purchases of goods and the amount and proportion of its purchased goods in the recent two fiscal years. However, the contract stipulates that the client's name shall not be disclosed. If the transaction object is an individual and non-affiliate, code-name can be applied.

5.2.4.2 Major Customers of the Last Two Fiscal Years

NT$ thousands

									NT$thousands	NT$thousands	NT$thousands	NT$thousands
Item	2017				2018				As of 2019Q1
	Company Name (note 3)	Amount	%	Relation with Issuer	Company Name (note 3)	Amount	%	Relation with Issuer	Company Name (note 3)	Amount	%	Relation with Issuer
1	R	3,112,257	27.78%	None	R	1,646,386	21.56%	None	R	646,989	33.42%	None
2	EE	2,305,586	20.58%	None	AA	1,133,150	14.84%	None	HH	588,635	30.27%	None
3	A	1,678,065	14.98%	None	AA	1,123,446	14.71%	None	II	199,477	10.26%	None
4	AA	1,374,102	12.27%	None	Others	3,732,046	48.89%	None	Others	509,672	26.05%	None
	Others	2,731,590	24.39%	－	－	－	－	－	－	－	－	－
	Net Total Sales	11,201,600	100.00%	－	Net Total Sales	7,635,028	100.00%	－	Net Total Sales	1,944,773	100.00%	－

Note 1: Consolidated base with IFRS

Note 2: Reasons for the increase and decrease: Individual customers' adjustment of inventory and sales strategy resulted in the increase of decrease of sales.

Note 3: The confidentiality agreement between the company and the customer.

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5.2.5 Production/Sales Quantities and Value over the Past Two Years

Unit: thousands; NT$ thousands

			Unit: thousands; NT$ thousands	Unit: thousands; NT$ thousands
Year output Major Products	2018		2017
	Quantity	Amount	Quantity	Amount
Optic products	5,572	6,281,527	8,604	9,174,950
Optic parts	86,817	707,210	102,583	610,478

==> picture [198 x 16] intentionally omitted <==

Note: Consolidated base with IFRS.

5.2.6 Sales Quantities and Value of the Last Two Years

Unit: thousands; NT$ thousands

					Unit: thousands; NT$ thousands	Unit: thousands; NT$ thousands	Unit: thousands; NT$ thousands	Unit: thousands; NT$ thousands
Year Shipments & sales Major Products	2018				2017
	Domestic		Export		Domestic		Export
	Quantity	Amount	Quantity	Amount	Quantity	Amount	Quantity	Amount
Optic products	250	11,335	5,452	6,638,580	1	2,740	8,546	10,386,544
Optic parts	4,644	7,329	102,453	977,784	216	18,676	98,498	793,640

Note: Consolidated base with IFRS.

5.3 Status of Employees

Status of employees over the past two years and up to the date of the report

	Year	2017	2018	As of 2019.5.2
Number of Employees	Others	252	240	233
	R&D	349	318	302
	Operator	42	45	42
	Total	643	603	577
Average Age		39.86	41.55	40.6
Average Years of Service		8.68	15.26	9.6
Education	Ph.D.	0.31%	0.33%	0.35%
	Masters	33.59%	31.18%	31.20%
	Bachelor’s Degree	62.21%	63.85%	63.60%
	Senior High School	3.42%	4.15%	4.33%
	Below Senior High School	0.47%	0.50%	0.52%

Note: Based on ABILITY ENTERPRISE CO., LTD. only.

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5.4 Expenditure on Environmental Protection

In the most recent year and as of the date of publication of the annual report, the company did not suffer any loss (including indemnity) or punishment due to environmental pollution.

5.5 Employee Relations

5.5.1 Employee’s Welfare and Benefit

• 5.5.1 Various employee benefits measures, further education, training, retire system and the status of implementation, as well as agreements between the employer and employees and measures for protecting employee entity and interests:

5.5.1.1 Employee Benefits Programs:

• (1)Insurance: In addition to statutory labor and health insurance, the company also insured group insurance (life insurance, accident insurance, inpatient medical insurance).

(2)Health and Safety: The company provides the following benefits

• a. Annual Professional Charge Health Checkup and health tracking management

• b. Psychological Counseling

• c. Blind Massage

• d. Health Seminars

• e. Health Promotion Activities

• f. AED and oxygen cylinder installed

• g. Fire Prevention/Disaster Prevention Team

• h. Nursery Room

• i. Once every two months doctor visit service

• j. Set up sports and leisure facilities

• k. Smoke prevention and prevention

• l. Workplace maternal health protection

• m. All colleagues participate in emergency escape drills

• n. Regular occupational safety meeting

• o. During the health check-up, cooperate with the HPA for free health screening, such as smear and mouth sieve

• p. Unscheduledly send relevant press releases from the UNDCP to remind colleagues to know and protect themselves

• (3)In terms of tourism: the staff welfare committee of the company provides each employee with travel allowance every year.

• (4)In terms of company association: the company encourages colleagues to organize various types of social and physical health associations, and provides grant-in-aid for each employee's participation in up to two different associations. Each year, the company allocates budgets for associations to organize various types of sports activities to enhance interaction among colleagues and achieve physical and mental relaxation, as well as to foster teamwork spirit and build consensus.

• (5)In terms of leave: the company provides annual leave in accordance with the requirements of the Labor Standards Act to assist colleagues in achieving a balance between work and life.

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• (6)Employee assistance: In addition to the cooperation with professional psychological consultancy companies, the company also provides scholarships to low-income households with children who are still in school; and according to individual conditions, the company provides emergency relief funds and emergency concessional loans.

• (7)Birthdays, weddings, funerals and festive celebrations: the company holds company-wide birthday celebrations every season and gives out birthday coupons. In case of weddings and funerals, or if major injuries should occur, the company provides grants in various amount.

• (8)Advanced Language Learning: The company provides every colleague with English or Japanese advance learning subsidization in order to allow colleagues to improve their language skills.

• (9)Others: In addition to the employee benefits mentioned above, the company also provides occasional film appreciation meetings and replenishment day activities, so that colleagues can participate in a variety of activities in addition to work, and promote employee relations. In order to allow colleagues to develop a habit of continuous learning, the company has a special library, with a collection of professional books and various types of books that are purchased on irregular bases, so that colleagues can use their free time to achieve self-learning and selfgrowth.

• (10)The total company related benefits in fiscal year 2018 amounted to NT$22,964 thousand. Other benefits includes company travel, community activities, subsidization, birthdays and other employee benefits of the company, with a total amount of NT$18,658 thousand.

Unit: NT$ thousands

on, birthdays and other employee NT$18,658 thousand.	benefits of the compan Unit: NT$thousand
Item	Amount
Health CheckupFee	2,002
GroupInsurance	2,144
Lifeline ConsultingFee	123
NetworkingFee	37
Other Benefits	18,658
Total Amount	22,964

5.5.1.2. Employee Advanced Study and Training:

The company promise to value employee growth and satisfaction as the core concept of sustainable management. Employees are the core assets of the company. The company's growth is closely related to the development of its employees.

Canon Enterprises upholds the concept that talents are the foundation of our enterprise, providing employees with diverse and flexible learning channels and information, and assists employee development and enhance employee competitiveness through on-job, off-job, e-Learning education and training systems, library reading rooms, and e-book/magazine resources. Under the concept of “continuous learning” and “pursuit of excellence”, integrate internal and external resources to provide employees with the best quality and most effective learning and growth opportunities, with a view to enabling mutual growth of the employees and the companies.

Canon Enterprises systematically provides employees with comprehensive learning and development methods according to different positions, including on-the-job

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training, classroom training, online learning, work guidance and senior employee mentoring system. The company not only invites external experts as training tutors, but also actively cultivates internal lecturers in order to deepen Canon’s Values and abilities, as well as the long-term accumulation of professional and technical skills.

(1)Education and Training System:

• a.Orientation Training: The company organizes progressive curriculum to assist new employees in understanding the company history, management systems, products, technology and human resources development issues, supplemented by the “New Employee Stability Program," where senior employees in various departments provide assistance to new employees in order for them to adapt to the company culture and work content as soon as possible.

• b.Managerial Training: Planning of practical management courses based on the managerial functions required by supervisors at all levels. Divided into junior/first-time supervisor training, middle-level manager training and senior manager training.

• c.Professional Training: The lineup of lecturers made up of senior executives, external experts, and professional suppliers, in conjunction with the department initiated seminars or through the training courses of industrial management companies, so that the professional learning of various departments will continue to move forward to prevent stagnation. Including new technologies, new materials, case studies, new processes, information, regulations, quality, etc. In addition to internal training, colleagues may apply for professionally related courses organized by external training institutions according to their job requirements. The company will also provide appropriate subsidization.

• d.Labor Health and Safety Training: It is important to provide employees with a safe and secure workplace. We regularly conduct fire drills, first-aid skill courses, etc.

The environmental protection measures for employees' personal safety and office work and their implementation are as follows:

Access security

• 1.The company has a “Physical Environmental Safety Management Measures”, which clearly stipulates that personnel entering the site need to register and change certificates to maintain workplace and personnel safety.

• 2.The company has a 24-hour control and access control for all external access control and internal important entry barriers.

• 3.The company has security personnel to assist in maintaining the safety of the site and patrolling regularly.

Maintenance of various equipment

• 1.According to the public safety inspection and reporting procedures of the building, professional companies are commissioned to conduct public safety inspections every two years.

• 2.According to the provisions of the Fire Protection Law, fire inspections are carried out outside the year, and various fire-fighting appliances are also regularly maintained and inspected.

• 3.According to the provisions of the building lifting equipment installation and inspection management regulations, the elevators and machinery parking spaces are regularly maintained monthly, and the inspection agencies are entrusted to apply for safety inspections every year.

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Disaster prevention measures and strains

• 1.The company has "Occupational Safety and Health Work Code", "Emergency Response Procedures", "Accident and Abnormal Situation Investigation and Handling Measures", etc., and clearly stipulates that each person should be responsible for major events such as fires, floods, etc. And tasks, and handle related security protection drills.

• 2.Regularly conduct self-defense firefighting team drills every six months to maintain workplace safety.

• 3.Prevent fire, earthquake, and electricity safety from time to time to avoid disasters.

Physiological health

• 1.Health check: New recruits are required to undergo a physical examination before they arrive. For the incumbent, the health check is regularly scheduled every year to exceed the regulatory frequency. Relevant health management operations are carried out for all the test results.

• 2.Working environment: The company regularly carries out environmental disinfection in the factory area, and the company's environmental cleaning is also carried out by special personnel.

• 3.Non-scheduled health, health education lectures and corporate club activities to provide peer involvement and enhance relevant knowledge and health.

• 4.Implement the smoke prevention and control regulations and completely ban smoking in the workplace.

• 5.Implement human-related hazard prevention, labor overload prevention and maternal health protection management operations.

Mental health

• 1.Education and training: Provide employee stress training course lectures, employee communication technology lectures, etc., to assist employees in psychological adjustment.

• 2.Employee assistance: Cooperate with the corporate legal person Hsinchu Lifeline Association to provide consulting services such as employee psychology, law, financial management, mental health care, and management.

3. Violence and sexual harassment prevention: Establish a complaint channel to protect personal privacy.

Contractor operation management

• 1.The “Contractor Management Operation Procedures” is established to prevent occupational disasters, to ensure the safety and health of contractor staff and employees of the Company, and to determine the rights and obligations of the contractor regarding safety and health as the basis for contractor management.

Insurance and medical condolences

  - 2.The group insurance includes term life insurance, accidental injury insurance, accident medical insurance and hospitalization, cancer medical insurance and concessions, and selfpay insurance; and childbirth, injury and hospitalization condolences.

• e.Language Training: In order to enhance and strengthen the international language ability of all employees, the company provides partial subsidization and bonus, allowing employees to further enhance their language skills through self-studying.

• f.Self-growth: All kinds of lectures are held to provide colleagues with off-the-job learning to achieve physical and spiritual elevation. Including health lectures, interpersonal communication lectures, sports lectures and travel lectures.

• (2)The total training hour in 2018 reached 4,275 hours. The total training attendance reached 909 persons. The total training cost was NT$283 thousand.

Unit: NT$ thousands

Projects in 2017	Person-Time	Traininghours	Trainingcost
Professional Skills Training	118	506.5	283
Managerial Training	1	6.0
General Skills Training	432	584.5

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Projects in 2017	Person-Time	Traininghours	Trainingcost
Labor Health and SafetyTraining	60	392.0
Quality Management Training	53	96.5
Language Training	63	2158.6
Orientation Training	182	530.9
Total Amount	909	4275.0

5.5.1.3. Employee Retirement Plan

The employee retirement system of the company sets the labor retirement management measures according to relevant laws and regulations.

In order to enable our employees to work with peace of mind, contribute to the enterprise, and maintain their post-retirement life, we have established a labor retirement management method:

(1) Scope of application:

All employees who have implemented the "Labor Pensions Regulations" before July 1, 1994 and employees who choose to continue to apply the "Labor Standards Act" after the implementation of the "Labor Pensions Regulations " are subject to the Labour Retirement Management Scheme.

a. Self-retirement

Employees who have one of the following circumstances may apply for voluntary retirement:

• (a) The company has worked for more than 15 years and has reached the age of 55.

• (b) The company has worked for more than 25 years.

• (c) The company has worked for more than ten years and has reached the age of 60.

b. Forced retirement

An employee may order his or her retirement in one of the following circumstances:

• (a) A lost or physically disabled person is not competent.

(b) Workers with mental disorders or physical disabilities referred to in the preceding paragraph shall be based on the disability of the first to sixth levels of labor insurance.

c. Statutory retirement

Based on the purpose of the Labor Law to protect labor, employees who have reached the age of 65 and have reached the statutory retirement age as stated in the Law on Labour should retire in accordance with this Law.

• d. To encourage senior employees to plan their retirement career in advance, revised and approved on January 25, 2017, serving

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If the seniority and age are more than 70 years (inclusive), one of the following circumstances may be applied for by the employee and submitted to the chairman for approval.

  - (a) A good performer who has performed well during the company's service.

  - (b) There is no violation of law or negligence during the term of office or the occurrence of a major loss to the company.

  - (c) Other cases reported to the Board of Directors for approval.

• (2) The nationality applying the "Labor Standards Act" under the " Labor Pension Regulations" from July 1, 2005. For Employees who choose to apply the section on the labour pension system as defined in the Labour Pensions Regulations, they will be required to pay a monthly pension of 6% to the personal account of the Labour Insurance Bureau and retired under the Labour Pensions Regulations. These procedures are not applicable to the relevant regulations.

• (3) Employees who apply the “Labor Standards Act” before July 1, 2005 The Company will provide labor retired reserves to the full amount at the rate of 2% of the approved provision rate, which will be deposited with the Bank of Taiwan account. The balance of the retirement reserve account and the net defined benefit liabilities as of December 31, 2018 were NT$33,844 and NT$54,726, respectively.

• 5.5.2 Any current or potential loss resulting from labor disputes and prevention actions for the past two years and as of the date of this annual report: None

5.6 Important Contracts

The major contracts of the company that remain valid as of the date of printing of the annual report and the expiration date of the most recent year are as follows:

Agreement	Counterparty	Period	Major Contents	Restrictions
Loan Agreement	Bank Sinopac	2018.08.01~ 2019.07.31	Short-term credit	None
Loan Agreement	Taishin bank	2018.07.01~ 2019.06.30	Short-term credit	None
Loan Agreement	CTBC bank	2018.05.01~ 2019.04.30	Short-term credit	None
Loan Agreement	Mega bank	2018.12.06~ 2019.12.05	Short-term credit	None
Loan Agreement	E.SUN bank	2018.12.13~ 2019.12.13	Short-term credit	None
Loan Agreement	DBS bank	2018.07.20~ 2019.07.20	Short-term credit	None

The other company key accounts, the letter of intent signed among the company and our vendors, and the bailment manufacturing contract or purchase contract are subject to confidentiality terms. Due to considerations such as business confidentiality and industrial characteristics, the company will make no disclosure.

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6. Financial Information

6.1 Five-Year Financial Summary

6.1.1 Condensed Consolidated Balance Sheet – Based on IFRS

Unit: NT$ thousands

Year Item	Year Item	2014	2015	2016	2017	2018	2019.3.31 （Note 2）
Current assets		10,987,220	8,795,084	7,529,693	6,859,863	5,790,775	5,787,788
Property, plant and equipment		3,785,922	3,512,182	3,934,683	3,989,763	3,539,946	3,521,508
Intangible assets		12,589	13,678	2,927	5,606	159,027	153,400
Other assets		2,080,014	1,696,459	1,555,376	1,951,179	1,558,340	1,665,240
Total assets		16,865,745	14,017,403	13,022,679	12,806,411	11,048,088	11,127,936
Current liabilities	Before Distribution	6,752,002	5,180,123	4,435,902	4,017,477	3,442,444	3,411,174
	After Distribution	6,752,002	5,604,019	4,690,073	4,243,369	(Note 3)	(Note 3)
Non-current liabilities		253,420	102,557	91,976	82,991	82,865	87,776
Total liabilities	Before Distribution	7,005,422	5,282,680	4,527,878	4,100,468	3,525,309	3,498,950
	After Distribution	7,005,422	5,706,576	4,782,049	4,326,360	(Note 3)	(Note 3)
Equity Attributable to owners of the Parent		9,859,389	8,566,141	8,292,078	8,517,342	7,261,906	7,364,539
Share capital		4,731,168	2,828,310	2,825,279	2,823,650	2,823,628	2,823,628
Capital surplus		1,559,995	1,558,449	1,560,123	1,563,069	1,563,455	1,563,455
Retained earnings	Before Distribution	3,335,072	4,041,792	4,011,904	3,978,672	3,301,001	3,204,225
	After Distribution	3,335,072	3,617,896	3,757,733	3,752,780	(Note 3)	(Note 3)
Other equity interest		236,037	139,123	(104,533)	151,951	(426,178)	(226,769)
Treasury stock		(2,883)	(1,533)	(695)	0	0	0
Non-controlling interests		934	168,582	202,723	188,601	260,873	264,447
Total Equity	Before Distribution	9,860,323	8,734,723	8,494,801	8,705,943	7,522,779	7,628,986
	After Distribution	9,860,323	8,310,827	8,240,630	8,480,051	(Note 3)	(Note 3)

Note 1: Financial report of each year has been audited by CPA firm. Note 2: Financial report of Q1 has been reviewed by CPA firm

Note 3:Until the printing date of this annual report, the earnings distribution proposal has not yet approved by the shareholders in the Shareholders’ Meeting.

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6.1.2 Condensed Consolidated Statement of Comprehensive Income – Based on IFRS

Unit: NT$ thousands

Year Item	2014	2015	2016	2017	2018	2019.3.31 （Note 2）
Sales revenues	24,180,166	19,254,208	11,005,824	11,201,600	7,635,028	1,944,773
Net operatingmargin	2,128,709	2,303,653	1,569,151	1,416,172	646,291	210,387
Net Operating Income (Loss)	105,510	609,392	85,146	64,853	(739,861)	(99,116)
Non-operating Income and Expense	109,113	419,132	409,980	163,428	225,289	6,911
Income(Loss)before Tax	214,623	1,028,524	495,126	228,281	(514,572)	(92,205)
Income (Loss) for Continued Operations	170,989	867,444	435,921	206,398	(425,525)	(97,024)
Income (Loss) from Discontinued Operations	－	－	－	－	－	－
Net Income(Loss)	170,989	867,444	435,921	206,398	(425,525)	(97,024)
Other Comprehensive Income(Loss)	625,124	(150,734)	(270,422)	254,173	(562,105)	203,231
Total Comprehensive Income(Loss)	796,113	716,710	165,499	460,571	(987,630)	106,207
Net Income Attributable to Owners of the Parent	154,814	697,314	386,250	217,663	(463,048)	(96,776)
Net Income (Loss) Attributable to Non- controllingInterests	16,175	170,130	49,671	(11,265)	37,523	(248)
Comprehensive Income (Loss) Attributable to Owners of the Parent	773,381	549,062	131,358	474,693	(1,021,497)	102,633
Comprehensive Income (Loss) Attributable to Non-controllingInterests	22,732	167,648	34,141	(14,122)	33,867	3,574
Earnings (Loss) per Share（Note 3）	0.33	1.71	1.39	0.77	(1.64)	(0.34)

Note 1: Financial report of each year has been audited by CPA firm. Note 2: Financial report of Q1 has been reviewed by CPA firm Note 3: Unit: NT$.

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6.1.3 Condensed Individual Balance Sheet – Based on GAAP

6.1.3 Condensed Individual Balance Sheet – Based on GAAP	6.1.3 Condensed Individual Balance Sheet – Based on GAAP	6.1.3 Condensed Individual Balance Sheet – Based on GAAP	6.1.3 Condensed Individual Balance Sheet – Based on GAAP	6.1.3 Condensed Individual Balance Sheet – Based on GAAP	6.1.3 Condensed Individual Balance Sheet – Based on GAAP	6.1.3 Condensed Individual Balance Sheet – Based on GAAP
Unit: NT$thousands
Year Item		2014	2015	2016	2017	2018
Current assets		6,402,814	4,858,409	3,439,474	2,369,138	1,665,818
Property, plant and equipment		1,562,081	1,774,303	2,495,798	2,756,242	2,524,903
Intangible assets		11,751	12,935	2,416	4,682	9,346
Other assets		6,741,706	6,671,332	6,535,432	6,929,791	6,348,823
Total assets		14,718,352	13,316,979	12,473,120	12,059,853	10,548,890
Current liabilities	Before Distribution	4,775,795	4,676,395	4,114,293	3,481,082	3,226,880
	After Distribution	4,775,795	5,100,291	4,368,464	3,706,974	(Note 2)
Non-current liabilities		83,168	74,443	66,749	61,429	60,104
Total liabilities	Before Distribution	4,858,963	4,750,838	4,181,042	3,542,511	3,286,984
	After Distribution	4,858,963	5,174,734	4,435,213	3,768,403	(Note 2)
Share Capital		4,731,168	2,828,310	2,825,279	2,823,650	2,823,628
Capital surplus		1,559,995	1,558,449	1,560,123	1,563,069	1,563,455
Retained earnings	Before Distribution	3,335,072	4,041,792	4,011,904	3,978,672	3,301,001
	After Distribution	3,335,072	3,617,896	3,757,733	3,752,780	(Note 2)
Other equityinterest		236,037	139,123	(104,533)	151,951	(426,178)
Treasurystock		(2,883)	(1,533)	(695)	－	－
Total Equity	Before Distribution	9,859,389	8,566,141	8,292,078	8,517,342	7,261,906
	After Distribution	9,859,389	8,142,245	8,037,907	8,291,450	(Note 2)

Note 1: Financial report of each year has been audited by CPA firm. Note 2:Until the printing date of this annual report, the earnings distribution proposal has not yet approved by the shareholders in the Shareholders’ Meeting.

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6.1.4 Condensed IndividualStatement of Comprehensive Income – Based on GAAP

Unit: NT$ thousands

Year Item	2014	2015	2016	2017	2018
Sales revenues	23,112,752	18,407,042	9,998,630	9,959,455	5,622,942
Net operatingmargin	1,627,120	1,837,703	1,053,867	1,059,880	248,066
Net Operating Income (Loss)	72,181	528,261	(77,533)	13,907	(792,267)
Non-operating Income and Expense	113,682	304,867	509,955	206,886	210,725
Income(Loss)before Tax	185,863	833,128	432,422	220,793	(581,542)
Income (Loss) for Continued Operations	154,814	697,314	386,250	217,663	(463,048)
Income (Loss) from Discontinued Operations	－	－	－	－	－
Net Income(Loss)	154,814	697,314	386,250	217,663	(463,048)
Other Comprehensive Income(Loss)	618,567	(148,252)	(254,892)	257,030	(558,449)
Total Comprehensive Income(Loss)	773,381	549,062	131,358	474,693	(1,021,497)
Earnings per Share （Note 2）	0.33	1.71	1.39	0.77	(1.64)

Note 1: Financial report of each year has been audited by CPA firm.

Note 2: Unit: NT$.

6.1.5 Five-Year Auditing Opinion by CPA

Year	CPA Firm	CPA's Name	AuditingOpinion
2014	PWC	Hsu, Sheng-Chung Wu,Han-chi	Modified Unqualified
2015	PWC	Hsu, Sheng-Chung Wu,Han-chi	Modified Unqualified
2016	PWC	Hsu, Sheng-Chung AudreyTseng	Unqualified
2017	PWC	Hsu, Sheng-Chung AudreyTseng	Unqualified
2018	PWC	JuanLu, Man-Yu AudreyTseng	Unqualified

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6.2 Five-Year Financial Analysis

6.2.1 Consolidated Financial Analysis – Based on IFRS

Item（Note	Year 4）	2014	2015	2016	2017	2018	2019.3.31 （Note 2）	Remake
Capital structure (%)	Debt ratio	41.54	37.69	34.77	32.02	31.91	31.44
	Ratio of long-term capital to property, plant and equipment	264.67	248.70	215.90	218.21	212.51	216.64
Solvency	Current ratio(%)	162.73	169.79	169.74	170.75	168.22	169.67
	Quick ratio(%)	128.77	139.22	133.67	131.39	124.85	135.96
	Times interest earned(Times)	13.77	122.30	87.64	42.07	(76.27)	(52.48)	(1)
Operating ability	Accounts receivable turnover (Times)	7.53	6.79	4.88	5.78	4.82	5.33
	Average collectionperiod	48.47	53.75	74.79	63.14	75.72	68.48
	Inventoryturnover(Times)	9.90	8.15	5.66	5.84	4.03	4.32	(1)
	Accounts payable turnover (Times)	5.21	4.44	3.28	3.93	3.34	3.81
	Average days in sales	36.86	44.78	64.49	62.50	90.57	84.57	(1)
	Property, plant, and equipment turnover(Times)	6.20	5.28	2.96	2.83	2.03	2.20	(1)
	Total assets turnover(Times)	1.45	1.25	0.81	0.87	0.64	0.70	(1)
Profitability	Return on total assets(%)	1.11	5.66	3.26	1.63	(3.52)	(0.86)	(1)
	Return on stockholders' equity (%)	1.74	9.33	5.06	2.40	(5.24)	(1.28)	(1)
	Pretaxprofit topaid-in capital(%)	4.54	36.37	17.52	8.08	(18.22)	(3.27)	(1)
	Netprofit margin(%)	0.71	4.51	3.96	1.84	(5.57)	(4.99)	(1)
	Basic earnings per share ($) (Note 3)	0.33	1.71	1.39	0.77	(1.64)	(0.34)	(1)
Cash flow	Cash flow ratio (%)	31.00	24.89	10.38	7.59	(8.21)	(0.10)	(1)
	Cash flow adequacyratio(%)	91.92	130.58	119.32	126.45	81.17	61.30	(1)
	Cash reinvestment ratio(%)	6.98	9.01	0.26	0.35	(4.20)	(0.03)	(1)
Leverage	Operatingleverage	24.78	4.23	21.06	26.04	(1.06)	(2.27)	(1)
	Financial leverage	1.19	1.01	1.07	1.09	0.99	0.98
	Analysis of financial ratio change in the last two years： (1)The main reason is that the demand for digital cameras continues to decline. The attitude of major brand customers to launch new machines is conservative, and the impact of high-end product shipments is deferred, which reduces the scale of operations and slows the destocking of inventory, resultingin operatinglosses in the currentperiod.

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6.2.2 Individual Financial Analysis – Based on IFRS

Year Item（Note 4）	Year Item（Note 4）	2014	2015	2016	2017	2018	Remake
Capital structure (%)	Debt ratio	33.01	35.68	33.52	29.37	31.16
	Ratio of long-term capital to property, plant and equipment	631.17	482.79	332.24	309.02	287.61
Solvency	Current ratio (%)	134.07	103.89	83.60	68.06	51.62	(1)
	Quick ratio (%)	133.81	103.65	83.44	67.96	51.59	(1)
	Times interest earned (Times)	569.39	11,109.37	4,325.22	3,562.18	(979.68)	(1)
Operating ability	Accounts receivable turnover (Times)	7.48	7.09	5.02	6.36	5.47
	Average collectionperiod	48.80	51.48	72.71	57.39	66.73
	Inventoryturnover(Times)	9,919.50	4,157.41	2,055.32	2,584.08	3,134.95	(1)
	Accounts payable turnover (Times)	6.23	4.36	2.60	3.07	2.18	(1)
	Average days in sales	0.04	0.09	0.18	0.14	0.12
	Property, plant, and equipment turnover(Times)	15.29	11.03	4.68	3.79	2.13	(1)
	Total assets turnover(Times)	1.61	1.31	0.78	0.81	0.50	(1)
Profitability	Return on total assets(%)	1.08	4.97	3.00	1.77	(4.09)	(1)
	Return on stockholders' equity (%)	1.57	7.57	4.58	2.59	(5.87)	(1)
	Pretaxprofit topaid-in capital(%)	3.93	29.46	15.31	7.82	(20.60)	(1)
	Netprofit margin(%)	0.67	3.79	3.86	2.19	(8.23)	(1)
	Basic earnings per share ($) (Note 3)	0.33	1.71	1.39	0.77	(1.64)	(1)
Cash flow	Cash flow ratio (%)	47.43	25.73	2.54	0.00	0.00
	Cash flow adequacy ratio (%)	108.37	155.06	135.74	128.88	86.98	(1)
	Cash reinvestment ratio (%)	7.22	7.37	0.00	0.00	0.00
Leverage	Operating leverage	24.94	3.48	(13.69)	75.72	(0.31)	(1)
	Financial leverage	1.00	1.00	1.00	1.00	1.00
	Analysis of financial ratio change in the last two years： (1)The main reason is that the demand for digital cameras continues to decline. The attitude of major brand customers to launch new machines is conservative, and the impact of high-end product shipments is deferred, which reduces the scale of operations and slows the destocking of inventory, resulting in operatinglosses in the currentperiod.

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Note 1: Financial report of each year has been audited by CPA firm.

Note 2: Financial report of Q1 has been reviewed by CPA firm.

Note 3: Based on weighted average shares outstanding in each year.

Note 4: Equations:

1. Capital Structure

2. (1) Debt ratio = Total liability / Total assets

3. (2) Ratio of long-term capital to property, plant and equipment = (Net shareholders’ equity + Long-term liability) / Net property, plant and equipment

4. Solvency

5. (1) Current ratio: Current assets / current liability

6. (2) Quick ratio = (Current assets – Inventory – Prepaid expense) / current liability

7. (3) Times interest earned = Net income before tax and interest expense / Interest expense of the year

8. Operating ability

9. (1) Account receivable turnover (including accounts receivable and notes receivable derived from business operations) = Net sales / Average accounts receivable (including accounts receivable and notes receivable derived from business operation)

10. (2) Days sales in accounts receivable = 365 / Account receivable turnover

11. (3) Inventory turnover = Cost of goods sold / Average inventory amount

12. (4)Account payable turnover (including accounts payable and notes payable derived from business operation) = Cost of goods sold / Average accounts payable (including accounts payable and notes payable derived from business operation)

13. (5) Average days in sales = 365 / Inventory turnover

14. (6) Fixed assets turnover = Net sales / Net fixed assets

15. (7) Total assets turnover = Net sales / Total assets

16. Profitability

17. (1) Return on assets = (Net income (loss) + interest expense x (1-tax rate)) / Average total assets

18. (2) Return on shareholders’ equity = Net income (loss) / Net average shareholders’ equity

19. (3) Return to issued capital stock = Net income before tax / Issued capital stock

20. (4) Profit ratio = Net income (loss) / Net sales

21. (5) Basic earnings per share = (Net income – preferred stock dividend) / Weighted average stock shares issued

22. Cash flow

23. (1) Cash flow ratio = Bet cash flow from operating activity / Current liability

24. (2) Cash flow adequacy ratio = Net cash flow from operating activity in the past 5 years / (Capital expenditure + Inventory interest + Cash dividend) in the past 5 years

25. (3) Cash + reinvestment ratio = (Net cash flow from operating activity – Cash dividend) / (Fixed assets + Long term investment + Other assets + Working capital)

26. Leverage

27. (1) Degree of operating leverage = (Net operating income – Variable operating cost and expense) / Operating income

28. (2) Degree of financial leverage = Operating income / (Operating income – interest expense)

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6.3 Audit Committee’s Report in the Most Recent Year

ABILITY ENTERPRISE CO., LTD. Audit Committee’s Review Report

The Board of Directors has prepared ABILITY ENTERPRISE CO., LTD.’s “(the Company)” 2018 Business Report, Financial Statements, and proposal for allocation of earnings. The CPA firm of PWC was retained to audit the Company’s Financial Statements and has issued an audit report relating to the Financial Statements. The Business Report, Financial Statements, and earnings allocation proposal have been reviewed and determined to be correct and accurate by the Audit Committee members of ABILITY ENTERPRISE CO., LTD. According to Article 14-4 of Securities and Exchange Act and Article 219 of the Company Law, we hereby submit this report.

ABILITY ENTERPRISE CO., LTD.

Chairman of the Audit Committee: Lam, Tai-Seng March 25, 2019

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6.4 Consolidated Financial Statements of the Parent Company and Subsidiary in the Most Recent Year:

Please refer Attachment I.

• 6.5 Non-Consolidated Financial Statements of the Most Recent Year:

Please refer Attachment II.

• 6.6 Financial Difficulties Encountered By the Company and the Related Party in the Most Recent Year and Up to the Date of the Annual Report: None.

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1. Review of Financial Position, Management Performance and Risk Management

2. 7.1 Analysis of Financial Status – Consolidated

Unit: NT$ thousands;

			Unit: NT$thousands;	Unit: NT$thousands;
Year Item	2018	2017	Difference
			Amount	%
Current Asset	5,790,775	6,859,863	(1,069,088)	(15.58)
Property, plant and equipment	3,539,946	3,989,763	(449,817)	(11.27)
Intangible Assets	159,027	5,606	153,421	2,736.73
Other Assets	1,558,340	1,951,179	(392,839)	(20.13)
Total Assets	11,048,088	12,806,411	(1,758,323)	(13.73)
Current Liabilities	3,442,444	4,017,477	(575,033)	(14.31)
Non-current liabilities	82,865	82,991	(126)	(0.15)
Total Liabilities	3,525,309	4,100,468	(575,159)	(14.03)
Equity Attributable to owners of the Parent	7,261,906	8,517,342	(1,255,436)	(14.74)
Share capital	2,823,628	2,823,650	(22)	(0.00)
Capital surplus	1,563,455	1,563,069	386	0.02
Retained earnings	3,301,001	3,978,672	(677,671)	(17.03)
Other equity interest	(426,178)	151,951	(578,129)	(380.47)
Non-controlling interests	260,873	188,601	72,272	38.32
Total Equity	7,522,779	8,705,943	(1,183,164)	(13.59)
Analysis of changes in financial ratios: (1) The increase in intangible assets is due to the goodwill arising from the acquisition of subsidiaries. (2) The decrease in other equity was due to the increase in unrealized losses of financial assets.

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7.2 Analysis of Operating Results - Consolidated

7.2.1 Analysis of Operating Results

nalysis of Operating Results	nalysis of Operating Results	nalysis of Operating Results	nalysis of Operating Results	nalysis of Operating Results
Unit: NT$thousands
Year Item	2018	2017	Difference amount	Difference %
Net Sales	7,635,028	11,201,600	(3,566,572)	(31.84)
Cost of Sales	6,988,737	9,785,428	(2,796,691)	(28.58)
Gross Profit	646,291	1,416,172	(769,881)	(54.36)
Operating Expense	1,386,152	1,351,319	34,833	2.58
Net Operating Income (Loss)	(739,861)	64,853	(804,714)	(1,240.83)
Non-operating Income and Expenses	225,289	163,428	61,861	37.85
Profit Before Tax	(514,572)	228,281	(742,853)	(325.41)
Income Tax Expense	(89,047)	21,883	(110,930)	(506.92)
Profit After Tax	(425,525)	206,398	(631,923)	(306.17)
Analysis of changes in financial ratios over 20%: (1) Operating profit and loss is due to the continuous decline in demand for digital camera market, the conservative attitude of major brand customers to launch new machines, and the deferred impact of high-end products, which has reduced the scale of operations and reduced operating income, cost and gross profit. (2) The increase in non-operating income and expenses was due to the sale of idle factory buildings.

• 7.2.2 Analysis of changes in the operating profit margin: the demand for digital cameras continues to decline. The attitude of major brand customers to launch new machines is conservative, and the impact of high-end product shipments is deferred, which reduces the scale of operations and slows the destocking of inventory, resulting in operating losses in the current period.

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7.3 Analysis of Cash Flow

7.3.1 Cash Flow Analysis for the Current Year – Consolidated

Unit: NT$ thousand

				Unit: NT$thousand	Unit: NT$thousand
Cash Balance 12/31/2017	Net Cash Provided by Operating Activities in 2018	Net Cash Used in Investing and Financing Activities in 2018	Cash Balance 12/31/2018	Supplement measures for insufficient cash
				Investment planning	Financial planning
2,245,124	(282,718)	(174,351)	1,788,055	None	None

• Cash flows used in operating activities 282,718: mainly from net loss.

• Cash flows used in investing activities 123,788 ： primarily for acquisition of equipment and investment in ANDROVIDEO INC.

• Cash flows used in financing activities 50,563 仟元： primarily for cash dividend payment.

7.3.2 Remedy for Cash Deficit and Liquidity Analysis:

In light of positive cash flows, remedial actions are not required.

7.3.3 Cash Flow Analysis for the Coming Year: Not applicable.

7.4 Major Capital Expenditure Items: None.

• 7.5 Investment Policy in Last year, Main Causes for Profits or Losses, Improvement Plans and the investment Plans for the Coming Year

The bussinesses that the company has invested strategically are long-term investment. Profits from investment shown in the equity-method based consoidated financial report in 2018 are NT$8,273 thousand, NT$954 thousand compared to the previous year, partly because the busineses that the company has invested in has enjoyed revenue growth, controlled the expesenses adequately and therefore made profits. However, as the company's general principle, the company will still make long-term strategic investment in the future, take financial risks and ROI into consideration, and evaluate the investment cautiously to bring the maximum values to the company.

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7.6 Analysis of Risk Management

• 7.6.1 Effects of Changes in Interest Rates, Foreign Exchange Rates and Inflation of Corporate Finance, and Future Response Measures

1. Interest Rate ：

The Group’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk which is partially offset by cash and cash equivalents held at variable rates. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. In order to reduce the risks of interest rates, especially relating to bank loans, the Company contacts banks on the regular basis, studies the trend of interest rate and negotiates for the best interest rate for the Company.

2. Foreign Exchange Rate:

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the USD, RMB and MYR. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations. Management has set up a policy to require group companies to manage their foreign exchange risk against their functional currency. The group companies are required to hedge their entire foreign exchange risk exposure with the Group treasury. To manage their foreign exchange risk arising from future commercial transactions and recognised assets and liabilities, entities in the Group use forward foreign exchange contracts, transacted with Group treasury. Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entity’s functional currency.

3. Inflation:

According to the statistics released by the Directorate-General of Budget, Accounting and Statistics, Executive Yuan, the consumer price index and wholesale price index increased by 1.35% and 3.64% respectively in 2018, which represented a minor inflation and did not have material impact on the Company’s financial conditions in 2018.

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• 7.6.2 Policies, Main Causes of Gain or Loss and Future Response Measures with Respect to High-Risk, High-Leverage Investment, Loaning or Endorsement Guarantees and Derivatives Transactions

• Loans provided by the Company to other entities: The Company's fund loans and others are handled in accordance with the policies and response measures set by the Company's “Procedures for Endorsement and Guarantee”. Relevant operations have been carefully implemented in consideration of the risk status and related regulations.

• Endorsement and guarantees provided by the Company to other entities: The Company's endorsement and guarantees for others is based on the policies and response measures set out in the “Procedures for Loaning Funds to Others” of the Company, and all related operations have been carefully implemented in consideration of the risk status and relevant regulations.

• In recent years, the Company has not been involved in any activities that are highly risky or of high leverage. The Company's policy of and profit and loss from tradings of derivatives are as follow:

The derivatives that the Company has been involved in are hedge products. Profits and loss caused by volatility in the exhcange rates would be written off by the profits and loss of the hedged items. In addition, the USD currency assets generated from the company's business operations could cope with the cash flow of this type of tradings. As a result, the risk of market prices is not significant.

7.6.3 Future Research & Development Projects and Corresponding Budget

1. Future Research & Development Plan

We will focus our R&D resources on maintaining film speed, sensitivity, Signal to Noise Ratio (SNR), color staturation, etc., and will strive for enhancing the quality of product images. In terms of product development, our focus will be optical zoom, automiatic zoom, development of lens sets with optical zoom features, and to enhance three-axis stabilization. Moreover, we are devoted to improve and develop areas such as electronic screen stabilizers, adding EIS functionalities, face recogniztion, 4K animation cameras, wearable cameras, applications of high-speed image sensors, technologies of large-scale image sensors, HDR video recorders, low-light technologies, wireless communication, and Full HD 4K high-res image decoding, etc.

We take proactive appraches when it comes to development. We endeavor to make distintive progress in product specifications in order to take part in contests of product specificatoins. In addition, with the key components, we make the development of images integrated with technologies of optics, mechanics, and electronics compreshensive. We also invest resources in the development of applications in order to have unique products and move toward the arenas of webcams and medical devices. In contrast with Ability Enterprise's focus on digital cameras in the past, its vision is to move towards new products in new business areas in order to make up the shortage in the business of digital cameras due to market competitiveness.

In view of the market demand for sports and wearable cameras, in-house lenses and integrated opto-mechanical applications are used in related imaging products. In the

93

smart home Home cam and IP cam products, the technology development related to AIOT and edge computing is further invested. The Spherical 360 Camera continues to develop into high-quality (8K30P), and the SIS (Spherical Image Stabilization) function can be completed in the camera without the need for post-processing.

In terms of R&D in automotive camera modules, in response to the trend where major car manufacturers worldwide have gradually inceased the use of automotive camera modules and Advanced Driver Assistance Systems (ADAS) widely and have even developed semi automatic or fully automatic cars, we have invested resources and personnel in working with Tier 1 suppliers of automobile manufacturers, and will develop camera modules that meet these suppliers' specific product requirements in the next three to four years.

2. Estimated R&D Expenditure

The R&D expenditure in 2018 that the company has invested in is NT$727,055 thousand, accounting for 9.52% of the revenue. In 2019, an additional amount of NT$535,000 thousand is esimated to be invested in R&D in 2019.

• 7.6.4 Effects of and Response to Changes in Policies and Regulations Relating to Corporate Finance and Sales: None 。

• 7.6.5 Effects of and Response to Changes in Technology and in Industry Relating to Corporate Finance and Sales: None.

• 7.6.6 The Impact of Changes in Corporate Image on Corporate Risk Management, and the Company’s Response Measures: None.

• 7.6.7 Expected Benefits and Risks Relating to and Response to Merger and Acquisition Plans: None.

7.6.8 Expected Benefits and Risks Relating to and Response to Factory Expansion Plans

The Company has set up two production plants in China, achieving the goals of expanding the production capacity, and reducing the risk of labour shortage in the South China region and the production costs.

• 7.6.9 Risks Relating to and Response to Excessive Concentration of Purchasing Sources and Excessive Customer Concentration

• Risks faced due to centralized control of inventory replenishment:

Risk in shortage of raw material: Caused by cases such as insufficient production capacity, accidents at the manufacturing plant, force majeure, etc.

Risk Management: The company has maintained amicable business relationships with suppliers of major raw materials. In addition to suppliers with amicable relationships in the long term, the company has also been developing new suppliers, to avoid and lower risks in the shortage of raw material supply.

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1. Risks faced in central salese management:

We have built long-long stable partnerships with multiple world-class clients. The joint competitive advantages of both these clients and us will ensure our stable growth in the long run; we have taken the apporach of diverting the sources of clients and incorporating diverse product roadmaps, in order to diverse and reduce the risks of significant impacts from single or few clients on us.

• 7.6.10 Effects of Risks Relating to and Response to Large Share Transfer or Changes in Shareholdings by Directors, Supervisors, or Shareholders with Shareholding of over 10%: None.

• 7.6.11 Effects of Risks Relating to and Response to Changes in Control over the Company:None.

• 7.6.12 Litigation or Non-litigation Matters ：

In 2018 and as of the date of this annual report, the Company did not engage in litigation or non-litigation matters that had significant impacts on shareholders’ right or security prices.

• 7.6.13.Other significant risk and mitigation measures being or to be taken: No other significant risks.

• 7.7 Other Major Risks: None.

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8. Other Special Notes

8.1 Summary of Affiliated Companies

8.1.1 Affiliated Companies Chart

100% 100% VIEWQUEST TECHNOLOGIES (BVI) INC.	100% 100% VIEWQUEST TECHNOLOGIES (BVI) INC.						ABILITY ENTERPRISE CO., LTD.	ABILITY ENTERPRISE CO., LTD.	ABILITY ENTERPRISE CO., LTD.	ABILITY ENTERPRISE CO., LTD.	ABILITY ENTERPRISE CO., LTD.	ABILITY ENTERPRISE CO., LTD.	ABILITY ENTERPRISE CO., LTD.	ABILITY ENTERPRISE CO., LTD.	ABILITY ENTERPRISE CO., LTD.	ABILITY ENTERPRISE CO., LTD.	ABILITY ENTERPRISE CO., LTD.	ABILITY ENTERPRISE CO., LTD.	ABILITY ENTERPRISE CO., LTD.	ABILITY ENTERPRISE CO., LTD.	ABILITY ENTERPRISE CO., LTD.	ABILITY ENTERPRISE CO., LTD.	ABILITY ENTERPRISE CO., LTD.	ABILITY ENTERPRISE CO., LTD.	ABILITY ENTERPRISE CO., LTD.	ABILITY ENTERPRISE CO., LTD.
		100%
	VIEWQUEST TECHNOLOGIES (BVI) INC.						ABILITY ENTERPRISE (BVI) CO.,LTD.				ABILITY INTERNATIONAL INVESTMENT CO., LTD.				I	VIEWQUEST TECHNOLOGIES NTERNATIONAL INC.				ANDROVIDEO INC.					E-PIN OPTICAL INDUSTRY CO.,LTD.
							100% 100%
VIEWQUEST TECHNOLOGIES (DONGGUAN)CO. , LTD				ABILITY TECHNOLOGY (DONGGUAN)CO. , LTD.					JIUJIANG VIEWQUEST ELECTRONICS INC.				E-PIN OPTICAL INDUSTRY(M.) SDN. BHD.					ALL VISION HOLDING LTD.				E-PIN OPTICAL INDUSTRY CO., LTD.				ALL VISION TECHNOLOGY SDN. BHD.

96

8.1.2 Affiliated Companies

As of 12/31/2018; Unit: NT$ thousands, except foreign currency

Company	Date of Incorporation	Place of Registration	Capital Stock	Business Activities
ABILITY INTERNATIONAL INVESTMENT CO.,LTD.	1997.08.15	New Taipei City,Taiwan(R.O.C.)	NTD13,000	Investments
ABILITY ENTERPRISE(BVI)CO.,LTD.	2000.02.23	British Virgin Islands	USD25,635,000	Holdingcompany
VIEWQUEST TECHNOLOGIES INTERNATIONAL INC.	1999.01.23	U.S.A.	USD1,500,000	Sales of computer accessories, photography equipment and electronic components
VIEWQUEST TECHNOLOGIES (BVI) INC.	1999.10.22	British Virgin Islands	USD38,759,290	Manufacturing and trading of computer accessories, photography equipment and electronic
ANDROVIDEO INC.	2015.10.26	New Taipei City, Taiwan (R.O.C.)	NTD70,000	Smart IP cam system development and sales
E-PIN OPTICAL INDUSTRY CO.,LTD.	1979.04.18	Taipei City, Taiwan (R.O.C.)	NTD236,000	Sales of optical products and electronic components
CHIA PING INVESTMENT CO., LTD.	2017.03.22	Taipei City, Taiwan (R.O.C.)	NTD6,000	Investments
ABILITY TECHNOLOGY(DONGGUAN)CO.,LTD.	2003.12.29	Dongguan,China	RMB274,857,854	Sales of digital still cameras
JIUJIANG VIEWQUEST ELECTRONICS INC.	2010.05.12	Jiujiang ,China	RMB64,867,330	Sales of digital still cameras
VIEWQUEST TECHNOLOGIES(DONGGUAN)CO., LTD	2011.02.28	Dongguan , China	RMB141,055,552	Sales of digital still cameras
ALL VISION HOLDING LTD.	1991.01.19	Independent State of Samoa	USD15,236,910	Holding company
E-PIN OPTICAL INDUSTRY CO., LTD.	1991.04.22	Republic of Mauritius	USD150,000	Trading service
E-PIN OPTICAL INDUSTRY(M.) SDN. BHD.	1987.09.25	Malaysia	MYR5,000,000	Manufacturing of precision lens
ALL VISION TECHNOLOGY SDN. BHD.	1992.06.28	Malaysia	MYR72,243,893	Manufacturing of precision lens
EVERLIGHT DEVELOPMENT CORPORATION	1987.01.19	Panama	USD5,849,393	Holding company
E-SKY HOLDING LTD.	1990.04.05	Republic of Mauritius	USD14,338,918	Holding company
NANJING EVERLIGHT PHOTONICS TECHNOLOGY CO. LTD.	1981.12.14	Nanjing, China	RMB76,784,121	Development and manufacturing of various types of precision lens
ZHONGSHAN SHANXIN ACCURATE INDUSTRY CO. LTD.	1984.08.11	Zhongshan, China	RMB75,542,969	Development and manufacturing of various types of precision lens
NANJING E-PIN OPTICAL CO.,LTD.	1994.05.24	Nanjing, China	RMB53,163,552	Development and manufacturing of various types ofprecision lens

97

8.1.3 The Same Shareholders of Companies Controlled by or Subordinate to the Company: None.

8.1.4 Industrial Classification in Inventec Corporation Subsidiaries ：

8.1.4 Industrial Classification in Inventec Corporation S	ubsidiaries：
Company	Industrial Classification	Relationships to Related Party
ABILITY ENTERPRISE CO.,LTD.	Informationproducts、digital still cameras	None
ABILITY INTERNATIONAL INVESTMENT CO.,LTD.	Investments	None
ABILITY ENTERPRISE(BVI)CO.,LTD.	Holdingcompany	Investment activities in China
VIEWQUEST TECHNOLOGIES INTERNATIONAL INC.	Sales of computer accessories, photography equipment and electronic components	None
VIEWQUEST TECHNOLOGIES (BVI) INC.	Manufacturing and trading of computer accessories, photography equipment and electronic	After manufacture,sell the product to Ability. For OEM business
ANDROVIDEO INC.	Smart IP cam system development and Sales	None
E-PIN OPTICAL INDUSTRY CO.,LTD.	Sales of opticalproducts and electronic components	None
CHIA PING INVESTMENT CO.,LTD.	Investments	None
JIUJIANG VIEWQUEST ELECTRONICS INC.	Sales of digital still cameras	None
ABILITY TECHNOLOGY(DONGGUAN)CO.,LTD.	Sales of digital still cameras	None
VIEWQUEST TECHNOLOGIES(DONGGUAN)CO.,LTD	Sales of digital still cameras	None
ALL VISION HOLDING LTD.	Holding company	None
E-PIN OPTICAL INDUSTRY CO., LTD.	Trading service	None
E-PIN OPTICAL INDUSTRY(M.) SDN. BHD.	Manufacturing of precision lens	None
ALL VISION TECHNOLOGY SDN. BHD.	Manufacturing of precision lens	None
EVERLIGHT DEVELOPMENT CORPORATION	Holding company	Investment activities in China
E-SKY HOLDING LTD.	Holding company	Investment activities in China
NANJING EVERLIGHT PHOTONICS TECHNOLOGY CO. LTD.	Development and manufacturingof various types ofprecision lens	None
ZHONGSHAN SHANXIN ACCURATE INDUSTRY CO. LTD.	Development and manufacturingof various types ofprecision lens	None
NANJING E-PIN OPTICAL CO.,LTD.	Development and manufacturing of various types of precision lens	None

98

8.1.5 Directors, Supervisors and Presidents of Affiliated Companies

8.1.5 Directors, Supervisors and Presidents of Affiliated Companies	8.1.5 Directors, Supervisors and Presidents of Affiliated Companies	8.1.5 Directors, Supervisors and Presidents of Affiliated Companies	8.1.5 Directors, Supervisors and Presidents of Affiliated Companies	8.1.5 Directors, Supervisors and Presidents of Affiliated Companies
Unit: NT$,except shareholding
Company	Title	Name or Representative	Shareholding
			Number of Shares	Shareholding Ratio
ABILITY INTERNATIONAL INVESTMENT CO., LTD.	Chairman Director Director Supervisor	ABILITY ENTERPRISE-Tseng, Ming-Jen ABILITY ENTERPRISE-Roger Chiang ABILITY ENTERPRISE-Jonny Wu ABILITY ENTERPRISE-Lin, Hung-Tien	1,300,000 1,300,000 1,300,000 1,300,000	100.00 100.00 100.00 100.00
ABILITY ENTERPRISE (BVI) CO., LTD.	Chairman	ABILITY ENTERPRISE-Tseng, Ming-Jen	─	100.00
VIEWQUEST TECHNOLOGIES INTERNATIONAL INC.	Director Director Director	ABILITY ENTERPRISE-Wen, Sheng-Tai ABILITY ENTERPRISE-Tseng, Ming-Jen ABILITY ENTERPRISE-Tsay, Wen-Bin	─ ─ ─	100.00 100.00 100.00
VIEWQUEST TECHNOLOGIES (BVI) INC.	Chairman	ABILITY ENTERPRISE-Tseng, Ming-Jen	─	100.00
ANDROVIDEO INC.	Chairman Director Director Supervisor	ABILITY ENTERPRISE-Tseng, Ming-Jen ABILITY ENTERPRISE- Jonny Wu ABILITY ENTERPRISE-Jeming Wu ABILITY ENTERPRISE-Lin,Hung-Tien	7,000,000	100.00
E-PIN OPTICAL INDUSTRY CO.,LTD.	Chairman Director Director Director Director Supervisor Supervisor	ABILITY ENTERPRISE-Tseng, Ming-Jen ABILITY ENTERPRISE-Ju, Ming-Jang ABILITY ENTERPRISE-Wen, Sheng-Tai ABILITY ENTERPRISE-Lu, Chien-Hsun ABILITY ENTERPRISE-Hsu, Cheng-Chiang JUI-HSIN INVESTMENT LIMITED- Chan, Wen- Hsiung Huang, Ching-Chuan	12,888,334 12,888,334 12,888,334 12,888,334 12,888,334 481,603 239,879	54.61 54.61 54.61 54.61 54.61 2.04 1.02
CHIA PING INVESTMENT CO., LTD.	Chairman Director Director Supervisor	E-PIN OPTICAL-Ju, Ming-Jang E-PIN OPTICAL-Lu, Chien-Hsun E-PIN OPTICAL-Pan, Ching-Hsiang E-PIN OPTICAL- Chen, Ting-Shen	600,000 600,000 600,000 600,000	100.00 100.00 100.00 100.00
ABILITY TECHNOLOGY (DONGGUAN)CO., LTD.	Chairman Director Director Supervisor	ABILITY (BVI) - Tseng, Ming-Jen ABILITY (BVI) –Adams Chen ABILITY (BVI) - Alson Hsu ABILITY(BVI)- Lin,Hung-Tien	─ ─ ─ ─	100.00 100.00 100.00 100.00
JIUJIANG VIEWQUEST ELECTRONICS INC.	Chairman Director Director Director Director Supervisor	ABILITY (BVI) - Tseng, Ming-Jen ABILITY (BVI) - Tong, Ching-Hsi ABILITY (BVI) - Tsay, Wen-Bin ABILITY (BVI) - Adams Chen ABILITY (BVI) - Ted Lin ABILITY (BVI) - Susie Wang	─ ─ ─ ─ ─ ─	100.00 100.00 100.00 100.00 100.00 100.00
VIEWQUEST TECHNOLOGIES (DONGGUAN)CO., LTD	Chairman Director Director Supervisor	VIEWQUEST (BVI) -Tseng, Ming-Jen VIEWQUEST (BVI) - Adams Chen VIEWQUEST (BVI) -Alson Hsu VIEWQUEST (BVI) -Susie Wang	─ ─ ─ ─	100.00 100.00 100.00 100.00
ALL VISION HOLDING LTD.	Director	Ju, Ming-Jang	─	─
E-PIN OPTICAL INDUSTRY CO., LTD.	Director	E-PIN OPTICAL-Ju, Ming-Jang	150,000	100
E-PIN OPTICAL INDUSTRY(M.) SDN. BHD.	Director Director	Ju, Ming-Jang Pan, Ching-Hsiang	─ ─	─ ─

99

Company	Title	Name or Representative	Shareholding	Shareholding
			Number of Shares	Shareholding Ratio
ALL VISION TECHNOLOGY SDN. BHD.	Director Director	Ju, Ming-Jang Pan, Ching-Hsiang	─ ─	─ ─
EVERLIGHT DEVELOPMENT CORPORATION	Director Director Director	Ju, Ming-Jang ALL VISION HOLDING LTD- Pan, Ching-Hsiang Shin, Yu-Hsiang	58,494	100
E-SKY HOLDING LTD.	Director Director Director Director	ALL VISION HOLDING LTD- Pan, Ching-Hsiang Ju, Ming-Jang Shin, Yu-Hsiang Hsu, San-Wei	10,472,879 ─ ─ ─	73.04 ─ ─ ─
NANJING EVERLIGHT PHOTONICS TECHNOLOGY CO. LTD.	Chairman Director Director Director Vice Chairman Director Director Supervisor	EVERLIGHT DEVELOPMENT CORP. -Pan, Ching-Hsiang EVERLIGHT DEVELOPMENT CORP. -Ju, Ming-Jang EVERLIGHT DEVELOPMENT CORP. -Wang, Shang-Li EVERLIGHT DEVELOPMENT CORP. - Lin, Yong-Shan NANJING NEW INDUSTRY INVESTMENT GROUP CO.,LTD -Shin, Chien-Hua NANJING NEW INDUSTRY INVESTMENT GROUP CO.,LTD -Wang, Hsin-Yu Nanjing Zijin Asset Management Co. Ltd. -Wang, Jui NANJING NEW INDUSTRY INVESTMENT GROUP CO.,LTD -Huang, Wei-Min	─ ─ ─ ─ ─ ─ ─ ─	55.45 55.45 55.45 55.45 38.74 38.74 5.81 38.74
ZHONGSHAN SHANXIN ACCURATE INDUSTRY CO. LTD.	Chairman Director Director Director	E-SKY HOLDING LTD.-Pan,Ching-Hsiang E-SKY HOLDING LTD.-Ju, Ming-Jang E-SKY HOLDING LTD.-Tseng,Tsung-Yueh E-SKY HOLDING LTD.- Chen, Ting-Shen	─ ─ ─ ─	100 100 100 100
NANJING E-PIN OPTICAL CO.,LTD.	Director Supervisor	E-SKY HOLDING LTD.-Chou, Hsiang-Ho E-SKY HOLDING LTD.-Pan, Ching-Hsiang	─ ─	72.22 72.22

100

8.1.6 Operation of Affiliated Companies

8.1.6 Operation of Affiliated Companies	8.1.6 Operation of Affiliated Companies	8.1.6 Operation of Affiliated Companies	8.1.6 Operation of Affiliated Companies	8.1.6 Operation of Affiliated Companies
As of 12/31/2018；Unit: NT$ thousands Company Capital Stock Assets Liabilities Net Worth ABILITY ENTERPRISE CO., LTD. 2,823,628 10,548,890 3,286,984 7,261,906 ABILITY ENTERPRISE (BVI) CO., LTD. 787,379 2,727,758 0 2,727,758 VIEWQUEST TECHNOLOGIES (BVI) INC. 1,190,492 2,961,250 1,108,763 1,852,487 VIEWQUEST TECHNOLOGIES INTERNATIONAL INC. 46,073 167 0 167 ABILITY INTERNATIONAL INVESTMENT CO., LTD. 13,000 48,046 1,641 46,405 ANDROVIDEO INC. 70,000 45,993 75,104 (29,111) E-PIN OPTICAL INDUSTRY CO.,LTD. 236,000 710,499 450,851 259,648 CHIA PING INVESTMENT CO., LTD. 6,000 5,696 38 5,658 ABILITY TECHNOLOGY (DONGGUAN)CO., LTD. 1,121,098 2,139,593 847,573 1,292,020 JIUJIANG VIEWQUEST ELECTRONICS INC. 291,793 499,023 132,744 366,279 VIEWQUEST TECHNOLOGIES (DONGGUAN)CO., LTD 675,730 541,440 94,013 447,427 ALL VISION HOLDING LTD. 516,528 12,004 0 12,004 E-PIN OPTICAL INDUSTRY CO., LTD. 5,167 44,251 94,293 (50,042) E-PIN OPTICAL INDUSTRY(M.) SDN. BHD. 45,700 11,069 9,543 1,526 ALL VISION TECHNOLOGY SDN. BHD. 659,334 21,566 16,618 4,948 EVERLIGHT DEVELOPMENT CORPORATION 174,078 203,418 0 203,418 E-SKY HOLDING LTD. 311,681 (191,422) 0 (191,422) NANJING EVERLIGHT PHOTONICS TECHNOLOGY CO. LTD. 349,713 446,795 80,384 366,411 ZHONGSHAN SHANXIN ACCURATE INDUSTRY CO. LTD. 350,729 140,625 280,128 (139,503) NANJING E-PIN OPTICAL CO.,LTD. 242,142 2,685 54,610 (51,925)
Company	Capital Stock	Assets	Liabilities	Net Worth
ABILITY ENTERPRISE CO., LTD.	2,823,628	10,548,890	3,286,984	7,261,906
ABILITY ENTERPRISE (BVI) CO., LTD.	787,379	2,727,758	0	2,727,758
VIEWQUEST TECHNOLOGIES (BVI) INC.	1,190,492	2,961,250	1,108,763	1,852,487
VIEWQUEST TECHNOLOGIES INTERNATIONAL INC.	46,073	167	0	167
ABILITY INTERNATIONAL INVESTMENT CO., LTD.	13,000	48,046	1,641	46,405
ANDROVIDEO INC.	70,000	45,993	75,104	(29,111)
E-PIN OPTICAL INDUSTRY CO.,LTD.	236,000	710,499	450,851	259,648
CHIA PING INVESTMENT CO., LTD.	6,000	5,696	38	5,658
ABILITY TECHNOLOGY (DONGGUAN)CO., LTD.	1,121,098	2,139,593	847,573	1,292,020
JIUJIANG VIEWQUEST ELECTRONICS INC.	291,793	499,023	132,744	366,279
VIEWQUEST TECHNOLOGIES (DONGGUAN)CO., LTD	675,730	541,440	94,013	447,427
ALL VISION HOLDING LTD.	516,528	12,004	0	12,004
E-PIN OPTICAL INDUSTRY CO., LTD.	5,167	44,251	94,293	(50,042)
E-PIN OPTICAL INDUSTRY(M.) SDN. BHD.	45,700	11,069	9,543	1,526
ALL VISION TECHNOLOGY SDN. BHD.	659,334	21,566	16,618	4,948
EVERLIGHT DEVELOPMENT CORPORATION	174,078	203,418	0	203,418
E-SKY HOLDING LTD.	311,681	(191,422)	0	(191,422)
NANJING EVERLIGHT PHOTONICS TECHNOLOGY CO. LTD.	349,713	446,795	80,384	366,411
ZHONGSHAN SHANXIN ACCURATE INDUSTRY CO. LTD.	350,729	140,625	280,128	(139,503)
NANJING E-PIN OPTICAL CO.,LTD.	242,142	2,685	54,610	(51,925)

101

8.1.7 Affiliation Report

The Company is not the affiliated company of other companies as stipulated in “Chapter VI-I Affiliated Enterprises” of the Company Act, so no affiliation report is compiled.

REPRESENTATION LETTER

The entities that are required to be included in the combined financial statements of ABILITY ENTERPRISE CO., LTD. as of and for the year ended December 31, 2018, under the Criteria Governing the Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises are the same as those included in the consolidated financial statements prepared in conformity with the International Financial Reporting Standard 10, “Consolidated Financial Statements.” In addition, the information required to be disclosed in the combined financial statements is included in the consolidated financial statements. Consequently, ABILITY ENTERPRISE CO., LTD. and Subsidiaries do not prepare a separate set of combined financial statements. Very truly yours,

ABILITY ENTERPRISE CO., LTD.

By

CEO : Tseng, Ming-Jen March 25, 2019

==> picture [45 x 43] intentionally omitted <==

102

• 8.2 Private Placement of Securities in the Most Recent Years: None.

• 8.3 Shares in the Company Held or Disposed of by Subsidiaries in the Most Recent Years: None.

• 8.4 Other Mentionable Items: None.

• Any Events in the Most Recent year and as of the Date of this Annual Report that had Significant Impacts on Shareholders’ Right or Security Prices as Stated in Item 2 Paragraph 2 of Article 36 of Securities and Exchange Law of Taiwan: None.

103

Attachment I

ABILITY ENTERPRISE CO., LTD. AND SUBSIDIARIES AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS AND

REPORT OF INDEPENDENT ACCOUNTANTS

DECEMBER 31, 2018 AND 2017

---

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

REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE

PWCR18000452

To the Board of Directors and Shareholders of Ability Enterprise Co., Ltd. and subsidiaries

Opinion

We have audited the accompanying consolidated balance sheets of Ability Enterprise Co., Ltd. and subsidiaries (the “Group”) as at December 31, 2018 and 2017, and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2018 and 2017, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission.

Basis for opinion

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

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole and, in forming our opinion thereon, we do not provide a separate opinion on these matters.

~1~

Assessment of allowance for inventory valuation loss

Description

Refer to Note 4(13) for accounting policies on inventory valuation, Note 5(2) for the uncertainty of accounting estimates and assumptions applied on inventory valuation, and Note 6(6) for details of inventory. As of December 31, 2018, the balances of the Group’s inventory and allowance for inventory valuation loss were NT$1,722,124 thousand and NT$386,022 thousand, respectively.

The Group is primarily engaged in the manufacture and sales of digital camera, optical products and components. Due to rapid changes in technology innovations, short life cycles of electronic products and fluctuations in market prices, there is higher risk of incurring inventory valuation losses or obsolescence. The Company recognises inventories at the lower of cost and net realisable value; for inventories which are separately identified as obsolete and damaged, the Company recognises loss through net realisable value. An allowance for inventory valuation loss mainly arises from inventories aged over a certain period and separately identified obsolete inventory. As the amount of inventory is material, inventory items are numerous, and the net realisable value of obsolete and damaged inventories is subject to management judgement, we consider the assessment of the allowance for inventory valuation loss a key audit matter.

How our audit addressed the matter

We performed the following audit procedures on the above key audit matter:

• Ascertained whether the policies on allowance for inventory valuation losses are reasonable and consistently applied in all the periods.

• Understood the determination method of the net realisable value, sampled and tested whether the net realisable values were calculated in accordance with the abovementioned method.

• Discussed with management the estimated net realisable value of separately identified obsolete and damaged inventories, obtained and corroborated against supporting documents and recalculated the allowance provision.

~2~

Impairment assessment of property, plant and investment property

Description

Refer to Notes 4(15) and (16) for accounting policies on property, plant and equipment and investment property, Note 5(2) for the uncertainty of accounting estimates and assumptions applied on property, plant and equipment impairment, and Notes 6(9) and (10) for account details of property, plant and equipment and investment property. As of December 31, 2018, the balance of property, plant and equipment and investment property totaled to NT$4,128,331 thousand.

The property, plant and equipment and investment property primarily consist of land, buildings and structures amounting to NT$4,128,331 thousand, constituting 37% of total assets. The domestic property value has been significantly affected by the factors of market supply and demand situation, natural disasters, government policies, economic situation and the uncertainty of property valuation as well as the risk of asset impairment. Thus, we consider the impairment assessment of property, plant and equipment and investment property a key audit matter.

How our audit addressed the matter

We performed the following audit procedures on the impairment assessment of property, plant and equipment and investment property:

• Verified external information (or the most recent transaction price for similar property) to identify any potential impairment indicators for property, plant and equipment and investment property.

• Assessed the reasonableness of the recoverable amounts of property, plant and equipment and investment property, and evaluated the impairment assessment based on the most recent transaction price for similar property.

Other matter – Scope of the audit

We did not audit the financial statements of a wholly-owned consolidated subsidiary and investments accounted for using equity method that are included in the financial statements, which statements reflect total assets (including investments accounted for using equity method) of NT$130,807 thousand and NT$4,020 thousand , constituting 1.18% and 0.03% of consolidated total assets as of December 31, 2018 and 2017, respectively, operating revenues of NT$9,470 thousand and NT$0, constituting 0.12% and 0% of the consolidated total net operating revenue for the years then ended, respectively，and the related share of profit (loss) of associates and joint ventures accounted for under equity method of

~3~

(NT$13,213) thousand and NT$954 thousand, constituting 1.34% and 0.21% of consolidated total comprehensive income (loss) for the years then ended, respectively. Those financial statements were audited by other independent accountants whose reports thereon have been furnished to us, and our opinion expressed herein is based solely on the audit reports of the other independent accountants.

Other matter – Parent company only financial reports

We have audited and expressed an unmodified opinion with other matter section on the parent company only financial statements of Ability Enterprise Co., Ltd. as at and for the years ended December 31, 2018 and 2017.

Responsibilities of management and those charged with governance for the consolidated financial statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

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

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

Auditor’s responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ROC GAAS will always detect a material

~4~

misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

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

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

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

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

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

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

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

~5~

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

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

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

Juanlu, Man-Yu Audrey Tseng

For and on behalf of PricewaterhouseCoopers, Taiwan March 25, 2019

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

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

~6~

ABILITY ENTERPRISE CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

Assets	Notes 6(1) 6(3) 12(4) 6(4) 6(5), 7 and 12(4) 6(6) 6(7) 6(3) 12(4) 12(4) 6(8) 6(9) and 8 6(10) 6(11) 6(27) 6(13)	December31,2018 AMOUNT % $ 1,788,055 16 637,214 6 - - 547,106 5 1,127,134 10 1,336,102 12 355,164 3 5,790,775 52 676,421 6 - - - - 12,293 - 3,539,946 32 588,385 5 159,027 2 178,209 2 103,032 1 5,257,313 48 $ 11,048,088 100	December31,2017	December31,2017
		AMOUNT $ 1,788,055 637,214 - 547,106 1,127,134 1,336,102 355,164 5,790,775 676,421 - - 12,293 3,539,946 588,385 159,027 178,209 103,032 5,257,313 $ 11,048,088	AMOUNT $ 2,245,124 - 766,516 - 1,704,379 1,501,394 642,450 6,859,863 - 930,238 214,145 4,020 3,989,763 598,602 5,606 83,896 120,278 5,946,548 $ 12,806,411	%
Current assets 1100 Cash and cash equivalents 1120 Current financial assets at fair value through other comprehensive income 1125 Available-for-sale financial assets - current 1136 Current financial assets at amortised cost 1170 Accounts receivable, net 130X Inventory 1470 Other current assets 11XX Total current assets Non-current assets 1517 Non-current financial assets at fair value through other comprehensive income 1523 Available-for-sale financial assets - non-current 1543 Financial assets carried at cost - non-current 1550 Investments accounted for under equity method 1600 Property, plant and equipment 1760 Investment property - net 1780 Intangible assets 1840 Deferred income tax assets 1900 Other non-current assets 15XX Total non-current assets 1XXX Total assets				18 - 6 - 13 12 5
				54
				- 7 2 - 31 5 - - 1
				46
				100

(Continued)

~7~

ABILITY ENTERPRISE CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

Liabilities and Equity	December31,2018 Notes AMOUNT % 6(14) $ 438,647 4 7 1,850,064 17 6(15) 779,586 7 13,432 - 6(18)(23) 360,715 3 3,442,444 31 6(16) 82,865 1 82,865 1 3,525,309 32 6(19) 2,823,628 26 6(20) 1,563,455 14 6(21) 1,655,947 15 - - 1,645,054 15 6(22) ( 426,178) ( 4 ) 7,261,906 66 260,873 2 7,522,779 68 $ 11,048,088 100	December31,2017	December31,2017
		AMOUNT $ 339,757 2,330,406 871,050 53,894 422,370 4,017,477 82,991 82,991 4,100,468 2,823,650 1,563,069 1,634,181 101,662 2,242,829 151,951 8,517,342 188,601 8,705,943 $ 12,806,411	%
Current liabilities 2100 Short-term borrowings 2170 Accounts payable 2200 Other payables 2230 Current income tax liabilities 2300 Other current liabilities 21XX Total current liabilities Non-current liabilities 2600 Other non-current liabilities 25XX Total non-current liabilities 2XXX Total liabilities Equity Equity attributable to owners of parent Share capital 3110 Share capital - common stock Capital surplus 3200 Capital surplus Retained earnings 3310 Legal reserve 3320 Special reserve 3350 Unappropriated retained earnings Other equity interest 3400 Other equity interest 31XX Equity attributable to owners of the parent 36XX Non-controlling interest 3XXX Total equity 3X2X Total liabilities and equity			3 18 7 - 3
			31
			1
			1
			32
			22 13 13 1 17 1
			67
			1
			68
			100

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

~8~

ABILITY ENTERPRISE CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

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

Items

YearendedDecember31 2018 2017 Notes AMOUNT % AMOUNT % 6(23) and 7 $ 7,635,028 100 $ 11,201,600 100 6(6)(26) and 7 ( 6,988,737) ( 92) ( 9,785,428) ( 87) 646,291 8 1,416,172 13 6(26) ( 118,959 ) ( 2) ( 117,375) ( 1) ( 531,966 ) ( 7) ( 527,242) ( 5) ( 727,055 ) ( 9) ( 706,702) ( 6) 12(2) ( 8,172) - - - ( 1,386,152) ( 18) ( 1,351,319) ( 12) ( 739,861) ( 10) 64,853 1 6(24) 175,212 2 158,640 1 6(25) 48,463 1 9,392 - ( 6,659 ) - ( 5,558) - 6(8) 8,273 - 954 - 225,289 3 163,428 1 ( 514,572 ) ( 7) 228,281 2 6(27) 89,047 1 ( 21,883) - ($ 425,525) ( 6) $ 206,398 2

4000 Sales revenue 5000 Operating costs 5950 Net operating margin Operating expenses 6100 Selling expenses 6200 General and administrative expenses 6300 Research and development expenses 6450 Impairment gain and reversal of impairment loss determined in accordance with IFRS 9 6000 Total operating expenses 6900 Operating (loss) profit Non-operating income and expenses 7010 Other income 7020 Other gains and losses 7050 Finance costs 7060 Share of profit/(loss) of associates and joint ventures accounted for under equity method 7000 Total non-operating income and expenses 7900 (Loss) profit before income tax 7950 Income tax benefit (expense) 8200 (Loss) profit for the year

(Continued)

~9~

ABILITY ENTERPRISE CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

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

Items

YearendedDecember31 2018 2017 Notes AMOUNT % AMOUNT % 6(16) ($ 1,345 ) - $ 4,291 - 6(3) ( 616,491 ) ( 8) - - 6(27) 2,109 - ( 730) - ( 615,727 ) ( 8) 3,561 - 53,622 1 ( 285,779) ( 3) 12(4) - - 536,391 5 53,622 1 250,612 2 ($ 562,105 ) ( 7) $ 254,173 2 ($ 987,630 ) ( 13) $ 460,571 4 ($ 463,048 ) ( 6) $ 217,663 2 37,523 - ( 11,265) - ($ 425,525 ) ( 6) $ 206,398 2 ($ 1,021,497 ) ( 13) $ 474,693 4 33,867 - ( 14,122) - ($ 987,630 ) ( 13) $ 460,571 4 6(28) ($ 1.64) $ 0.77 ($ 1.64) $ 0.77

Other comprehensive income Components of other comprehensive income that will not be reclassified to profit or loss 8311 Actuarial (losses) gains on defined benefit plans 8316 Unrealised gain on financial assets measured at fair value through other comprehensive income 8349 Income tax related to components of other comprehensive income that will not be reclassified to profit or loss 8310 Other comprehensive (loss) income that will not be reclassified to profit or loss Components of other comprehensive income that will be reclassified to profit or loss 8361 Financial statements translation differences of foreign operations 8362 Unrealised gain on valuation of available-for-sale financial assets 8360 Other comprehensive income that will be reclassified to profit or loss 8300 Other comprehensive (loss) income for the year 8500 Total comprehensive (loss) income for the year (Loss) profit attributable to: 8610 Owners of the parent 8620 Non-controlling interest Comprehensive (loss) income attributable to: 8710 Owners of the parent 8720 Non-controlling interest Earnings per share 9750 Basic earnings per share 9850 Diluted earnings per share

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

~10~

ABILITY ENTERPRISE CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

2017 Balance at January 1, 2017 Profit for 2017 Other comprehensive income (loss) for 2017 Total comprehensive income (loss) for 2017 Appropriations of 2016 earnings Legal reserve Special reserve Cash dividends Compensation cost of share-based payment Adjustments to changes in vested number of restricted stock Redemption of employee restricted stock Balance at December 31, 2017 2018 Balance at January 1, 2018 Effects of retrospective application and retrospective restatement Balance at January 1, 2018 after adjustments Loss for 2018 Other comprehensive income (loss) for 2018 Total comprehensive income (loss) for 2018 Appropriations of 2017 earnings Special reserve Reveral of special reserve Cash dividends Changes in ownership interests in subsidiaries Increase in non-controlling interests Adjustments to changes in vested number of restricted stock Redemption of employee restricted stock Balance at December 31, 2018	Notes						Equity att	rib	utable to owners o	f	the parent						Non-controlling interest		Total equity
			Share capital - common stock	Total capital surplus, additional paid-in capital					RetainedEarnings			Other equity interest	Treasurystocks		Total
							Legal reserve		Special reserve		Unappropriated retained earnings
	6(21) 6(17) 6(17) 12(4) 6(21) 6(17)	$ 2,825,279 - - - - - - - - ( 1,629 ) $ 2,823,650 $ 2,823,650 - 2,823,650 - - - - - - - - - ( 22 ) $ 2,823,628			$ 1,560,123 - - - - - - - 2,012 934 $ 1,563,069 $ 1,563,069 - 1,563,069 - - - - - - - - 364 22 $ 1,563,455		$ 1,595,556 - - - 38,625 - - - - - $ 1,634,181 $ 1,634,181 - 1,634,181 - - - 21,766 - - - - - - $ 1,655,947	$ - - - - - 101,662 - - - - $ 101,662 $ 101,662 - 101,662 - - - - ( 101,662 ) - - - - - $ -		$ 2,416,348 217,663 3,417 221,080 ( 38,625 ) ( 101,662 ) ( 254,171 ) ( 141 ) - - $ 2,242,829 $ 2,242,829 11,247 2,254,076 ( 463,048 ) 819 ( 462,229 ) ( 21,766 ) 101,662 ( 225,892 ) ( 797 ) - - - $ 1,645,054		($ 104,533 ) - 253,613 253,613 - - - 2,871 - - $ 151,951 $ 151,951 ( 18,861 ) 133,090 - ( 559,268 ) ( 559,268 ) - - - - - - - ($ 426,178 )	($ 695 ) - - - - - - - - 695 $ - $ - - - - - - - - - - - - - $ -	$ 8,292,078 217,663 257,030 474,693 - - ( 254,171 ) 2,730 2,012 - $ 8,517,342 $ 8,517,342 ( 7,614 ) 8,509,728 ( 463,048 ) ( 558,449 ) ( 1,021,497 ) - - ( 225,892 ) ( 797 ) - 364 - $ 7,261,906		$ 202,723 ( 11,265 ) ( 2,857 ) ( 14,122 ) - - - - - - $ 188,601 $ 188,601 - 188,601 37,523 ( 3,656 ) 33,867 - - - - 38,405 - - $ 260,873		$ 8,494,801 206,398 254,173 460,571 - - ( 254,171 ) 2,730 2,012 - $ 8,705,943 $ 8,705,943 ( 7,614 ) 8,698,329 ( 425,525 ) ( 562,105 ) ( 987,630 ) - - ( 225,892 ) ( 797 ) 38,405 364 - $ 7,522,779

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

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ABILITY ENTERPRISE CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM OPERATING ACTIVITIES (Loss) profit before tax Adjustments Income and expenses having no effect on cash flows Expected credit loss Gain on reversal of allowance for bad debts Impairment loss Depreciation Amortisation Compensation cost of share-based payment Gain on valuation of financial assets and liabilities Gain on disposal of property, plant, equipment Share of profit or loss of associates and joint ventures accounted for under equity method Interest expense Interest income Compensation income Dividend income Changes in assets/liabilities relating to operating activities Changes in operating assets Accounts receivable, net Inventories Other current assets Net changes in liabilities relating to operating activities Accounts payable Other payables Other current liabilities Other non-current liabilities Cash (outflow) inflow generated from operations Interest received Dividends received Income tax paid Interest paid Net cash flows (used in) from operating activities

Notes 2018 2017 ($ 514,572 ) $ 228,281 12(2) 8,172 - 12(4) - ( 155 ) 6(25) 52,108 - 6(26) 354,163 339,978 6(26) 8,555 4,033 6(17) - 2,730 12(4) - ( 1,908 ) 6(25) ( 68,856 ) ( 19,282 ) 6(8) ( 8,273 ) ( 954 ) 6,659 5,558 6(24) ( 34,759 ) ( 26,344 ) 6(25) - ( 36,000 ) 6(24) ( 107,897 ) ( 100,707 ) 560,269 191,542 239,180 ( 133,844 ) ( 133,284 ) ( 11,793 ) ( 541,180 ) ( 160,325 ) ( 110,265 ) 6,737 ( 83,643 ) ( 32,392 ) ( 1,490 ) ( 1,102 ) ( 375,113 ) 254,053 34,759 26,344 107,897 100,707 ( 43,602 ) ( 70,511 ) ( 6,659 ) ( 5,558 ) ( 282,718 ) 305,035

(Continued)

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ABILITY ENTERPRISE CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of financial assets at amortised cost Increase in other current assets Proceeds from disposal of current financial assets at fair value through profit or loss Acquisition of financial assets measured at cost Proceeds from disposal of property, plant and equipment Acquisition of property, plant and equipment Acquisition of intangible assets Decrease in other non-current assets Net cash in acquisition of subsidiaries Net cash flows used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Increase in short-term loans Decrease in other non-current liabilities Payment of cash dividends Redemption of employee restricted stock Subsidiaries’ capital increase for acquiring non-controlling interest Net cash flows used in financing activities Net effect of changes in foreign currency exchange rates Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year

Notes 2018 2017 ($ 104,181 ) $ - - ( 83,790 ) - 7,178 12(4) - ( 118,392 ) 290,997 55,757 6(30) ( 181,446 ) ( 417,382 ) 6(11) ( 9,293 ) ( 6,717 ) 16,933 410 ( 136,798 ) - ( 123,788 ) ( 562,936 ) 81,890 10,742 ( 245 ) ( 3,592 ) 6(21) ( 225,892 ) ( 254,171 ) 6(17) ( 22 ) ( 934 ) 38,405 - ( 105,864 ) ( 247,955 ) 55,301 ( 270,159 ) ( 457,069 ) ( 776,015 ) 2,245,124 3,021,139 $ 1,788,055 $ 2,245,124

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

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ABILITY ENTERPRISE CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

1. HISTORY AND ORGANISATION

Ability Enterprise Co., Ltd. (the “Company”) was incorporated as a company limited by shares under the provisions of the Company Act of the Republic of China (R.O.C.). The Company and its subsidiaries (collectively referred herein as the “Group”) merged with Viewquest Technologies Inc. on January 1, 2003. On August 28, 2007, the Board of Directors agreed to set September 1, 2007 as the record date for the acquisition of the Office Automation Business Group by the Company’s subsidiary, Ability International Investment Co., Ltd., through the issuance of new shares. The Company disposed its ownership in Ability International Investment Co., Ltd. promptly after the acquisition. The Company is mainly engaged in the manufacturing, purchases and sales of digital cameras, optical product components and film/video accessories.

2. THE DATE OF AUTHORISATION FOR ISSUANCE OF THE CONSOLIDATED FINANCIAL

STATEMENTS AND PROCEDURES FOR AUTHORISATION

These consolidated financial statements were authorised for issuance by the Board of Directors on March 25, 2019.

3. APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS

(1) Effect of the adoption of new issuances of or amendments to International Financial Reporting

New standards, interpretations and amendments as endorsed by FSC effective from 2018 are as follows:

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New Standards,Interpretations and Amendments

Effective date by International AccountingStandards Board

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

January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2017 January 1, 2017 January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2017 January 1, 2018

Except for the following, the above standards and interpretations have no significant impact to the Group’s financial condition and operating results based on the Group’s assessment. IFRS 9, ‘Financial instruments’

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

• (b) The impairment losses of debt instruments are assessed using an ‘expected credit loss’ approach. An entity assesses at each balance sheet date whether there has been a significant increase in credit risk on that instrument since initial recognition to recognise 12-month expected credit losses or lifetime expected credit losses (interest revenue would be calculated on the gross carrying amount of the asset before impairment losses occurred); or if the instrument that has objective evidence of impairment, interest revenue after the impairment

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would be calculated on the book value of net carrying amount (i.e. net of credit allowance). The Company shall always measure the loss allowance at an amount equal to lifetime expected credit losses for trade receivables that do not contain a significant financing component.

• (c) The Group has elected not to restate prior period financial statements using the modified retrospective approach under IFRS 9. For details of the significant effect as at January 1, 2018, please refer to Notes 12(4) B and C.

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

the Group

New standards, interpretations and amendments as endorsed by FSC effective from 2019 are as follows:

the Group New standards, interpretations and amendments as endorsed by FSC follows:	effective from 2019 are as
New Standards,Interpretations and Amendments	Effective date by International AccountingStandards Board
Amendments to IFRS 9, ‘Prepayment features with negative compensation’ IFRS 16, ‘Leases’ Amendments to IAS 19, ‘Plan amendment, curtailment or settlement’ settlement’ Amendments to IAS 28, ‘Long-term interests in associates and joint ventures’ IFRIC 23, ‘Uncertainty over income tax treatments’ Annual improvements to IFRSs 2015-2017 cycle	January 1, 2019 January 1, 2019 January 1, 2019 January 1, 2019 January 1, 2019 January 1, 2019

Except for the following, the above standards and interpretations have no significant impact to the Group’s financial condition and operating results based on the Group’s assessment. The quantitative impact will be disclosed when the assessment is complete.

IFRS 16, ‘Leases’

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

The Group expects to recognise the lease contract of lessees in line with IFRS 16. However, the Group intends not to restate the financial statements of prior period (referred herein as the “modified retrospective approach”), and the effects will be adjusted. On January 1, 2019, it is expected that ‘right-of-use asset’ (including reclassification of long-term prepaid rents) and lease liability will be increased by $110,151 and $37,927, respectively, and long-term prepaid rents (shown as ‘Other current liabilities’ will be decreased by $72,224.

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Effective date by International New Standards, Interpretations and Amendments Accounting Standards Board Amendments to IAS 1 and IAS 8, ‘Disclosure Initiative -Definition of January 1, 2020 Material’ Amendments to IFRS 3, ‘Definition of a business’ January 1, 2020 To be determined by Amendments to IFRS 10 and IAS 28, ‘Sale or contribution of International Accounting assets between an investor and its associate or joint venture’ Standards Board IFRS 17, ‘Insurance contracts’ January 1, 2021

The above standards and interpretations have no significant impact to the Group’s financial condition and financial performance based on the Group’s assessment.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

(1) Compliance statement

The consolidated financial statements of the Group have been prepared in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the FSC (collectively referred herein as the “IFRSs”).

(2) Basis of preparation

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

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

• (b) Financial assets and liabilities at fair value though other comprehensive income Available-for-sale financial assets measured at fair value.

• (c) Liabilities on cash-settled share-based payment arrangements measured at fair value.

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

• B. The preparation of financial statements in conformity with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5.

• C. In adopting IFRS 9 and IFRS 15 effective January 1, 2018, the Group has elected to apply modified retrospective approach whereby the cumulative impact of the adoption was recognised as retained earnings or other equity as of January 1, 2018 and the financial statements for the

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year ended December 31, 2017 were not restated. The financial statements for the year ended December 31, 2017 were prepared in compliance with International Accounting Standard 39 (‘IAS 39’), International Accounting Standard 11 (‘IAS 11’), International Accounting Standard 18 (‘IAS 18’) and related financial reporting interpretations. Please refer to Notes 12(4) and (5) for details of significant accounting policies and details of significant accounts.

• (3) Basis of consolidation

• A. Basis for preparation of consolidated financial statements:

  • (a) All subsidiaries are included in the Group’s consolidated financial statements. Subsidiaries are all entities (including structured entities) controlled by the Group. The Group controls an entity when the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Consolidation of subsidiaries begins from the date the Group obtains control of the subsidiaries and ceases when the Group loses control of the subsidiaries.

  • (b) Inter-company transactions, balances and unrealised gains or losses on transactions between companies within the Group are eliminated. Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the policies adopted by the Group.

  • (c) Profit or loss and each component of other comprehensive income are attributed to the owners of the parent and to the non-controlling interests. Total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

  • (d) Changes in a parent’s ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary (transactions with non-controlling interests) are accounted for as equity transactions, i.e. transactions with owners in their capacity as owners. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity.

  • (e) When the Group loses control of a subsidiary, the Group remeasures any investment retained in the former subsidiary at its fair value. The fair value is regarded as the fair value on initial recognition of a financial asset or the cost on initial recognition of the associate or joint venture. Any difference between fair value and carrying amount is recognised in profit or loss. All amounts previously recognised in other comprehensive income in relation to the subsidiary are reclassified to profit or loss on the same basis as would be required if the related assets or liabilities were disposed of. That is, when the Group loses control of a subsidiary, all gains or losses previously recognised in other comprehensive income in relation to the subsidiary should be reclassified from equity to profit or loss, if such gains or losses would be reclassified to profit or loss when the related assets or liabilities are disposed of.

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B. Subsidiaries included in the consolidated financial statements:

Name of investor	Name of subsidiary	Main business activities	Ownership (%)	Ownership (%)	Description
			December 31, 2018	December 31, 2017
The Company	ABILITY ENTERPRISE (BVI) CO., LTD. (ABILITY (BVI))	Holding company	100.00	100.00
The Company	ACTION PIONEER INTERNATIONAL LTD. (ACTION)	Trading service	100.00	100.00
The Company	VIEWQUEST TECHNOLOGIES INTERNATIONAL INC. (VQ (US))	Sales of computer accessories, photography equipment and electronic components	100.00	100.00
The Company	VIEWQUEST TECHNOLOGIES (BVI) INC. (VQ (BVI))	Manufacturing and trading of computer accessories, photography equipment and electronic components	100.00	100.00
The Company	Ability International Investment Co., Ltd. (Ability International Investment)	Investments	100.00	100.00
The Company	AndroVideo INC.	Development, manufacturing and trading of digital surveillance	100.00	-	Note 1
The Company	E-PIN OPTICAL INDUSTRY CO., LTD. (E-PIN)	Sales of optical products and electronic components	54.61	53.01	Note 2
ABILITY (BVI)	Ability Technology (Dongguan) Co., Ltd. (Ability (Dongguan))	Sales of digital still cameras	100.00	100.00
ABILITY (BVI)	Jiujiang Viewquest Electronics Inc. (JiujiangViewquest)	Sales of digital still cameras	100.00	100.00

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Name of investor	Name of subsidiary	Main business activities	Ownership (%)	Ownership (%)	Description
			December 31, 2018	December 31, 2017
VQ (BVI)	VIEWQUEST TECHNOLOGIES (DONGGUAN) CO., LTD. (VIEWQUEST TECHNOLOGIES)	Sales of digital still cameras	100.00	100.00
E-PIN	E-PIN OPTICAL INDUSTRY (M.) SDN. BHD. (E-PIN (M.))	Manufacturing of precision lens	100.00	100.00
E-PIN	ALL VISION TECHNOLOGY SDN. BHD. (AVT)	Manufacturing of precision lens	100.00	100.00
E-PIN	E-PIN OPTICAL INDUSTRY CO., LTD. (E-PIN)	Trading	100.00	100.00
E-PIN	ALL VISION HOLDING LTD. (ALL VISION)	Holding company	100.00	100.00
E-PIN	JIAPIN INVESTMENT CO., LTD. (JIAPIN INVESTMENT)	Investments	100.00	100.00
ALL VISION	EVERLIGHT DEVELOPMENT CORPORATION (EVERLIGHT)	Holding company	100.00	100.00
ALL VISION	E-SKY HOLDING LTD. (E-SKY)	Holding company	73.04	73.04
EVERLIGHT	NANJING EVERLIGHT PHOTONICS TECHNOLOGY CO., LTD. (NANJING EVERLIGHT)	Development and manufacturing of various types of precision lens	55.45	55.45
E-SKY	ZHONGSHAN SHANXIN ACCURATE INDUSTRY CO. (ZHONGSHAN SHANXIN)	Development and manufacturing of various types of precision lens	100.00	100.00
E-SKY	NANJING E-PIN OPTICAL CO., LTD. (NANJING E-PIN)	Development and manufacturing of various types of precision lens	72.22	72.22

Note 1: Please refer to Note 6(29) for details.

Note 2: The Board of Directors of E-PIN OPTICAL INDUSTRY CO., LTD. on May 12, 2017 has resolved to increase capital by issuing common stock of 6,960 thousand shares with par value of $10 and a premium issuance price of NT$13 (in dollars) per share. The capital increase was set effective on November 23, 2018 as resolved by the Board of Directors on September 28, 2018. As the Company did not acquire shares proportionately amounting to $52,871, the shareholding ratio was 54.61% after the acquisition.

• C. Subsidiaries not included in the consolidated financial statements: None.

• D. Adjustments for subsidiaries with different balance sheet dates: None.

• E. Significant restrictions: None.

• F. Subsidiaries that have non-controlling interests that are material to the Group: None.

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(4) Foreign currency translation

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in New Taiwan dollars, which is the Company’s functional and the Group’s presentation currency.

• A. Foreign currency transactions and balances

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

• (b) Monetary assets and liabilities denominated in foreign currencies at the period end are re-translated at the exchange rates prevailing at the balance sheet date. Exchange differences arising upon re-translation at the balance sheet date are recognised in profit or loss.

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

• (d) All other foreign exchange gains and losses based on the nature of those transactions are presented in the statement of comprehensive income within ‘other gains and losses’.

• B. Translation of foreign operations

• (a) The operating results and financial position of all the group entities, associates and joint arrangements that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

  • i. Assets and liabilities for each balance sheet presented are translated at the closing exchange rate at the date of that balance sheet;

  • ii. Income and expenses for each statement of comprehensive income are translated at average exchange rates of that period; and

  • iii. All resulting exchange differences are recognised in other comprehensive income.

• (b) When the foreign operation partially disposed of or sold is an associate or joint arrangement, exchange differences that were recorded in other comprehensive income are proportionately reclassified to profit or loss as part of the gain or loss on sale. In addition, if the Group retains partial interest in the former foreign associate or jointly controlled entity after losing significant influence over the former foreign associate, or losing joint control of the former

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joint arrangement, such transactions should be accounted for as disposal of all interest in these foreign operations.

• (c) When the foreign operation partially disposed of or sold is a subsidiary, cumulative exchange differences that were recorded in other comprehensive income are proportionately transferred to the non-controlling interest in this foreign operation. In addition, if the Group retains partial interest in the former foreign subsidiary after losing control of the former foreign subsidiary, such transactions should be accounted for as disposal of all interest in the foreign operation.

(5) Classification of current and non-current items

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

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

• (b) Assets held mainly for trading purposes;

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

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

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

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

• (b) Liabilities arising mainly from trading activities;

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

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

(6) Cash equivalents

• Cash equivalents refer to short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Time deposits that meet the definition above and are held for the purpose of meeting short-term cash commitments in operations are classified as cash equivalents.

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

• A. Financial assets at fair value through profit or loss are financial assets that are not measured at amortised cost or fair value through other comprehensive income.

• B. On a regular way purchase or sale basis, financial assets at fair value through profit or loss are recognised and derecognised using trade date accounting.

• C. At initial recognition, the Group measures the financial assets at fair value and recognises the

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transaction costs in profit or loss. The Group subsequently measures the financial assets at fair value, and recognises the gain or loss in profit or loss.

• D. The Group recognises the dividend income when the right to receive payment is established, future economic benefits associated with the dividend will flow to the Group and the amount of the dividend can be measured reliably.

• (8) Financial assets at fair value through other comprehensive income

• A. Financial assets at fair value through other comprehensive income comprise equity securities which are not held for trading, and for which the Group has made an irrevocable election at initial recognition to recognise changes in fair value in other comprehensive income and debt instruments which meet all of the following criteria:

  • (a) The objective of the Group’s business model is achieved both by collecting contractual cash flows and selling financial assets; and

  • (b) The assets’ contractual cash flows represent solely payments of principal and interest.

• B. On a regular way purchase or sale basis, financial assets at fair value through other comprehensive income are recognised and derecognised using trade date accounting.

• C. At initial recognition, the Group measures the financial assets at fair value plus transaction costs. The Group subsequently measures the financial assets at fair value: The changes in fair value of equity investments that were recognised in other comprehensive income are reclassified to retained earnings and are not reclassified to profit or loss following the derecognition of the investment. Dividends are recognised as revenue when the right to receive payment is established, future economic benefits associated with the dividend will flow to the Group and the amount of the dividend can be measured reliably.

(9) Financial assets at amortised cost

• A. Financial assets at amortised cost are those that meet all of the following criteria:

• (a) The objective of the Group’s business model is achieved by collecting contractual cash flows.

• (b) The assets’ contractual cash flows represent solely payments of principal and interest.

• B. On a regular way purchase or sale basis, financial assets at amortised cost are recognised and derecognised using trade date accounting.

• C. At initial recognition, the Group measures the financial assets at fair value plus transaction costs. Interest income from these financial assets is included in finance income using the effective interest method. A gain or loss is recognised in profit or loss when the asset is derecognised or impaired.

• D. The Group’s time deposits which do not fall under cash equivalents are those with a short maturity period and are measured at initial investment amount as the effect of discounting is immaterial.

(10) Accounts and notes receivable

• A. Accounts and notes receivable entitle the Group a legal right to receive consideration in exchange for transferred goods or rendered services.

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• B. The short-term accounts and notes receivable without bearing interest are subsequently measured at initial invoice amount as the effect of discounting is immaterial.

(11) Impairment of financial assets

For debt instruments measured at fair value through other comprehensive income and financial assets at amortised cost including accounts receivable that have a significant financing component, at each reporting date, the Group recognises the impairment provision for 12 months expected credit losses if there has not been a significant increase in credit risk since initial recognition or recognises the impairment provision for the lifetime expected credit losses (ECLs) if such credit risk has increased since initial recognition after taking into consideration all reasonable and verifiable information that includes forecasts. On the other hand, for accounts receivable or contract assets that do not contain a significant financing component, the Group recognises the impairment provision for lifetime ECLs.

(12) Derecognition of financial assets

The Group derecognises a financial asset when one of the following conditions is met:

• A. The contractual rights to receive the cash flows from the financial asset expire.

• B. The contractual rights to receive cash flows of the financial asset have been transferred and the Group has transferred substantially all risks and rewards of ownership of the financial asset.

• C. The contractual rights to receive cash flows of the financial asset have been transferred and, the Group has not retained control of the financial asset.

(13) Inventories

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

(14) Investments accounted for using equity method / associates

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

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

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• C. When changes in an associate’s equity do not arise from profit or loss or other comprehensive income of the associate and such changes do not affect the Group’s ownership percentage of the associate, the Group recognises change in ownership interests in the associate in ‘capital surplus’ in proportion to its ownership.

• D. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been adjusted where necessary to ensure consistency with the policies adopted by the Group.

• E. In the case that an associate issues new shares and the Group does not subscribe or acquire new shares proportionately, which results in a change in the Group’s ownership percentage of the associate but maintains significant influence on the associate, then ‘capital surplus’ and ‘investments accounted for under the equity method’ shall be adjusted for the increase or decrease of its share of equity interest. If the above condition causes a decrease in the Group’s ownership percentage of the associate, in addition to the above adjustment, the amounts previously recognised in other comprehensive income in relation to the associate are reclassified to profit or loss proportionately on the same basis as would be required if the relevant assets or liabilities were disposed of.

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

(15) Property, plant and equipment

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

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

• C. Land is not depreciated. Other property, plant and equipment apply cost model and are depreciated using the straight-line method to allocate their cost over their estimated useful lives. Each part of an item of property, plant, and equipment with a cost that is significant in relation to the total cost of the item must be depreciated separately.

• D. The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if

~25~

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

and equipment are as follows:
Buildings and structures	30	~	50 years
Machinery and equipment	5	~	20 years
Mold equipment	1	~	2 years
Other equipment	1	~	20 years

(16) Investment property

An investment property is stated initially at its cost and measured subsequently using the cost model. Except for land, investment property is depreciated on a straight-line basis over its estimated useful life of 50 years.

(17) Intangible assets

• A. Computer software is stated at cost and amortised on a straight-line basis over its estimated useful life of 2 to 5 years.

• B. Goodwill arises in a business combination accounted for by applying the acquisition method.

• C. Other intangible assets are mainly customer relationships and technology and amortised using the straight-line method over 0.5~7 years.

(18) Impairment of non-financial assets

• A. The Group assesses at each balance sheet date the recoverable amounts of those assets where there is an indication that they are impaired. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell or value in use. Except for goodwill, when the circumstances or reasons for recognizing impairment loss for an asset in prior years no longer exist or diminish, the impairment loss is reversed. The increased carrying amount due to reversal should not be more than what the depreciated or amortised historical cost would have been if the impairment had not been recognised.

• B. The recoverable amounts of goodwill with an indefinite useful life. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Impairment loss of goodwill previously recognised in profit or loss shall not be reversed in the following years.

• C. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash-generating units, or groups of cash-generating units, that is/are expected to benefit from the synergies of the business combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment

~26~

level.

(19) Borrowings

Borrowings comprise long-term and short-term bank borrowings. Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method.

(20) Notes and accounts payable

• A. Accounts payable are liabilities for purchases of raw materials, goods or services and notes payable are those resulting from operating and non-operating activities.

• B. The short-term notes and accounts payable without bearing interest are subsequently measured at initial invoice amount as the effect of discounting is immaterial.

(21) Derecognition of financial liabilities

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

(22) Provisions

Warranty provision is recognised when the Group has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of economic resources will be required to settle the obligation and the amount of the obligation can be reliably estimated. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation on the balance sheet date, which is discounted using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the obligation. When discounting is used, the increase in the provision due to passage of time is recognised as interest expense. Provisions are not recognised for future operating losses.

(23) Employee benefits

• A. Short-term employee benefits

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

• B. Pensions

• (a) Defined contribution plans

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

• (b) Defined benefit plans

• i. Net obligation under a defined benefit plan is defined as the present value of an amount

~27~

of pension benefits that employees will receive on retirement for their services with the Group in current period or prior periods. The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The net defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The rate used to discount is determined by using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability; when there is no deep market in high-quality corporate bonds, the Group uses interest rates of government bonds (at the balance sheet date) instead.

     - ii. Remeasurements arising on defined benefit plans are recognised in other comprehensive income in the period in which they arise and are recorded as retained earnings.

• C. Employees’ compensation and directors’ remuneration

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

• (24) Employee share based payment

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

• B. Restricted stocks:

  • (a) Restricted stocks issued to employees are measured at the fair value of the equity instruments granted at the grant date, and are recognised as compensation cost over thevesting period.

  • (b) For restricted stocks where those stocks do not restrict distribution of dividends to employees and employees are not required to return the dividends received if they resign during the vesting period, the Group recognises the fair value of the dividends received by the employees who are expected to resign during the vesting period as compensation cost at

~28~

the date of dividends declared.

  - (c) For restricted stocks where employees have to pay to acquire those stocks, if employees resign during the vesting period, they must return the stocks to the Group and the Group must refund their payments on the stocks, the Group recognises the payments from the employees who are expected to resign during the vesting period as liabilities at the grant date, and recognises the payments from the employees who are expected to be eventually vested with the stocks in ’capital surplus - others’.

• (25) Income tax

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

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

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

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

(26) Dividends

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

~29~

on the effective date of new shares issuance.

(27) Revenue recognition

• A. Sales of goods

The Group manufactures and sells digital cameras and optical products. Sales are recognised when control of the products has transferred, being when the products are delivered to the customer, the wholesaler has full discretion over the channel and price to sell the products, and there is no unfulfilled obligation that could affect the customer’s acceptance of the products. Delivery occurs when the products have been shipped to the specific location, the risks of obsolescence and loss have been transferred to the customer, and either the customer has accepted the products in accordance with the sales contract, or the Group has objective evidence that all criteria for acceptance have been satisfied.

• B. Sales of services

• The Group provides product research and development services. Revenue from delivering services is recognised under the percentage-of-completion method when the outcome of services provided can be estimated reliably. The stage of completion of a service contract is measured by the percentage of the actual services performed as of the financial reporting date to the total services to be performed. If the outcome of a service contract cannot be estimated reliably, contract revenue is recognised only to the extent that contract costs incurred are likely to be recoverable.

• C. Incremental costs of obtaining a contract

• Given that the contractual period lasts less than one year, the Group recognises the incremental costs of obtaining a contract as an expense when incurred although the Group expects to recover those costs.

(28) Business combinations

• A. The Group uses the acquisition method to account for business combinations. The consideration transferred for an acquisition is measured as the fair value of the assets transferred, liabilities incurred or assumed and equity instruments issued at the acquisition date, plus the fair value of any assets and liabilities resulting from a contingent consideration arrangement. All acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. For each business combination, the Group measures at the acquisition date components of non-controlling interests in the acquiree that are present ownership interests and entitle their holders to the proportionate share of the entity’s net assets in the event of liquidation at either fair value or the present ownership instruments’ proportionate share in the recognised amounts of the acquiree’s identifiable net assets. All other non-controlling interests should be measured at the acquisition-date fair value.

• B. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of any previous equity interest in the acquiree over the fair value of

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the identifiable assets acquired and the liabilities assumed is recorded as goodwill at the acquisition date.

~31~

(29) Operating segments

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors that makes strategic decisions.

5. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND KEY SOURCES OF

ASSUMPTION UNCERTAINTY

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

(1) Critical judgements in applying the Group’s accounting policies

None.

(2) Critical accounting estimates and assumptions

• A. Impairment assessment of tangible assets

The Group assesses impairment based on its subjective judgement and determines the separate cash flows of a specific group of assets, useful lives of assets and the future possible income and expenses arising from the assets depending on how assets are utilised and industrial characteristics. Any changes of economic circumstances or estimates due to the change of Group strategy might cause material impairment on assets in the future.

As of December 31, 2018, the Group recognised property, plant and equipment, net of impairment loss. Please refer to Note 6(9).

• B. Evaluation of inventories

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

As of December 31, 2018, the carrying amount of inventories is described in Note 6(6).

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6. DETAILS OF SIGNIFICANT ACCOUNTS

(1) Cash and cash equivalents

TAILS OF SIGNIFICANT ACCOUNTS Cash and cash equivalents
Cash on hand and revolving funds Checking accounts and demand deposits Time deposits	December 31,2018 3,253 $ 1,753,475 31,327 1,788,055 $	December 31,2017
		3,537 $ 2,173,725 67,862
		2,245,124 $

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

• B. The Group has no cash and cash equivalents pledged to others.

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

Financial assets at fair value through profit or loss
Items	December 31,2018
Current items:
Financial assets mandatorily measured at fair value
through profit or loss
Unlisted stocks	$	130
Valuation adjustment	(	130)
	$	-

• A. The Group has no financial assets at fair value through profit or loss pledged to others.

• B. Information relating to credit risk of financial assets at fair value through profit or loss is provided in Note 12(2).

• C. Information on financial assets at fair value through profit or loss as of December 31, 2017 is provided in Note 12(4).

(3) Financial assets at fair value through other comprehensive income – non-current

	Items		December	31,2018
Current items:
Equity instruments
Listed stocks		$		844,299
Valuation adjustment		(		207,085)
		$		637,214
Non-current items:
Equity instruments
Listed stocks		$		636,816
Unlisted stocks				225,982
				862,798
Valuation adjustment		(		186,377)
		$		676,421

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• A. The Group has elected to classify equity investments that are considered to be strategic investments or steady dividend income as financial assets at fair value through other comprehensive income. The fair value of such investments amounted to $1,313,635 as at December 31, 2018.

• B. Amounts recognised in profit or loss and other comprehensive income in relation to the financial assets at fair value through other comprehensive income are listed below:

Equity instruments at fair value through other December 31, 2018

comprehensive income Fair value change recognised in other comprehensive income ($ 616,491)

• C. As at December 31, 2018, without taking into account any collateral held or other credit enhancements, the maximum exposure to credit risk in respect of the amount that best represents the financial assets at fair value through other comprehensive income held by the Group was $1,313,635.

• D. The Group has no financial assets at fair value through other comprehensive income pledged to others as collateral.

• E. Information relating to credit risk of financial assets at fair value through other comprehensive income is provided in Note 12(2).

• F. Information on available-for-sale financial assets and financial assets at cost as of December 31, 2017 is provided in Note 12(4).

(4) Financial assets at amortised cost - current

2017 is provided in Note 12(4). Financial assets at amortised cost-current
Items Current items: Time deposits with initial maturity over three months	December31,2018
	547,106 $

• A. Amounts recognised in profit or loss in relation to financial assets at amortised cost are listed below:

2018 Interest income $ 10,631

• B. Information relating to credit risk is provided in Note 12(2).

• C. The information on December 31, 2017 is provided in Note 6(7).

(5) Accounts receivable

Accounts receivable
	December	31,2018		December	31,2017
Accounts receivable	$	1,288,576	$		1,857,670
Less: Allowance for bad debts	(	173,783)	(		165,611)
Accounts receivable, related parties		12,341			12,320
Accounts receivable, net	$	1,127,134		$	1,704,379

~34~

Not past due 1 to 90 days 91 to 180 days Over 180 days	December 31,2018 890,654 $ 236,416 43 173,804 1,300,917 $	December 31,2017
		1,413,651 $ 286,577 3,701 166,061
		1,869,990 $

The above ageing analysis was based on past due date.

A. The Group has no accounts receivable pledged to others.

B. As at December 31, 2018, without taking into account any collateral held or other credit enhancements, the maximum exposure to credit risk in respect of the amount that best represents the accounts receivable held by the Group was $1,127,134.

• C. Information relating to credit risk of accounts receivable is provided in Note 12(2).

(6) Inventories

Inventories
Merchandise Finished goods Work in process Raw materials Inventory in transit Merchandise Finished goods Work in process Raw materials Inventory in transit		December 31,2018
	Allowance for Cost valuation loss 144,950 $ 9,923) ($ 409,873 75,488) ( 181,470 8,048) ( 957,275 292,563) ( 28,556 - 1,722,124 $ 386,022) ($ December 31,2017		Book value
			135,027 $ 334,385 173,422 664,712 28,556
			1,336,102 $
	Allowance for Cost valuation loss 200,736 $ 5,103) ($ 508,453 85,053) ( 131,430 6,962) ( 845,050 145,798) ( 58,641 - 1,744,310 $ 242,916) ($		Book value
			195,633 $ 423,400 124,468 699,252 58,641
			1,501,394 $

The cost of inventories recognised as expense for the year:

Cost of goods sold Loss on decline in market value Other operating costs	2018 6,725,083 $ 143,106 120,548 6,988,737 $	2017
		9,584,252 $ 121,543 79,633
		9,785,428 $

~35~

(7) Other current assets

Other current assets
Time deposits with maturity over three months Other receivables Others	December 31,2018 - $ 185,757 169,407 355,164 $	December 31,2017
		442,925 $ 120,011 79,514
		642,450 $

(8) Investments accounted for using equity method

Investments accounted for using equity method
Associates Altasec Technology Corporation (Altasec Technology) Ever Pine International Ltd. (BVI) (EVER PINE)	December 31,2018 12,293 $ - 12,293 $	December 31,2017
		4,020 $ -
		4,020 $

• A. The above investment was accounted for using equity method as of December 31, 2018 and 2017 based on the investee’s financial statements audited by other independent accountants.

• B. The carrying amount of the Group’s interests in all individually immaterial associates and the Group’s share of the operating results are summarised below:

Group’s share of the operating results are summarised below:
The Group’s share in profit (loss) recognised under the equity method December 31, 2018 and 2017 was $8,273 and $954, respectively. 2018 Total comprehensive income 27,578 $	2017
	3,180 $
	for the years ended

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(9) Property, plant and equipment

January1,2018 Cost Accumulated depreciation and impairment 2018 Opening net book amount Additions Acquired from business combination Reclassifictaion Disposals Depreciation Impaiment loss Net exchange differences Closing net book amount At December 31, 2018		Land	Buildings and structures	Machinery	Mold equipment	Other equipment and Construction in progress	Total
	1,358,413 $ - 1,358,413 $ 1,358,413 $ - - - 39,114) ( - - - 1,319,299 $ 1,319,299 $ - 1,319,299 $		2,656,704 $ 557,143) ( 2,099,561 $ 2,099,561 $ 271 - 2,108) ( 169,675) ( 83,219) ( - 12,418) ( 1,832,412 $ 2,449,244 $ 616,832) ( 1,832,412 $	2,359,217 $ 1,970,368) ( 388,849 $ 388,849 $ 78,720 719 - 8,326) ( 131,868) ( 52,108) ( 3,579) ( 272,407 $ 2,173,482 $ 1,901,075) ( 272,407 $	1,693,258 $ 1,669,631) ( 23,627 $ 23,627 $ 94,364 2,088 - - 105,212) ( - - 14,867 $ 954,373 $ 939,506) ( 14,867 $	608,404 $ 489,091) ( 119,313 $ 119,313 $ 8,091 2,580 - 5,026) ( 23,647) ( - 350) ( 100,961 $ 608,448 $ 507,487) ( 100,961 $	8,675,996 $ 4,686,233) ( 3,989,763 $ 3,989,763 $ 181,446 5,387 2,108) ( 222,141) ( 343,946) ( 52,108) ( 16,347) ( 3,539,946 $ 7,504,846 $ 3,964,900) ( 3,539,946 $
Cost Accumulated depreciation and impairment

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January1,2017 Cost Accumulated depreciation and impairment 2017 Opening net book amount Additions Reclassification Disposals Depreciation Net exchange differences Closing net book amount At December 31, 2017		Land	Buildings and structures	Machinery	Mold equipment	Other equipment and Construction in progress	Total
	1,343,071 $ - 1,343,071 $ 1,343,071 $ 22,230 - 6,888) ( - - 1,358,413 $ 1,358,413 $ - 1,358,413 $		1,845,374 $ 503,235) ( 1,342,139 $ 1,342,139 $ 255,077 609,478 24,303) ( 65,799) ( 17,031) ( 2,099,561 $ 2,656,704 $ 557,143) ( 2,099,561 $	2,474,714 $ 1,943,837) ( 530,877 $ 530,877 $ 29,850 - 4,502) ( 153,677) ( 13,699) ( 388,849 $ 2,359,217 $ 1,970,368) ( 388,849 $	1,788,413 $ 1,743,706) ( 44,707 $ 44,707 $ 67,409 - - 88,488) ( 1) ( 23,627 $ 1,693,258 $ 1,669,631) ( 23,627 $	1,250,984 $ 577,095) ( 673,889 $ 673,889 $ 78,816 609,478) ( 782) ( 21,797) ( 1,335) ( 119,313 $ 608,404 $ 489,091) ( 119,313 $	8,702,556 $ 4,767,873) ( 3,934,683 $ 3,934,683 $ 453,382 - 36,475) ( 329,761) ( 32,066) ( 3,989,763 $ 8,675,996 $ 4,686,233) ( 3,989,763 $
Cost Accumulated depreciation and impairment

A. Impairment information about the property, plant and equipment is provided in Note 6(12).

B. Information about the property, plant and equipment that were pledged to others as collateral is provided in Note 8.

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(10) Investment property

At January1,2018 Cost Accumulated depreciation and impairment 2018 Opening net book amount Depreciation Closing net book amount At December 31, 2018 Cost Accumulated depreciation and impairment At January1,2017 Cost Accumulated depreciation and impairment 2017 Opening net book amount Depreciation Closing net book amount At December 31, 2017 Cost Accumulated depreciation and impairment

Buildings and Land structures Total 257,174 $ 521,053 $ 778,227 $ - 179,625) ( 179,625) ( 257,174 $ 341,428 $ 598,602 $ 257,174 $ 341,428 $ 598,602 $ - 10,217) ( 10,217) ( 257,174 $ 331,211 $ 588,385 $ 257,174 $ 521,053 $ 778,227 $ - 189,842) ( 189,842) ( 257,174 $ 331,211 $ 588,385 $ Buildings and Land structures Total 257,174 $ 521,053 $ 778,227 $ - 169,408) ( 169,408) ( 257,174 $ 351,645 $ 608,819 $ 257,174 $ 351,645 $ 608,819 $ - 10,217) ( 10,217) ( 257,174 $ 341,428 $ 598,602 $ 257,174 $ 521,053 $ 778,227 $ - 179,625) ( 179,625) ( 257,174 $ 341,428 $ 598,602 $

~39~

A. Rental income from the lease of the investment property and direct operating expenses arising from the investment property are shown below:

from the investment property are shown below:
Rental income from the lease of the investment property Direct operating expenses arising from the investment property that generated rental income in the period	2018 32,260 $ 10,217 $	2017
		31,380 $
		10,217 $

B.The fair value of the investment property held by the Group as at December 31, 2018 and 2017 was $1,696,894 and $1,616,301, respectively, which was based on the valuations of the market prices of property sold in similar districts.

(11) Intangible assets

Software At January1,2018 Cost 61,116 $ Accumulated amortisation and impairment 55,510) ( 5,606 $ 2018 Opening net book amount 5,606 $ Additions－acquired separately 9,293 Additions－acquired through business combinations - Amortisation charge 3,763) ( Net exchange differences 1) ( Closing net book amount 11,135 $ At December 31,2018 Cost 70,396 $ Accumulated amortisation and impairment 59,261) ( 11,135 $

Goodwill Others Total - $ - $ 61,116 $ - - 55,510) ( - $ - $ 5,606 $ - $ - $ 5,606 $ - - 9,293 115,084 37,600 152,684 - 4,792) ( 8,555) ( - - 1) ( 115,084 $ 32,808 $ 159,027 $ 115,084 $ 37,600 $ 223,080 $ - 4,792) ( 64,053) ( 115,084 $ 32,808 $ 159,027 $

~40~

Software At January1,2017 Cost 54,413 $ Accumulated amortisation and impairment 51,486) ( 2,927 $ 2017 Opening net book amount 2,927 $ Additions－acquired separately 6,717 Amortisation charge 4,033) ( Effect of changes on exchange rate 5) ( Closing net book amount 5,606 $ At December 31,2017 Cost 61,116 $ Accumulated amortisation and impairment 55,510) ( 5,606 $	Goodwill - $ - - $ - $ - - - - $ - $ - - $	Others Total - $ 54,413 $ - 51,486) ( - $ 2,927 $ - $ 2,927 $ - 6,717 - 4,033) ( - 5) ( - $ 5,606 $ - $ 61,116 $ - 55,510) ( - $ 5,606 $

(12) Impairment of non-financial assets

• A. The Group recognised impairment loss for the years ended December 31, 2018 and 2017 of

• $52,108 and $0, respectively. Details of such loss are as follows:

Impairment loss－ machinery	Recognised in Recognised other comprehensive inprofit or loss income 52,108 $ - $ 2018	Recognised in Recognised other comprehensive inprofit or loss income - $ - $ 2017

B. The impairment loss reported by operating segments is as follows:

Impairment loss - optical manufacturing segment	Recognised in Recognised other comprehensive inprofit or loss income 52,108 $ - $ 2018	Recognised in Recognised other comprehensive inprofit or loss income - $ - $ 2017

The product demand decreased due to the highly competitive market and the Group faded out mobile camera module field in 2018. The Group adjusted book values based on recoverable amounts after management assessment, and recognised impairment loss amounting to $52,108.

~41~

(13) Long-term prepaid rent (shown as ‘Other non-current assets’)

During the years ended December 31, 2003 and 2002, the Group signed a land use contract with the People’s Government of Liaobu of Dongguan City in Guangdong province, PRC and Nanjing Hi-Tech Economic Development Zone General Corporation for the use of land at Huanan Industrial Park and Nanjing New & High Technology Industry Development Zone with a term of 50 years. All rentals had been paid on the contract date.

Short-term borrowings Land use rights Type of borrowings Secured bank borrowings Unsecured bank borrowings Type of borrowings Secured bank borrowings Unsecured bank borrowings	December31,2018 27,881 $ 410,766 438,647 $ December 31,2017 41,699 $ 298,058 339,757 $	December31,2018 December31,2017 72,224 $ 75,604 $ Interest rate range Collateral 5.22%~6.57% Buildings and Structures 0.90%~5.95% - Interest rate range Collateral 5.003%~5.39% Buildings and structures 1.19%~5.38% -

(14) Short-term borrowings

For details of unused short-term lines of credit, please refer to Note 12 (2).

(15) Other payables

Other payables
Employees’ salary and compensation payable Tax payable Construction payable Service fees payable Accrued employees’ compensation and directors’ and supervisors’ remuneration Other payables	December 31,2018 543,807 $ 7,418 3,999 2,234 - 222,128 779,586 $	December 31,2017
		573,334 $ 16,189 37,456 49,265 23,177 171,629
		871,050 $

(16) Pensions

A.(a)The Company and its domestic subsidiaries have a defined benefit pension plan in accordance with the Labor Standards Law, covering all regular employees’ service years prior to the enforcement of the Labor Pension Act on July 1, 2005 and service years thereafter of employees who chose to continue to be subject to the pension mechanism under the Law. Under the defined benefit pension plan, two units are accrued for each year of service for the first 15 years and one unit for each additional year thereafter, subject to a maximum of 45 units. Pension benefits are based on the number of units accrued and the average monthly salaries and wages of the last 6 months prior to retirement. The Company and its domestic subsidiaries contribute monthly an amount equal to 2% of the employees’

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monthly salaries and wages to the retirement fund deposited with Bank of Taiwan, the trustee, under the name of the independent retirement fund committee. Also, the Company and its domestic subsidiaries would assess the balance in the aforementioned labor pension reserve account by December 31, every year. If the account balance is not enough to pay the pension calculated by the aforementioned method to the employees expected to qualify for retirement in the following year, the Company and its domestic subsidiaries will make contribution for the deficit by next March.

(b)The amounts recognised in the balance sheet are determined as follows:

	December	31,2018	December	31,2017
Present value of defined benefit obligations	$	103,386	$	102,321
Fair value of plan assets	(	53,079)	(	51,149)
Net defined benefit liability	$	50,307	$	51,172

(c)Changes in present value of funded obligations are as follows:

	Present value of defined	Present value of defined	Fair value of	Fair value of		Net defined
		benefit obligations		plan assets	benefit liability
Year ended December 31, 2018
Balance at January 1	$	102,321	($	51,149)	$	51,172
Interest expense (income)		1,589	(	758)		831
		103,910	(	51,907)		52,003
Remeasurements:
Return on plan assets
(excluding amounts included in
interest income or expense)
Change in demographic assumptions		2,266		-		2,266
Change in financial assumptions		4,894		-		4,894
Experience adjustments	(	4,231)	(	1,584)	(	5,815)
		2,929	(	1,584)		1,345
Pension fund contribution		-	(	3,041)	(	3,041)
Paid pension	(	3,453)		3,453		-
Balance at December 31	$	103,386	($	53,079)	$	50,307

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	Present value of defined	Present value of defined	Fair value of	Fair value of		Net defined
		benefit obligations		plan assets	benefit liability
Year ended December 31, 2017
Balance at January 1	$	119,306	($	61,613)	$	57,693
Interest expense (income)		2,082	(	1,033)		1,049
		121,388	(	62,646)		58,742
Remeasurements:
Return on plan assets
(excluding amounts included in
interest income or expense)
Change in demographic assumptions	(	4,396)		-	(	4,396)
Change in financial assumptions		3,397		-		3,397
Experience adjustments	(	3,662)		370	(	3,292)
	(	4,661)		370	(	4,291)
Pension fund contribution		-	(	3,279)	(	3,279)
Paid pension	(	14,406)		14,406		-
Balance at December 31	$	102,321	($	51,149)	$	51,172

• (d)The Bank of Taiwan was commissioned to manage the Fund of the Company’s and domestic subsidiaries’ defined benefit pension plan in accordance with the Fund’s annual investment and utilisation plan and the “Regulations for Revenues, Expenditures, Safeguard and Utilisation of the Labor Retirement Fund” (Article 6: The scope of utilisation for the Fund includes deposit in domestic or foreign financial institutions, investment in domestic or foreign listed, over-the-counter, or private placement equity securities, investment in domestic or foreign real estate securitization products, etc.). With regard to the utilisation of the Fund, its minimum earnings in the annual distributions on the final financial statements shall be no less than the earnings attainable from the amounts accrued from two-year time deposits with the interest rates offered by local banks. If the earnings is less than aforementioned rates, government shall make payment for the deficit after being authorised by the Regulator. The Company and domestic subsidiaries have no right to participate in managing and operating that fund and hence the Company and domestic subsidiaries are unable to disclose the classification of plan assets fair value in accordance with IAS 19 paragraph 142. The composition of fair value of plan assets as of December 31, 2018 and 2017 is given in the Annual Labor Retirement Fund Utilisation Report announced by the government.

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

Discount rate Future salary increases	2018 1.125%~1.28% 1.75%~3%	2017
		1.25%~1.6%
		1.75%~3%

Assumptions regarding future mortality experience are set based on the published statistics

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and experience in the 5[th] Taiwan Standard Ordinary Experience Mortality Table.

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

Increase 0.5% Decrease 0.5% December 31, 2018 Effect on present value of defined benefit obligation 7,769) ($ 8,539 $ December 31, 2017 Effect on present value of defined benefit obligation 7,984) ($ 8,802 $ Discount rate	Increase 0.5% Decrease 0.5% 8,343 $ 7,674) ($ 8,628 $ 7,910) ($ Future salaryincreases

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

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

• (f)Expected contributions to the defined benefit pension plans of the Group for the year ending December 31, 2019 are $2,858.

(g)As of December 31, 2018, the weighted average duration of that retirement plan is 17 years. The analysis of timing of the future pension payment was as follows:

The analysis of timing of the future pension payment was as follows:
Within 1 year 1-2 year(s) 2-5 years Over 5 years	7,984 $ 9,903 23,552 59,382
	100,821 $

B.(a)Effective July 1, 2005, the Company and its domestic subsidiaries have established a defined contribution pension plan (the “New Plan”) under the Labor Pension Act (the “Act”), covering all regular employees with R.O.C. nationality. Under the New Plan, the Company and its domestic subsidiaries contribute monthly an amount based on 6% of the employees’ monthly salaries and wages to the employees’ individual pension accounts at the Bureau of Labor Insurance. The benefits accrued are paid monthly or in lump sum upon termination of employment.

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  - (b)The Group’s mainland subsidiaries have a defined contribution plan. Monthly contributions to an independent fund administered by the government in accordance with the pension regulations in the People’s Republic of China (PRC) are based on certain percentages of employees’ monthly salaries and wages. Other than the monthly contributions, the Group has no further obligations.

  - (c)The pension costs under the defined contribution pension plans of the Group for the years ended December 31, 2018 and 2017 were $38,523 and $37,470, respectively.

• (17) Share-based payment

• A. For the years ended December 31, 2018 and 2017, the Group’s share-based payment arrangements were as follows:

Type of arrangement Grant date Quantity granted Contract period Vesting conditions Restricted stocks to employees (Note) 2014.05.21 22,000 3 years 3 years’ service The above share-based payment arrangements are equity settled.

Note: The restricted stocks issued by the Group cannot be transferred during the vesting period, but voting right and dividend right are not restricted on these stocks. Employees are required to return the stocks but not required to return the dividends received if they resign during the vesting period.

• B. For the Company’s restricted stocks to employees plan, the fair value on the grant date is estimated using the Black-Scholes option-pricing model. The weighted-average parameters used in the estimation of the fair value are as follows:

Type of arrangement Restricted stocks to employees plan Restricted stocks to employees plan Restricted stocks to employees plan	Expiration After 1 year After 2 years After 3 years	Stock price (in dollars) $20.90 $20.90 $20.90	Exercise price (in dollars) $10 $10 $10	Price volatility 22.22% 21.15% 25.67%	Dividends 8.22% - -	Interest rate 1.4628% 1.6421% 1.9488%	Fair value per unit (in dollars)
							$8.4358 $6.3536 $4.9827

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• C. Expenses incurred on share-based payment transactions are shown below:

Equity-settled	2018 - $	2017 2,730 $

• D. The Group has purchased 2 thousand shares and 93 thousand shares at $10 per share, which amounted to $22 and $934, during 2018 and 2017, respectively, for employees who have resigned during the vesting period. As of December 31, 2018 and 2017, the retirement of employee restricted stocks purchased had been completed.

(18) Provisions (shown as ‘Other current liabilities’)

Warranty		2018		2017
At January 1	$	136,439	$		222,181
Reversal of provisions	(	30,279)	(		85,742)
At December 31	$	106,160	$		136,439

(19) Share capital

As of December 31, 2018, the Company’s authorised capital was $5,400,000, consisting of 540 million shares of ordinary stock, and the paid-in capital was $2,823,628 with a par value of $10 (in dollars) per share.

(20) Capital surplus

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

At January 1, 2018 Employee restricted shares At December 31, 2018 At January 1, 2017 Employee restricted shares At December 31, 2017	Sharepremium 1,245,854 $ 581 1,246,435 $ Sharepremium 1,214,046 $ 31,808 1,245,854 $	Treasury share transactions 219,206 $ - 219,206 $ Treasury share transactions 219,206 $ - 219,206 $	Capital reserve from gain on disposal of assets 56 $ - 56 $ Capital reserve from gain on disposal of assets 56 $ - 56 $	Employee Employee restricted stock options shares 97,738 $ 215 $ - 195) ( 97,738 $ 20 $ Employee Employee restricted stock options shares 97,738 $ 29,077 $ - 28,862) ( 97,738 $ 215 $	Employee restricted shares

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(21) Retained earnings

• A. Under the Company’s Articles of Incorporation, the current year’s earnings, if any, shall first be used to pay all taxes and offset prior years’ operating losses. Then, 10% of the remaining amount shall be set aside as legal reserve until the legal reserve equals the total capital stock balance and the Company shall appropriate or reverse special reserve when necessary. The appropriation of the remainder along with beginning unappropriated earnings is the accumulated distributable earnings for shareholders, which shall be proposed by the Board of Directors and resolved by the shareholders.

• B. In accordance with the regulations, the Company shall set aside special reserve from the debit balance on other equity items at the balance sheet date before distributing earnings. When debit balance on other equity items is reversed subsequently, the reversed amount could be included in the distributable earnings.

• C. The Company’s dividend policy is adopted taking into consideration the Company’s financial structure, future capital expenditures, future cash flows and assurance of the Company’s competitiveness in the market. In accordance with the dividend policy, cash dividends shall account for at least 10% of the total dividends distributed.

• D. Except for covering accumulated deficit or issuing new stocks or cash to shareholders in proportion to their share ownership, the legal reserve shall not be used for any other purpose. The use of legal reserve for the issuance of stocks or cash to shareholders in proportion to their share ownership is permitted, provided that the balance of the reserve exceeds 25% of the Company’s paid-in capital.

• E. The Company recognised dividends amounting to $254,171 during 2017. On June 11, 2018, the shareholders resolved for the distribution of dividends from 2017 earnings in the amount of $225,892 at $0.8 (in dollars) per share.

• F. For the information relating to employees’ compensation and directors’ and supervisors’ remuneration, please refer to Note 6(26).

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(22) Other equity items

2018

Operating revenue Financial statements translation differences of foreign operations At January 1 89,939) ($ Effect of retrospective application and retrospective restatement - -Group 57,223 Revaluation - At December 31 32,716) ($ Financial statements translation differences of foreign operations At January 1 192,839 $ -Group - Revaluation 282,778) ( Employee restricted shares -Compensation cost - At December 31 89,939) ($ Currency translation differences: Currency translation differences: Sales revenue Service revenue	Financial statements translation differences of foreign operations	Financial statements translation differences of foreign operations	Unrealised gains/losses on available-for- sale financial assets	Unrealised gains/losses on available-for- sale financial assets	Unrealised gains/losses on available-for- sale financial assets
		Financial statements translation differences of foreign operations		Unrealised gains/losses on available-for- sale financial assets
			($ $		294,501) - 536,391 - 241,890 2018
				$

(23) Operating revenue

A. Disaggregation of revenue from contracts with customers

The Group derives revenue from the transfer of goods and services over time and at a point in time in the following main business segment:

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		Optical
		manufacturing			Strategic
2018		segment		investingsegment			Total
Total segment revenue	$	12,152,115	$		1,507,054	$	13,659,169
Inter-segment revenue	(	5,502,200)	(		521,941)	(	6,024,141)
Revenue from external
customer contracts	$	6,649,915	$		985,113	$	7,635,028
Timing of revenue
At a point in time	$	6,321,619	$		985,113	$	7,306,732
Over time		328,296			-		328,296
	$	6,649,915	$		985,113	$	7,635,028

B. Contract liabilities

The Group has recognised the following revenue-related contract liabilities:

Contract liabilities - advance sales receipts (shown as Other current liabilities)	December31,2018
	104,278 $

• C. Revenue recognised that was included in the contract liability balance at the beginning of the year

year
Advance sales receipts	December31,2018
	104,362 $

(24) Other income

year Other income Advance sales receipts		December31,2018 104,362 $
Rental revenue Interest income Dividend income	2018 32,556 $ 34,759 107,897 175,212 $	2017
		31,589 $ 26,344 100,707 158,640 $

(25) Other gains and losses

Other gains and losses
		2018				2017
Gains on disposal of property, plant and equipment	$		68,856	$			19,282
Net currency exchange gain (loss)			22,576	(			67,828)
Depreciation on investment property	(		10,217)	(			10,217)
Impairment loss	(		52,108)				-
Grants revenue			-				36,000
Other gains			19,356				32,155
	$		48,463		$		9,392

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(26) Employee benefit, depreciation and amortisation expenses

Employee benefit expenses Wages and salaries Labor and health insurance fees Pension costs Other personnel expenses Depreciation (Note) Amortisation	2018 1,319,836 $ 103,355 39,354 95,034 343,946 8,555	2017
		1,357,484 $ 112,615 38,519 70,401 329,761 4,033

• Note: For the years ended December 31, 2018 and 2017, depreciation on investment property amounted to $10,217 for both years and was shown as other gains and losses.

• A. According to the Articles of Incorporation of the Company, when distributing earnings, the Company shall distribute bonus to the employees and pay remuneration. The ratio shall not be lower than 8% and shall not be higher than 15% for employees’ compensation and shall not be higher than 1.5% for directors’ and supervisors’ remuneration.

• B. For the years ended December 31, 2018 and 2017, employees’ compensation was accrued at $0 and $19,518, respectively; while directors’ and supervisors’ remuneration was accrued at $0 and $3,659, respectively. The aforementioned amounts were recognised in salary expenses.

• Employees’ compensation and directors’ and supervisors’ remuneration for 2017 amounting to $19,518 and $3,659, respectively, as resolved at the shareholders’ meeting were in agreement with those amounts recognised in the 2017 financial statements. The employees’ compensation and directors’ and supervisors’ remuneration will be distributed in the form of cash. Information about employees’ compensation and directors’ and supervisors’ remuneration of the Company as resolved by the board of directors and shareholders during their meeting will be posted in the “Market Observation Post System” at the website of the Taiwan Stock Exchange.

(27) Income tax

• A. Income tax expense (benefit)

• (a) Components of income tax expense:

posted in the “Market Observation Post System” at the website of change. tax ome tax expense (benefit) Components of income tax expense:	the Taiwan Stock
2018 Current tax on profits for the year 31,158 $ Prior year income tax overestimation 35,226) ( Origination and reversal of temporary differences 79,394) ( Impact of change in tax rate 12,810) ( Land value increment tax 7,225 Income tax (benefit) expense 89,047) ($	2017
	24,593 $ 6,699) ( 3,989 - - 21,883 $

• (b) The income tax (charge)/credit relating to components of other comprehensive income is as

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follows:

Remeasurement of defined benefit obligations Impact of change in tax rate	2018 269) ($ 1,840) ( 2,109) ($	2017 730 $ - 730 $

B. Reconciliation between income tax expense and accounting profit

		2018		2017
Tax calculated based on profit before tax and
statutory tax rate	($	79,930)	$	64,719
Tax effect of permanent differences		33,656	(	50,933)
Effect of estimated assessment of tax	(	35,226)	(	6,699)
Tax effect of change in income tax rate	(	1,962)		14,796
Land value increment tax		7,225		-
Impact of change in tax rate	(	12,810)		-
Income tax (benefit) expense	($	89,047)	$	21,883

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

Deferred tax assets: Fees for after sales Adjustment of bad debts for tax purposes Employee benefits Taxable loss Others Deferred tax assets: Fees for after sales Adjustment of bad debts for tax purposes Employee benefits Others	2018
	Recognised in Recognised in other comprehensive January1 profit or loss income 23,195 $ 1,963) ($ - $ 26,808 7,145 - 10,610 - 2,109 - 80,360 - 23,283 6,662 - 83,896 $ 92,204 $ 2,109 $ 2017	December 31
		21,232 $ 33,953 12,719 80,360 29,945
		178,209 $
	Recognised in Recognised in other comprehensive January1 profit or loss income 31,012 $ 7,817) ($ - $ 26,319 489 - 11,340 - 730) ( 19,944 3,339 - 88,615 $ 3,989) ($ 730) ($	December 31
		23,195 $ 26,808 10,610 23,283
		83,896 $

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• D. Expiration dates of unused net taxable loss and amounts of unrecognised deferred tax assets are as follows:

• (a) Companies located in Taiwan:

	December 31,2018	December 31,2018
Year incurred	Amount filed/assessed Unused amount 171,184 $ 103,594 $ 72,056 72,056 401,799 401,799 645,039 $ 577,449 $ December 31,2017			Unrecognised deferred tax assets 103,594 $ 72,056 - 175,650 $	Expiry year 2021 2022 2028
2011 2012 2018
Year incurred	Amount filed/assessed 167,284 $ 72,056 91,382 330,722 $	Unused amount 167,284 $ 72,056 91,382 330,722 $		Unrecognised deferred tax assets 167,284 $ 72,056 91,382 330,722 $	Expiry year 2021 2022 2027
2011 2012 2017

• (b) In accordance with the tax regulations in Malaysia, the loss carryforward of the consolidated subsidiary, ALL VISION TECHNOLOGY SDN. BHD, audited by other independent accountants, had no expiration date. As of December 31, 2018 and 2017, the unused loss carryforward amounted to $523,972 and $519,075, respectively.

• E. The amounts of deductible temporary differences that are not recognised as deferred tax assets are as follows:

are as follows:
Deductible temporary differences	December31,2018 1,277,971 $	December31,2017
		1,299,279 $

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• F. The Company has not recognised taxable temporary differences associated with investment in subsidiaries as deferred tax liabilities. As of December 31, 2018 and 2017, the amounts of temporary differences unrecognised as deferred tax liabilities were $418,813 and $423,542, respectively.

• G. The Company’s income tax returns through 2016 have been assessed and approved by the Tax Authority.

• H. Under the amendments to the Income Tax Act which was promulgated by the President of the Republic of China on February 7, 2018, the Company’s applicable income tax rate was raised from 17% to 20% effective from January 1, 2018. The Group has assessed the impact of the change in income tax rate.

(28) (Loss) earnings per share

change in income tax rate. 8)(Loss) earnings per share
Amount after tax Basic loss per share Loss attributable to ordinary shareholders of the parent 463,048) ($ Amount after tax Basic earnings per share Profit attributable to ordinary shareholders of the parent 217,663 $ Diluted earnings per share Assumed conversion of all dilutive potential ordinary shares Employee compensation Employee restricted shares Profit attributable to ordinary shareholders of the parent plus assumed conversion of all dilutive potential ordinary shares 217,663 $		2018
	Amount after tax 217,663 $ 217,663 $	Weighted average number of ordinary shares outstanding (shares in thousands) 281,061 1,095 29 282,185

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(29) Business combinations

• A. In order to enforce AIoT and smart surveillance photography market layout, the Group acquired 100% of the share capital of AndroVideo Inc. for $140,000 and obtained control over AndroVideo Inc. (referred herein as “AndroVideo”) on August 31, 2018. The Group is focused on research and development, manufacturing, and trading of digital monitoring system. The Group is expected to enforce its market position after the acquisition.

• B. The following table summarises the consideration paid for AndroVideo and the fair values of the assets acquired and liabilities assumed at the acquisition date:

		December 31,2018
Purchase consideration
Cash paid	$	140,000
Fair value of the identifiable assets acquired
and liabilities assumed
Cash		3,202
Accounts receivable		853
Inventories		32,868
Other current assets		3,451
Property, plant and equipment		5,387
Other non-current assets		1,337
Other short-term borrowings	(	17,000)
Accounts payable	(	12,038)
Other current liabilities	(	30,744)
Other intangible assets		37,600
Total identifiable net assets		24,916
Goodwill	$	115,084

(30) Supplemental cash flow information

Investing activities with partial cash payments

Purchase of property, plant and equipment Compensation revenue Cash paid during the year	2018 2017 181,446 $ 453,382 $ - 36,000) ( 181,446 $ 417,382 $

(31) Changes in liabilities from financing activities

Changes in liabilities from financing activities arose from changes in cash flow from financing activities for the years ended December 31, 2018 and 2017. Please refer to statements of cash flows for the details.

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7. RELATED PARTY TRANSACTIONS

(1)Names of related parties and relationship

ATED PARTY TRANSACTIONS ames of related parties and relationship
Names of relatedparties Altasec Technology Corporation (Altasec Technology) AVY Precision Technology Inc. (AVY Precision) AVY Co., Ltd. (AVY) Shine Trade International Ltd. (Shine Trade) Taichiba International Ltd. (Taichiba)	Relationshipwith the Company
	Associate Other related party Other related party Other related party Other related party

(2)Significant related party transactions

The following disclosures are based on transactions with counterparties who are considered as related parties.

• A. Operating revenue:

related parties. A. Operating revenue:
		2018			2017
Sales of goods:
-Associates	$		73,116	$	41,125
Goods are sold based on the price lists in force and terms that would be available to third parties.
B. Purchases:
		2018			2017
Purchases of goods:
-Other related parties	$		89,858	$	196,654
Goods and services are purchased from other related parties on			normal	commercial terms and
conditions.

• C. Receivables from related parties:

conditions. C. Receivables from related parties:
D. Payable to related parties Accounts receivable: Associates Accounts payable -Other related parties	December 31,2018 12,341 $ December31,2018 38,144 $	December 31,2017
		12,320 $
		December31,2017
		75,330 $

The payables to related parties arise mainly from purchase transactions and are due 1~6 months after the date of purchase.

• E. Property transactions:

Purchase of property, plant and equipment:

after the date of purchase. Property transactions: Purchase of property, plant and equipment:
Associaties Other related parties	Years ended December 31,
	2018 - $ 7,572 7,572 $	2017
		382 $ 18,908 19,290 $

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(3)Key management compensation

Key management compensation
Salaries and other short-term employee benefits Post-employment benefits Share-based payments	2018 13,545 $ 611 - 14,156 $	2017
		21,792 $ 674 329 22,795 $

8. PLEDGED ASSETS

The Group’s assets pledged as collateral are as follows:

Pledged asset Land Buildings and structures	December31,2018 December31,2017 1,256,394 $ 1,256,394 $ 27,850 29,816 1,284,244 $ 1,286,210 $ Bookvalue	Purpose
	December31,2018 1,256,394 $ 27,850 1,284,244 $
		Note Bank borrowings

Note: In order to jointly develop the operational headquarters with general contractors, the land of Xinzhuang Fuduxin Section was pledged to banks as collateral.

9. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNISED CONTRACT

COMMITMENTS

None.

10. SIGNIFICANT DISASTER LOSS

None.

11. SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE

None.

12. OTHERS

(1) Capital management

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

(2) Financial instruments

A. Financial instruments by category

The Group classified financial assets at amortised cost (including cash and cash equivalents, current financial assets at amortised cost and accounts receivable) with carrying amount of $3,462,295, and financial liabilities at amortised cost (including short-term borrowings, accounts payable and other payables) with carrying amount of $3,068,297 under IFRS 9. The information on carrying amounts of financial assets at fair value through profit or loss and financial assets at fair value through other comprehensive income is provided in Note 6.

• B. Financial risk management policies

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

• (b) Risk management is carried out by a central treasury department (Group treasury) under policies approved by the board of directors. Group treasury identifies, evaluates and hedges financial risks in close cooperation with the Group’s operating units. The Board provides written principles for overall risk management, as well as written policies covering specific areas and matters, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.

• C. Significant financial risks and degrees of financial risks

• (a) Market risk

Foreign exchange risk

• i. The Group operates internationally and is exposed to foreign exchange risk arising from the transactions of the Company and its subsidiaries used in various functional currency, primarily with respect to the USD and RMB. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities.

• ii. Management has set up a policy to require group companies to manage their foreign exchange risk against their functional currency. The companies are required to hedge their entire foreign exchange risk exposure with the Group treasury.

• iii. The Group treasury’s risk management policy is to hedge (mainly export sales and purchase of inventory and processing charges) in each major foreign currency for the subsequent quarter.

• iv. The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. Currency exposure arising from the net assets of the Group’s foreign operations is managed primarily through borrowings denominated in the relevant foreign currencies, and China as the main regional.

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

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December 31, 2018

(Foreign currency: functional currency Financial assets Monetary items USD:NTD Financial liabilities Monetary items USD:NTD USD:RMB (Foreign currency: functional currency Financial assets Monetary items USD:NTD Financial liabilities Monetary items USD:NTD USD:RMB	Foreign currency amount (in thousands) 57,805 $ 51,970 $ 42,643		Exchange Book value rate (NTD) 30.715 1,775,481 $ 30.715 1,596,251 $ 6.8632 292,665 December 31,2017	Exchange Book value rate (NTD) 30.715 1,775,481 $ 30.715 1,596,251 $ 6.8632 292,665 December 31,2017		Sensitivityanalysis	Sensitivityanalysis
						Degree of variation 1% 1% 1%	Effect on profit or loss
	Foreign currency amount (in thousands) 97,545 $ 66,757 $ 47,653		Exchange rate 29.76 29.76 6.5342	Book value (NTD) 2,902,939 $ 1,986,688 $ 311,374
						Degree of variation 1% 1% 1%

• vi. Total exchange gain (loss), including realised and unrealised arising from significant foreign exchange variation on the monetary items held by the Group for the years ended December 31, 2018 and 2017 amounted to $22,576 and ($67,828), respectively.

Price risk

• i. The Group’s equity securities, which are exposed to price risk, are the held financial assets at fair value through profit or loss, financial assets at fair value through other comprehensive income and available-for-sale financial assets. To manage its price risk arising from investments in equity securities, the Group diversifies its portfolio. Diversification of the portfolio is done in accordance with the limits set by the Group.

• ii. The Group’s investments in equity securities comprise shares and open-end funds issued by the domestic and foreign companies. The prices of equity securities would change due to the change of the future value of investee companies. If the prices of these equity securities had increased/decreased by 10% with all other variables held constant. For the years ended December 31, 2018 and 2017, other components of equity would have increased/decreased by $131,364 and $169,675, respectively, as a result of other comprehensive income classified as available-for-sale equity investment and equity

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investment at fair value through other comprehensive income.

Cash flow and fair value interest rate risk

• i. The Group’s main interest rate risk arises from bank borrowings with variable rates, which expose the Group to cash flow interest rate risk.

• ii. The Group’s borrowings are measured at amortised cost. The borrowings are periodically contractually repriced and to that extent are also exposed to the risk of future changes in market interest rates.

• iii. If the borrowing interest rate had increased/decreased by 1% with all other variables held constant, profit, net of tax for the years ended December 31, 2018 and 2017, would have increased/decreased by $4,386 and $3,398, respectively. The main factor is that changes in interest expense result from floating rate borrowings.

• (b) Credit risk

• i. Credit risk refers to the risk of financial loss to the Group arising from default by the clients or counterparties of financial instruments on the contract obligations. The main factor is that counterparties could not repay in full the accounts receivable based on the agreed terms.

• ii. According to the Group’s credit policy, each local entity in the Group is responsible for managing and analysing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. Internal risk control assesses the credit quality of the customers, taking into account their financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the relevant management methods. The utilisation of credit limits is regularly monitored.

• iii. The Group adopts the assumption under IFRS 9, that is, if the contract payments were past due over 180 days based on the terms, there has been a significant increase in credit risk on that instrument since initial recognition .

• iv. The Group classifies customer’s accounts receivable, contract assets and rents receivable in accordance with customer types. The Group applies the simplified approach using loss rate methodology to estimate expected credit loss.

• v. The Group used the forecastability to adjust the loss rates which is based on history and timely information within the specified period to estimate loss allowance for accounts receivable. Based on the consideration and information above, the Group does not expect any significant loss allowance for the accounts receivable due to loss rate.

• vi.Movements in relation to the Group applying the simplified approach to provide loss allowance for accounts receivable are as follows:

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At January 1_IAS 39 Adjustments under new standards At January 1_IFRS 9 Provision for impairment At December 31	2018
	165,611 $ - 165,611 8,172
	173,783 $

vii. Credit risk information for 2017 is provided in Note 12(4).

• (c) Liquidity risk

• i. Cash flow forecasting is performed in the operating entities of the Group and aggregated by Group treasury. Group treasury monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities (Note 6(15)) at all times so that the Group does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities. Such forecasting takes into consideration the Group’s debt financing plans, covenant compliance, compliance with internal balance sheet ratio targets and, if applicable, external regulatory or legal requirements, for example, currency restrictions.

• ii. Surplus cash held by the operating entities over and above balance required for working capital management are transferred to the Group treasury. Group treasury invests surplus cash in interest bearing current accounts, time deposits, money market deposits and marketable securities, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient headroom as determined by the abovementioned forecasts.

• iii. As of December 31, 2018 and 2017, the Group has the following undrawn borrowing facilities:

Fixed rate: Expiring within one year	December 31,2018 3,366,702 $	December 31,2017
		4,168,412 $

• iv. The table below analyses the Group’s non-derivative financial liabilities and net-settled or gross-settled derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date for non-derivative financial liabilities and to the expected maturity date for derivative financial liabilities. The table below analyses the Group’s non-derivative financial liabilities, of which short-term borrowings, accounts payable and other payables is less than one year, and guarantee deposits received is more than one year.

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(3) Fair value information

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

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

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

• Level 3: Unobservable inputs for the asset or liability.

• The fair value of the Group’s investment in equity investment without active market is included in Level 3.

• B. Fair value information of investment property at cost is provided in Note 6(10).

• C. The carrying amounts of financial instruments not measured at fair value including cash and cash equivalents, financial assets at amortised cost-current, accounts receivable, short-term borrowings, accounts payable and other payables are approximate to their fair values.

• D. The related information of financial and non-financial instruments measured at fair value by level on the basis of the nature, characteristics and risks of the assets and liabilities is as follows:

December 31, 2018 Assets: Recurring fair value measurements Available-for-sale financial assets Equity securities December 31, 2017 Assets: Recurring fair value measurements Available-for-sale financial assets Equity securities	Level 1 1,141,377 $ Level 1 1,696,754 $	Level 2 - $ Level 2 - $	Level3 172,258 $ Level 3 - $	Total
				1,313,635 $
				Total
				1,696,754 $

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

• (a) The instruments the Group used market quoted prices as their fair values (that is, Level 1) are listed below by characteristics:

Listed shares

Market quoted price Closing price

• (b) Except for financial instruments with active markets, the fair value of other financial

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instruments is measured by using valuation techniques or by reference to counterparty quotes. The fair value of financial instruments measured by using valuation techniques can be referred to current fair value of instruments with similar terms and characteristics in substance, discounted cash flow method or other valuation methods, including calculated by applying model using market information available at the consolidated balance sheet date (i.e. yield curves on the Taipei Exchange, average commercial paper interest rates quoted from Reuters).

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

• F. The output of valuation model is an estimated value and the valuation technique may not be able to capture all relevant factors of the Group’s financial and non-financial instruments. Therefore, the estimated value derived using valuation model is adjusted accordingly with additional inputs, for example, model risk or liquidity risk, etc. In accordance with the Group’s management policies and relevant control procedures relating to the valuation models used for fair value measurement, management believes adjustment to valuation is necessary in order to reasonably represent the fair value of financial and non-financial instruments at the consolidated balance sheet. The inputs and pricing information used during valuation are carefully assessed and adjusted based on current market conditions.

• G. The Group takes into account adjustments for credit risks to measure the fair value of financial and non-financial instruments to reflect credit risk of the counterparty and the Group’s credit quality.

• H. For the years ended December 31, 2018 and 2017, there was no transfer between Level 1 and Level 2.

• I. The following chart is the movement of Level 3 for the years ended December 31, 2018 and 2017:

017:
2018 At January 1 - $ IFRS 9 translation adjustment 206,531 Recorded as unrealised gains (losses) on valuation of investments in equity instruments measured at fair value through other comprehensive income 34,863) ( Effect of exchange rate changes 590 At December 31 172,258 $	2017
	- $ - - -
	- $

• J. For the years ended December 31, 2018 and 2017, there was no transfer into or out from Level

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• K. Finance and accounting segment is in charge of valuation procedures for fair value measurements being categorised within Level 3, which is to verify independent fair value of financial instruments. Such assessment is to ensure the valuation results are reasonable by applying independent information to make results close to current market conditions, confirming the resource of information is independent, reliable and in line with other resources and represented as the exercisable price, and frequently calibrating valuation model, performing back-testing, updating inputs used to the valuation model and making any other necessary adjustments to the fair value.

• L. The following is the qualitative information of significant unobservable inputs and sensitivity analysis of changes in significant unobservable inputs to valuation model used in Level 3 fair value measurement:

Fair value at December 31, 2018 Non-derivative equity instruments: Unlisted shares $172,258	Significant Range Relationship Valuation unobservable (weighted of inputs to technique input average) fair value Net asset value Not applicable - Not applicable

• M. The Group has carefully assessed the valuation models and assumptions used to measure fair value. However, use of different valuation models or assumptions may result in different measurement. The following is the effect of profit or loss or of other comprehensive income from financial assets and liabilities categorised within Level 3 if the inputs used to valuation models have changed:

models have changed:
Input Financial assets Equity instrument Net asset value	Change ±1%	December	Favourable Unfavourable change change $ - $1,723 31,2018 Recognised in other comprehensive income
		Favourable Unfavourable change change $ - $ - Recognised inprofit or loss

(4) Effects on initial application of IFRS 9 and information on application of IAS 39 in 2017

• A. Summary of significant accounting policies adopted in 2017

• (a) Financial assets at fair value through profit or loss

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

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• (i) Hybrid (combined) contracts; or

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

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

• ii. On a regular way purchase or sale basis, financial assets at fair value through profit or loss are recognised and derecognised using trade date accounting.

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

(b) Available for sale financial assets

• i. They are non-derivatives that are either designated in this category or not classified in any of the other categories.

• ii. On a regular way purchase or sale basis, available-for-sale financial assets are recognised and derecognised using trade date accounting.

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

• (c) Loans and receivables

Accounts receivable are loans and receivables originated by the entity. They are created by the entity by selling goods or providing services to customers in the ordinary course of business. They are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. However, short-term accounts receivable without bearing interest are subsequently measured at initial invoice amount as the effect of discounting is immaterial.

• (d) Impairment of financial assets

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

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group of financial assets that can be reliably estimated.

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

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

• (ii) It becomes probable that the borrower will enter bankruptcy or other financial reorganisation;

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

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

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

• (i) Financial assets at amortised cost

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

• (ii) Financial assets at cost

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

• (iii) Available-for-sale financial assets

The amount of the impairment loss is measured as the difference between the asset’s

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acquisition cost (less any principal repayment and amortisation) and current fair value, less any impairment loss on that financial asset previously recognised in profit or loss, and is reclassified from ‘other comprehensive income’ to ‘profit or loss’. If, in a subsequent period, the fair value of an investment in a debt instrument increases, and the increase can be related objectively to an event occurring after the impairment loss was recognised, such impairment loss is reversed through profit or loss. Impairment loss of an investment in an equity instrument recognised in profit or loss shall not be reversed through profit or loss. Impairment loss is recognised and reversed by adjusting the carrying amount of the asset through the use of an impairment allowance account.

• B. The reconciliations of carrying amount of financial assets transferred from December 31, 2017, IAS 39, to January 1, IFRS 9, were as follows:

Measured at fair value through other comprehensive Available-for Measured income-equity sale-equity at cost Total IAS 39 - $ $1,696,754 $214,145 $1,910,899 Transferred into and measured at fair value through other comprehensive income-equity 1,910,899 1,696,754) ( 214,145) ( - Fair value adjustment 7,614) ( - - 7,614) ( IFRS 9 1,903,285 $ - $ - $ $1,903,285	Retained Other earnings equity - $ - $ - - 11,247 18,861) ( 11,247 $ 18,861) ($ Effects

Under IAS 39, because the equity instruments, which were classified as available-for-sale financial assets, financial assets at cost, amounting to $1,696,754 and $214,145, respectively, were not held for the purpose of trading, they were reclassified as "financial assets at fair value through other comprehensive income (equity instruments)" amounting to $1,910,899, and accordingly, retained earnings was increased and other equity interest was decreased in the amounts of $11,247 and $18,861 on initial application of IFRS 9, respectively.

• C. The significant accounts as of December 31, 2017 are as follows:

• (a) Financial assets at fair value through profit or loss

Items Financial assets held for trading Listed stocks Valuation adjustment	December31,2017
	- $ -
	- $

• i. The Group recognised net profit amounting to $1,980 on financial assets held for trading for

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the year ended December 31, 2017.

ii. The Group has no financial assets at fair value through profit or loss pledged to others.

(b)Available-for-sale financial assets

Items	December	31,2017
Current items:
Listed stocks	$	818,048
Valuation adjustment	(	51,532)
	$	766,516
Non-current items:
Listed stocks	$	636,816
Valuation adjustment		293,422
	$	930,238

• i. The Group recognised $536,391 in other comprehensive income for fair value change to profit or loss for the year ended December 31, 2017.

• ii. The Group has no financial assets pledged to others.

• (c) Financial assets at cost

inancial assets at cost
Items		December 31,2017
Unlisted stocks	$	225,522
Accumulated impairment	(	11,377)
	$	214,145

• i. According to the Group’s intention, its investment in unlisted stocks should be classified as ‘available-for-sale financial assets’. However, as the company stocks are not traded in active market, and sufficient industry information of companies similar to company stocks or company stocks’ financial information cannot be obtained, the fair value of the investment in company stocks cannot be measured reliably. The Group classified those stocks as ‘financial assets measured at cost’.

• ii. On December 29, 2016, the Board of Directors of the Company resolved to invest in ABICO ASIA CAPITAL CORPORATION in the estimated amount of $100 million. As of December 31, 2017, the investment amounted to $100 million, and the shareholding ratio

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was 5.189%.

• iii. On December 22, 2017, the Board of Directors of the Company resolved to invest in REVL Inc. in the amount of USD 618 thousand (approximately NTD 18,392 thousand. As of December 31, 2017, the Group’s shareholding ratio was 2.059%.

• iv. The Group has no financial assets pledged to others.

• D. Credit risk information for the year ended December 31, 2017 are as follows:

• (a) Credit risk refers to the risk of financial loss to the Group arising from default by the clients or counterparties of financial instruments on the contract obligations. According to the Group’s credit policy, each local entity in the Group is responsible for managing and analysing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. Internal risk control assesses the credit quality of the customers, taking into account their financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the Board of Directors. The utilisation of credit limits is regularly monitored. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding receivables.

• (b) For the year ended December 31, 2017, the implement of credit management is based on the regulations and management does not expect any significant losses from non-performance by these counterparties.

• (c) The credit quality of accounts receivable that were neither past due nor impaired was in the following categories based on the Group’s Credit Quality Control Policy:

Group A Group B Group C Group D	December 31,2017
	616,387 $ 190,367 496,290 110,607
	1,413,651 $

• Note: Credit quality is classified according to six indicators that include the business situation, debt-paying ability, managing ability, profit-earning ability, financial structure and cash flows. The customers’ total scores valued through each of the six indicators are ranked in a risk assessment range in a descending order as A, B, C and D level. If applied to external valuation to obtain D&B or Moody’s ratings, ranges are also classified into the following four levels as below.

• Group A ： D&B rating 1 or Moody rating AAA/Aa/A1-A3. Group B ： D&B rating 2 or Moody rating Baal-3. Group C ： D&B rating 3 or Moody rating BA/B1-3.

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Group D ： D&B rating 4 or Moody rating below Caa.

• (d) The ageing analysis of financial assets that were past due but not impaired is as follows:

Up to 30 days 31 to 90 days 91 to 180 days Over 180 days	December31,2017
	257,210 $ 29,367 3,701 450
	290,728 $

The above ageing analysis was based on past due date.

• (e) Movement analysis of financial assets that were impaired is as follows:

• i. As of December 31, 2017, the Group’s accounts receivable that were impaired amounted to $165,611.

• ii. Movements on the Group’s provision for impairment of accounts receivable are as follows:

follows:
		2017
		Group provision
At January 1	$	165,766
Reversal of impairment loss	(	155)
At December 31	$	165,611

(5) Effects of initial application of IFRS 15 and information on application of IAS 18 in 2017

• A. The significant accounting policies applied on revenue recognition for the year ended December 31, 2017 are set out below.

• (a) Sales of goods

  • i The Group is primarily engaged in manufacture and sales of digital camera, optical products and other related parts and components. Revenue is measured at the fair value of the consideration received or receivable taking into account of business tax, returns, rebates and discounts for the sale of goods to external customers in the ordinary course of the Group’s activities. Revenue arising from the sales of goods is recognised when the Group has delivered the goods to the customer, the amount of sales revenue can be measured reliably and it is probable that the future economic benefits associated with the transaction will flow to the entity. The delivery of goods is completed when the significant risks and rewards of ownership have been transferred to the customer, the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold, and the customer has accepted the goods based on the sales contract or there is objective evidence showing that all acceptance provisions have been satisfied.

ii.The Group offers customers volume discounts and right of return for defective

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products.The Group estimates such discounts and returns based on historical experience. Provisions for such liabilities are recorded when the sales are recognised.

(b) Sales of services

The Group provides product research and development services. Revenue from delivering services is recognised under the percentage-of-completion method when the outcome of services provided can be estimated reliably. The stage of completion of a service contract is measured by the percentage of the actual services performed as of the financial reporting date to the total services to be performed. If the outcome of a service contract cannot be estimated reliably, contract revenue should be recognised only to the extent that contract costs incurred are likely to be recoverable.

• B. The revenue recognised by using above accounting policies for the year ended December 31, 2017 are as follows:

2017 are as follows:
Sales revenue Service revenue	2017
	10,985,857 $ 215,743
	11,201,600 $

• C. There is no effect on current balance sheet and comprehensive income statement if the Group continues adopting above accounting policies.

14. SEGMENT INFORMATION

(1) General information

The Group has classified the reportable operating segments based on management strategy. The Company’s operations and segmentation are classified according to the management strategy, and the current management strategy is divided into the optical manufacturing segment and the strategic investing segment. The Company’s main activities are the manufacturing and sales of optical products; the strategic investing segment focuses on sales of design and manufacturing of optical elements.

The Group’s management has determined the reportable operating segments based on the reports reviewed by the Board of Directors for decision making.

There is no significant change to the Group’s components, basis for segmentation, and basis for balancing the segments’ information for the year.

(2) Measurement of segment information

The Group’s operating decision-maker evaluates the performance of the operating segments based on their net operating profit. The basis of the measurement excludes effects of non-recurring expenditures from the operating segments and effects of unrealised gains/losses on financial products.

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(3) Information about segment profit or loss, assets and liabilities

The segment information provided to the chief operating decision-maker for the reportable segments is as follows:

Optical manufacturing segment Revenue Revenue from external customers 6,649,915 $ Revenue from internal customers - Total segment revenue 6,649,915 $ Inter-segment profit (loss) 812,219) ($ Segment income (loss): Depreciation and amortisation 289,483 $ Interest income Interest expense Income tax expense Segment assets Identifiable assets 8,731,307 $ Financial assets at fair value through other comprehensive income Investment accounted for under the equity method General assets Total assets Capital expenditures 114,343 $ Not included in the segments’ profits or losses for measurement, but are still provided to the chief operating decision-maker periodically:		2018

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Optical manufacturing Strategic Reconciliations Revenue segment investingsegment and offsets Revenue from external customers 10,389,284 $ 812,316 $ - $ Revenue from internal customers 9,339,317 489,766 9,829,083) ( Total segment revenue 19,728,601 $ 1,302,082 $ 9,829,083) ($ Inter-segment profit (loss) 32,619 $ 8,815) ($ 41,049 $ Segment income (loss): Depreciation and amortisation 264,242 $ 79,769 $ - $ Interest income Interest expense Income tax expense Segment assets Identifiable assets 9,944,914 $ 862,682 $ - $ Available-for-sale financial assets Financial assets measured at cost Investment accounted for under the equity method General assets Total assets Capital expenditures 405,755 $ 47,627 $ - $ 2017 Not included in the segments’ profits or losses for measurement, but are still provided to the chief operating decision-maker periodically:		2017
			Total
			11,201,600 $ -
			11,201,600 $
			64,853 $
			344,011 $
			26,344 $
			5,558 $
			21,883 $
			10,807,596 $ 1,696,754 214,145 4,020 83,896
			12,806,411 $
			453,382 $

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(4) Reconciliation for segment income (loss)

A reconciliation of adjusted consolidated net profit before tax and the reportable operating segments’ net profit for 2018 and 2017 is provided as follows:

		2018			2017
Reportable segments profit and loss	($		739,861)	$		64,853
Gain on financial instruments			-			1,908
Share of profit of associates and joint ventures
accounted for using the equity method			8,273			954
Finance costs - net	(		6,659)	(		5,558)
Others			223,675			166,124
Profit before tax and continued operations	($		514,572)	$		228,281

(5) Information on product and service

Refer to Note 6 (23) for the related information.

(6) Geographical information

Geographical information for 2018 and 2017 is as follows:

Japan Taiwan Others	Revenue Non-current assets 3,608,433 $ - $ 27,333 3,317,162 3,999,262 1,073,228 7,635,028 $ 4,390,390 $ 2018	Revenue Non-current assets 7,296,402 $ - $ 23,063 3,464,228 3,882,135 1,250,022 11,201,600 $ 4,714,250 $ 2017
	Revenue 3,608,433 $ 27,333 3,999,262 7,635,028 $	Revenue 7,296,402 $ 23,063 3,882,135 11,201,600 $

(7) Major customer information

Major customer information of the Group for 2018 and 2017 is as follows:

R Company AA Company EE Company A Company	Revenue Segment 1,646,386 $ Optical segment 1,133,150 Optical segment 1,123,446 Optical segment 541,781 Optical segment 2018	2017	2017
	Revenue 1,646,386 $ 1,133,150 1,123,446 541,781	Revenue 3,112,257 $ 1,374,102 2,305,586 1,678,065	Segment
			Optical segment Optical segment Optical segment Optical segment

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Attachment II

REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE

To the Board of Directors and Shareholders of Ability Enterprise Co., Ltd.

Opinion

We have audited the accompanying parent company only balance sheets of Ability Enterprise Co., Ltd. (the “Company”) as at December 31, 2018 and 2017, and the related statements of comprehensive income, of changes in equity and of cash flows for the years then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, based on our audits and the reports of other independent accountants (refer to the Other Matter – Making Reference to the Audits of Component Auditors section of our report), the accompanying parent company only financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2018 and 2017, and its financial performance and its cash flows for the years then ended in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”.

Basis for opinion

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

Key audit matters

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

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Assessment of allowance for inventory valuation loss

Description

Refer to Note 4(11) for accounting policies on inventory valuation, Note 6(6) for account details on investments accounted for using equity method and Tables 7 and 8 for further information on investees accounted for using equity method.

As of December 31, 2018, inventories and allowance for inventory valuation loss amounted to NT$497 thousand and NT$285 thousand, respectively, while the investments accounted for using equity method amounted to NT$4,896,014 thousand. The Company’s direct and indirect wholly-owned subsidiaries, Viewquest Technologies (BVI) Inc., Ability Technology (Dongguan) Co., Ltd., Jiujiang Viewquest Electronics Inc. and Dongguan Viewquest Electronics Inc., are main operating entities. All of which are primarily engaged in manufacturing and sale of digital cameras, optical devices as well as related parts and components. Due to rapid changes in technology innovations, short life cycles of electronic products and fluctuations in market prices, there is higher risk of incurring inventory valuation losses and obsolescence. The entities recognise inventories at the lower of cost and net realisable value and assess excess inventories and those separately identified as obsolete.

As the abovementioned subsidiaries contribute a significant amount of inventories and loss allowance and the inventory valuation is subject to significant judgements and estimates and have great uncertainty, we consider the assessment of the allowance for inventory valuation loss a key audit matter.

How our audit addressed the matter

We performed the following audit procedures with respect to excess inventories and those separately identified as obsolete or damaged:

• A. Ascertained whether the policies on allowance for inventory valuation losses are consistently applied in all the periods.

• B. Understood the determination method of the net realisable value, sampled and tested whether the net realisable values were calculated in accordance with the abovementioned method.

• C. Discussed with management the estimated net realisable value of separately identified obsolete and damaged inventories, obtained and corroborated against supporting documents and recalculated the

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allowance provision.

Impairment assessment of property, plant and investment property

Description

Refer to Notes 4(13) and (14) for accounting policies on impairment of property, plant and equipment and investment property, Note 5(2) for the uncertainty of accounting estimates and assumptions applied on impairment of property, plant and equipment, and Notes 6(7) and (8) for account details of property, plant and equipment and investment property. As of December 31, 2018, property, plant and equipment and investment property totalled to NT$3,113,288 thousand.

The Company’s property, plant and equipment and investment property primarily consist of land, buildings and structures amounting to NT$3,113,288 thousand, constituting 30% of total assets. The domestic property value has been significantly affected by the factors of market supply and demand situation, natural disasters, government policies, economic situation and the uncertainty of property valuation as well as the risk of asset impairment. Thus, we consider impairment assessment of property, plant and equipment and investment property a key audit matter.

How our audit addressed the matter

We performed the following audit procedures with respect to impairment assessment of property, plant and equipment and investment property:

• A. Reviewed external information (or the most recent transaction price for similar property) to identify any potential impairment indicators for property, plant and equipment and investment property.

• B. Assessed the reasonableness of the recoverable amounts of property, plant and equipment and investment property, and evaluated the impairment assessment based on the most recent transaction price for similar property.

Other matter – Scope of the audit

We did not audit the financial statements of certain subsidiaries accounted for using equity method that are included in the financial statements. The balance of these investments accounted for using equity method amounted to NT$130,807 thousand and NT$4,020 thousand, constituting 1.24% and 0.03% of

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consolidated total assets as of December 31, 2018 and 2017, respectively, and the related share of profit of subsidiaries accounted for using equity method was NT$13,213 thousand and NT$954 thousand, constituting 1.29% and 0.21% of consolidated total comprehensive income for the years then ended, respectively. Those financial statements were audited by other independent accountants whose reports thereon have been furnished to us, and our opinion expressed herein is based solely on the audit reports of the other independent accountants.

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

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

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

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

Auditor’s responsibilities for the audit of the financial statements

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

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

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

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

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

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

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

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

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

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

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

Juanlu, Man-Yu[Audrey Tseng ]

For and on behalf of PricewaterhouseCoopers, Taiwan March 25, 2019

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

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

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ABILITY ENTERPRISE CO., LTD. PARENT COMPANY ONLY BALANCE SHEETS DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

Assets	Notes 6(1) 6(2) 6(4) and 7 6(5) 7 6(3) 12(4) 12(4) 6(6) 6(7), 7 and 8 6(8) 6(21)	December31,2018 AMOUNT % $ 885,133 9 - - 546,184 5 212 - 234,289 2 1,665,818 16 676,421 6 - - - - 4,896,014 46 2,524,903 24 588,385 6 9,346 - 167,067 2 20,936 - 8,883,072 84 $ 10,548,890 100	December31,2017	December31,2017
		AMOUNT $ 885,133 - 546,184 212 234,289 1,665,818 676,421 - - 4,896,014 2,524,903 588,385 9,346 167,067 20,936 8,883,072 $ 10,548,890	AMOUNT $ 1,006,591 - 1,266,328 2,025 94,194 2,369,138 - 930,238 195,753 5,093,310 2,756,242 598,602 4,682 75,973 35,915 9,690,715 $ 12,059,853	%
Current assets 1100 Cash and cash equivalents 1110 Current financial assets at fair value through profit or loss 1170 Accounts receivable, net 130X Inventory 1470 Other current assets 11XX Total current assets Non-current assets 1517 Non-current financial assets at fair value through other comprehensive income 1523 Non-current available-for-sale financial assets 1543 Non-current financial assets at cost 1550 Investments accounted for using equity method 1600 Property, plant and equipment 1760 Investment property, net 1780 Intangible assets 1840 Deferred income tax assets 1900 Other non-current assets 15XX Total non-current assets 1XXX Total assets				8 - 11 - 1
				20
				- 8 1 42 23 5 - 1 -
				80
				100

(Continued)

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ABILITY ENTERPRISE CO., LTD. PARENT COMPANY ONLY BALANCE SHEETS DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

Liabilities and Equity	December31,2018 Notes AMOUNT % 6(9) $ 240,000 3 7 2,333,676 22 6(10) 429,075 4 - - 6(13) 106,160 1 117,969 1 3,226,880 31 6(11) 60,104 - 60,104 - 3,286,984 31 6(14) 2,823,628 27 6(15) 1,563,455 15 6(16) 1,655,947 16 - - 1,645,054 15 ( 426,178) ( 4 ) 7,261,906 69 $ 10,548,890 100	December31,2017	December31,2017
		AMOUNT $ - 2,605,224 537,608 44,657 136,438 157,155 3,481,082 61,429 61,429 3,542,511 2,823,650 1,563,069 1,634,181 101,662 2,242,829 151,951 8,517,342 $ 12,059,853	%
Current liabilities 2100 Short-term borrowings 2170 Accounts payable 2200 Other payables 2230 Current income tax liabilities 2250 Provisions for liabilities - current 2300 Other current liabilities 21XX Total current liabilities Non-current liabilities 2600 Other non-current liabilities 25XX Total non-current liabilities 2XXX Total liabilities Equity Share capital 3110 Share capital - common stock Capital surplus 3200 Capital surplus Retained earnings 3310 Legal reserve 3320 Special reserve 3350 Unappropriated retained earnings Other equity interest 3400 Other equity interest 3XXX Total equity 3X2X Total liabilities and equity			- 22 5 - 1 1
			29
			-
			-
			29
			23 13 14 1 19 1
			71
			100

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

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ABILITY ENTERPRISE CO., LTD. PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

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

Items

Year ended December 31 2018 2017 Notes AMOUNT % AMOUNT % 6(17) and 7 $ 5,622,943 100 $ 9,959,455 100 6(5)(20) and 7 ( 5,374,877 ) ( 96) ( 8,899,575) ( 89) 248,066 4 1,059,880 11 6(20) ( 81,741 ) ( 1) ( 80,533) ( 1) ( 362,417 ) ( 6) ( 352,892) ( 4) ( 591,260 ) ( 11) ( 612,548) ( 6) 12(2) ( 4,915 ) - - - ( 1,040,333) ( 18) ( 1,045,973) ( 11) ( 792,267 ) ( 14) 13,907 - 6(18) 56,004 1 48,325 1 6(19) 56,147 1 36,162 - ( 593 ) - ( 62) - 6(6) 99,167 2 122,461 1 210,725 4 206,886 2 ( 581,542 ) ( 10) 220,793 2 6(21) 118,494 2 ( 3,130) - ($ 463,048 ) ( 8) $ 217,663 2 6(11) ( $ 1,058 ) - $ 3,921 - 6(3) ( 441,956 ) ( 8) - - ( 174,601 ) ( 3) 163 - 6(21) 1,943 - ( 667) - ( 615,672) ( 11) 3,417 - 57,223 1 ( 282,778) ( 3) 12(4) - - 293,441 3 - - 242,950 3 57,223 1 253,613 3 ($ 558,449 ) ( 10) $ 257,030 3 ($ 1,021,497 ) ( 18) $ 474,693 5 6(22) ($ 1.64) $ 0.77 ( $ 1.64) $ 0.77

4000 Operating revenue 5000 Operating costs 5950 Gross profit from operations Operating expenses 6100 Selling expenses 6200 Administrative expenses 6300 Research and development expenses 6450 Net other income (expenses) 6000 Total operating expenses 6900 Net operating (loss) income Non-operating income and expenses 7010 Other income 7020 Other gains and losses 7050 Finance costs 7070 Share of profit of associates and joint ventures accounted for using equity method, net 7000 Total non-operating income and expenses 7900 (Loss) profit before income tax 7950 Income tax benefit (expense) 8200 (Loss) profit for the year Other comprehensive income Components of other comprehensive income that will not be reclassified to profit or loss 8311 (Losses) gains on remeasurements of defined benefit plans 8316 Unrealised losses from investments in equity instruments measured at fair value through other comprehensive income 8330 Share of other comprehensive (loss) income of associates and joint ventures accounted for using equity method 8349 Income tax related to components of other comprehensive income that will not be reclassified to profit or loss 8310 Other comprehensive (loss) income that will not be reclassified to profit or loss Components of other comprehensive income that will be reclassified to profit or loss 8361 Exchange differences on translation 8362 Other comprehensive income, before tax, available-for-sale financial assets 8380 Share of other comprehensive income of associates and joint ventures accounted for using equity method 8360 Other comprehensive income that will be reclassified to profit or loss 8300 Total other comprehensive (loss) income 8500 Total comprehensive (loss) income Earnings per share 9750 Basic earnings per share 9850 Diluted earnings per share

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

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ABILITY ENTERPRISE CO., LTD. PARENT COMPANY ONLY STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

2017 Balance at January 1, 2017 Profit for 2017 Other comprehensive income (loss) for 2017 Total comprehensive income (loss) for 2017 Appropriation and distribution of 2016 retained earnings Legal reserve Special reserve Cash dividends Compensation cost of share-based payment Adjustments to changes in vested number of restricted stock Redemption of employee restricted stock Balance at December 31, 2017 2018 Balance at January 1, 2018 Effects of retrospective application and retrospective restatement Balance at January 1, 2018 after restatement Loss for 2018 Other comprehensive income (loss) for 2018 Total comprehensive income (loss) for 2018 Appropriation and distribution of 2017 retained earnings Legal reserve Special reserve Cash dividends Adjustments to changes in vested number of restricted stock Redemption of employee restricted stock Changes in ownership interests in subsidiaries Balance at December 31, 2018	Notes		Share capital - common stock		Total capital surplus, additional paid-in capital				Retained Earnings						Other EquityInterest	Other EquityInterest	Other EquityInterest				Treasurystocks		Total equity
							Legal reserve		Special reserve		Unappropriated retained earnings	d	Financial statements translation ifferences of foreign operations		Unrealised gains (losses) from financial assets measured at fair value through other comprehensive income		Unrealised gain or loss on available-for-sale financial assets		Other equity- others
	6(16) 6(12) 6(12) 12(4) 6(16) 6(12)		$ 2,825,279 - - - - - - - - ( 1,629 ) $ 2,823,650 $ 2,823,650 - 2,823,650 - - - - - - - ( 22 ) - $ 2,823,628		$ 1,560,123 - - - - - - - 2,012 934 $ 1,563,069 $ 1,563,069 - 1,563,069 - - - - - - 364 22 - $ 1,563,455		$ 1,595,556 - - - 38,625 - - - - - $ 1,634,181 $ 1,634,181 - 1,634,181 - - - 21,766 - - - - - $ 1,655,947		$ - - - - - 101,662 - - - - $ 101,662 $ 101,662 - 101,662 - - - - ( 101,662 ) - - - - $ -		$ 2,416,348 217,663 3,417 221,080 ( 38,625 ) ( 101,662 ) ( 254,171 ) ( 141 ) - - $ 2,242,829 $ 2,242,829 11,247 2,254,076 ( 463,048 ) 819 ( 462,229 ) ( 21,766 ) 101,662 ( 225,892 ) - - ( 797 ) $ 1,645,054		$ 192,839 - ( 282,778 ) ( 282,778 ) - - - - - - ($ 89,939 ) ($ 89,939 ) - ( 89,939 ) - 57,223 57,223 - - - - - - ($ 32,716 )		$ - - - - - - - - - - $ - $ - 223,029 223,029 - ( 616,491 ) ( 616,491 ) - - - - - - ($ 393,462 )		($ 294,501 ) - 536,391 536,391 - - - - - - $ 241,890 $ 241,890 ( 241,890 ) - - - - - - - - - - $ -		($ 2,871 ) - - - - - - 2,871 - - $ - $ - - - - - - - - - - - - $ -		($ 695 ) - - - - - - - - 695 $ - $ - - - - - - - - - - - - $ -		$ 8,292,078 217,663 257,030 474,693 - - ( 254,171 ) 2,730 2,012 - $ 8,517,342 $ 8,517,342 ( 7,614 ) 8,509,728 ( 463,048 ) ( 558,449 ) ( 1,021,497 ) - - ( 225,892 ) 364 - ( 797 ) $ 7,261,906

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

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ABILITY ENTERPRISE CO., LTD.

PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM OPERATING ACTIVITIES (Loss) profit before tax Adjustments Adjustments to reconcile profit (loss) Expected credit loss Bad debts expense Depreciation Amortisation Compensation cost of share-based payment Gain on valuation of financial assets and liabilities Gain on disposal of property, plant and equipment and investment property Loss on disposal of investments Share of profit or loss of associates and joint ventures accounted for under equity method Interest expense Interest income Dividend income Compensation revenue Changes in operating assets and liabilities Changes in operating assets Accounts receivable, net Inventories Other current assets Changes in operating liabilities Accounts payable Other payables Provisions Other current liabilities Other non-current liabilities Cash outflow generated from operations Interest received Dividends received Income tax paid Interest paid Net cash flows used in operating activities

Notes 2018 2017 ($ 581,542 ) $ 220,793 12(2) 4,915 - 12(4) - 29 6(20) 144,098 120,023 6(20) 3,494 3,611 6(12) - 2,730 12(4) - ( 1,908 ) ( 64,026 ) ( 21,697 ) 119 - 6(6) ( 99,167 ) ( 122,461 ) 593 62 6(18) ( 9,186 ) ( 10,904 ) 6(18) ( 14,558 ) ( 6,041 ) 6(19) - ( 36,000 ) 715,229 284,915 1,813 220 ( 76,237 ) 3,605 ( 271,548 ) ( 595,883 ) ( 108,147 ) 12,333 ( 30,278 ) ( 45,980 ) ( 39,186 ) 46,280 ( 1,698 ) ( 1,716 ) ( 425,312 ) ( 147,989 ) 9,186 10,904 383,738 6,041 ( 17,003 ) ( 46,997 ) ( 593 ) ( 62 ) ( 49,984 ) ( 178,103 )

(Continued)

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ABILITY ENTERPRISE CO., LTD.

PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from disposal of current financial assets at fair value through profit or loss Acquisition of financial assets measured at cost Acquisition of investments accounted for using equity method Proceeds from capital liquidation of investments accounted for using equity method Proceeds from capital reduction of investments accounted for using equity method Acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Acquisition of intangible assets Increase in other current assets Decrease in other non-current assets Net cash flows used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Increase in short-term loans (Decrease) increase in other non-current liabilities Redemption of employee restricted stock Payment of cash dividends Net cash flows from (used in) financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year

Notes 2018 2017 $ - $ 7,178 12(4) - ( 100,000 ) 6(6) ( 192,871 ) - 6(6) 1,860 - 6(6) - 57,684 6(23) ( 83,095 ) ( 366,560 ) 233,410 54,007 ( 8,158 ) ( 5,877 ) ( 51,000 ) - 14,979 3,789 ( 84,875 ) ( 349,779 ) 240,000 - ( 685 ) 317 6(12) ( 22 ) ( 934 ) 6(16) ( 225,892 ) ( 254,171 ) 13,401 ( 254,788 ) ( 121,458 ) ( 782,670 ) 1,006,591 1,789,261 $ 885,133 $ 1,006,591

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

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ABILITY ENTERPRISE CO., LTD.

==> picture [86 x 86] intentionally omitted <==

Chairman: Tseng, Ming-Jen

==> picture [44 x 44] intentionally omitted <==

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