Advantech - Audit Report / Information 2018

Advantech Co., Ltd.

Financial Statements for the Years Ended December 31, 2018 and 2017 and Independent Auditors’ Report

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and the Shareholders Advantech Co., Ltd.

Opinion

We have audited the accompanying financial statements of Advantech Co., Ltd. (the “Company”), which comprise the balance sheets as of December 31, 2018 and 2017, and the statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of 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 auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with The Norm of Professional Ethics for Certified Public Accountant of the Republic of China, and we have fulfilled our other ethical responsibilities in accordance with these requirements. 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 for the year ended December 31, 2018. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matters on the financial statements for the year ended December 31, 2018 were as follows:

Assessment of Provision for Inventory Write-downs

Inventories as of December 31, 2018 amounted to NT$3,630,979 thousand and accounted for 9% of the total assets in the Company’s financial statements, which represented a material percentage of the total asset.

The inventories of the Company are measured at the lower of cost or net realizable value and according to the ratios of possible impairment for aged inventories. Due to the rapid changes in the technological environment and the significant size and variety of inventories, after analyzing the structure of provisions for inventory valuation, we noticed that the provisions were generated from obsolescent inventories which were aged longer. We considered the evaluation of inventory write-downs of aged inventories as having a significant impact on the Company’s financial statements. Therefore, the assessment of provisions for inventory write-downs was deemed to be one of the key audit matters.

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

We assessed and analyzed the Company’s policies for the inventory write-downs provisions and compared them with other competitors’ policies to affirm the reasonableness and consistency of application.
We understood the internal control, evaluated and tested the design and operating effectiveness of the internal controls over the provisions for inventory write-downs.
We reviewed the historical inventory aging reports to trace the process for the usage and scrap of aged inventories in order to assess the reasonableness of percentages for recognizing aged inventories.
We verified the appropriateness of source data, parameters and logic used in the Company’s inventory aging analysis reports.

Sales Revenue

Since the Company operates in the highly competitive industry, we determined that revenue recognition of the Company carries risk due to the demand for the growth of sales and the need to remain competitive in the industry. Hence, the Company’s sales revenue from several product lines whose sales increased materially in numbers and percentages was considered as a key audit matter.

Our audit procedures performed in respect of sales revenue included the following:

We analyzed the trend of the industry, categories of revenue, product lines and customer categories for two consecutive years to confirm whether there were any abnormal situations or centralized trading which might put revenue recognition at risk.
We interviewed personnel who operates the control activities and reviewed related internal vouchers to understand the processes of internal controls related to revenue-recognition and evaluate the design, implementation, and operating effectiveness of internal controls over revenue recognition. We tested such internal controls to obtain sufficient and appropriate audit evidence of the effectiveness of key controls.
We obtained details of accounts, analyzed balances and confirmed or reconciled them with general ledgers; we tested the reconciliation between detailed and general ledgers and traced the reconciliation to acquire sufficient and appropriate evidence.
We determined the appropriate methods of sampling and sample sizes and audited sales orders, packing lists and export declarations in order to evaluate whether the amount of revenue is recognized accurately and in accordance with the regulations for the preparation of financial reports.
We audited the records and vouchers of collections to evaluate whether the amounts of collections are accurate and the payers of such collections and the recipients of the related orders are consistent in order to attest the reality of sales.
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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 the audit committee, are responsible for overseeing the Company’s financial reporting process.

Auditors’ 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 auditors’ 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 auditing standards generally accepted in the Republic of China 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.

As part of an audit in accordance with auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

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.
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.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
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 auditors’ 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 auditors’ report. However, future events or conditions may cause the Company to cease to continue as a going concern.
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.
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Obtain sufficient and appropriate audit evidence regarding the financial information of 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.

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 for the year ended December 31, 2018 and are therefore the key audit matters. We describe these matters in our auditors’ 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.

The engagement partners on the audit resulting in this independent auditors’ report are Jr-Shian Ke and Meng-Chieh Chiu.

Deloitte & Touche Taipei, Taiwan Republic of China

March 8, 2019

Notice to Readers

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

For the convenience of readers, the independent 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. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent auditors’ report and financial statements shall prevail.

ADVANTECH CO., LTD.

BALANCE SHEETS DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 4 and 6) Financial assets at fair value through profit or loss - current (Notes 4, 7 and 27) Notes receivable (Notes 4 and 10) Trade receivables (Notes 4 and 10) Trade receivables from related parties (Notes 4 and 28) Other receivables Other receivables from related parties (Note 28) Inventories (Notes 4, 5 and 11) Other current assets Total current assets NON-CURRENT ASSETS Available-for-sale financial assets - non-current (Notes 4, 9 and 27) Financial assets at fair value through other comprehensive income - non-current (Notes 4, 8 and 27) Investments accounted for using the equity method (Notes 4, 5 and 12) Property, plant and equipment (Notes 4 and 13) Goodwill (Notes 4 and 14) Other intangible assets (Note 4) Deferred tax assets (Notes 4 and 19) Prepayments for equipment Other non-current assets Total non-current assets TOTAL LIABILITIES AND EQUITY CURRENT LIABILITIES Financial liabilities at fair value through profit or loss - current (Notes 4, 7 and 27) Notes payable and trade payables Trade payables to related parties (Note 28) Other payables (Note 15) Other payables to related parties (Note 28) Current tax liabilities (Notes 4 and 19) Short-term warranty provisions (Note 4) Other current liabilities Total current liabilities NON-CURRENT LIABILITIES Deferred tax liabilities (Notes 4 and 19) Net defined benefit liabilities (Notes 4 and 16) Other non-current liabilities Total non-current liabilities Total liabilities EQUITY Share capital Ordinary shares Advance receipts for share capital Total share capital Capital surplus Retained earnings Legal reserve Special reserve Unappropriated earnings Total retained earnings Other equity Exchange differences on translation of foreign financial statements Unrealized gain on available-for-sale financial assets Unrealized gain on financial assets at fair value through other comprehensive income Other equity - unearned employee compensation Total other equity Total equity TOTAL		2018		2017
		Amount % $ 2,509,958 6 1,360,381 3 75,203 - 1,487,837 4 5,655,196 14 143,225 - 41,111 - 3,630,979 9 42,717 - 14,946,607 36 - - 1,028,441 3 17,723,652 43 6,752,642 17 111,599 - 105,532 - 343,646 1 26,344 - 3,963 - 26,095,819 64 $ 41,042,426 100 $ 6,128 - 3,963,470 10 1,695,599 4 2,530,927 6 54,583 - 1,413,134 4 57,675 - 139,075 - 9,860,591 24 1,568,910 4 255,273 1 54,949 - 1,879,132 5 11,739,723 29 6,982,275 17 4,680 - 6,986,955 17 7,073,348 17 5,655,613 14 369,655 1 10,015,895 24 16,041,163 39 (475,245) (1) - - (324,254) (1) 736 - (798,763) (2) 29,302,703 71 $ 41,042,426 100		Amount % $ 2,436,648 7 645,100 2 62,468 - 1,546,135 4 4,603,076 12 143,493 - 15,569 - 2,654,681 7 46,533 - 12,153,703 32 1,419,479 4 - - 16,591,055 44 6,865,025 19 111,599 - 75,584 - 236,699 1 20,126 - 6,755 - 25,326,322 68 $ 37,480,025 100 $ 6,226 - 3,459,433 9 1,123,366 3 2,470,498 7 77,549 - 1,108,579 3 53,304 - 151,823 - 8,450,778 22 1,162,514 3 236,251 1 49,408 - 1,448,173 4 9,898,951 26 6,970,325 19 2,500 - 6,972,825 19 6,554,842 18 5,039,962 13 85,204 - 9,297,896 25 14,423,062 38 (463,479) (1) 93,824 - - - - - (369,655) (1) 27,581,074 74 $ 37,480,025 100

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

ADVANTECH CO., LTD.

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

OPERATING REVENUE (Notes 4 and 28) Sales Other operating revenue Total operating revenue OPERATING COSTS (Notes 11, 18 and 28) GROSS PROFIT UNREALIZED GAIN ON TRANSACTIONS WITH SUBSIDIARIES AND ASSOCIATES (Note 4) REALIZED GAIN ON TRANSACTIONS WITH SUBSIDIARIES AND ASSOCIATES (Note 4) REALIZED GROSS PROFIT OPERATING EXPENSES (Notes 18 and 28) Selling and marketing expenses General and administrative expenses Research and development expenses Total operating expenses OPERATING PROFIT NON-OPERATING INCOME Share of the profit of subsidiaries and associates accounted for using the equity method (Notes 4 and 12) Interest income (Note 4) Gains on disposal of property, plant and equipment (Note 4) Gains on disposal of investments (Notes 4 and 16) Foreign exchange losses, net (Notes 4, 18 and 29) Gains on financial instruments at fair value through profit or loss (Note 4) Dividend income (Note 4) Other income (Notes 8, 22 and 28) Finance costs (Note 18) Losses on financial instruments at fair value through profit or loss (Note 4)		2018 Amount % $ 34,928,854 99 453,922 1 35,382,776 100 24,735,871 70 10,646,905 30 (665,475) (2) 446,326 2 10,427,756 30 661,227 2 867,975 3 2,965,117 8 4,494,319 13 5,933,437 17 1,326,913 4 234 - 87,990 - - - 38,413 - 39,052 - 77,692 - 168,230 1 (33) - (37,756) -		2017
				Amount % $ 30,518,459 99 382,118 1 30,900,577 100 21,520,472 70 9,380,105 30 (446,326) (1) 264,679 1 9,198,458 30 683,065 2 832,526 3 2,837,185 9 4,352,776 14 4,845,682 16 1,965,070 6 923 - 99,749 - 165,076 1 (45,802) - 65,594 - 89,215 - 109,510 - - - (84,455) - (Continued)

ADVANTECH CO., LTD.

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

Impairment loss recognized on investments accounted for using the equity method (Note 12) Other losses Total non-operating income PROFIT BEFORE INCOME TAX INCOME TAX EXPENSE (Notes 4 and 19) NET PROFIT FOR THE YEAR OTHER COMPREHENSIVE INCOME (LOSS) Items that will not be reclassified subsequently to profit or loss: Remeasurement of defined benefit plans (Note 16) Share of the other comprehensive income (loss) of subsidiaries and associates accounted for using the equity method (Notes 12 and 17) Unrealized loss on investment in equity instruments as at fair value through other comprehensive income (Note 17) Income tax relating to items that will not be reclassified subsequently to profit or loss (Note 19) Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of foreign financial statements (Notes 4 and 17) Unrealized losses on available-for-sale financial assets (Notes 4 and 17) Share of other comprehensive loss of subsidiaries and associates accounted for using the equity method (Notes 4, 12 and 17) Income tax relating to item that may be reclassified subsequently to profit (Notes 4, 17 and 19) Other comprehensive loss for the year, net of income tax TOTAL COMPREHENSIVE INCOME FOR THE YEAR		2018 Amount % $ - - (32) - 1,700,703 5 7,634,140 22 1,339,483 4 6,294,657 18 (21,155) - (14,802) - (445,333) (2) 6,358 - (24,575) - - - (11,074) - 23,883 - (486,698) (2) $ 5,807,959 16		2017
				Amount % $ (66,443) - (130) - 2,298,307 7 7,143,989 23 987,473 3 6,156,516 20 (23,710) - (1,395) - - - 4,031 - (313,377) (1) (1,678) - (23,846) - 54,450 - (305,525) (1) $ 5,850,991 19 (Continued)

ADVANTECH CO., LTD.

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

EARNINGS PER SHARE (Note 20) Basic Diluted	2018 Amount % $ 9.02 $ 8.93	2017
		Amount % $ 8.84 $ 8.77

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

(Concluded)

ADVANTECH CO., LTD.

STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

BALANCE AT JANUARY 1, 2017 Appropriation of the 2016 earnings Legal reserve Special reserve Cash dividends on ordinary shares Share dividends on ordinary shares Recognition of employee share options by the Company Compensation costs recognized for employee share options Changes in capital surplus from investments in associates accounted for using equity method Changes in percentage of ownership interests in subsidiaries Net profit for the year ended December 31, 2017 Other comprehensive loss for the year ended December 31, 2017, net of income tax Total comprehensive income (loss) for the year ended December 31, 2017 BALANCE AT DECEMBER 31, 2017 Effect of retrospective application and retrospective restatement BALANCE AT JANUARY 1, 2018 Appropriation of the 2017 earnings Legal reserve Special reserve Cash dividends distributed on ordinary shares Recognition of employee share options by the Company Compensation costs recognized for employee share options Changes in capital surplus from investments in associates accounted for using equity method Associates using equity methods Difference between considerations and carrying amounts of subsidiaries acquired or disposed of Recognized for employee by subsidiaries Net profit for the year ended December 31, 2018 Other comprehensive loss for the year ended December 31, 2018, net of income tax Total comprehensive income (loss) for the year ended December 31, 2018 Associates disposal of investments in equity instruments designated as at fair value through other comprehensive income BALANCE AT DECEMBER 31, 2018		Issued C	apital (Notes 17 and 21	) Total (N $ 6,330,841 - - - 633,074 8,910 - - - - - - 6,972,825 - 6,972,825 - - - 14,130 - - - - - - - - - $ 6,986,955	Capital Surplus otes 4, 17 and 21) $ 6,058,884 - - - - 68,510 424,637 2,054 757 - - - 6,554,842 - 6,554,842 - - - 104,246 341,624 2,660 - 70,716 (740 ) - - - - $ 7,073,348			Retained Earnings (N	otes 4and 17)				Other Equity (Not	es 4and 17)	Unearned Share-Based Employee Compensation $ - - - - - - - - - - - - - - - - - - - - 736 - - - - - - - $ 736	Total Equity $ 25,213,582 - - (3,988,367) - 77,420 424,637 2,054 757 6,156,516 (305,525) 5,850,991 27,581,074 (4,572) 27,576,502 - - (4,600,414 ) 118,376 341,624 3,396 (14,716 ) 70,716 (740 ) 6,294,657 (486,698) 5,807,959 - $ 29,302,703
											Fo	Exchange Fi Differences on Translating reign Operations $ (197,633 ) - - - - - - - - - (265,846) (265,846) (463,479 ) - (463,479 ) - - - - - - - - - - (11,766) (11,766) - $ (475,245)	Unrealized Gain or Loss on nancial Assets at Fair Value Through Other Comprehensive Income A $ - - - - - - - - - - - - - 123,254 123,254 - - - - - - - - - - (459,245) (459,245) 11,737 $ (324,254)	Unrealized Gain (Loss) on vailable-for-sale Financial Assets $ 112,429 - - - - - - - - - (18,605) (18,605) 93,824 (93,824) - - - - - - - - - - - - - - $ -
		Share Capital A fo $ 6,330,741 - - - 633,074 6,510 - - - - - - 6,970,325 - 6,970,325 - - - 11,950 - - - - - - - - - $ 6,982,275	dvance Receipts r Ordinary Share $ 100 - - - - 2,400 - - - - - - 2,500 - 2,500 - - - 2,180 - - - - - - - - - $ 4,680				Legal Reserve $ 4,473,276 566,686 - - - - - - - - - - 5,039,962 - 5,039,962 615,651 - - - - - - - - - - - - $ 5,655,613	Special Reserve $ - - 85,204 - - - - - - - - - 85,204 - 85,204 - 284,451 - - - - - - - - - - - $ 369,655	Unappropriated Earnings $ 8,435,785 (566,686 ) (85,204 ) (3,988,367) (633,074 ) - - - - 6,156,516 (21,074) 6,135,442 9,297,896 (34,002) 9,263,894 (615,651 ) (284,451 ) (4,600,414 ) - - - (14,716 ) - - 6,294,657 (15,687) 6,278,970 (11,737) $ 10,015,895	Total $ 12,909,061 - - (3,988,367) (633,074 ) - - - - 6,156,516 (21,074) 6,135,442 14,423,062 (34,002) 14,389,060 - - (4,600,414 ) - - - (14,716 ) - - 6,294,657 (15,687) 6,278,970 (11,737) $ 16,041,163

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

ADVANTECH CO., LTD.

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax Adjustments to reconcile profit (loss): Depreciation expenses Amortization expenses Impairment loss recognized for trade receivables Expected loss on credit impairment Net loss (gain) on financial assets or liabilities at fair value through profit or loss Financial costs Interest income Dividend income Compensation costs of employee share options Share of profit of subsidiaries and associates accounted for using the equity method Gain on disposal of property, plant and equipment Gain on disposal of investments Impairment loss recognized on investments accounted for using the equity method Realized loss on the transactions with subsidiaries and associates Changes in operating assets and liabilities Financial assets held for trading Notes receivable Trade receivables Trade receivables from related parties Other receivables Other receivables from related parties Inventories Other current assets Notes payable and trade payables Trade payables to related parties Other payables Other payables to related parties Short-term warranty provisions Net defined benefit liabilities Other current liabilities Other non-current liabilities Cash generated from operations Interest received Dividends received Interests paid Income tax paid Net cash generated from operating activities	2018 $ 7,634,140 255,248 85,574 - 6,815 (1,296) 33 (234) (77,692) 341,624 (1,326,913) (87,990) - - 219,149 (714,083) (12,735) 51,483 (1,052,120) 268 (25,542) (976,298) 3,816 504,037 572,233 60,429 (22,966) 4,371 (2,133) (12,748) 5,385 5,431,855 234 77,692 (33) (705,238) 4,804,510	2017 $ 7,143,989 272,639 81,067 185 - 18,861 - (923) (89,215) 424,637 (1,965,070) (99,749) (165,076) 66,443 181,647 (632,232) 4,755 (2,716) (694,628) (37,564) 3,433 (718,808) (8,172) 1,908,464 (1,487,276) (73,796) (77,531) 4,149 1,371 (2,169) 13,655 4,070,370 923 89,215 - (783,217) 3,377,291 (Continued)

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ADVANTECH CO., LTD.

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM INVESTING ACTIVITIES Purchase of available-for-sale financial assets Proceeds from sale of available-for-sale financial assets Acquisition of investments accounted for using equity method Proceeds from disposal of subsidiaries Proceeds from capital reduction of investees accounted for using equity method Payments for property, plant and equipment Proceeds from disposal of property, plant and equipment Increase(decrease) in refundable deposits Payments for intangible assets Decrease in prepayments for equipment Dividends received from subsidiaries and associates Net cash generated from (used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES Increase in guarantee deposits received Cash dividends paid Exercise of employee share options Net cash used in financing activities NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR	2018 $ - - (1,731,720) 126,769 530,458 (204,404) 113,260 2,792 (111,209) 25,738 998,998 (249,318) 156 (4,600,414) 118,376 (4,481,882) 73,310 2,436,648 $ 2,509,958	2017 $ (5,082,000) 6,220,989 (637,500) - - (252,269) 135,528 (1,094) (76,794) 17,924 636,457 961,241 816 (3,988,367) 77,420 (3,910,131) 428,401 2,008,247 $ 2,436,648

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

(Concluded)

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NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

ADVANTECH CO., LTD.

1. GENERAL INFORMATION

Advantech Co., Ltd. (the “Company”) is a listed company that was established in September 1981. It designs, manufactures and sells embedded computing boards, industrial automation products, and applied and industrial computers.

The Company’s shares have been listed on the Taiwan Stock Exchange since December 1999.

To improve the entire operating efficiency of the Company and its subsidiaries, the Company’s board of directors resolved on June 30, 2009 to have a short-form merger with Advantech Investment and Management Service (“AIMS”). The effective merger date was July 30, 2009. As the surviving entity, the Company assumed all assets and liabilities of AIMS. On June 26, 2014, the Company’s board of directors resolved to have a whale-minnow merger with Netstar Technology Co., Ltd. (“Netstar”), an indirectly 95.51%-owned subsidiary through a wholly-owned subsidiary, Advantech Corporate Investment. The effective merger date was July 27, 2014. As the surviving entity, the Company assumed all assets and liabilities of Netstar.

The functional currency of the Company is the New Taiwan dollar.

2. APPROVAL OF FINANCIAL STATEMENTS

The financial statements were approved by the board of directors on March 8, 2019.

3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS

a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), Interpretations of IFRS (IFRIC) and Interpretations of IAS (SIC) (collectively, the “IFRSs”) endorsed and issued into effect by the FSC

Except for the following, whenever applied, the initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs endorsed and issued into effect by the FSC would not have any material impact on the Company’s accounting policies:

1) Annual Improvements to IFRSs 2014-2016 Cycle

Several standards, including IFRS 12 “Disclosure of Interests in Other Entities” and IAS 28 “Investments in Associates and Joint Ventures,” were amended in this annual improvement.

Furthermore, the amendments to IAS 28 clarify that when the Group (i.e. a non-investment entity) applies the equity method to account for its investment in an associate that is an investment entity, the Group may elect to retain the fair value of the investment interests in subsidiaries of the investment entity associate. The election should be made separately for each investment entity associate, at the later of the date that (a) the investment entity associate is initially recognized, (b) the associate becomes an investment entity, or (c) the investment entity associate first becomes a parent.

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2) IFRS 9 “Financial Instruments” and related amendments

IFRS 9 supersedes IAS 39 “Financial Instruments: Recognition and Measurement”, with consequential amendments to IFRS 7 “Financial Instruments: Disclosures” and other standards. IFRS 9 sets out the requirements for classification, measurement and impairment of financial assets and hedge accounting. Refer to Note 4 for information related to the relevant accounting policies.

Classification, measurement and impairment of financial assets

On the basis of the facts and circumstances that existed as at January 1, 2018, the Company has performed an assessment of the classification of recognized financial assets and has elected not to restate prior reporting periods.

The following table shows the original measurement categories and carrying amount under IAS 39 and the new measurement categories and carrying amount under IFRS 9 for each class of the Company’s financial assets and financial liabilities as at January 1, 2018.

Financial Assets Cash and cash equivalents Derivatives Mutual funds Equity securities Notes receivable, trade receivables and other receivables	Measurement Category IAS 39 IFRS 9 Loans and receivables Amortized cost Held‑for‑trading Mandatorily at fair value through profit or loss (i.e. FVTPL) Held‑for‑trading Mandatorily at FVTPL Held‑for‑trading Fair value through other comprehensive income (i.e. FVTOCI) - equity instruments Loans and receivables Amortized cost	Carrying Amount IAS 39 IFRS 9 Remark $ 2,436,648 $ 2,436,648 - 5,084 5,084 - 640,016 640,016 - 1,419,479 1,419,479 a) 6,370,741 6,370,741 b)

Financial Assets IAS 39 Carrying Amount as of January 1, 2018 Reclassifications FVTPL $ 645,100 645,100 FVTOCI Equity instruments - Add: Reclassification from available-for-sale (IAS 39) - $1,419,479 - 1,419,479 Amortized cost Add: Reclassification from loans and receivables (IAS 39) - 8,807,389 $ - $ 10,226,868 Financial Assets IAS 39 Carrying Amount as of January 1, 2018 Investments accounted for using the equity method $ 16,591,055	Remeasure- ments IFRS 9 Carrying Amount as of January 1, 2018 $ 645,100 $ - - 1,419,479 - 8,807,389 $ - $ 10,871,968 Adjustments Arising from Initial Application IFRS 9 Carrying Amount as of January 1, 2018 $ (4,572 ) $ 16,586,483	Retained Earnings Effect on January 1, 2018 Other Equity Effect on January 1, 2018 Remark $ $ a) - - b) $ - $ - Retained Earnings Effect on January 1, 2018 Other Equity Effect on January 1, 2018 Remark $ (34,002 ) $ 29,430 c)

a) The Company elected to classify all of its investments in equity securities previously classified as available-for-sale under IAS 39 as at FVTOCI under IFRS 9. As a result, the related other equity - unrealized gain (loss) on available-for-sale financial assets was reclassified to other equity - unrealized gain (loss) on financial assets at FVTOCI in the amount of $6,382 thousand.
b) Notes receivable, trade receivables and other receivables that were previously classified as loans and receivables under IAS 39 were classified as measured at amortized cost with an assessment of expected credit losses under IFRS 9.
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c) As a result of retrospective application of IFRS 9 by subsidiaries and associates, there was a decrease in investments accounted for using the equity method of $4,572 thousand, a increase in other equity - unrealized gain (loss) on financial assets at FVTOCI of $29,430 thousand and an decrease in retained earnings of $34,002 thousand on January 1, 2018.
3) IFRS 15 “Revenue from Contracts with Customers” and related amendment

IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers, and supersedes IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number of revenue-related interpretations. Please refer to Note 4 for related accounting policies.

In identifying performance obligations, IFRS 15 and the related amendments require that a good or service is distinct if it is capable of being distinct (for example, the Company regularly sells it separately) and the promise to transfer it is distinct within the context of the contract (i.e. the nature of the promise in the contract is to transfer each good or service individually rather than to transfer a combined output).

The Company provides service-type warranties in addition to assurance that its products comply with agreed-upon specifications. IFRS 15 requires such service to be considered as a performance obligation. Any transaction prices allocated to a service-type warranties is recognized as revenue, and the related costs are recognized when such warranty services is performed.

Under IFRS 15, the net effect of revenue recognized and consideration received and receivable is recognized as a contract asset or a contract liability. Prior to the application of IFRS 15, receivables and deferred revenue were recognized when revenue was recognized for the contract under IAS 18.

The Company elected only to retrospectively apply IFRS 15 to contracts that were not complete as of January 1, 2018 and recognize the cumulative effect of the change in retained earnings on January 1, 2018.

For all contract modifications that occurred on or before December 31, 2017, the Company did not apply the requirements in IFRS 15 individually to each of the modifications, and the Company identified the performance obligations and determined and allocated transaction price in a manner that reflected the aggregate effect of all modifications that occurred on or before December 31, 2017. This reduced the complexity and cost of retrospective application, and resulted in financial information that closely aligns with the financial information that would be available under IFRS 15 without the expedient.

4) Amendments to IAS 12 “Recognition of Deferred Tax Assets for Unrealized Losses”

In determining whether to recognize a deferred tax asset, the Company should assess a deductible temporary difference in combination with all of its other deductible temporary differences, unless the tax law restricts the utilization of losses as deduction against income of a specific type, in which case, a deductible temporary difference is assessed in combination only with other deductible temporary differences of the appropriate type. The amendments also stipulate that, when determining whether to recognize a deferred tax asset, the estimate of probable future taxable profit may include some of the Company’s assets for more than their carrying amount if there is sufficient evidence that it is probable that the Company will achieve the higher amount, and that the estimate for future taxable profit should exclude tax deductions resulting from the reversal of deductible temporary differences.

In assessing a deferred tax asset, the Company assumed that it will recover the asset at its carrying amount when estimating probable future taxable profit, The Company applied the above amendments retrospectively in 2018.

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5) IFRIC 22 “Foreign Currency Transactions and Advance Consideration”

IAS 21 stipulated that a foreign currency transaction shall be recorded on initial recognition in the functional currency by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction. IFRIC 22 further explains that the date of the transaction is the date on which an entity recognizes a non-monetary asset or non-monetary liability from payment or receipt of advance consideration. If there are multiple payments or receipts in advance, the entity shall determine the date of the transaction for each payment or receipt of advance consideration.

The Company applied IFRIC 22 prospectively to all assets, expenses and income recognized on or after January 1, 2018 within the scope of the interpretation.

b. Amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), Interpretations of IFRS (IFRIC) and Interpretations of IAS (SIC) (collectively, the “IFRSs”) endorsed by the FSC for application starting from 2019

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Effective Date
New IFRSs Announced by IASB (Note 1)
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New IFRSs	Effective Date Announced by IASB (Note 1)
Annual Improvements to IFRSs 2015-2017 Cycle	January 1, 2019
Amendments to IFRS 9 “Prepayment Features with Negative	January 1, 2019 (Note 2)
Compensation”
IFRS 16 “Leases”	January 1, 2019
Amendments to IAS 19 “Plan Amendment, Curtailment or	January 1, 2019 (Note 3)
Settlement”
Amendments to IAS 28 “Long-term Interests in Associates and Joint	January 1, 2019
Ventures”
IFRIC 23 “Uncertainty Over Income Tax Treatments”	January 1, 2019

Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after their respective effective dates.
Note 2: The FSC permits the election for early adoption of the amendments starting from 2018.
Note 3: The Company shall apply these amendments to plan amendments, curtailments or settlements occurring on or after January 1, 2019.
1) IFRS 16 “Leases”

IFRS 16 sets out the accounting standards for leases that will supersede IAS 17, IFRIC 4 and a number of related interpretations.

Definition of a lease

Upon initial application of IFRS 16, the Company will elect to apply the guidance of IFRS 16 in determining whether contracts are, or contain, a lease only to contracts entered into (or changed) on or after January 1, 2019. Contracts identified as containing a lease under IAS 17 and IFRIC 4 will not be reassessed and will be accounted for in accordance with the transitional provisions under IFRS 16.

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The Company as lessee

Upon initial application of IFRS 16, the Company will recognize right-of-use assets and lease liabilities for all leases on the balance sheets except for those whose payments under low-value assets and short-term leases will be recognized as expenses on a straight-line basis. On the statements of comprehensive income, the Company will present the depreciation expense charged on right-of-use assets separately from the interest expense accrued on lease liabilities; interest is computed using the effective interest method. On the statements of cash flows, cash payments for the principal portion of lease liabilities will be classified within financing activities; cash payments for the interest portion will be classified within operating activities. Currently, payments under operating lease contracts, are recognized as expenses on a straight-line basis. Cash flows for operating leases are classified within operating activities on the statements of cash flows. Leased assets and finance lease payables are recognized for contracts classified as finance leases.

The Company anticipates applying IFRS 16 retrospectively with the cumulative effect of the initial application of this standard recognized on January 1, 2019. Comparative information will not be restated.

Lease liabilities will be recognized on January 1, 2019 for leases currently classified as operating leases with the application of IAS 17. Lease liabilities will be measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate on January 1, 2019. The Company will apply IAS 36 to all right-of-use assets.

The Company expects to apply the following practical expedients:

a) The Company will apply a single discount rate to a portfolio of leases with reasonably similar characteristics to measure lease liabilities.
b) The Company will account for those leases for which the lease term ends on or before December 31, 2019 as short-term leases.
c) The Company will exclude initial direct costs from the measurement of right-of-use assets on January 1, 2019.
d) The Company will use hindsight, such as in determining lease terms, to measure lease liabilities.

The Company as lessor

The Company will not make any adjustments for leases in which it is a lessor and will account for those leases with the application of IFRS 16 starting from January 1, 2019.

Anticipated impact on assets, liabilities and equity

	Carrying	Carrying	Adjustments	Adjusted
	Amount as of		Arising from	Carrying
	December	31,	Initial	Amount as of
	2018		Application	January 1, 2019
Right-of-use assets	$	-	$ 17,033	$ 17,033
Total effect on assets	$	-	$ 17,033	$ 17,033
				(Continued)

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	Carrying	Carrying	Adjustments	Adjusted
	Amount as of		Arising from	Carrying
	December	31,	Initial	Amount as of
	2018		Application	January 1, 2019
Lease liabilities - current	$	-	$ 619	$ 619
Lease liabilities - non-current		-	16,414	16,414
Total effect on liabilities	$	-	$ 17,033	$ 17,033
				(Concluded)

2) IFRIC 23 “Uncertainty Over Income Tax Treatments”

IFRIC 23 clarifies that when there is uncertainty over income tax treatments, the Company should assume that the taxation authority will have full knowledge of all related information when making related examinations. If the Company concludes that it is probable that the taxation authority will accept an uncertain tax treatment, the Company should determine the taxable profit, tax bases, unused tax losses, unused tax credits or tax rates consistently with the tax treatments used or planned to be used in its income tax filings. If it is not probable that the taxation authority will accept an uncertain tax treatment, the Company should make estimates using either the most likely amount or the expected value of the tax treatment, depending on which method the entity expects to better predict the resolution of the uncertainty. The Company has to reassess its judgments and estimates if facts and circumstances change.

3) Amendments to IAS 28 “Long-term Interests in Associates and Joint Ventures”

The amendments clarified that IFRS 9 shall be applied to account for other financial instruments in an associate to which the equity method is not applied. These included long-term interests that, in substance, form part of the entity’s net investment in an associate.

For long-term interests that, in substance, form part of the Company’s net investment in an associate and are governed by IFRS 9, the Company shall, based on the facts and circumstances that exist on January 1, 2019, perform an assessment of the classification under IFRS 9 applied retrospectively.

4) Amendments to IFRS 9 “Prepayment Features with Negative Compensation”

IFRS 9 stipulated that if a contractual term of a financial asset permits the issuer (i.e. the debtor) to prepay a debt instrument or permits the holder (i.e. the creditor) to put a debt instrument back to the issuer before maturity and the prepayment amount substantially represents unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable compensation for early termination, the financial asset has contractual cash flows that are solely payments of principal and interest on the principal amount outstanding. The amendments further explained that reasonable compensation may be paid or received by either of the parties, i.e. a party may receive reasonable compensation when it chooses to terminate the contract early.

Upon initial application of the above amendments, the Company will recognize the cumulative effect of retrospective application in retained earnings on January 1, 2019.

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5) Annual Improvements to IFRSs 2015-2017 Cycle

Several standards, including IFRS 3, IFRS 11, IAS 12 and IAS 23 “Borrowing Costs”, were amended in this annual improvement. IAS 23 was amended to clarify that, if any specific borrowing remains outstanding after the related asset is ready for its intended use or sale, the related borrowing costs shall be included in the calculation of the capitalization rate on general borrowings. Upon initial application of the above amendment, the related borrowing costs will be included in the calculation starting from 2019.

6) Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement”

The amendments stipulate that, if a plan amendment, curtailment or settlement occurs, the current service cost and the net interest for the remainder of the annual reporting period are determined using the actuarial assumptions used for the remeasurement of the net defined benefit liabilities (assets). In addition, the amendments clarify the effect of a plan amendment, curtailment or settlement on the requirements regarding the asset ceiling. The Company will apply the amendment prospectively.

Except for the above impact, as of the date the financial statements were authorized for issue, the Company assesses the significant impact that the application of other standards and interpretations will have no significant influence on the Company’s financial position and financial performance.

c. New IFRSs in issue but not yet endorsed and issued into effect by the FSC

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Effective Date
New IFRSs Announced by IASB (Note 1)
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New IFRSs	Effective Date Announced by IASB (Note 1)
Amendments to IFRS 3 “Definition of a Business”	January 1, 2020 (Note 2)
Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets	To be determined by IASB
between An Investor and Its Associate or Joint Venture”
IFRS 17 “Insurance Contracts”	January 1, 2021
Amendments to IAS 1 and IAS 8 “Definition of Material”	January 1, 2020 (Note 3)

Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after their respective effective dates.
Note 2: The Company shall apply these amendments to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2020 and to asset acquisitions that occur on or after the beginning of that period.
Note 3: The Company shall apply these amendments prospectively for annual reporting periods beginning on or after January 1, 2020.
1) Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture”

The amendments stipulate that, when the Company sells or contributes assets that constitute a business (as defined in IFRS 3) to an associate, the gain or loss resulting from the transaction is recognized in full. Also, when the Company loses control of a subsidiary that contains a business but retains significant influence, the gain or loss resulting from the transaction is recognized in full.

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Conversely, when the Company sells or contributes assets that do not constitute a business to an associate, the gain or loss resulting from the transaction is recognized only to the extent of the Company’s interest as an unrelated investor in the associate, i.e. the Company’s share of the gain or loss is eliminated. Also, when the Company loses control of a subsidiary that does not contain a business but retains significant influence over an associate, the gain or loss resulting from the transaction is recognized only to the extent of the Company’s interest as an unrelated investor in the associate, i.e. the Company’s share of the gain or loss is eliminated.

2) Amendments to IFRS 3 “Definition of a Business”

The amendments clarify that, to be considered a business, an acquired set of activities and assets must include, at a minimum, an input and a substantive process applied to the input that together significantly contribute to the ability to create outputs. The amendments narrow the definitions of outputs by focusing on goods and services provided to customers, and the reference to an ability to reduce costs is removed. Moreover, the amendments remove the assessment of whether market participants are capable of replacing any missing inputs or processes and continuing to produce outputs. In addition, the amendments introduce an optional concentration test that permits a simplified assessment of whether an acquired set of activities and assets is not a business.

Except for the above impact, as of the date the consolidated financial statements were authorized for issue, the Company is continuously assessing the possible impact that the application of other standards and interpretations will have on the Company’s financial position and financial performance and will disclose the relevant impact when the assessment is completed.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Statement of compliance

The parent company only financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and other regulations.

b. Basis of preparation

The financial statements have been prepared on the historical cost basis except for financial instruments which are measured at fair value and net defined benefit liabilities which are measured at the present value of the defined benefit obligation less the fair value of plan assets.

The fair value measurements, which are grouped into Levels 1 to 3 based on the degree to which the fair value measurement inputs are observable and based on the significance of the inputs to the fair value measurement in its entirety, are described as follows:

1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;
2) Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for an asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
3) Level 3 inputs are unobservable inputs for an asset or liability.
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When preparing these parent company only financial statements, the Company used the equity method to account for its investments in subsidiaries and associates. In order for the amounts of the net profit for the year, other comprehensive income for the year and total equity in the parent company only financial statements to be the same with the amounts attributable to the owners of the Company in its consolidated financial statements, adjustments arising from the differences in accounting treatments between the parent company only basis and the consolidated basis were made to investments accounted for using the equity method, the share of profit or loss of subsidiaries and associates, the share of other comprehensive income of subsidiaries and associates and the related equity items, as appropriate, in these parent company only financial statements.

c. Classification of current and non-current assets and liabilities

Current assets include:

1) Assets held primarily for the purpose of trading;
2) Assets expected to be realized within 12 months after the reporting period; and
3) Cash and cash equivalents unless the asset is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period.

Current liabilities include:

1) Liabilities held primarily for the purpose of trading;
2) Liabilities due to be settled within 12 months after the reporting period, even if an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the reporting period and before the financial statements are authorized for issue; and
3) Liabilities for which the Company does not have an unconditional right to defer settlement for at least 12 months after the reporting period. 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.

Assets and liabilities that are not classified as current are classified as non-current.

d. Business combinations

Acquisitions of businesses are accounted for using the acquisition method. Acquisition-related costs are generally recognized in profit or loss as they are incurred.

Goodwill is measured as the excess of the sum of the consideration transferred and the fair value of the acquirer’s previously held equity interests in the acquiree over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.

Where the consideration the Company transfers in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and considered as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with the corresponding adjustments being made against goodwill or gains on bargain purchases. Measurement period adjustments are adjustments that arise from additional information obtained during the measurement period about facts and circumstances that existed as of the acquisition date. The measurement period does not exceed 1 year from the acquisition date.

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The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Other contingent consideration is remeasured at fair value at the end of subsequent reporting period with any gain or loss recognized in profit or loss.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted retrospectively during the measurement period, or additional assets or liabilities are recognized, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognized as of that date.

e. Foreign currencies

In preparing the Company’s financial statements, transactions in currencies other than the Company’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions.

At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Exchange differences on monetary items arising from settlement or translation are recognized in profit or loss in the period in which they arise.

Non-monetary items measured at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Exchange differences arising from the retranslation of non-monetary items are included in profit or loss for the period except for exchange differences arising from the retranslation of non-monetary items in respect of which gains and losses are recognized directly in other comprehensive income, in which cases, the exchange differences are also recognized directly in other comprehensive income.

Non-monetary items that are measured at historical cost in a foreign currency are not translated using the exchange rate at the date of the transaction.

For the purpose of presenting financial statements, the functional currencies of the Company’s foreign operations (including subsidiaries and associates in other countries that use currencies which are different from the currency of the Company) are translated into the presentation currency, the New Taiwan dollars, as follows: Assets and liabilities are translated at the exchange rates prevailing at the end of the reporting period; and income and expense items are translated at the average exchange rates for the period. The resulting currency translation differences are recognized in other comprehensive income.

Goodwill and fair value adjustments on identifiable assets and liabilities acquired arising from the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the rate of exchange prevailing at the end of each reporting period. Exchange differences arising are recognized in other comprehensive income.

f. Inventories

Inventories consist of raw materials, supplies, finished goods and work in process and are stated at the lower of cost or net realizable value. Inventory write-downs are made by item, except where it may be appropriate to group similar or related items. The net realizable value is the estimated selling price of inventories less all estimated costs of completion and costs necessary to make the sale. Inventories are recorded at the weighted-average cost on the balance sheet date.

g. Investment in subsidiaries

The Company uses the equity method to account for its investments in subsidiaries.

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A subsidiary is an entity (including a structured entity) that is controlled by the Company.

Under the equity method, an investment in a subsidiary is initially recognized at cost and adjusted thereafter to recognize the Company’s share of the profit or loss and other comprehensive income of the subsidiary. The Company also recognizes the changes in the Company’s share of equity of the subsidiaries.

Changes in the Company’s ownership interests in subsidiaries that do not result in the Company losing control of the subsidiaries are equity transactions. The Company recognizes directly in equity any difference between the carrying amount of the investment and the fair value of the consideration paid or received.

When the Company’s share of losses of a subsidiary exceeds its interest in that subsidiary (which includes any carrying amount of the investment accounted for using the equity method and long-term interests that, in substance, form part of the Company’s net investment in the subsidiary), the Company continues recognizing its share of further losses.

Any excess of the cost of acquisition over the Company’s share of the net fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition is recognized as goodwill, which is included within the carrying amount of the investment and is not amortized. Any excess of the Company’s share of the net fair value of the identifiable assets and liabilities over the cost of acquisition is recognized immediately in profit or loss.

The Company assesses its investment for any impairment by comparing the carrying amount with the estimated recoverable amount as assessed based on the investee’s financial statements as a whole. Impairment loss is recognized when the carrying amount exceeds the recoverable amount. If the recoverable amount of the investment subsequently increases, the Company recognizes a reversal of the impairment loss; the adjusted post-reversal carrying amount should not exceed the carrying amount that would have been recognized (net of amortization or depreciation) had no impairment loss been recognized in prior years. An impairment loss recognized on goodwill cannot be reversed in a subsequent period.

When the Company loses control of a subsidiary, it recognizes the investment retained in the former subsidiary at its fair value at the date when control is lost. The difference between the fair value of the retained investment plus any consideration received and the carrying amount of the previous investment at the date when control is lost is recognized as a gain or loss in profit or loss. Besides, the Company accounts for all amounts previously recognized in other comprehensive income in relation to that subsidiary on the same basis as would be required if the Company had directly disposed of the related assets or liabilities.

Profits or losses resulting from downstream transactions are eliminated in full only in the parent company’s financial statements. Profits and losses resulting from upstream transactions and transactions between subsidiaries are recognized only in the parent company’s financial statements only to the extent of interests in the subsidiaries that are not related to the Company.

h. Investment in associates

An associate is an entity over which the Company has significant influence and that is not a subsidiary.

The Company uses the equity method to account for its investment in associates.

Under the equity method, investments in an associate are initially recognized at cost and adjusted thereafter to recognize the Company’s share of the profit or loss and other comprehensive income of the associate. The Company also recognizes the changes in the Company’s share of the equity of associates attributable to the Company.

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Any excess of the cost of acquisition over the Company’s share of the net fair value of the identifiable assets and liabilities of an associate at the date of acquisition is recognized as goodwill, which is included within the carrying amount of the investment and is not amortized. Any excess of the Company’s share of the net fair value of the identifiable assets and liabilities over the cost of acquisition, after reassessment, is recognized immediately in profit or loss.

When the Company subscribes for additional new shares of the associate at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment differs from the amount of the Company’s proportionate interest in the associate. The Company records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus - changes in capital surplus from investments in associates accounted for using the equity method. If the Company’s ownership interest is reduced due to the additional subscription of the new shares of associate, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate is reclassified to profit or loss on the same basis as would be required if the investee had directly disposed of the related assets or liabilities. When the adjustment should be debited to capital surplus, but the capital surplus recognized from investments accounted for by the equity method is insufficient, the shortage is debited to retained earnings.

When the Company’s share of losses of an associate equals or exceeds its interest in that associate (which includes any carrying amount of the investment accounted for using the equity method and long-term interests that, in substance, form part of the Company’s net investment in the associate), the Company discontinues recognizing its share of further losses. Additional losses and liabilities are recognized only to the extent that the Company has incurred legal obligations, or constructive obligations, or made payments on behalf of that associate.

The entire carrying amount of an investment (including goodwill) is tested for impairment as a single asset by comparing its recoverable amount with its carrying amount. Any impairment loss recognized is not allocated to any asset, including goodwill, that forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized to the extent that the recoverable amount of the investment subsequently increases.

The Company discontinues the use of the equity method from the date on which its investment ceases to be an associate. Any retained investment is measured at fair value at that date and the fair value is regarded as the investment’s fair value on initial recognition as a financial asset. The difference between the previous carrying amount of the associate attributable to the retained interest and its fair value is included in the determination of the gain or loss on disposal of the associate. The Company accounts for all amounts previously recognized in other comprehensive income in relation to that associate on the same basis as would be required had that associate had directly disposed of the related assets or liabilities.

When the company entity transacts with its associate, profits and losses resulting from the transactions with the associate are recognized in the financial statements only to the extent that interests in the associate are not related to the Company.

i. Property, plant and equipment

Property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment loss.

Property, plant and equipment in the course of construction are measured at cost less any recognized impairment loss. Cost includes professional fees and borrowing costs eligible for capitalization. Such assets are depreciated and classified to the appropriate categories of property, plant and equipment when completed and ready for their intended use.

Freehold land is not depreciated.

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Depreciation of property, plant and equipment is recognized using the straight-line method. Each significant part is depreciated separately. The estimated useful lives, residual values and depreciation methods are reviewed at the end of each reporting period, with the effects of any changes in estimates accounted for on a prospective basis.

On derecognition of an item of property, plant and equipment, the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

j. Goodwill

Goodwill arising from the acquisition of a business is measured cost as established at the date of acquisition of the business less accumulated impairment loss.

For the purposes of impairment testing, goodwill is allocated to each of the Company’s cash-generating units or groups of cash-generating units (referred to as cash-generating units) that is expected to benefit from the synergies of the combination.

A cash-generating unit to which goodwill has been allocated is tested for impairment annually or more frequently when there is an indication that the unit may be impaired, by comparing its carrying amount, including the attributed goodwill, with its recoverable amount. However, if the goodwill allocated to a cash-generating unit was acquired in a business combination during the current annual period, that unit shall be tested for impairment before the end of the current annual period. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then pro rata to the other assets of the unit based on the carrying amount of each asset in the unit. Any impairment loss is recognized directly in profit or loss. An impairment loss recognized for goodwill is not reversed in subsequent periods.

If goodwill has been allocated to a cash-generating unit and the entity disposes of an operation within that unit, the goodwill associated with the operation which is disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal and is measured on the basis of the relative values of the operation deposed of and the portion of the cash-generating unit retained.

k. Intangible assets
1) Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are initially measured at cost and subsequently measured at cost less accumulated amortization and accumulated impairment loss. Amortization is recognized on a straight-line basis. The estimated useful lives, residual values, and amortization methods are reviewed at the end of each reporting period, with the effect of any changes in the estimates accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are measured at cost less accumulated impairment loss.

2) Derecognition of intangible assets

On derecognition of an intangible asset, the difference between the net disposal proceeds and the carrying amount of the asset is recognized in profit or loss.

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l. Impairment of tangible and intangible assets other than goodwill

At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets, excluding goodwill, to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. Corporate assets are allocated to the individual cash-generating units on a reasonable and consistent basis of allocation.

The recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount, with the resulting impairment loss recognized in profit or loss.

When an impairment loss is subsequently reversed, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amount that would have been determined had no impairment loss been recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized in profit or loss.

m. Financial instruments

Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of the instruments.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to an acquisition or issuance of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

1) Financial assets

All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis.

a) Measurement categories

2018

Financial assets are classified into the following categories: Financial assets at FVTPL, financial assets at amortized cost and investments in equity instruments at FVTOCI.

i. Financial assets at FVTPL

Financial assets are classified as at FVTPL when such a financial asset is mandatorily classified or designated as at FVTPL. Financial assets mandatorily classified as at FVTPL include investments in equity instruments which are not designated as at FVTOCI and debt instruments that do not meet the amortized cost criteria or the FVTOCI criteria.

Financial assets at FVTPL are subsequently measured at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss any dividends or interest earned on such a financial asset. Fair value is determined in the manner described in Note 27.

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ii. Financial assets at amortized cost

Financial assets that meet the following conditions are subsequently measured at amortized cost:

i) The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and
ii) The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Subsequent to initial recognition, financial assets at amortized cost, including cash and cash equivalents, and trade receivables at amortized cost, are measured at amortized cost, which equals the gross carrying amount determined using the effective interest method less any impairment loss. Exchange differences are recognized in profit or loss.

Interest income is calculated by applying the effective interest rate to the gross carrying amount of such a financial asset, except for:

i) Purchased or originated credit-impaired financial assets, for which interest income is calculated by applying the credit-adjusted effective interest rate to the amortized cost of such financial assets; and
ii) Financial assets that are not credit-impaired on purchase or origination but have subsequently become credit-impaired, for which interest income is calculated by applying the effective interest rate to the amortized cost of such financial assets in subsequent reporting periods.

Cash equivalents include time deposits with original maturities within 3 months from the date of acquisition, which are highly liquid, readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments.

iii. Investments in equity instruments at FVTOCI

On initial recognition, the Company may make an irrevocable election to designate investments in equity instruments as at FVTOCI. Designation as at FVTOCI is not permitted if the equity investment is held for trading or if it is contingent consideration recognized by an acquirer in a business combination.

Investments in equity instruments at FVTOCI are subsequently measured at fair value with gains and losses arising from changes in fair value recognized in other comprehensive income and accumulated in other equity. The cumulative gain or loss will not be reclassified to profit or loss on disposal of the equity investments; instead, it will be transferred to retained earnings.

Dividends on these investments in equity instruments are recognized in profit or loss when the Company’s right to receive the dividends is established, unless the dividends clearly represent a recovery of part of the cost of the investment.

2017

Financial assets are classified into the following categories: Financial assets at fair value through profit or loss, available-for-sale financial assets, and loans and receivables.

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i. Financial assets at fair value through profit or loss

Financial assets are classified as at fair value through profit or loss when the financial assets are either held for trading or designated as at fair value through profit or loss.

Financial assets at fair value through profit or loss are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any dividend or interest earned on the financial asset. Fair value is determined in the manner described in Note 27.

ii. Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated as available-for-sale or are not classified as loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss.

Available-for-sale financial assets are measured at fair value. Changes in the carrying amounts of available-for-sale monetary financial assets relating to changes in foreign currency exchange rates, interest income calculated using the effective interest method and dividends on available-for-sale equity investments are recognized in profit or loss. Other changes in the carrying amount of available-for-sale financial assets are recognized in other comprehensive income and will be reclassified to profit or loss when the investments are disposed of or are determined to be impaired.

Dividends on available-for-sale equity instruments are recognized in profit or loss when the Company’s right to receive the dividends is established.

iii. Loans and receivables

Loans and receivables (including trade receivables and cash and cash equivalent) are measured using the effective interest method at amortized cost less any impairment, except for short-term receivables when the effect of discounting is immaterial.

b) Impairment of financial assets

2018

The Company recognizes a loss allowance for expected credit losses on financial assets at amortized cost (including trade receivables), investments in debt instruments that are measured at FVTOCI, lease receivables, as well as contract assets.

The Company always recognizes lifetime expected credit losses (i.e. ECLs) for trade receivables. For all other financial instruments, the Company recognizes lifetime ECLs when there has been a significant increase in credit risk since initial recognition. If, on the other hand, the credit risk on a financial instrument has not increased significantly since initial recognition, the Company measures the loss allowance for that financial instrument at an amount equal to 12-month ECLs.

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Expected credit losses reflect the weighted average of credit losses with the respective risks of default occurring as the weights. Lifetime ECLs represent the expected credit losses that will result from all possible default events over the expected life of a financial instrument. In contrast, 12-month ECLs represent the portion of lifetime ECLs that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date.

The Company recognizes an impairment gain or loss in profit or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account, except for investments in debt instruments that are measured at FVTOCI, for which the loss allowance is recognized in other comprehensive income and does not reduce the carrying amount of such a financial asset.

2017

Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence, as a result of one or more events that occurred after the initial recognition of the financial asset, that the estimated future cash flows of the investment have been affected.

Financial assets at amortized cost, such as trade receivables are assessed for impairment on a collective basis even if they were assessed not to be impaired individually. Objective evidence of impairment for a portfolio of receivables could include the Company’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 90 days, as well as observable changes in national or local economic conditions that correlate with defaults on receivables.

For financial assets carried at amortized cost, the amount of the impairment loss recognized is 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.

For a financial asset at amortized cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

For available-for-sale equity investments, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment.

For all other financial assets, objective evidence of impairment could include significant financial difficulty of the issuer or counterparty, breach of contract, such as a default or delinquency in interest or principal payments, it becoming probable that the borrower will enter bankruptcy or financial re-organization, or the disappearance of an active market for those financial assets because of financial difficulties.

When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss in the period.

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In respect of available-for-sale equity securities, impairment loss previously recognized in profit or loss is not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized in other comprehensive income. In respect of available-for-sale debt securities, impairment loss is subsequently reversed through profit or loss if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets, with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When trade receivables are considered uncollectible, they are written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss except for uncollectible trade receivables that are written off against the allowance account.

c) Derecognition of financial assets

The Company derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party.

Before 2018, on derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income is recognized in profit or loss. Starting from 2018, on derecognition of a financial asset at amortized cost in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss. On derecognition of an investment in an equity instrument at FVTOCI, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss, and the cumulative gain or loss that had been recognized in other comprehensive income is transferred directly to retained earnings, without recycling through profit or loss.

2) Equity instruments

Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Equity instruments issued by the Company are recognized at the proceeds received, net of direct issue costs.

The repurchase of the Company’s own equity instruments is recognized in and deducted directly from equity. No gain or loss is recognized in profit or loss on the purchase, sale, issuance or cancellation of the Company’s own equity instruments.

3) Financial liabilities

a) Subsequent measurement

Except the following situation, all financial liabilities are measured at amortized cost using the effective interest method:

Financial liabilities at fair value through profit or loss

Financial liabilities are classified as at fair value through profit or loss are either held for trading or are designated as at fair value through profit or loss.

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Financial liabilities held for trading are stated at fair value, with any gain or loss arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any interest or dividend paid on the financial liability. Fair value is determined in the manner described in Note 27.

b) Derecognition of financial liabilities

The difference between the carrying amount of the financial liability derecognized and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss.

4) Derivative financial instruments

The Company enters into forward contracts to manage its exposure to foreign exchange rate risks.

Derivatives are initially recognized at fair value at the date on which the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. When the fair value of a derivative financial instruments is positive, the derivative is recognized as a financial asset; when the fair value of a derivative financial instrument is negative, the derivative is recognized as a financial liability.

Before 2018, derivatives embedded in non-derivative host contracts were treated as separate derivatives when they met the definition of a derivative; their risks and characteristics were not closely related to those of the host contracts; and the contracts were not measured at FVTPL. Starting from 2018, derivatives embedded in hybrid contracts that contain financial asset hosts that is within the scope of IFRS 9 are not separated; instead, the classification is determined in accordance with the entire hybrid contract. Derivatives embedded in non-derivative host contracts that are not financial assets that is within the scope of IFRS 9 (e.g. financial liabilities) are treated as separate derivatives when they meet the definition of a derivative; their risks and characteristics are not closely related to those of the host contracts; and the host contracts are not measured at FVTPL.

n. Provisions

Provisions are measured at the best estimate of the discounted cash flows of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation.

Provisions for the expected cost of warranty obligations are recognized at the date of sale of the relevant products at the best estimate by the management of the Company of the expenditure required to settle the Company’s obligations.

o. Revenue recognition

2018 Contracts applicable to IFRS 15

The Company identifies contracts with the customers, allocates transaction price to the performance obligations and recognizes revenue when the performance obligations are satisfied.

For contracts where the period between the date on which the Company transfers a promised good or service to a customer and the date on which the customer pays for that good or service is one year or less, the Company does not adjust the promised amount of consideration for the effects of a significant financing component.

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1) Revenue from sale of goods

Revenue from sale of goods comes from sales of embedded computing boards, industrial automation products and applied and industrial computers.

Sales of the above products are majorly recognized as revenue under contracts when the goods are shipped because it is the time when the customer has full discretion over the manner of distribution and the price to sell the goods, has the primary responsibility for sales to future customers and bears the risks of obsolescence. Trade receivables are recognized concurrently.

The Company does not recognize revenue on materials delivered to subcontractors because this delivery does not involve a transfer of control.

2) Revenue from rendering services

Revenue from rendering services comes from developing products and extended warranty services. Such revenue is recognized when services are provided.

Contracts prior to 2018 without retrospective application of IFRS 15

Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances. Allowances for sales returns and liabilities for returns are recognized at the time of sale based on the seller’s reliable estimate of future returns and based on past experience and other relevant factors.

1) Sale of goods

Revenue from the sale of goods is recognized when all the following conditions are satisfied:

a) The Company has transferred to the buyer the significant risks and rewards of ownership of the goods;
b) The Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
c) The amount of revenue can be measured reliably;
d) It is probable that the economic benefits associated with the transaction will flow to the Company; and
e) The costs incurred or to be incurred in respect of the transaction can be measured reliably.

The Company does not recognize sales revenue on materials delivered to subcontractors because this delivery does not involve a transfer of risks and rewards of the materials’ ownership.

2) Rendering of services

Service income is recognized when services are provided.

Revenue from a contract to provide services is recognized by reference to the stage of completion of the contract.

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3) Dividend and interest income

Dividend income from investments is recognized when the shareholder’s right to receive payment has been established and provided that it is probable that the economic benefits will flow to the Company and that the amount of income can be measured reliably.

Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably. Interest income is accrued on a time basis by reference to the principal outstanding and at the applicable effective interest rate.

p. Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

1) The Company as lessor

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and amortized on a straight-line basis over the lease term.

2) The Company as lessee

Operating lease payments are recognized as expenses on a straight-line basis over the lease term.

q. Government grants

Government grants are not recognized until there is reasonable assurance that the Company will comply with the conditions attached to them and that the grants will be received.

Government grants are recognized in profit or loss on a systematic basis over the periods in which the Company recognizes as expenses the related costs for which the grants are intended to compensate.

Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Company with no future related costs are recognized in profit or loss in the period in which they become receivable.

r. Employee benefits
1) Short-term employee benefits

Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related services.

2) Retirement benefits

Payments to defined contribution retirement benefit plans are recognized as an expense when employees have rendered services entitling them to the contributions.

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Defined benefit costs (including service cost, net interest and remeasurement) under defined benefit retirement benefit plans are determined using the projected unit credit method. Service cost (including current service cost, and past service cost) and net interest on the net defined benefit liabilities (assets) are recognized as employee benefits expense in the period in which they occur, or when the plan amendment or curtailment occurs. Remeasurement, comprising actuarial gains and losses, (the effect of the changes to the asset ceiling) and the return on plan assets (excluding interest), is recognized in other comprehensive income in the period in which it occurs. Remeasurement recognized in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to profit or loss.

Net defined benefit liabilities (assets) represent the actual deficit (surplus) in the Company’s defined benefit plans. Any surplus resulting from this calculation is limited to the present value of any refunds from the plans or reductions in future contributions to the plans.

s. Employee share options

Employee share options granted to employee and others providing similar services.

The fair value at the grant date of the employee share options is expensed on a straight-line basis over the vesting period, based on the Company’s best estimate of the number of shares or options that are expected to ultimately vest, with a corresponding increase in capital surplus - employee share options. It is recognized as an expense in full at the grant date if vesting immediately.

At the end of each reporting period, the Company revises its estimate of the number of employee share options expected to vest. The impact of the revision of the original estimates is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the capital surplus - employee share options.

t. Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

1) Current tax

According to the Income Tax Law, an additional tax of unappropriated earnings is provided for as income tax in the year the shareholders approve to retain the earnings.

Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.

2) Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities and the corresponding tax bases used in the computation of taxable profit.

Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences, unused loss carryforwards and unused tax credits for purchases of machinery, equipment and technology, research and development expenditures, and personnel training expenditures to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.

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Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. A previously unrecognized deferred tax asset is also reviewed at the end of each reporting period and recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liabilities are settled or the assets are realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

3) Current and deferred taxes for the year

Current and deferred taxes are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred taxes are also recognized in other comprehensive income or directly in equity, respectively.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Company’s accounting policies, management is required to make judgments, estimations and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised if the revisions affect only that period or in the period of the revisions and future periods if the revisions affect both current and future periods.

a. Inventory write-downs

The net realizable value of inventories is the estimated selling price in the ordinary course of business less the estimated costs of completion and disposal. The estimation of net realizable value is based on current market conditions and historical experience with product sales of a similar nature. Changes in market conditions may have a material impact on the estimation of the net realizable value.

b. Significant influence over associates

Note 12 describes that several companies are associates of the Company although the Company only holds less than 20% of the voting power in each of these companies. The Company has significant influence over these companies as it can obtain its representatives in the board of directors according to the investment contract.

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c. Impairment of goodwill included in the investments in subsidiaries

Determining whether the goodwill included in the investments in subsidiaries is impaired requires an estimation of the value in use of the cash-generating units which are expected to benefit from the synergies of the related combination and to which the goodwill has been allocated since the acquisition date. The calculation of the value in use requires management to estimate the future cash flows expected to arise from the cash-generating units and a suitable discount rate in order to calculate the present value. Where the actual future cash flows are less than expected, a material impairment loss may arise.

6. CASH AND CASH EQUIVALENTS

Cash on hand Checking accounts and demand deposits		December 31	December 31
		2018 $ 245 2,509,713 $ 2,509,958	2017 $ 245 2,436,403 $ 2,436,648

The market rate intervals of cash in bank at the end of the reporting period were as follows:

Demand deposits	December 31
	2018 2017 0.0001%-0.48% 0.0001%-0.35%

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

Financial assets at FVTPL-current Financial assets held for trading Derivative financial assets(not under hedge accounting) Foreign exchange forward contracts Non-derivative financial assets Mutual funds Financial assets mandatorily classified as at FVTPL Derivative financial assets (not under hedge accounting) Foreign exchange forward contracts Non-derivative financial assets Mutual funds		December 31	December 31
		2018 $ - - - 5,167 1,355,214 1,360,381 $ 1,360,381	2017 $ 5,084 640,016 645,100 - - - $ 645,100 (Continued)

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Financial liabilities at FVTPL-current Financial liabilities held for trading Derivative financial liabilities(not under hedge accounting) Foreign exchange forward contracts Financial assets mandatorily classified as at FVTPL Derivative financial assets (not under hedge accounting) Foreign exchange forward contracts		December 31	December 31
		2018 $ - 6,128 $ 6,128	2017 $ 6,226 - $ 6,226 (Concluded)

At the end of the reporting period, outstanding foreign exchange forward contracts not under hedge accounting were as follows:

					Notional Amount
			Currency	Maturity Date	(In Thousands)
December	31,	2018
Sell			EUR/NTD	2019.01-2019.04	EUR12,500/NTD444,766
			JPY/NTD	2019.01-2019.05	JPY380,000/NTD104,301
			RMB/NTD	2019.01-2019.04	RMB67,000/NTD295,236
December	31,	2017
Sell			EUR/NTD	2018.01-2018.05	EUR14,000/NTD499,225
			EUR/USD	2018.01-2018.04	EUR1,500/USD1,805
			JPY/NTD	2018.01-2018.05	JPY500,000/NTD134,549
			RMB/NTD	2018.01-2018.03	RMB77,000/NTD346,212

The Company entered into foreign exchange forward contracts during the years ended December 31, 2018 and 2017 to manage exposures due to exchange rate fluctuations of foreign-currency denominated assets and liabilities. Because these contracts did not meet the criteria for hedge effectiveness, they were not subject to hedge accounting.

8. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME - 2018

December 31, 2018

Non-current

Investments in equity instrument at FVTOCI

$ 1,028,441

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Investments in equity instruments at FVTOCI:

	December 31,	December 31,
		2018
Non-current
Domestic investments
Listed shares and emerging market shares
Ordinary shares - ASUSTek Computer Inc.	$	955,001
Ordinary shares - Allied Circuit Co., Ltd.		73,440
	$	1,028,441

These investments in equity instruments are not held for trading. Instead, they are held for medium to long-term strategic purposes. Accordingly, the management elected to designate these investments in equity instruments as at FVTOCI as they believe that recognizing short-term fluctuations in these investments’ fair value in profit or loss would not be consistent with the Company’s strategy of holding these investments for long-term purposes. These investments in equity instruments were classified as available-for-sale under IAS 39. Refer to Notes 3 and 9 for information related to their reclassification and comparative information for 2017.

9. AVAILABLE-FOR-SALE FINANCIAL ASSETS - 2017

	December 31,
	2017
Non-current
Domestic investments
Quoted shares	$ 1,419,479

10. NOTES RECEIVABLE AND TRADE RECEIVABLES

Notes receivable-operating Trade receivables At amortized cost Gross carrying amount Less: Allowance for impairment loss		December 31	December 31
		2018 $ 75,203 $ 1,499,599 (11,762) $ 1,487,837	2017 $ 62,468 $ 1,551,178 (5,043) $ 1,546,135

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Trade Receivables

For the year ended December 31, 2018

At amortized cost

The average credit period of the sales of goods was 30-90 days. No interest was charged on trade receivables. In order to minimize credit risk, the management of the Company has delegated a team responsible for determining credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Company reviews the recoverable amount of each individual trade debt at the end of the reporting period to ensure that adequate allowance is made for possible irrecoverable amounts. In this regard, the management believes the Company’s credit risk was significantly reduced.

The Company applies the simplified approach to providing for expected credit losses prescribed by IFRS 9, which permits the use of a lifetime expected loss provision for all trade receivables. The expected credit losses on trade receivables are estimated using a provision matrix by reference to past default experience of the debtor and an analysis of the debtor’s current financial positions, adjusted for general economic conditions of the industry in which the debtors operate and an assessment of both the current as well as the forecast direction of economic conditions at the reporting date. As the Company’s historical credit loss experience does not show significantly different loss patterns for different customer segments, the provision for loss allowance based on past due status is not further distinguished according to the Company’s customer base.

The Company writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery of the receivable, e.g. when the debtor has been placed under liquidation, or when the trade receivables are over 1 year past due, whichever occurs earlier. For trade receivables that have been proposed a full amount of impairment loss, the Company continues to engage in enforcement activity to attempt to recover the receivables due. Where recoveries are made, these are recognized in profit or loss.

The following table details the loss allowance of trade receivables based on the Company’s provision matrix.

December 31, 2018

Expected credit loss rate Gross carrying amount Loss allowance (Lifetime ECL) Amortized cost	Not Past Due 0% $ 1,244,881 - $ 1,244,881	Less than 90 Days 90 to 180 Days 1.06% 23.49% $ 234,046 $ 2,490 (2,474) (585) $ 231,572 $ 1,905	180 to 360 Days Over 360 Days 40.13% 100% $ 15,833 $ 2,349 (6,354) (2,349) $ 9,479 $ -	Total - $ 1,499,599 (11,762) $ 1,487,837

The movements of the loss allowance of trade receivables were as follows:

Balance at January 1, 2018 - per IAS 39 Adjustment on initial application of IFRS 9 Balance at January 1, 2018 - per IFRS 9 Add: Net remeasurement of loss allowance Less: Amounts written off (*) Foreign exchange gains and losses Balance at December 31, 2018	2018 $ 5,043 - 5,043 6,815 (96) - $ 11,762

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The Company wrote off trade receivables and related loss allowance of $96 thousand due to the fact that the customers’ trade receivables have been aged more than 2 years and the legal attest letters were served without receivables collected.

For the year ended December 31, 2017

The Company applied the same credit policy in 2018 and 2017. The Company recognized an allowance for impairment loss of 100% against all receivables over 1 year because historical experience was that receivables that are past due beyond 1 year were not recoverable. Allowance for impairment loss was recognized against trade receivables between 91 days and 1 year based on estimated irrecoverable amounts determined by reference to past default experience of the counterparties and an analysis of their current financial position.

For some trade receivables balances that were past due at the end of the reporting period, the Company did not recognize an allowance for impairment loss, because there was no significant change in credit quality and the amounts were still considered recoverable. The Company did not hold any collateral or other credit enhancements for these balances.

The aging of receivables was as follows:

	December 31,
	2017
Not overdue	$ 1,375,038
Overdue
1 to 90 days	164,718
91 to 360 days	11,422
Over 360 days	-
	$ 1,551,178

The above aging schedule was based on the number of past due days from the end of the credit term.

The aging of receivables that were past due but not impaired was as follows:

	December 31,
	2017
1 to 30 days	$ 148,904
31 to 60 days	7,821
61 to 90 days	7,993
	$ 164,718

The above aging schedule was based on the number of past due days from the end of the credit term.

39 -

The movements of the allowance for doubtful trade receivables were as follows:

Individually Assessed for Impairment Collectively Assessed for Impairment Balance at January 1, 2017 $ 13,686 $ 3,330 Plus: Impairment losses recognized on receivables 185 - Less: Amounts written off during the year as uncollectible (12,158) - Balance at December 31, 2017 $ 1,713 $ 3,330	Total $ 17,016 185 (12,158) $ 5,043

11. INVENTORIES

Finished goods Work in process Raw materials Inventories in transit		December 31	December 31
		2018 $ 1,208,126 757,869 1,602,963 62,021 $ 3,630,979	2017 $ 869,571 580,887 1,163,823 40,400 $ 2,654,681

The costs of inventories recognized as cost of goods sold for the years ended December 31, 2018 and 2017 were $24,494,077 thousand and $21,396,382 thousand, respectively.

The costs of inventories decreased by $184,980 thousand and $135,055 thousand as of December 31, 2018 and 2017, respectively, when stated at the lower of cost or net realizable value.

12. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

Investments in subsidiaries Investments in associates		December 31	December 31
		2018 $ 16,235,491 1,488,161 $ 17,723,652	2017 $ 15,328,904 1,262,151 $ 16,591,055

a. Investments in subsidiaries

Unlisted companies Advantech Automation Corp. (BVI) (“AAC (BVI)”) Advantech Technology Co., Ltd. (“ATC”) Advantech Corporate Investment Advanixs Corp.	December 31
	2018 2017 $ 5,932,170 $ 4,187,055 3,718,200 3,518,872 1,590,325 1,899,479 237,593 856,049 (Continued)

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Advantech Europe Holding B.V. (“AEUH”) LNC Technology Co., Ltd. (“LNC”) AdvanPOS Technology Co., Ltd. (“AdvanPOS”) Advantech KR Co., Ltd. (“AKR”) Advantech Japan Co., Ltd. (“AJP”) Advantech Co. Singapore Pte, Ltd. (“ASG”) Advantech Brasil Ltda. (“ABR”) Advantech Co. Malaysia Sdn. Bhd. (“AMY”) Advantech Australia Pty Ltd. (“AAU”) Advantech Industrial Computing India Private Limited (“AIN”) Advantech Innovative Design Co., Ltd. Advantech Electronics, S. De R. L. Dec. V. (“AMX”) BEMC Holdings Corporation (“BEMC”) B+B SmartWorx, Inc. (B+B) Advantech Intelligent Service (“AiST”) Kostec Co., Ltd. (“AKST”) Advantech Corporation (Thailand) Co., Ltd. (ATH) Advantech Vietnam Technology Company Limited (AVN) Advantech Technology Limited Liability Company (ARU)		December 31	December 31
		2018 $ 900,798 433,078 297,296 322,524 332,224 108,015 67,328 68,499 36,226 10,714 10,066 222 - 1,951,772 96,183 (27,036) 51,353 76,539 21,402 $ 16,235,491	2017 $ 925,225 492,441 552,116 278,131 269,111 90,848 64,801 66,713 49,785 11,376 10,421 (399) 1,885,077 - 171,803 - - - - $ 15,328,904 (Concluded)

AAC (BVI) ATC Advantech Corporate Investment Advanixs Corporation AEUH LNC (Note 24) AdvanPOS AKR AJP ASG ABR AMY AAU AIN Advantech Innovative Design Co., Ltd. AMX BEMC B+B AiST AKST (Note 23 and 24) ATH (Note 24) AVN (Note 23) ARU	December 31
	2018 2017 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 64.10% 81.17% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 80.00% 80.00% 100.00% 100.00% 100.00% 100.00% 99.99% 99.99% 100.00% 100.00% 100.00% 100.00% - 60.00% 60.00% - 100.00% 100.00% 76.00% 36.00% 51.00% - 60.00% - 100.00% -

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Refer to Note 29 to the Company’s consolidated financial statements of the year ended December 31, 2018 for the disclosures of the Company’s acquisitions of AVN and AKST.

In the forth quarter of 2018, the Company adjusted its investment structure and placed BEMC under liquidation, which led the Company to directly hold B+B.

Refer to Table 7 for the details of the subsidiaries indirectly held by the Company.

Investments in the subsidiary AKST are accounted for using the equity method. As a result of the actual sales growth of the subsidiary AKST after the business combination did not turn out as expected, AKST had the continuous losses for the ended year December 31, 2017. In addition, the forecasted future operations of AKST is not optimism. Hence, the estimated future cash flows was decreased. The Company carried out a review of the recoverable amount of that related assets and determined that the carrying amount exceeded the recoverable amount. The review led the Company to recognize an impairment loss on investments in AKST of $66,443 thousand. Since AKST is mutually owned by AKR and the Company, an impairment loss of $44,328 thousand was recognized in the share of the profit of subsidiaries and associates.

Except the financial statements of AJP, ASG, ABR, AMY, AAU, AIN, AMX, AKST, AVN, ATH, ARU, Advantech Innovative Design Co., Ltd., AiST and AdvanPOS, investments accounted for using the equity method and the share of profit or loss and other comprehensive income of those investments were calculated based on the financial statements which have been audited. Management believes there will be no material impact on its equity method accounting or its calculation of the share of profit or loss and other comprehensive income had the financial statements of the above subsidiaries been audited.

b. Investments in associates

Associates that are not individually material Listed companies Axiomtek Co., Ltd. (“Axiomtek”) Winmate Inc. (“Winmate”) Nippon RAD Inc. (Nippon RAD) Unlisted companies AIMobile Co., Ltd. (“AIMobile”) Jan Hsiang Electronics Co., Ltd. (“Jan Hsiang”)		December 31	December 31
		2018 $ 619,411 542,761 252,967 65,012 8,010 $ 1,488,161	2017 $ 622,604 544,960 - 84,140 10,447 $ 1,262,151

Aggregate information of associates that are not individually material

The Company’s share of: Profit from continuing operations Other comprehensive income (loss) Total comprehensive income for the year	For the Year Ended	For the Year Ended	December 31
		2018 $ 121,391 (1,021) $ 120,370	2017 $ 222,399 (1,306) $ 221,093

In the fourth quarter of 2017, the Company paid cash of $540,000 thousand for 16.62% equity of Winmate Inc. The Company had significant influence over Winmate Inc.

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In the second quarter of 2018, the Company paid cash of $251,915 thousand for 16.08% equity of Nippon RAD and holding a 19% equity of Nippon RAD with subsidiary Advantech Corporate. The Company had significant influence over Nippon RAD.

Except for financial statement of Axiomtek Co., Ltd. and Nippon RAD which have been audited or reviewed, investments were accounted for using the equity method and the share of profit or loss and other comprehensive income of those investments were calculated based on financial statements which have been not audited or reviewed. Management believes there is no material impact on the equity method accounting or the calculation of the share of profit or loss and other comprehensive income from the above financial statements which have not been audited.

13. PROPERTY, PLANT, AND EQUIPMENT

F Cost Balance at January 1, 2017 Additions Disposals Reclassifications Balance at December 31, 2017 Accumulated depreciation and impairment Balance at January 1, 2017 Disposals Depreciation expenses Balance at December 31, 2017 Carrying amounts at December 31, 2017 Cost Balance at January 1, 2018 Additions Disposals Reclassifications Balance at December 31, 2018 Accumulated depreciation and impairment Balance at January 1, 2018 Disposals Depreciation expenses Balance at December 31, 208 Carrying amounts at December 31, 2018	reehold Land $ 2,696,490 - (22,017 ) - $ 2,674,473 $ - - - $ - $ 2,674,473 $ 2,674,473 - (15,930 ) - $ 2,658,543 $ - - - $ - $ 2,658,543	Buildings $ 4,142,572 95,260 (13,046 ) 3,771 $ 4,228,557 $ 420,405 (5,381 ) 81,873 $ 496,897 $ 3,731,660 $ 4,228,557 1,938 (15,136 ) - $ 4,215,359 $ 496,897 (7,045 ) 82,281 $ 572,133 $ 3,643,226	Equipment $ 897,349 18,292 (37,865 ) 48,498 $ 926,274 $ 671,418 (32,355 ) 66,404 $ 705,467 $ 220,807 $ 926,274 62,328 (6,828 ) 24,507 $ 1,006,281 $ 705,467 (5,899 ) 64,660 $ 764,228 $ 242,053	Office Equipment $ 283,969 30,052 (18,489 ) 811 $ 296,343 $ 201,553 (18,375 ) 39,568 $ 222,746 $ 73,597 $ 296,343 39,787 (11,380 ) 107 $ 324,857 $ 222,746 (11,186 ) 35,939 $ 247,499 $ 77,358	Other Facilities C $ 595,803 37,079 (14,311 ) 40,469 $ 659,040 $ 426,696 (13,509 ) 84,794 $ 497,981 $ 161,059 $ 659,040 34,247 (13,712 ) 5,974 $ 685,549 $ 497,981 (13,586 ) 72,368 $ 556,763 $ 128,786	onstruction in Progress $ 41,973 71,586 - (110,130) $ 3,429 $ - - - $ - $ 3,429 $ 3,429 66,104 - (66,857) $ 2,676 $ - - - $ - $ 2,676	Total $ 8,658,156 252,269 (105,728 ) (16,581) $ 8,788,116 $ 1,720,072 (69,620 ) 272,639 $ 1,923,091 $ 6,865,025 $ 8,788,116 204,404 (62,986 ) (36,269) $ 8,893,265 $ 1,923,091 (37,716 ) 255,248 $ 2,140,623 $ 6,752,642

The above items of property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives as follows:

Buildings
Main buildings	20-60 years
Electronic equipment	5 years
Engineering systems	5 years
Equipment	2-8 years
Office equipment	2-8 years
Other facilities	2-10 years

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14. GOODWILL

Cost Balance at January 1 Balance at December 31	For the Year Ended	For the Year Ended	December 31
		2018 $ 111,599 $ 111,599	2017 $ 111,599 $ 111,599

15. OTHER LIABILITIES

Other payables Payables for salaries or bonuses Payables for royalties Payables for annual leave Others (Note)		December 31	December 31
		2018 $ 1,691,022 107,409 37,132 695,364 $ 2,530,927	2017 $ 1,878,709 118,347 44,063 429,379 $ 2,470,498

Note: Including marketing expenses, and freight expenses.

16. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

The Company adopted a pension plan under the Labor Pension Act (“LPA”), which is a state-managed defined contribution plan. Under the LPA, an entity makes monthly contributions to employees’ individual pension accounts at 6% of monthly salaries and wages.

b. Defined benefit plans

The defined benefit plan adopted by the Company in accordance with the Labor Standards Law is operated by the government of the ROC. Pension benefits are calculated on the basis of the length of service and average monthly salaries of the six months before retirement. The Company contribute amounts equal to 2% of total monthly salaries and wages to a pension fund administered by the pension fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan in the committee’s name. Before the end of each year, the Company assesses the balance in the pension fund. If the amount of the balance in the pension fund is inadequate to pay retirement benefits for employees who conform to retirement requirements in the next year, the Company is required to fund the difference in one appropriation that should be made before the end of March of the next year. The pension fund is managed by the Bureau of Labor Funds, Ministry of Labor (“the Bureau”); the Company has no right to influence the investment policy and strategy.

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The amounts included in the balance sheets in respect of the Company’s defined benefit plans were as follows:

Present value of defined benefit obligation Fair value of plan assets Deficit Net defined benefit liabilities Movements in net defined benefit liabilities were as follows: Present Value of the Defined Benefit Obligation Balance at January 1, 2017 $ 343,036 Service cost Current service cost 2,137 Past service cost 4,589 Net interest expense (income) 4,717 Recognized in profit or loss 11,443 Remeasurement Return on plan assets (excluding amounts included in net interest) - Actuarial gain or loss Changes in demographic assumptions 20,166 Experience adjustments 3,022 Recognized in other comprehensive income 23,188 Contributions from the employer - Benefits paid (8,997) Balance at December 31, 2017 368,670 Service cost Current service cost 2,400 Net interest expense (income) 5,069 Recognized in profit or loss 7,469 Remeasurement Return on plan assets (excluding amounts included in net interest) - Actuarial gain or loss Changes in demographic assumptions 6,780 Changes in financial assumptions 11,436 Experience adjustments 6,521 Recognized in other comprehensive income 24,737 Contributions from the employer - Benefits paid (11,039) Balance at December 31, 2018 $ 389,837		December 31
	2018 2017 $ 389,837 $ 368,670 (134,564) (132,419) 255,273 236,251 $ 255,273 $ 236,251 Fair Value of the Plan Assets Net Defined Benefit Liabilities $ (131,866) $ 211,170 - 2,137 - 4,589 (1,865) 2,852 (1,865) 9,578 522 522 - 20,166 - 3,022 522 23,710 (8,207) (8,207) 8,997 - (132,419) 236,251 - 2,400 (1,831) 3,238 (1,831) 5,638 (3,582) (3,582) - 6,780 - 11,436 - 6,521 (3,582) 21,155 (7,771) (7,771) 11,039 - $ (134,564) $ 255,273

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An analysis by function of the amounts recognized in profit or loss in respect of the defined benefit plans is as follows:

Operating costs Selling and marketing expenses General and administrative expenses Research and development expenses	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 1,370 905 1,081 1,933 $ 5,289	2017 $ 1,186 1,464 927 5,479 $ 9,056

Through the defined benefit plans under the Labor Standards Law, the Company is exposed to the following risks:

1) Investment risk: The plan assets are invested in domestic and foreign equity and debt securities, bank deposits, etc. The investment is conducted at the discretion of the Bureau or under the mandated management. However, in accordance with relevant regulations, the return generated by plan assets should not be below the interest rate for a 2-year time deposit with local banks.
2) Interest risk: A decrease in the bond interest rate will increase the present value of the defined benefit obligation; however, this will be partially offset by an increase in the return on the plan’s debt investments.
3) Salary risk: The present value of the defined benefit obligation is calculated by reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the present value of the defined benefit obligation.

The actuarial valuations of the present value of the defined benefit obligation were carried out by qualified actuaries. The significant assumptions used for the purposes of the actuarial valuations were as follows:

Discount rate(s) Expected rate(s) of salary increase	December 31
	2018 2017 1.125% 1.375% 3.250% 3.250%

If possible reasonable changes in each of the significant actuarial assumptions will occur and all other assumptions will remain constant, the present value of the defined benefit obligation would increase(decrease) as follows:

Discount rate(s) 0.25% increase 0.25% decrease Expected rate(s) of salary increase 0.25% increase 0.25% decrease		December	31
		2018 $ (11,542) $ 12,030 $ 11,589 $ (11,182)	2017 $ (11,203) $ 11,684 $ 11,284 $ (10,880)

The sensitivity analysis presented above may not be representative of the actual change in the present value of the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

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Expected contributions to the plans for the next year Average duration of the defined benefit obligation		December	31
		2018 $ 9,047 12.5 years	2017 $ 1,491 12.6 years

17. EQUITY

a. Share capital

Ordinary shares

Number of shares authorized (in thousands) Amount of shares authorized Number of shares issued and fully paid (in thousands) Amount of shares issued and fully paid		December 31	December 31
		2018 800,000 $ 8,000,000 698,696 $ 6,986,955	2017 800,000 $ 8,000,000 697,283 $ 6,972,825

Fully paid ordinary shares, which have a par value of NT$10, carry one vote per share and carry a right to dividends.

The changes in shares are employees’ exercise of their employee share options.

b. Capital surplus

May be used to offset a deficit, distributed as cash dividends, or transferred to share capital (1) Issuance of ordinary shares Conversion of bonds The difference between consideration received or paid and the carrying amount of subsidiaries’ net assets during actual disposal or acquisition Share of changes in capital surplus of associates May be used to offset a deficit only Changes in percentage of ownership interests in subsidiaries (2) Employee share options Employees’ share compensation Share of changes in capital surplus of associates May not be used for any purpose Employee share options		December 31	December 31
		2018 $ 3,396,888 931,849 88,560 55 4,263 1,519,818 78,614 27,890 1,025,411 $ 7,073,348	2017 $ 3,396,888 931,849 17,844 - 5,003 1,241,557 78,614 25,285 857,802 $ 6,554,842

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1) Such capital surplus may be used to offset a deficit; in addition, when the Company has no deficit, such capital surplus may be distributed as cash dividends or transferred to share capital (limited to a certain percentage of the Company’s capital surplus and to once a year).
2) Such capital surplus arises from the effect of changes in ownership interest in a subsidiary resulting from equity transactions other than actual disposals or acquisitions, or from changes in capital surplus of subsidiaries accounted for by using equity method.

c. Retained earnings and dividends policy

Under the dividends policy as set forth in the amended Articles, where the Company made profit in a fiscal year, the profit shall be first utilized for paying taxes, offsetting losses of previous years, setting aside as legal reserve 10% of the remaining profit, setting aside or reversing special reserve in accordance with the laws and regulations, and then any remaining profit together with any undistributed retained earnings shall be used by the Company’s board of directors as the basis for proposing a distribution plan, which should be resolved in the shareholders’ meeting for distribution of dividends and bonuses to shareholders. For the policies on distribution of employees’ compensation and remuneration of directors after amendment, refer to employees’ compensation and remuneration of directors in Note 18, d.

The Company operates in an industry related to computers, and its business related to network servers is new but with significant potential for growth. Thus, in formulating its dividend policy, the Company takes into account the overall business and industry conditions and trends, its objective of enhancing the shareholders’ long-term interests, and the sustainability of the Company’s growth. The policy also requires that share dividends be less than 75% of total dividends to retain internally generated cash within the Company in order to finance future capital expenditures and working capital requirements.

An appropriation of earnings to a legal reserve should be made until the legal reserve equals the Company’s paid-in capital. The legal reserve may be used to offset deficits. If the Company has no deficit and the legal reserve has exceeded 25% of the Company’s paid-in capital, the excess may be transferred to capital or distributed in cash.

Items referred to under Rule No. 1010012865 and Rule No. 1010047490 issued by the FSC and in the directive titled “Questions and Answers for Special Reserves Appropriated Following Adoption of IFRSs” should be appropriated to or reversed from a special reserve by the Company.

The appropriations of earnings for 2017 and 2016, which have been approved in the shareholders’ meetings on May 24, 2018 and May 26, 2017, respectively, were as follows:

Legal reserve Special reserve Cash dividends Share dividends	Appropriation of Earnings For the Year Ended December 31 2017 2016 $ 615,651 $ 566,686 284,451 85,204 4,600,414 3,988,367 - 633,074	Dividends Per Share (NT$)
		For the Year Ended December 31
		2017 2016 $ - $ - - - 6.6 6.3 - 1.0

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The appropriations of earnings for 2018 had been proposed by the Company’s board of directors on March 8, 2019. The appropriations and dividends per share were as follows:

	Appropriation	Appropriation	Dividends Per	Dividends Per
	of	Earnings	Share	(NT$)
Legal reserve	$	629,466	$	-
Special reserve		429,108		-
Cash dividends		4,751,129		6.8

The appropriations of earnings for 2018 are subject to the resolution of the shareholders in their meeting to be held on May 28, 2019.

d. Special reserves

Beginning at January 1 Appropriations in respect of Debits to other equity items Balance at December 31	For the Year Ended	For the Year Ended	December 31
		2018 $ 85,204 284,451 $ 369,655	2017 $ - 85,204 $ 85,204

e. Other equity items
1) Exchange differences on translating the financial statements of foreign operations

For the Year Ended 2018 Balance at January 1 $ (463,479) Effect of change in tax rate 16,752 Recognized during the period Exchange differences arising on translating the financial statements of foreign entities (19,659) Share of those of associates accounted for using the equity method (8,859) Other comprehensive income recognized for the period (11,766) Balance at December 31 $ (475,245) 2) Unrealized gain (loss) from available-for-sale financial assets Balance at January 1, 2017 Recognized during the period Unrealized gain arising on revaluation of available-for-sale financial assets Share from subsidiaries accounted for using the equity method Reclassification adjustment Disposal of available-for-sale financial assets Other comprehensive income recognized for the period Balance at December 31, 2017 Adjustment on initial application of IFRS 9 Balance at January 1, per IFRS 9	For the Year Ended	December 31
		2017 $ (197,633) - (260,103) (5,743) (265,846) $ (463,479) $ 112,429 163,398 (16,927) (165,076) (18,605) 93,824 (93,824) $ -

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3) Unrealized gain or loss on Financial Assets at FVTOCI

		For the Year	For the Year
			Ended
		December 31,
			2018
	Balance at January 1 per IAS 39	$	-
	Adjustment on initial application of IFRS 9		123,254
	Balance at January 1 per IFRS 9		123,254
	Recognized during the period
	Unrealized loss - equity instruments		(445,333)
	Share of those of associates accounted for using the equity method		(13,912)
	Other comprehensive income recognized for the period		(459,245)
	Cumulative unrealized gain (loss) of equity instruments transferred to retained
	earnings due to disposal		11,737
	Balance at December 31	$	(324,254)
4)	Unearned employee benefits
		For the Year
			Ended
		December 31,
			2018
	Balance at January 1	$	-
	Share from associates accounted for using the equity method		736
	Balance at December 31	$	736

18. NET PROFIT AND OTHER COMPREHENSIVE INCOME FROM CONTINUING OPERATIONS a. Finance costs

Interest on bank overdrafts and loans Other finance costs	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 29 4 $ 33	2017 $ - - $ -

b. Depreciation and amortization

An analysis of depreciation by function Operating costs Operating expenses	For the Year Ended	For the Year Ended	December 31
		2018 $ 67,987 187,261 $ 255,248	2017 $ 66,559 206,080 $ 272,639 (Continued)

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An analysis of amortization by function Operating costs Selling and marketing expenses General and administrative expenses Research and development expenses	For the Year Ended	For the Year Ended	December 31
		2018 $ 799 213 51,894 32,668 $ 85,574	2017 $ 740 109 49,338 30,880 $ 81,067 (Concluded)

c. Employee benefits expense

Short-term benefits Post-employment benefits Defined contribution plans Defined benefit plans (Note 16) Share-based payments - equity-settled Other employee benefits Total employee benefits expense An analysis of employee benefits expense by function Operating costs Operating expenses	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 3,007,903 127,765 5,289 133,054 341,624 149,450 $ 3,632,031 $ 794,878 2,837,153 $ 3,632,031	2017 $ 2,996,315 121,811 9,056 130,867 424,637 145,820 $ 3,697,639 $ 793,642 2,903,997 $ 3,697,639

d. Employees’ compensation and remuneration of directors

According to the Articles of Incorporation of the Company, the Company accrued employees’ compensation at the rates of no less than 5% and remuneration of directors at the rates of no higher than 1%, of net profit before income tax, employees’ compensation, and remuneration of directors. The employees’ compensation and remuneration of directors for the years ended December 31, 2018 and 2017, which have been approved by the Company’s board of directors on March 8, 2019 and March 2, 2018, respectively, were as follows:

Employees’ compensation Remuneration of directors	For the Year Ended December 31	For the Year Ended December 31
	2018 Cash $ 275,000 10,600	2017
		Cash $ 273,000 10,600

If there is a change in the amounts after the annual financial statements were authorized for issue, the differences are recorded as a change in the accounting estimate.

There is no difference between the actual amounts of employees’ compensation and remuneration of directors paid and the amounts recognized in the financial statements for the years ended December 31, 2017 and 2016.

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Information on the employees’ compensation and remuneration of directors resolved by the Company’s board of directors in 2019 and 2018 is available at the Market Observation Post System website of the Taiwan Stock Exchange.

e. Gains or losses on foreign currency exchange

Foreign exchange gains Foreign exchange losses Net losses	For the Year Ended	For the Year Ended	December 31
		2018 $ 743,207 (704,794) $ 38,143	2017 $ 473,701 (519,503) $ (45,802)

19. INCOME TAXES

a. Major components of tax expense recognized in profit or loss

Current tax In respect of the current year Income tax on unappropriated earnings Adjustments for prior years Deferred tax In respect of the current year Effect of tax rate changes Income tax expense recognized in profit or loss	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 1,156,236 63,493 (209,936) 1,009,793 147,432 182,258 $ 1,339,483	2017 $ 801,950 36,556 16,640 855,146 132,327 - $ 987,473

A reconciliation of accounting profit and income tax expenses is as follows:

Profit before tax Income tax expense calculated at the statutory rate Tax-exempt income Unrecognized investment credits Income tax on unappropriated earnings Land value increment tax Unrealized deductible temporary differences Effect of tax rate changes Adjustments for prior years’ tax Income tax expense recognized in profit or loss	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 7,634,140 $ 1,526,829 (69,723) (158,000) 63,493 4,562 - 182,258 (209,936) $ 1,339,483	2017 $ 7,143,989 $ 1,214,478 (214,229) (85,000) 36,556 7,733 11,295 - 16,640 $ 987,473

In 2017, the applicable corporate income tax rate used by the company in the ROC is 17%. However, the Income Tax Act in the ROC was amended in 2018, and the corporate income tax rate was adjusted from 17% to 20%, effective in 2018. In addition, the rate of the corporate surtax applicable to the 2018 unappropriated earnings will be reduced from 10% to 5%.

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As the status of the 2019 appropriation of earnings is uncertain, the potential income tax consequences of 5% income tax rate of the 2018 unappropriated earnings are not reliably determinable.

b. Income tax recognized in other comprehensive income

Deferred tax Effect of change in tax rate In respect of the current year Translation of foreign operations Remeasurement on defined benefit plans	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ (18,879) (7,131) (4,231) $ (30,241)	2017 $ - (54,450) (4,031) $ (58,481)

c. Current tax liabilities

Current tax liabilities Income tax payable		December 31	December 31
		2018 $ 1,413,134	2017 $ 1,108,579

d. Deferred tax assets and liabilities

The movements of deferred tax assets and deferred tax liabilities were as follows:

For the year ended December 31, 2018

Deferred tax assets Temporary differences Unrealized gross profit Unrealized loss on inventory write-downs Defined benefit obligation Unrealized warranty liabilities Unrealized exchange losses Sales allowance Exchange differences on translating foreign operations Remeasurement on defined benefit plans	Opening Balance Recognized in Profit or Loss Recognized in Other Comprehensive Income Closing Balance $ 75,876 $ 57,219 $ - $ 133,095 22,959 14,037 - 36,996 15,423 2,294 - 17,717 9,061 2,474 - 11,535 3,007 (3,007) - - - 3,090 - 3,090 94,929 - 23,883 118,812 15,444 - 6,957 22,401 $ 236,699 $ 76,107 $ 30,840 $ 343,646 (Continued)

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				Recognized	Recognized	in
					Other
	Opening	Recognized in		Comprehensive
	Balance	Profit or Loss			Income		Closing Balance
Deferred tax liabilities
Temporary differences
Unappropriated earnings of
subsidiaries	$ 1,158,717	$	403,562	$		-	$ 1,562,279
Government grants	406		(406)			-	-
Remeasurement on defined
benefit plans	3,391		-		599		3,990
Financial assets - FVTPL	-		87			-	87
Unrealized exchange gains	-		2,554			-	2,554
	$ 1,162,514	$	405,797	$	599		$ 1,568,910
							(Concluded)
For the year ended December 31, 2017

Deferred tax assets
Temporary differences
Unrealized gross profit

Unrealized loss on inventory
write-downs
Defined benefit obligation
Unrealized warranty liabilities
Unrealized exchange losses
Exchange differences on
translating foreign operations
Remeasurement on defined
benefit plans

Deferred tax liabilities
Temporary differences
Unappropriated earnings of
subsidiaries

Government grants
Remeasurement on defined
benefit plans
Unrealized exchange gains

Opening
Balance
Recognized in
Profit or Loss
Recognized in
Other
Comprehensive
Income
Closing Balance
$ 44,996
$ 30,880
$ -
$ 75,876
15,230
7,729
-
22,959
15,656
(233)
-
15,423
8,356
705
-
9,061
-
3,007
-
3,007
40,479
-
54,450
94,929

11,413

-

4,031

15,444
$ 136,130
$ 42,088
$ 58,481
$ 236,699
$ 982,170
$ 176,547
$ -
$ 1,158,717
-
406
-
406
3,391
-
-
3,391

2,538

(2,538)

-

-
$ 988,099
$ 174,415
$ -
$ 1,162,514

e. Income tax assessments

The Company’s tax returns through 2014 have been assessed by the tax authorities.

54 -

20. EARNINGS PER SHARE

Unit: NT$ Per Share

Basic earnings per share Diluted earnings per share	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 9.02 $ 8.93	2017 $ 8.84 $ 8.77

The earnings and weighted average number of ordinary shares outstanding in the computation of earnings per share are as follows:

Net Profit for the Year

	For the Year Ended December 31	For the Year Ended December 31
	2018	2017
Earnings used in the computation of basic earnings per share	$ 6,294,657	$ 6,156,516
Earnings used in the computation of diluted earnings per share	$ 6,294,657	$ 6,156,516
Weighted Average Number of Ordinary Shares Outstanding (In Thousand Shares)

Weighted average number of ordinary shares in computation of basic earnings per share Effect of potentially dilutive ordinary shares: Employee share option Employees’ compensation Weighted average number of ordinary shares used in the computation of diluted earnings per share	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 697,744 5,797 1,501 705,042	2017 696,802 3,949 1,479 702,230

If the Company offered to settle compensation paid to employees in cash or shares, the Company assumed the entire amount of the compensation will be settled in shares, and the resulting potential shares were included in the weighted average number of shares outstanding used in the computation of diluted earnings per share, as the effect is dilutive. Such dilutive effect of the potential shares is included in the computation of diluted earnings per share until the number of shares to be distributed to employees is resolved in the following year.

21. SHARE-BASED PAYMENT ARRANGEMENTS

Qualified employees of the Company and its subsidiaries were granted 8,000 options in 2018, 6,500 options in 2016 and 5,000 options in 2014. Each option entitles the holder to subscribe for one thousand ordinary shares of the Company. The holders of these shares include employees whom meet certain criteria set by the Company, from both domestic and overseas subsidiaries in which the Company directly or indirectly invests over 50%. Options issued in 2018, 2016 and 2014 are all valid for six years. All are exercisable at certain percentages after the second anniversary year from the grant date. The exercise prices granted in 2018 was the share price on the exercise date; the exercise prices of those granted in 2016 and 2014 were both NT$100 per share. For any subsequent changes in the Company’s capital surplus, the exercise price and the number of options will be adjusted accordingly.

55 -

Information on employee share options was as follows:

Employee Share Options Balance at January 1 Options granted Options exercised Balance at December 31 Options exercisable, end of the year Weighted-average fair value of options granted (NT$)	For the Year Ended December 31	For the Year Ended December 31
	2018 Number of Options (In Thousands) Weighted- average Exercise Price (NT$) 9,378 $ 95.15 8,000 202.50 (1.413) 83.78 15,965 143.64 7,965 84.53 $ 49.15	2017
		Number of Options (In Thousands) Weighted- average Exercise Price (NT$) 10,269 $ 98.20 - - (891) 86.89 9,378 95.15 2,878 84.20 $ -

The weighted-average share price at the date of exercise of share options for the years ended December 31, 2018 and 2017 were from NT$196 to NT$226 and from NT$204 to NT$266, respectively.

Information about outstanding options as of December 31, 2018 and 2017 was as follows:

Employee Share Options Issuance in 2018 Issuance in 2016 Issuance in 2014	For the Year Ended December 31	For the Year Ended December 31
	2018 Exercise Price (NT$) Weighted- average Remaining Contractual Life (Years) $ 202.5 5.58 85.6 3.45 81.5 1.63	2017
		Exercise Price (NT$) Weighted- average Remaining Contractual Life (Years) $ - - 88.5 4.45 84.2 2.63

Options granted were priced using the Black-Scholes pricing model and the inputs to the model were as follows:

	2018	2017	2015
Grant-date share price (NT$)	$202.5	$235	$239.5
Exercise price (NT$)	$202.5	$100	$100
Expected volatility	28.42%-28.73%	31.42%-32.48%	28.28%-29.19%
Expected life (in years)	4-4.5	4-5.5	4-5.5
Expected dividend yield	0%	0%	0%
Risk-free interest rate	0.67%-0.69%	0.52%-0.65%	1.07%-1.30%

Expected volatility was based on the historical share price volatility over the past 5 years.

Compensation costs recognized were $341,624 thousand and $424,637 thousand for the years ended December 31, 2018 and 2017, respectively.

56 -

22. GOVERNMENT GRANTS

In 2018 and 2017, the Company participated in a governmental project plan and received a government grant of $27,590 thousand and $12,005 thousand, respectively. The amount was recognized as other income.

23. ACQUISITION OF SUBSIDIARIES - WITH OBTAINED CONTROL

			Proportion of
			Voting Equity
		Date of	Interests	Consideration
Subsidiary	Principal Activity	Acquisition	Acquired (%)	Transferred
Kostec Co., Ltd.	Production and sale of	January 20, 2017	60	$	120,592
(AKST)	intelligent medical
	display
Advantech Vietnam	Sale of industrial	June 6, 2018	60	$	76,092
Technology Company	automation products
Limited (AVN)

The Company acquired Advantech Vietnam Technology Company Limited (“AVN”) and Kostec Co., Ltd. (“AKST”) in 2018 and 2017, respectively, in order to expand its sales of industrial automation products in the Vietnam market and expand its sales in the global intelligent medical market. For the acquisition of AVN and AKST, refer to Note 29 to the Company’s 2018 consolidated financial statements.

24. PARTIAL ACQUISITION OR DISPOSAL OF SUBSIDIARIES - WITHOUT LOSS OF CONTROL

In the first and third quarters of 2018, the Company disposed 1.11% and 15.96% shares of LNC, respectively. Therefore, the Company’s shareholding ratio in LNC decreased from 81.17% to 64.10%.

In the first quarter of 2018, the Company and its subsidiary ASG acquired 49% shares of ATH. Thus, the Group’s shareholding ratio in ATH increased from 51% to 100%. The Company’s shareholding ratio in ATH is 51%.

In the fourth quarter of 2018, the Company acquired 40% of the shares of AKST. Thus, the Company’s shareholding ratio in AKST increased from 36% to 76%.

The above transactions were accounted for as equity transactions, since the Company did not cease to have control over these subsidiaries. For details about the above transactions, refer to Note 30 to the Company’s consolidated financial statements for the year ended December 31, 2018.

25. OPERATING LEASE ARRANGEMENTS

The Company as Lessee

Operating leases relate to leases of warehouses with lease term of 1 year. The future minimum lease payments of non-cancellable operating lease commitments are as follows:

Not later than 1 year		December	31
		2018 $ 1,486	2017 $ 1,342

57 -

The lease payments recognized in profit or loss for the current period were as follows:

Minimum lease payments	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 3,448	2017 $ 4,047

26. CAPITAL MANAGEMENT

The Company manages its capital to ensure it will be able to continue as going concerns while maximizing the return to stakeholders through the optimization of the debt and equity balance. The Company’s overall strategy remains unchanged in both 2018 and 2017.

The capital structure of the Company consists of net debt (borrowings offset by cash and cash equivalents) and equity of the Company (comprising issued capital, reserves, retained earnings, and other equity).

The Company is not subject to any externally imposed capital requirements.

Key management personnel of the Company review the capital structure on a quarterly basis. As part of this review, the key management personnel consider the cost of capital and the risks associated with each class of capital. Based on recommendations of the key management personnel, in order to balance the overall capital structure, the Company may adjust the amount of dividends paid to shareholders, the number of new shares issued, and the amount of new debt issued.

27. FINANCIAL INSTRUMENTS

a. Fair value of financial instruments measured at fair value on a recurring basis
1) Fair value hierarchy

December 31, 2018 Financial assets at FVTPL Derivative financial assets Mutual funds Financial assets at FVTOCI Investments in equity instruments at FVTOCI Securities listed in ROC Financial liabilities at FVTPL Derivative financial liabilities	Level 1 $ - 1,355,214 $ 1,355,214 $ 1,028,441 $ -	Level 2 $ 5,167 - $ 5,167 $ - $ 6,128	Level 3 $ - - $ - $ - $ -	Total $ 5,167 1,355,214
				$ 1,360,381
				$ 1,028,441
				$ 6,128

58 -

December 31, 2017

Financial assets at FVTPL Derivative financial assets Mutual funds Available-for-sale financial assets Securities listed in ROC Equity securities Financial liabilities at FVTPL Derivative financial liabilities	Level 1 $ - 640,016 $ 640,016 $ 1,419,479 $ -	Level 2 $ 5,084 - $ 5,084 $ - $ 6,226	Level 3 $ - - $ - $ - $ -	Total $ 5,084 640,016
				$ 645,100
				$ 1,419,479
				$ 6,226

There were no transfers between Level 1 and 2 in the current and prior periods.

2) Valuation techniques and inputs applied for Level 2 fair value measurement

Derivatives held by the Company were foreign exchange forward contracts, whose fair values were calculated using discounted cash flow. Future cash flows are estimated based on observable forward exchange rates at the end of the reporting period and contract forward rates, discounted at a rate that reflects the credit risk of various counterparties.

b. Categories of financial instruments

Financial assets
Fair value through profit or loss (FVTPL)
Held for trading
Mandatorily classified as at FVTPL
Loans and receivables (Note 1)
Available-for-sale financial assets (Note 2)
Financial assets at amortized cost (Note 3)
Financial assets at FVTOCI
Equity instrument
Financial liabilities
Fair value through profit or loss (FVTPL)
Held for trading
Mandatorily classified as at FVTPL
Amortized cost (Note 4)

December 31

2018
2017
$ -
$ 645,100
1,360,381
-
-
8,807,389
-
1,419,479
9,912,530
-
1,028,441
-
-
6,226
6,128
-
8,244,579
7,130,846

Note 1: The balances included loans and receivables measured at amortized cost, which comprise cash and cash equivalents, note receivables, trade receivables, trade receivables from related parties, other receivables and other receivables from related parties.

Note 2: The balances included the carrying amount of available-for-sale financial assets measured at cost.

59 -
Note 3: The balances included financial assets measured at amortized cost, which comprise cash and cash equivalents, notes receivable, trade receivables, trade receivables from related parties, other receivables and other receivables from related parties.
Note 4: The balances included financial liabilities measured at amortized cost, which comprise, notes payable and trade payables, trade payables from related parties, other payables, and other payable from related parties.
c. Financial risk management objectives and policies

The Company’s major financial instruments include equity investments, trade receivables and trade payables. The Company’s Corporate Treasury function provides services to the business, coordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Company through internal risk reports which analyze exposures by degree and magnitude of risks. These risks include market risk (including foreign currency risk, interest rate risk and other price risk), credit risk and liquidity risk.

The Company sought to minimize the effects of these risks by using derivative financial instruments to hedge risk exposures. The use of financial derivatives was governed by the Company’s policies approved by the board of directors, which provided written principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment of excess liquidity. Compliance with policies and exposure limits was reviewed by the internal auditors on a continuous basis. The Company did not enter into or trade financial instrument, including derivative financial instruments, for speculative purposes.

The Corporate Treasury function reports quarterly to the board of directors on the Company’s current derivative instrument management.

1) Market risk

The Company’s activities exposed it primarily to financial risks of changes in foreign currency exchange rates (see (a) below) and interest rates (see (b) below). The Company entered into a variety of forward contract to manage its exposure to foreign currency risk.

There had been no change to the Company’s exposure to market risks or the manner in which these risks were managed and measured.

a) Foreign currency risk

The Company undertook operating activities and investment of foreign operations denominated in foreign currencies, which exposed the Company to foreign currency risk. The Company manages the risk that fluctuations in foreign currency could have on foreign-currency denominated assets and future cash flow by using forward exchange contracts, which allow the Company to mitigate but not fully eliminate the effect.

The maturities of the Company’s forward contracts were less than six months, and these contracts did not meet the criteria for hedge accounting.

The carrying amounts of the Company’s foreign currency denominated monetary assets and monetary liabilities and of the derivatives exposing to foreign currency risk at the end of the reporting period are set out in Notes 29 and 7, respectively.

Sensitivity analysis

The Company was mainly exposed to U.S. dollar, Euro and Renminbi.

60 -

The following table details the Company’s sensitivity to a 5% increase in New Taiwan dollars (the functional currency) against the relevant foreign currencies. The sensitivity rate used when reporting foreign currency risk internally to key management personnel and representing management’s assessment of the reasonably possible change in foreign exchange rates is 5%. The sensitivity analysis included only outstanding foreign currency denominated monetary items and foreign currency forward contracts designated as cash flow hedges, and adjusts their translation at the end of the reporting period for a 5% change in exchange rates. The range of the sensitivity analysis included cash and cash equivalents, trade receivables and trade payables. A positive number below indicates an increase in pre-tax profit associated with the New Taiwan dollar weakening 5% against the relevant currency. For a 5% strengthening of the New Taiwan dollar against the relevant currency, there would be an equal and opposite impact on pre-tax profit and the balances below would be negative.

Profit or loss	U.S. Dollar Impact 2018 2017 $ 109,243 (Note 1) $ 109,459 (Note 1)	Euro Impact 2018 2017 $ 46,489 (Note 2) $ 57,967 (Note 2)	Renminbi Impact
			2018 2017 $ 30,037 (Note 3) $ 13,624 (Note 3)

Note 1: This was mainly attributable to the exposure outstanding on U.S. dollar-denominated cash, trade receivables and trade payables, which were not hedged at the end of the reporting period.
Note 2: This was mainly attributable to the exposure outstanding on Euro-denominated cash, trade receivables and trade payables, which were not hedged at the end of the reporting period.
Note 3: This was mainly attributable to the exposure outstanding on Renminbi-denominated cash, trade receivables and trade payables, which were not hedged at the end of the reporting period.
b) Interest rate risk

The Company’s floating-rate bank savings are exposed to risk of changes in interest rates. The Company does not operate hedging instruments for interest rates. The Company’s management monitors fluctuations in market interest rates regularly. If it is needed, the management might perform necessary procedures for significant interest rate risks to control the risks from fluctuations in market interest rates.

The carrying amount of the Company’s financial assets and financial liabilities with exposure to interest rates at the end of the reporting period were as follows:

Cash flow interest rate risk Financial assets Sensitivity analysis	December 31
	2018 2017 $ 2,506,883 $ 2,433,560

The sensitivity analyses below were determined based on the Company’s exposure to interest rates for non-derivative instruments at the end of the reporting period. For floating rate liabilities, the analysis was prepared assuming the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year. A 50 basis point increase or decrease was used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

61 -

If interest rates had been 50 basis points higher and all other variables were held constant, the Company’s pre-tax profit for the years ended December 31, 2018 and 2017 would have increased by $12,534 thousand and $12,168 thousand, respectively. Had interest rates been 50 basis points lower, the effects on the Company’s pre-tax profit would have been of the same amounts but negative. The source of the negative effects would have been mainly the floating-interest rates on bank savings.

c) Other price risk

The Company was exposed to equity price risk through its investments in listed equity securities. The Company manages this exposure by maintaining a portfolio of investments with different risks. The Company’s equity price risks was mainly concentrated on equity instruments trading in the Taiwan stock exchange.

Sensitivity analysis

The sensitivity analyses below were determined based on the exposure to equity price risks at the end of the reporting period.

If equity prices had been 1% higher, the pre-tax other comprehensive income for the years ended December 31, 2018 would have increased by $10,284 thousand, as a result of changes in fair value of financial assets. And the pre-tax other comprehensive income for the year ended December 31, 2017 would have increase by $14,195, as a result of the changes in fair value of financial assets at fair value through other comprehensive income. Had equity prices been 1% lower, the effects on pre-tax other comprehensive gains would have been of the same amounts but negative.

2) Credit risk

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Company. As at the end of the reporting period, the Company’s maximum exposure to credit risk which would cause a financial loss to the Company due to failure of counterparties to discharge an obligation provided by the Company could arise from the carrying amount of the respective recognized financial assets as stated in the balance sheets.

In order to minimize credit risk, the management of the Company has delegated a team responsible for determining of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Company reviews the recoverable amount of each individual trade debt at the end of the reporting period to ensure that adequate allowance are made for irrecoverable amounts. In this regard, management believes the Company’s credit risk was significantly reduced.

Trade receivables consisted of a large number of customers, spread across diverse industries and geographical areas. The Company did transactions with a large number of unrelated customers and, thus, no concentration of credit risk was observed.

3) Liquidity risk

The Company manages liquidity risk by monitoring and maintaining a level of cash and cash equivalents deemed adequate to finance the Company’s operations and mitigate the effects of fluctuations in cash flows. In addition, management monitors the utilization of bank borrowings and ensures compliance with loan covenants.

62 -

Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the Company’s short, medium and long-term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate reserves and continuously monitoring forecast and actual cash flows as well as matching the maturity profiles of financial assets and liabilities. As of December 31, 2018 and 2017, the Company had available unutilized bank loan facilities set out in (c) below.

a) Liquidity and interest risk rate tables for non-derivative financial liabilities

The following table details the Company’s remaining contractual maturity for its non-derivative financial liabilities with agreed-upon repayment periods. The tables had been drawn up based on the undiscounted cash flows of financial liabilities from the earliest date on which the Company can be required to pay. The table included both interests and principal cash flows. Specifically, bank loans with a repayment on demand clause were included in the earliest time band regardless of the probability of the banks choosing to exercise their rights. The maturity dates for other non-derivative financial liabilities were based on the agreed repayment dates.

To the extent that interest flows are at floating rate, the undiscounted amount was derived from the interest rate curve at the end of the reporting period.

December 31, 2018

Non-derivative financial liabilities Non-interest bearing December 31, 2017 Non-derivative financial liabilities Non-interest bearing	On Demand or Less than 1 Month $ 5,035,682 On Demand or Less than 1 Month $ 4,808,601	1-3 Months $ 2,372,944 1-3 Months $ 1,222,066	Over 3 Months to 1 Year Over 1 Year - 5 Years $ 835,953 $ - Over 3 Months to 1 Year Over 1 Year - 5 Years $ 1,100,179 $ -

The amounts included above for variable interest rate instruments for both non-derivative financial assets and liabilities were subject to change if changes in variable interest rates differ from those estimates of interest rates determined at the end of the reporting period.

63 -

b) Liquidity and interest risk rate tables for derivative financial liabilities

The following tables detailed the Company’s liquidity analysis of its derivative financial instruments. The tables were based on the undiscounted gross cash inflows and outflows on those derivative instruments that require gross settlement.

December 31, 2018

Gross settled Foreign exchange forward contracts Inflows Outflows December 31, 2017 Gross settled Foreign exchange forward contracts Inflows Outflows Financing facilities Unsecured bank loan facilities Amount used Amount unused	On Demand or Less than 1 Month $ 235,499 234,880 $ 569 On Demand or Less than 1 Month $ 264,246 263,570 $ 676	1-3 Months Over 3 Months to 1 Year Total $ 403,177 $ 205,677 $ 844,303 403,256 207,128 845,264 $ (79) $ (1,451) $ (961) 1-3 Months Over 3 Months to 1 Year Total $ 488,029 $ 281,423 $ 1,033,698 489,905 281,365 1,034,840 $ (1,876) $ 58 $ (1,142) December 31 2018 2017 $ - $ - 3,955,919 2,345,362 $ 3,955,919 $ 2,345,362	1-3 Months Over 3 Months to 1 Year Total $ 403,177 $ 205,677 $ 844,303 403,256 207,128 845,264 $ (79) $ (1,451) $ (961) 1-3 Months Over 3 Months to 1 Year Total $ 488,029 $ 281,423 $ 1,033,698 489,905 281,365 1,034,840 $ (1,876) $ 58 $ (1,142) December 31 2018 2017 $ - $ - 3,955,919 2,345,362 $ 3,955,919 $ 2,345,362	1-3 Months Over 3 Months to 1 Year Total $ 403,177 $ 205,677 $ 844,303 403,256 207,128 845,264 $ (79) $ (1,451) $ (961) 1-3 Months Over 3 Months to 1 Year Total $ 488,029 $ 281,423 $ 1,033,698 489,905 281,365 1,034,840 $ (1,876) $ 58 $ (1,142) December 31 2018 2017 $ - $ - 3,955,919 2,345,362 $ 3,955,919 $ 2,345,362	Over 3 Months to 1 Year $ 205,677 207,128 $ (1,451) Over 3 Months to 1 Year $ 281,423 281,365 $ 58 December	Over 3 Months to 1 Year $ 205,677 207,128 $ (1,451) Over 3 Months to 1 Year $ 281,423 281,365 $ 58 December	Total $ 844,303 845,264 $ (961) Total $ 1,033,698 1,034,840 $ (1,142) 31

				2018 $ - 3,955,919 $ 3,955,919		2017 $ - 2,345,362 $ 2,345,362

c) Financing facilities

64 -

28. TRANSACTIONS WITH RELATED PARTIES

Besides information disclosed elsewhere in the other notes, details of significant transactions between the Company and other related parties are disclosed below.

a. Names and categories of related parties

==> picture [463 x 13] intentionally omitted <==

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

Name Related Party Category
----- End of picture text -----

Name	Related Party Category
AAC (HK)	Subsidiary
AAU	Subsidiary
ABR	Subsidiary
ACN	Subsidiary
A-DloG	Subsidiary
AEU	Subsidiary
AID	Subsidiary
AIN	Subsidiary
AiSC	Subsidiary
AJP	Subsidiary
AKMC	Subsidiary
AKR	Subsidiary
AKST	Subsidiary
AMY	Subsidiary
ANA	Subsidiary
APL	Subsidiary
ASG	Subsidiary
ATH	Subsidiary
AVN	Subsidiary
B+B	Subsidiary
B+B (CZ)	Subsidiary
BBI	Subsidiary
SIoT (Cayman)	Subsidiary
Cermate	Subsidiary
Advantech Corporate Investment	Subsidiary
AiST	Subsidiary
LNC	Subsidiary
Advanixs	Subsidiary
AdvanPOS	Subsidiary
Axiomtek Co., Ltd.	Associate
AIMobile Co., Ltd.	Associate
Deneng Scientific Research Co., Ltd.	Associate
Jan Hsiang Electronics Co., Ltd.	Associate
Winmate Inc.	Associate
Azurewave Technology Inc.	Associate
I-Link Co., Ltd.	Associate
Mildex Optical Inc.	Associate
Nippon Rad Inc.	Associate
Advantech Foundation	Other related party
K&M Investment Co., Ltd.	Other related party
AIDC Investment Corp.	Other related party
Ke Chang Liu	Other related party (chairman’s second
	immediate family)
Li Ting Huang	Other related party (spouse of
	chairman’s second immediate family)

65 -

b. Sales of goods

Related Party Category/Name Subsidiaries ANA ACN AEU Others Associates	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 9,347,710 7,382,801 4,889,200 4,888,173 66,550 $ 26,574,434	2017 $ 8,255,247 6,039,617 4,316,172 3,702,568 36,628 $ 22,350,232

c. Purchases of goods

Related Party Category/Name Subsidiaries AKMC Advanixs Others Associates	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 11,974,220 7,730 359,933 146,027 $ 12,487,910	2017 $ 10,519,469 1,328,501 1,551,277 51,565 $ 13,450,812

d. Receivables from related parties (excluding loans to related parties)

Related Party Line Item Category/Name Trade receivables - related parties Subsidiaries ANA ACN AEU Others Associates Other related parties		December 31	December 31
		2018 $ 1,906,993 1,492,606 952,721 1,295,528 7,348 - $ 5,655,196	2017 $ 1,595,920 964,313 1,363,473 671,867 7,203 300 $ 4,603,076

The outstanding trade receivables from related parties are unsecured. For the years ended December 31, 2018 and 2017 no impairment loss was recognized for trade receivables from related parties.

e. Payables to related parties (excluding loans from related parties)

Related Party Category/Name Subsidiaries AKMC Others Associates		December 31	December 31
		2018 $ 1,533,444 134,502 27,653 $ 1,695,599	2017 $ 932,599 171,268 19,499 $ 1,123,366

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The outstanding trade payables to related parties are unsecured.

f. Other receivables from related parties

Related Party Category Subsidiaries ANA AEU Others		December 31	December 31
		2018 $ 14,516 10,176 16,419 $ 41,111	2017 $ 5,004 2,681 7,884 $ 15,569

g. Other payable from related parties

Related Party Category Subsidiaries AEU A-DLOG Others Associates Acquisitions of property, plant and equipment Related Party Category Associates Subsidiaries Disposals of property, plant and equipment Proceeds For the Year Ended December 31 Related Party Category/Name 2018 2017 Other related parties $ - $ 74,397	Related Party Category Subsidiaries AEU A-DLOG Others Associates Acquisitions of property, plant and equipment Related Party Category Associates Subsidiaries Disposals of property, plant and equipment Proceeds For the Year Ended December 31 Related Party Category/Name 2018 2017 Other related parties $ - $ 74,397		December 31	December 31	December 31	December 31
			2018 $ 36,568 13,672 4,343 - $ 54,583 Purchase		2017 $ 42,286 - 7,688 25,575 $ 77,549 Price
		For the Year Ended December 31
			$	2018 2017 - $ 8,381 2,100 - 2,100 $ 8,381 Gain (Loss) on Disposal
			$

For the Year Ended December 31				For the Year Ended December 31
2018 $ -	2017 $ 74,397			2018 $ -		2017 $ 66,531

h. Acquisitions of property, plant and equipment
i. Disposals of property, plant and equipment
67 -

j. Other transactions with related parties

Administration expenses Subsidiaries Research and development expenses Associates Subsidiaries	Operating Expenses	Operating Expenses	Operating Expenses
	For the Year Ended December 31
		2018 $ 49,588 $ 11,672 1,654 $ 13,326	2017 $ 23,235 $ 23,709 5,267 $ 28,976

Research and development expenses incurred between the Company and its associates were charged according to the agreed remuneration and payment terms on the contracts. For the rest of transactions with related parties, since normal payment terms with related parties were not stipulated, the payment terms were based on mutual agreement.

Operating Expenses	Operating Expenses	Operating Expenses
For the Year Ended December 31
	2018 2017 $ 1,009 $ 1,539 Other Income
For the Year Ended December 31
	2018 $ 3,036 60 $ 3,096 $ 110,178 2,702 $ 112,880	2017 $ 4,836 60 $ 4,896 $ 78,876 2,702 $ 81,578

Lease contracts formed between the Company and its associates were based on market rental prices and had normal payment terms. Revenue contracts for technical services formed between the Company and its associates were based on market prices and had payment terms on the contracts. For the rest of transactions with related parties, since normal payment terms with related parties were not stipulated, the payment terms were based on mutual agreement.

k. Compensation of key management personnel

Short-term employee benefits Post-employment benefits Share-based payments	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 45,159 199 32,568 $ 77,926	2017 $ 46,617 201 9,653 $ 56,471

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The remuneration of directors and key executives was determined by the remuneration committee based on the performance of individuals and market trends.

29. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

The Company’s significant financial assets and liabilities denominated in foreign currencies aggregated by the foreign currencies other than functional currencies and the related exchange rates between foreign currencies and respective functional currencies were as follows:

December 31, 2018

Foreign Currencies Exchange Rate Financial assets Monetary items USD $ 200,036 30.715 (USD:NTD) RMB 443,904 4.4720 (RMB:NTD) EUR 22,929 35.200 (EUR:NTD) Non-monetary items Subsidiaries and associates accounted for using the equity method USD 391,494 30.715 (USD:NTD) EUR 33,337 35.200 (EUR:NTD) KRW 12,018,981 0.027 (KRW:NTD) JPY 1,288,805 0.278 (JPY:NTD) Financial liabilities Monetary items USD 128,904 30.715 (USD:NTD) RMB 242,567 4.4720 (RMB:NTD) December 31, 2017 Foreign Currencies Exchange Rate Financial assets Monetary items USD $ 188,935 29.76 (USD:NTD) RMB 326,570 4.565 (RMB:NTD) EUR 32,336 35.57 (EUR:NTD)	Carrying Amount $ 6,144,115 1,985,137 807,115
	$ 8,936,367
	$ 12,024,738 1,173,462 324,512 341,608
	$ 13,864,320
	$ 3,959,272 1,084,758
	$ 5,044,030
	Carrying Amount $ 5,622,706 1,490,792 1,150,192
	$ 8,263,690

(Continued)

69 -

Foreign Currencies Exchange Rate Non-monetary items Subsidiaries and associates accounted for using the equity method USD $ 332,724 29.76 (USD:NTD) EUR 30,536 35.57 (EUR:NTD) KRW 10,914,513 0.028 (KRW:NTD) JPY 1,044,091 0.264 (JPY:NTD) Financial liabilities Monetary items USD 115,373 29.76 (USD:NTD) RMB 189,882 4.565 (RMB:NTD)	Carrying Amount $ 9,901,866 1,086,166 305,606 275,640 $ 11,569,278 $ 3,433,500 866,811 $ 4,300,311 (Concluded)

For the years ended December 2018 and 2017, realized and unrealized net foreign exchange losses were $38,413 thousand and $(45,802) thousand, respectively. It is impractical to disclose net foreign exchange gains (losses) by each significant foreign currency due to the variety of the foreign currency transactions.

30. SEPARATELY DISCLOSED ITEMS

a. Information about significant transactions and b. information on investees:
1) Financing provided to others. (Table 1)
2) Endorsement/guarantee provided. (Table 2)
3) Marketable securities held (excluding investments in subsidiaries and associates). (Table 3)
4) Marketable securities acquired and disposed of at costs or prices of at least NT$300 million or 20% of the paid-in capital. (Table 4)
5) Acquisition of individual real estate at costs of at least NT$300 million or 20% of the paid-in capital. (None)
6) Disposal of individual real estate at prices of at least NT$300 million or 20% of the paid-in capital. (None)
7) Total purchases from or sales to related parties amounting to at least NT$100 million or 20% of the paid-in capital. (Table 5)
8) Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in capital. (Table 6)
9) Transactions of financial instruments. (Notes 7 and 27)
10) Name, locations, and other information of investees. (Table 7)
70 -
c. Information on investments in mainland China
1) Information on any investee company in mainland China, showing the name, principal business activities, paid-in capital, method of investment, inward and outward remittance of funds, ownership percentage, net income of investees, investment gains or losses, carrying amount of the investment at the end of the period, repatriations investment gains, and limit on the amount of investment in the mainland China area. (Table 8)
2) Any of the following significant transactions with investee companies in mainland China, either directly or indirectly through a third party, their prices, and payment terms, and unrealized gains or losses. Refer to Tables 1, 5 and 6.
71 -

TABLE 1

ADVANTECH CO., LTD. AND INVESTEES

FINANCING PROVIDED TO OTHERS FOR THE YEAR ENDED DECEMBER 31, 2018

(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

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(Note A)No. Lender Borrower Financial Statement Account Related Parties Highest Balance for the PeriodCredit Line (Note D) Ending Balance Actual BorrowingEnding Balance Rate (%)Interest Financing Nature of Transaction Business Amount Reasons for Short-term Financing Impairment LossAllowance for Item Collateral Value Financing Limit for Each Borrower Financing LimitsAggregate
1 B+B (CZ) Conel Automation Trade receivables - related Yes $ 17,184 $ 16,392 $ 16,392 2 Short-term $ - Financing need $ - None None $ 116,545 $ 116,545
parties (CZK 12,000 (CZK 12,000 (CZK 12,000 financing (Note C) (Note C)
thousand ) thousand ) thousand )
2 B+B (CZ) Conel Automation Trade receivables - related Yes 6,830 6,830 6,830 2 Short-term - Financing need - None None 116,545 116,545
parties (CZK 5,000 (CZK 5,000 (CZK 5,000 financing (Note C) (Note C)
thousand ) thousand ) thousand )
3 LNC LNC Dong Guan Trade receivables - related Yes 30,000 30,000 - - Short-term - Financing need - None None 32,308 129,232
parties financing (Note C) (Note C)
4 B+B (CZ) Conel Automation Trade receivables - related Yes 4,098 4,098 4,098 2 Short-term - Financing need - None None 116,545 116,545
parties (CZK 3,000 (CZK 3,000 (CZK 3,000 financing (Note C) (Note C)
thousand ) thousand ) thousand )
----- End of picture text -----

Note A: Investee companies are numbered sequentially from 1.

Note B: The exchange rates as of December 31, 2018 were CZK1=NT$1.366.

Note C: The financing limit for each borrower and for the aggregate financing were both 40% of the B+B (CZ)’s net asset values.

Note D: The financing limit for each borrower and for the aggregate financing were 10% and 40%, respectively, of the LNC’s net asset values.

Note E: The maximum balance for the year and ending balance are approved by the board of directors of financiers.

72 -

TABLE 2

ADVANTECH CO., LTD. AND INVESTEES

ENDORSEMENT/GUARANTEE PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

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Endorsee/Guarantee Ratio of
Accumulated Endorsement/
Limits on Maximum Maximum Endorsement/ Endorsement/
Endorsement/ Amount Outstanding Amount Endorsement/ Collateral/ Guarantee Guarantee Guarantee
Endorsement/ Actual Guarantee to Given on
No. GuarantorEndorser/ Name Relationship Given on Behalf of Each PartyGuarantee Guaranteed During the Endorsed/ the End of the Guarantee at Period Borrowing Amount Guaranteed by CollateralsEndorsed/ Net Equity in Financial Latest Guarantee Allowable Amounts Parent on Given by Behalf of Subsidiaries on Behalf of Given by Companies in Mainland Behalf of
(Note A) Period Statements (Note B) Subsidiaries Parent China
(%)
0 The Company ANA Subsidiary $ 2,930,270 $ 928,650 $ 921,450 $ - $ - 3.14 $ 8,790,811 Y N N
(US$ 30,000 (US$ 30,000
thousand) thousand)
B+B Subsidiary 2,930,270 308,002 305,614 - - 1.04 8,790,811 Y N N
(US$ 9,950 (US$ 9,950
thousand) thousand)
B+B (CZ) Subsidiary 2,930,270 1,548 1,536 - - 0.01 8,790,811 Y N N
(US$ 50 (US$ 50
thousand) thousand)
AKST Subsidiary 2,930,270 123,820 122,860 67,581 - 0.42 8,790,811 Y N N
(US$ 4,000 (US$ 4,000
thousand) thousand)
AVN Subsidiary 2,930,270 30,955 30,715 - - 0.10 8,790,811 Y N N
(US$ 1,000 (US$ 1,000
thousand) thousand)
AKMC Subsidiary 2,930,270 185,730 184,290 - - 0.63 8,790,811 Y N Y
(US$ 6,000 (US$ 6,000
thousand) thousand)
Advanixs Corp. Subsidiary 2,930,270 49,528 49,144 - - 0.17 8,790,811 Y N N
(US$ 1,600 (US$ 1,600
thousand) thousand)
Cermate Subsidiary 2,930,270 30,955 30,715 - - 0.10 8,790,811 Y N N
(US$ 1,000 (US$ 1,000
thousand) thousand)
AiST Subsidiary 2,930,270 4,643 4,607 - - 0.02 8,790,811 Y N N
(US$ 150 (US$ 150
thousand) thousand)
AdvanPOS Subsidiary 2,930,270 30,955 30,715 - - 0.10 8,790,811 Y N N
(US$ 1,000 (US$ 1,000
thousand) thousand)
----- End of picture text -----

(Continued)

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Endorsee/Guarantee Ratio of
Accumulated Endorsement/
Limits on Maximum Maximum Endorsement/ Endorsement/
Endorsement/ Amount Outstanding Amount Endorsement/ Collateral/ Guarantee Guarantee Guarantee
Endorsement/ Actual Guarantee to Given on
No. GuarantorEndorser/ Name Relationship Given on Behalf of Each PartyGuarantee Guaranteed During the Endorsed/ the End of the Guarantee at Period Borrowing Amount Guaranteed by CollateralsEndorsed/ Net Equity in Financial Latest Guarantee Allowable Amounts Parent on Given by Behalf of Subsidiaries on Behalf of Given by Companies in Mainland Behalf of
(Note A) Period Statements (Note B) Subsidiaries Parent China
(%)
A-DLoG Subsidiary $ 2,930,270 $ 35,890 $ 35,200 $ - $ - 0.12 $ 8,790,811 Y N N
(EUR 1,000 (EUR 1,000
thousand) thousand)
ABR Subsidiary 2,930,270 46,433 46,073 - - 0.16 8,790,811 Y N N
(US$ 1,500 (US$ 1,500
thousand) thousand)
AAU Subsidiary 2,930,270 6,191 6,143 - - 0.02 8,790,811 Y N N
(US$ 200 (US$ 200
thousand) thousand)
AKR Subsidiary 2,930,270 1,548 1,536 - - 0.01 8,790,811 Y N N
(US$ 50 (US$ 50
thousand) thousand)
Shenzhen Cermate Subsidiary 2,930,270 17,025 16,893 - - 0.06 8,790,811 Y N Y
Technologies Inc. (US$ 550 (US$ 550
thousand) thousand)
ATJ Business 2,930,270 278,000 278,000 - - 0.95 8,790,811 N N N
relationship (JPY 1,000,000 (JPY 1,000,000
thousand) thousand)
----- End of picture text -----

Note A: The limit on endorsements or guarantees provided on behalf of the respective party is 10% of the Company’s net asset value.

Note B: The maximum collateral or guarantee amount allowable is 30% of the Company’s net asset value.

Note C: The exchange rates as of December 31, 2018 were US$1=NT$30.715, EUR1=NT$35.20 and JPY1=NT$0.278.

Note D: The latest net equity is from the financial statements for the year ended December 31, 2018.

(Concluded)

74 -

TABLE 3

ADVANTECH CO., LTD. AND INVESTEES

MARKETABLE SECURITIES HELD FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

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Relationship with December 31, 2018
Holding Company Name Type and Name of Marketable Securities (Note E) the Holding Company Financial Statement Account Number of Shares Carrying Amount Ownership (%)Percentage of Fair Value Note
The Company Stock
ASUSTek Computer Inc. - Financial assets at fair value 4,739,461 $ 955,001 0.64 $ 955,001 Note A
through other comprehensive
income or loss - non - current
Allied Circuit Co., Ltd. - 〃 1,200,000 73,440 2.41 73,440 Note A
Fund
Mega Diamond Money Market - Financial assets at fair value 97,030,420 1,215,005 - 1,215,005 Note B
through profit or loss - current
Capital Money Market - 〃 8,702,880 140,209 - 140,209 Note B
Advantech Corporate Investment Share
HwaCom System Inc. - Financial assets at fair value 5,175,000 60,806 5.00 60,806 Note A
through profit or loss - current
Phison Electronics Corporation 〃 622,000 141,816 0.32 141,816 Note A
Contec - 〃 15,500 5,270 0.23 5,270 Note A
Allied Circuit Co., Ltd. - Financial assets at fair value 2,501,000 153,061 5.03 153,061 Note A
through other comprehensive
income or loss - non-current
BroadTec System Inc. - 〃 225,000 3,879 7.50 3,879 Note C
BiosenseTek Corp. - 〃 37,500 - 1.79 - Note C
Juguar Technology - 〃 500,000 4,743 16.67 4,743 Note C
Taiwan DSC PV Ltd. - 〃 160,000 - 3.20 - Note C
Fund
Mega Diamond Money Market - Financial assets at fair value 11,354,027 142,174 - 142,174 Note B
through profit or loss - current
Advanixs Corporate Fund
Jih Sun Money Market - 〃 1,212,495 17,937 - 17,937 Note B
Mega Diamond Money Market - 〃 9,243,362 115,744 - 115,744 Note B
AiST Fund
Jih Sun Money Market - 〃 1,243,566 18,397 - 18,397 Note B
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(Continued)

75 -

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Note A: Market value was based on the closing price on December 31, 2018.

Note B: Market value was based on the net asset values of the open-ended mutual funds on December 31, 2018.

Note C: The fair values are estimated from the latest net equity from the financial statements.

Note D: Securities comprise shares, beneficiary certificates, and securities derived from the shares and beneficiary certificates under IFRS 9 “Financial Instruments”.

(Concluded)

76 -

TABLE 4

ADVANTECH CO., LTD. AND INVESTEES

MARKETABLE SECURITIES ACQUIRED AND DISPOSED AT COSTS OR PRICES OF AT LEAST $300 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2018

(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

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

Type and Name of Financial Statement Beginning Balance Acquisition Disposal Ending Balance
Company Name Marketable Securities Account Counterparty Relationship Shares Amount (Cost) Shares Amount Shares Amount Carrying Amount Gain (Loss) on Disposal Shares Amount (Cost)
The Company Fund
Mega Diamond Money Financial assets at fair value - - 28,879,553 $ 360,000 227,347,469 $ 2,840,000 159,196,602 $ 1,990,000 $ 1,987,181 $ 2,819 97,030,420 $ 1,212,819
Market through profit or loss
Capital Money Market Same as above - - 112,460,931 1,807,000 103,758,051 1,668,523 1,667,000 1,523 8,702,880 140,000
FSITC Money Market Same as above - - 1,578,638 280,000 4,675,444 830,000 6,254,082 1,111,781 1,110,000 1,781 - -
Advantech Corporate Fund
Investment FSITC Money Market Financial assets at fair value - - 2,926,124 519,001 112,606 20,000 3,038,730 539,603 539,001 602 - -
through profit or loss
Mega Diamond Money Same as above - - 49,657,452 619,000 4,959,289 62,000 43,262,714 541,000 539,415 1,585 11,354,027 141,585
Market
Share
AzureWave Technologies, Investments accounted for - Associate 5,492,000 90,439 24,107,000 488,124 - - - - 29,599,000 578,563
Inc. using the equity method
Advanixs Corporate Fund
Jih sun Money Market Financial assets at fair value - - 40,686,999 599,197 7,224,680 106,501 46,699,184 689,000 687,839 1,161 1,212,495 17,859
through profit or loss
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77 -

TABLE 5

ADVANTECH CO., LTD. AND INVESTEES

TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES AMOUNTING TO AT LEAST $100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2018

(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

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Notes/Accounts
Transaction Details Abnormal Transaction
Receivable (Payable)
Buyer Related Party Relationship Note
Purchase/Sale Amount Total% to Payment Terms Unit Price Payment Terms Balance Ending Total% to
The Company AAU Subsidiary Sale $ 233,477 0.66 60-90 days Contract price No significant difference in terms for related parties $ 40,945 0.57
B+B Subsidiary Sale 152,070 0.43 45 days after month-end Contract price No significant difference in terms for related parties 19,051 0.26
AEU Subsidiary Sale 4,889,200 13.82 30 days after month-end Contract price No significant difference in terms for related parties 952,721 13.20
AJP Subsidiary Sale 905,025 2.56 60-90 days Contract price No significant difference in terms for related parties 154,814 2.14
ACN Subsidiary Sale 7,382,801 20.87 45 days after month-end Contract price No significant difference in terms for related parties 1,492,606 20.68 Note
AKR Subsidiary Sale 997,566 2.82 60 days after invoice date Contract price No significant difference in terms for related parties 64,983 0.90
ANA Subsidiary Sale 9,347,710 26.42 45 days after month-end Contract price No significant difference in terms for related parties 1,906,993 26.42
ASG Subsidiary Sale 276,045 0.78 60-90 days Contract price No significant difference in terms for related parties 53,788 0.75
Advanixs Corp. Subsidiary Sale 805,007 2.28 60-90 days Contract price No significant difference in terms for related parties 139,159 1.93
A-DLoG Subsidiary Sale 608,339 1.72 30 days after invoice date Contract price No significant difference in terms for related parties 54,615 0.76
AIN Subsidiary Sale 114,063 0.32 60 days after month-end Contract price No significant difference in terms for related parties 53,791 0.75
SIoT (Cayman) Subsidiary Sale 320,260 0.91 Usual trade terms Contract price No significant difference in terms for related parties 266,621 3.69
ABR Subsidiary Sale 121,745 0.34 90 days after month-end Contract price No significant difference in terms for related parties 24,379 0.34
AMY Subsidiary Sale 139,369 0.39 45 days after month-end Contract price No significant difference in terms for related parties 11,028 0.15
AKMC Subsidiary Purchase (11,974,220) (48.41) Usual trade terms Contract price No significant difference in terms for related parties (1,533,444) 27.10
A-DLoG Subsidiary Purchase (181,902) (0.74) Usual trade terms Contract price No significant difference in terms for related parties (20,746) 0.37
AKMC The Company Parent company Sale 11,974,220 14.28 Usual trade terms Contract price No significant difference in terms for related parties 1,533,444 94.69
A-DLoG The Company Parent company Sale 181,902 58.06 Usual trade terms Contract price No significant difference in terms for related parties 20,746 12.99
AAU The Company Parent company Purchase (233,477) (88.51) 60-90 days Contract price No significant difference in terms for related parties (40,945) 83.71
B+B The Company Parent company Purchase (152,070) (18.02) 45 days after month-end Contract price No significant difference in terms for related parties (19,051) 50.77
AEU The Company Parent company Purchase (4,889,200) (74.34) 30 days after month-end Contract price No significant difference in terms for related parties (952,721) 64.68
AJP The Company Parent company Purchase (905,025) (90.22) 60-90 days Contract price No significant difference in terms for related parties (154,814) 92.26
ACN The Company Parent company Purchase (7,382,801) (77.59) 45 days after month-end Contract price No significant difference in terms for related parties (1,492,606) 83.69
AKR The Company Parent company Purchase (997,566) (62.8) 60 days after invoice date Contract price No significant difference in terms for related parties (64,983) 49.84
ANA The Company Parent company Purchase (9,347,710) (88.14) 45 days after month-end Contract price No significant difference in terms for related parties (1,906,993) 84.04
ASG The Company Parent company Purchase (276,045) (79.42) 60-90 days Contract price No significant difference in terms for related parties (53,788) 79.25
Advanixs Corp. The Company Parent company Purchase (805,007) (98.71) 60-90 days Contract price No significant difference in terms for related parties (139,159) 97.57
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(Continued)

78 -

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

Notes/Accounts
Transaction Details Abnormal Transaction
Receivable (Payable)
Buyer Related Party Relationship Purchase/Sale Amount Total% to Payment Terms Unit Price Payment Terms Balance Ending Total% to Note
A-DLoG The Company Parent company Purchase $ (608,339) (75.41) 30 days after invoice date Contract price No significant difference in terms for related parties $ (54,615) 67.49
AIN The Company Parent company Purchase (114,063) (92.75) 60 days after invoice date Contract price No significant difference in terms for related parties (53,791) 94.41
SIoT (Cayman) The Company Parent company Purchase (320,260) (48.26) Usual trade terms Contract price No significant difference in terms for related parties (266,621) 70.29
ABR The Company Parent company Purchase (121,745) (67.12) 90 days after invoice date Contract price No significant difference in terms for related parties (24,379) 89.29
AMY The Company Parent company Purchase (139,369) (77.71) 45 days after month-end Contract price No significant difference in terms for related parties (11,028) 100.00
Cermate Shenzhen Cermate Related enterprise Sale 112,581 42.63 Usual trade terms Contract price No significant difference in terms for related parties 18,789 48.23
Technologies Inc.
AKMC ACN Related enterprise Sale 445,324 3.51 Usual trade terms Contract price No significant difference in terms for related parties 52,060 3.21
SIoT(Cayman) Related enterprise Sale 510,175 4.02 Usual trade terms Contract price No significant difference in terms for related parties 125,335 7.74
LNC LNC Dong Guan Related enterprise Sale 295,203 68.04 Usual trade terms Contract price No significant difference in terms for related parties 209,533 93.88
ACN AiSC Related enterprise Sale 171,787 1.59 Usual trade terms Contract price No significant difference in terms for related parties 42,659 1.89
B+B (CZ) AEU Related enterprise Sale 246,655 60.80 Usual trade terms Contract price No significant difference in terms for related parties 45,091 100.00
APL AEU Related enterprise Sale 106,733 97.67 Usual trade terms Contract price No significant difference in terms for related parties 10,013 88.31
SIoT (Cayman) AEU Related enterprise Sale 211,059 39.78 Usual trade terms Contract price No significant difference in terms for related parties 85,087 34.88
ANA Related enterprise Sale 235,886 44.45 Usual trade terms Contract price No significant difference in terms for related parties 125,737 25.78
Shenzhen Cermate Cermate Related enterprise Purchase (112,581) (38.62) Usual trade terms Contract price No significant difference in terms for related parties (18,789) 74.84
Technologies Inc.
ACN AKMC Related enterprise Purchase (445,324) (4.68) Usual trade terms Contract price No significant difference in terms for related parties (52,060) 2.92
SIoT (Cayman) AKMC Related enterprise Purchase (510,175) (128.23) Usual trade terms Contract price No significant difference in terms for related parties (125,335) 4.39
LNC Dong Guan LNC Related enterprise Purchase (295,203) (77.47) Usual trade terms Contract price No significant difference in terms for related parties (209,533) 92.32
AiSC ACN Related enterprise Purchase (171,787) (61.89) Usual trade terms Contract price No significant difference in terms for related parties (42,659) 78.96
AEU B+B (CZ) Related enterprise Purchase (246,655) (4.43) Usual trade terms Contract price No significant difference in terms for related parties (45,091) 3.51
APL Related enterprise Purchase (106,733) (1.92) Usual trade terms Contract price No significant difference in terms for related parties (10,013) 0.78
SIoT (Cayman) Related enterprise Purchase (211,059) (3.79) Usual trade terms Contract price No significant difference in terms for related parties (85,087) 6.62
ANA SIoT (Cayman) Related enterprise Purchase (235,886) (2.22) Usual trade terms Contract price No significant difference in terms for related parties (125,737) 5.54
----- End of picture text -----

Note: Unrealized gain for the period was $2,883 thousand.

(Concluded)

79 -

TABLE 6

ADVANTECH CO., LTD. AND INVESTEES

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2018

(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

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Overdue Amounts
Received in Allowance for
Company Name Related Party Relationship Ending Balance Turnover Rate
Amount Actions Taken Subsequent Impairment Loss
Period
The Company ACN Subsidiary $ 1,492,606 6.01 $ - - $ 617,135 $ -
AEU Subsidiary 952,721 4.22 - - 463,454 -
SIoT (Cayman) Subsidiary 266,621 4.56 - - 124,703 -
AJP Subsidiary 154,814 5.91 - - 33,479 -
AKMC Subsidiary 409,917 Note - - 173,925 -
ANA Subsidiary 1,906,993 0.57 - - 860,020 -
Advanixs Corp. Subsidiary 139,159 5.76 - - 122,290 -
AKMC The Company Parent company 1,533,444 9.90 - - 1,067,271 -
LNC LNC Dong Guan Related enterprise 209,533 1.53 - - 11,323 -
SIoT (Cayman) ANA Related enterprise 125,737 0.65 - - 40,997 -
AKMC SIoT (Cayman) Related enterprise 125,335 8.14 - - 15,866 -
----- End of picture text -----

Note: Sales revenue on materials delivered to subcontractors have been eliminated from consolidation.

80 -

TABLE 7

ADVANTECH CO., LTD. AND INVESTEES

INFORMATION ON INVESTEES FOR THE YEAR ENDED DECEMBER 31, 2018

(In Thousands of New Taiwan Dollars/Foreign Currency, Unless Stated Otherwise)

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Investment Amount Balance as of December 31, 2018 Net Income Investment
Investor Company Investee Company Location Main Businesses and Products December 31, December 31, Shares Percentage of Carrying (Loss) of the Gain (Loss) Note
2018 2017 Ownership Value Investee (Note A)
The Company AAC (BVI) BVI Investment and management service $ 2,332,397 $ 1,000,207 29,623,834 100.00 $ 5,932,170 $ 482,772 $ 460,156 Subsidiary
ATC BVI Sale of industrial automation products 998,788 998,788 33,850,000 100.00 3,718,200 310,451 313,722 Subsidiary
Advanixs Corporate Taipei, Taiwan Production and sale of industrial automation products 226,000 486,000 36,000,000 100.00 237,593 53,065 104,313 Subsidiary
Advantech Corporate Investment Taipei, Taiwan Investment holding company 1,400,000 1,400,000 150,000,000 100.00 1,590,325 39,830 39,752 Subsidiary
Axiomtek Taipei, Taiwan Production and sale of industrial automation products 249,059 249,059 20,537,984 25.76 619,411 406,923 105,097 Equity-meth investee
AdvanPOS Taipei, Taiwan Production and sale of POS system 266,192 460,572 1,000,000 100.00 297,296 (370) 895 Subsidiary (Note A)
LNC Taichung, Taiwan Production and sale of machines with computerized 304,865 431,634 19,230,000 64.10 433,078 4,061 3,069 Subsidiary
numerical control
Jan Hsiang Taipei, Taiwan Electronic parts and components manufacturing 3,719 3,719 655,500 28.50 8,010 54 54 Equity-meth investee (Note A)
AMX Mexico Sale of industrial automation products 4,922 4,922 - 100.00 222 639 639 Subsidiary (Note A)
AEUH Helmond, the Netherlands Investment and management service 1,219,124 1,219,124 25,961,250 100.00 900,798 101,355 101,355 Subsidiary
ASG Techplace, Singapore Sale of industrial automation products 27,134 27,134 1,450,000 100.00 108,015 18,154 18,154 Subsidiary (Note A)
ATH Thailand Production of computers 47,701 - 51,000 51.00 51,353 6,184 2,394 Subsidiary (Note A)
AAU Sydney, Australia Sale of industrial automation products 40,600 40,600 500,204 100.00 36,226 (4,729) (4,729) Subsidiary (Note A)
AJP Tokyo, Japan Sale of industrial automation products 15,472 15,472 1,200 100.00 332,224 50,427 50,427 Subsidiary (Note A)
AMY Malaysia Sale of industrial automation products 35,140 35,140 2,000,000 100.00 68,499 16,937 16,937 Subsidiary (Note A)
AKR Seoul, Korea Sale of industrial automation products 73,355 73,355 600,000 100.00 322,524 99,992 99,992 Subsidiary
ABR Sao Paulo, Brazil Sale of industrial automation products 43,216 43,216 1,794,996 80.00 67,328 18,354 14,683 Subsidiary (Note A)
Advantech Innovative Design Taipei, Taiwan Product design 10,000 10,000 1,000,000 100.00 10,066 25 25 Subsidiary (Note A)
Co., Ltd.
AiST Taipei, Taiwan Design, develop and sale of intelligent services 81,837 157,915 10,000,000 100.00 96,183 458 458 Subsidiary (Note A)
BEMC Delaware, USA Sale of industrial network communications systems - 1,968,044 - - - - - Subsidiary (Note B)
B+B Delaware, USA Sale of industrial network communications systems 1,968,044 1,968,044 230,647 60.00 1,951,772 12,367 4,646 Subsidiary (Note B)
AIN India Sale of industrial automation products 19,754 19,754 3,999,999 99.99 10,714 5,249 5,249 Subsidiary (Note A)
AIMobile Co., Ltd. Taipei, Taiwan Design and manufacture of industrial mobile systems 135,000 135,000 13,500,000 45.00 65,012 (42,506) (19,128) Equity-meth investee (Note A)
AKST Gangwon-do, Korea Production and sale of intelligent medical display 83,313 83,313 69,740 36.00 (27,036) (48,434) (27,036) Subsidiary (Note A)
Winmate Taipei, Taiwan Embedded System Modules 540,000 540,000 12,000,000 16.62 542,761 8,562 33,812 Equity-meth investee (Note A)
AVN Hanoi, Vietnam Sale of industrial automation products 76,092 - 8,100 60.00 76,539 2,385 1,076 Subsidiary (Note A)
Nippon RAD Inc. Tokyo, Japan R&D of IoT intelligent system 251,915 - 850,000 16.08 252,967 38,277 1,556 Equity-meth investee
ARU Moscow, Russia Production and sale of industrial automation products 23,822 - 500,000 100.00 21,402 (655) (655) Subsidiary (Note A)
AKR AKST Gangwon-do, Korea Production and sale of intelligent medical display 55,579 55,579 22,023 24.00 - (48,434) - Subsidiary (Note A)
Advantech Corporate Investment Cermate Taipei, Taiwan Manufacturing of electronic parts, computer, and 71,500 71,500 5,500,000 55.00 128,046 33,408 18,297 Subsidiary
peripheral devices
Deneng Taichung, Taiwan Installment and sale of electronic components and 18,095 18,095 658,000 39.69 14,100 (3,419) (1,357) Equity-meth investee (Note A)
software
CDIB Innovation Accelerator Taipei, Taiwan Investment holding company 150,000 75,000 7,500,000 17.86 147,109 (30,213) (5,395) Equity-meth investee (Note A)
Co., Ltd.
AzureWave Technologies, Inc. Taipei, Taiwan Wireless communication and digital image module 578,563 - 27,810,000 18.42 534,780 (118,427) (16,323) Equity-meth investee (Note A)
manufacturing and trading
Huan Yan, Jhih-Lian Co., Ltd. Taipei, Taiwan Combination of water treatment related technologies 5,000 - 500,000 50.00 4,971 (58) (29) Subsidiary (Note A)
and Internet of Things applications
Yun Yan, Wu-Lian Co., Ltd Taipei, Taiwan Industrial equipment Networking in Greater China 5,000 - 500,000 50.00 3,066 (3,868) (1,934) Subsidiary (Note A)
Nippon RAD Tokyo, Japan R&D of IoT intelligent system 49,733 - 154,310 2.92 45,733 38,277 - Equity-meth investee
i-Link Co., Ltd Taichung, Taiwan Intelligent medical integration 10,067 - 1,000,000 25.00 9,407 (38,020) (660) Equity-meth investee (Note A)
DotZero Co., Ltd Taichung, Taiwan Intelligent metal processing integration 4,900 - 490,000 49.00 4,629 (554) (271) Equity-meth investee (Note A)
Mildex Optical Inc. Kaohsiung, Taiwan Manufacturing of electronic parts 202,948 - 15,708,450 50.00 183,210 (43,120) (1,724) Equity-meth investee (Note A)
ATC ATC (HK) Hong Kong Investment and management service 1,212,730 1,212,730 57,890,679 100.00 3,780,776 355,324 358,595 Subsidiary
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Note A: The respective entity is an immaterial subsidiary; its financial statements have not been audited, which does not result in a significant impact on the Group’s consolidated financial statements.

Note B: Due to organizational restricting, BEMC has been cleared after liquidation. The parent company will directly hold B+B.

Note C: Refer to Table 8 for investments in mainland China.

(Concluded)

82 -

TABLE 8

ADVANTECH CO., LTD. AND INVESTEES

INVESTMENTS IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

==> picture [776 x 395] intentionally omitted <==

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Investment Flows Accumulated
Accumulated Accumulated
Outflow of %
Investee Company Name Main Businesses and Products Total Amount of Paid-in Capital Investment Type (e.g., Direct or Indirect) from Taiwan Investment Outflow of as of Outflow Inflow December 31, from TaiwanInvestment as of (Loss) of the Net Income Investee Ownership of InvestmentDirect or Indirect Gain (Loss) Investment (Note A) December 31, Value as of Carrying 2018 Earnings as ofRemittance of December 31, Inward
January 1, 2018 2018 2018
Advantech Technology (China) Production and sale of US$ 43,750 Indirect $ 1,145,670 $ - $ - $ 1,145,670 $ 365,352 100 $ 368,623 $ 3,780,776 $ -
Company Ltd. (“AKMC”) components of thousand (US$ 37,300 (US$ 37,300
industrial automation (Note F) thousand) thousand)
products
Beijing Yan Hua Xing Ye Sale of industrial US$ 4,230 Indirect 163,772 - - 163,772 137,418 100 136,986 1,203,575 US$ 11,232
Electronic Science & automation products thousand (US$ 5,332 (US$ 5,332 thousand
Technology Co., Ltd. thousand) thousand)
(“ACN”)
Shanghai Advantech Intelligent Production and sale of US$ 8,000 Indirect 245,720 - - 245,720 (17,003) 100 (16,959) 663,662 -
Services Co., Ltd. (“AiSC”) industrial automation thousand (US$ 8,000 (US$ 8,000
products thousand) thousand)
Xi’an Advantech Software Ltd. Development and US$ 1,000 Indirect (Note C) - - (Note C) 13 100 13 29,887 -
(“AXA”) production of thousand (Note A)
software products
Hangzhou Advantofine Processing and sale of RMB 3,000 Indirect (Note D) - - (Note D) (320) - (320) - -
Automation Tech. Co., Ltd. industrial automation thousand (Note A)
products
Advanixs Kun Shan Corp. Production and sale of RMB 99,515 Indirect (Note G) - - (Note G) - - - - -
industrial automation thousand
products
LNC Dong Guan Co., Ltd. Production and sale of US$ 4,000 Indirect 98,104 - - 98,104 (13,004) 100 (12,880) 28,993 -
industrial automation thousand (US$ 3,194 (US$ 3,194
products thousand) thousand)
Shenzhen Cermate Production and sale of RMB 2,000 Indirect 9,460 - - 9,460 29,348 90 27,095 80,552 US$ 717
Technologies Inc. Human Machine thousand (US$ 308 (US$ 308 thousand
Interface thousand) thousand) RMB 1,743
thousand
(Continued)
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Note A: The respective entity is an immaterial subsidiary; its financial statements have not been audited, which does not result in a significant impact on the financial statements.

Note B: The significant events, prices, payment terms and unrealized gains or losses generated on trading between the Company and its investees in Mainland China are described in Tables 5 and 6.

Note C: Remittance by ACN.

Note D: In the first quarter of 2018, Hangzhou Advantofine Automation Co., Ltd. was liquidated.

Note E: Included is the outflow of US$200 thousand on the investment in Yan Hua (Guang Zhou Bao Shui Qu) Co., Ltd. located in a free trade zone in Guang Zhou. When this investee was liquidated in September 2005, the outward investment remittance ceased upon the approval of the Ministry of Economic Affairs (MOEA). For each future capital return, the Company will apply to the MOEA for the approval of the return as well as reduce the accumulated investment amount by the return amount.

Note F: For AKMC, there was a capital increase of US$6,450 thousand out of earnings.

Note G: In the second quarter of 2018, Advanixs Kun Shan Corp. was acquired by AKMC, Advanixs Kun Shan Corp. was liquidated.

Note H: Remittance by AAC (BVI) and AiSC.

Note I: Remittance by AiSC; AiSC’s investments in associate accounted for using the equity method.

Note J: The exchange rate was US$1=NT$30.715 and RMB1=NT$4.472.

Note K: The maximum allowable limit on investment was at 60% of the consolidated net asset value of the Company.

(Concluded)

84 -

AI assistant

Advantech — Audit Report / Information 2018

52053_rns_2018-11-02_9694ab15-0cd5-4759-a8e5-d7cb45336b47.pdf

Advantech Co., Ltd.

INDEPENDENT AUDITORS’ REPORT

Opinion

Basis for Opinion

Key Audit Matters

Sales Revenue

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

Auditors’ Responsibilities for the Audit of the Financial Statements

Notice to Readers

ADVANTECH CO., LTD.

BALANCE SHEETS DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

ADVANTECH CO., LTD.

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

ADVANTECH CO., LTD.

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

ADVANTECH CO., LTD.

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

ADVANTECH CO., LTD.

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

ADVANTECH CO., LTD.

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

ADVANTECH CO., LTD.

1. GENERAL INFORMATION

2. APPROVAL OF FINANCIAL STATEMENTS

3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS

Classification, measurement and impairment of financial assets

Definition of a lease

The Company as lessee

The Company as lessor

Anticipated impact on assets, liabilities and equity

2) IFRIC 23 “Uncertainty Over Income Tax Treatments”

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

e. Foreign currencies

f. Inventories

g. Investment in subsidiaries

i. Property, plant and equipment

m. Financial instruments

1) Financial assets

2017

ii. Available-for-sale financial assets

iii. Loans and receivables

b) Impairment of financial assets

2018

2017

2) Equity instruments

3) Financial liabilities

Financial liabilities at fair value through profit or loss

4) Derivative financial instruments

n. Provisions

s. Employee share options

1) Current tax

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

6. CASH AND CASH EQUIVALENTS

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

8. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME - 2018

9. AVAILABLE-FOR-SALE FINANCIAL ASSETS - 2017

10. NOTES RECEIVABLE AND TRADE RECEIVABLES

Trade Receivables

For the year ended December 31, 2018

At amortized cost

December 31, 2018

11. INVENTORIES

12. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

a. Investments in subsidiaries

13. PROPERTY, PLANT, AND EQUIPMENT

14. GOODWILL

15. OTHER LIABILITIES

16. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

b. Defined benefit plans

17. EQUITY

a. Share capital

Ordinary shares

b. Capital surplus

c. Retained earnings and dividends policy

18. NET PROFIT AND OTHER COMPREHENSIVE INCOME FROM CONTINUING OPERATIONS a. Finance costs

c. Employee benefits expense

Advantech Audit Report / Information 2018