DAVICOM - AGM Information 2019 | FinancialReports.eu

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DAVICOM Semiconductor, Inc.

2019 Annual General Shareholders’ Meeting Handbook

Meeting Time: 9:00 a.m. on Wednesday, 12[th] Jun, 2019 Venue: 3F., No.6, Li-Hsin Rd.6, Science Park, Hsinchu, Taiwan (Auditorium)

I. Meeting Procedure----------------------------------------p.2 II.Report Agenda--------------------------------------------P.3 1. Call Meeting to Order 2. Chairman Address 3. Report Item 4. Proposal Resolutions 5. Election Matters 6. Other Matters 7. Motions

I I I . A t t a c h m e n t s - - - - - - - - - - - - - - - - - - - - - - - - P . 1 0 1. Business Report 2. Audit Committee’s Review Report 3. CPA Audit Report and 2018 Individual Financial Statements 4. CPA Audit Report and 2018 Consolidated Financial Statements

2018 Annual Profit Distribution Table
The nominated candidates of Directors and Independent Directors IV. Appendix------------------------------------P.43
Current Shareholding of Directors and Independent Director.

DAVICOM Semiconductor, Inc.

2019 Annual General Shareholders’ Meeting Procedure

1. Call Meeting to Order

2. Chairman’s Address

3. Report Items

4. Proposal Resolution

5. Election Matters

6. Other Matters

7. Motions

8. Adjournment

DAVICOM Semiconductor, Inc.

2019 Annual General Shareholders’ Meeting Agenda

Time: 9:00 a.m., Jun 12, 2019 (Wednesday)

Place: 3F., No.6, Li-Hsin Rd.6, Science Park, Hsinchu, Taiwan (Auditorium)

Agenda:

1. Call Meeting to Order

2. Chairman’s Address

3. Report Items

(1) To report the business of 2018 and operating plan of 2019
(2) Audit Committee’s review report of 2018
(3) To report 2018 employees’ bonus and directors’ compensation
(4) To report the proposal for issuance of 2018 Restricted Stock Awards (“RSA”)
(5)To report Implementation Status of the Company’s Share Buyback

4. Approval and Discussion Items

(1) To accept 2018 Business Report and Financial Statements
(2) To approve the proposal for distribution of 2018 Profits
(3) To approve the proposal for cash distribution of 2018 additional paid in capital
(4) To amend the Procedures for Acquisition or Disposal of Assets
(5) To amend the proposal for issuance of 2017 Restricted Stock Awards (“RSA”)

5. Election Matters ： To Elect 7 Directors (including 3 independent directors) of the Ninth Board.

6. Other Matters ： To release Non-Competition Restriction on Newly-Elected Directors

7. Motions

8.Adjournment

Report Items

1. To report the business of 2018 and operating plan of 2019

Explanatory Notes: Please refer to the Chinese version on Page7-8.

2. Audit Committee’s review report of 2018

Explanatory Notes: Please refer to the Chinese version on Page 9.

3. To report 2018 employees’ bonus and directors’ compensation

Explanatory Notes:

(1) The pre-tax profits of 2018 is NT$47,978,170 and according to the Company’s Articles of Incorporation, the Board has adopted a proposal for distribution of 2018 profit as follows: directors’ compensation is NT$959,563 and the profit to employees is NT$ 4,582,868; both shall be paid in cash.
(2) The implementation of the distribution will be conducted after being approved by the shareholders’ meeting.

4. To report the proposal for issuance of 2017 Restricted Stock Awards (“RSA”)

Explanatory Notes:

Based on the resolution of shareholders meeting on 2017/05/26, the Company will issue total 2,000,000 shares of restricted employee shares. The Company has reported to Financial Supervisory Commission R.O.C. (FinancialSupervisory-Securities Document No.1060029187) and this proposal has been approved since 2017/08/08. As the date of publication, 1,400,000 restricted employee shares were issued. The other 600,000 are not issued by Board’s resolutions.

To report Implementation Status of the Company’s Share Buyback

Explanatory Notes:

The Company purchased 1,515,000 shares common stock from Dec. 12, 2018 to Feb. 11, 2019. Total monetary amount of shares buyback was NT$28,127,052. The ratio is 1.79% of cumulative number of own shares held during the buyback period to the total number of the Company’s issued shares.

Approval and Discussion Item

Proposal 1

Proposed by the Board of Directors

Subject: To accept 2018 Business Report and Financial Statements

Explanatory Notes:

(1) DAVICOM’s 2018 Business Report, Financial Statements, including Balance Sheets, Statement of Comprehensive Income, Statements of Changes in Equity, and Statements of Cash Flows, were audited by independent auditors, Mr. Lin Se-Kai, and Mrs. Hsiao Chun-Yuan, of PricewaterhouseCoopers, Taiwan.
(2) 2018 Business Report, Independent Auditors’ Report, and the aforementioned Financial Statements are attached hereto as Attachments. Please refer to the Chinese version on Page 7-8 and Page 10-30.

Proposal 2

Proposed by the Board of Directors

Subject: To approve the proposal for distribution of 2018 earnings

Explanatory Notes:

(1) 2018 net profit after tax is NT$ 37,635,199. To make up the actuarial loss of the pension and to allocate 10% of the statutory surplus reserve, the proposed dividend to shareholders is NT$32,256,036. Each shareholder will be entitled to receive a cash dividend of NT$0.4 per share.
(2) In the event of any change in the number of outstanding shares resulting from executing employee stock options or converting treasury stock to its employees, the dividend ratio must be adjusted. It is proposed to fully authorize the Chairman of

Board of Directors of DAVICOM to adjust the dividend ratio and to proceed on the relevant matters.

(3) Upon the approval of the Annual Meeting of Shareholders, it is proposed that the Board of Directors be authorized to resolve the ex-dividend date and other relevant issues.
(4) Please refer to the 2018 Annual Profit Distribution Table. Please refer to attachment 5

Proposal 3

Proposed by the Board of Directors

Subject: To approve the proposal for additional cash distribution of 2018 from its reserved surplus earnings.

Explanatory Notes:

(1) Based on the profit allocation proposal, the Company intends to declare cash dividends in the amount of NT$33,256,036 at NT$0.4 per share from its distributable reserved surplus earnings for the year 2018.
(2) In the event of any change in the number of outstanding shares resulting from executing employee stock options or converting treasury stock to its employees, the dividend ratio must be adjusted. It is proposed to fully authorize the Chairman of Board of Directors of DAVICOM to adjust the dividend ratio and to proceed on the relevant matters.
(3) Upon the approval of the Annual Meeting of Shareholders, it is proposed that the Board of Directors be authorized to resolve the ex-dividend date and other relevant issues.

Proposal 4

Proposed by the Board of Directors

Subject: To amend the Procedures for Acquisition or Disposal of Assets

Explanatory Notes: According to Financial Supervisory Commission R.O.C. (Financial-Supervisory-Securities Document No.1070341072) and this proposal has been approved since 2019/01/01, the Company hereby to amend the Procedures for Acquisition or Disposal of Assets. Please refer to the Chinese version on page 32.

Proposal 5

Proposed by the Board of Directors

Subject: To amend the Proposal for Issuance of 2017 Restricted Stock Awards.( “RSA”)

Explanatory Notes: Please refer to the Chinese version on page 32 for comparison table for Amendment to the Proposal for Issuance of 2017 Restricted Stock Awards (“RSA”).

Election Matters

Proposed by the Board of Directors

Subject: To Elect 7 Directors (including 3 independent directors) of the Ninth Board.

Explanatory Notes:

(1) The term of current Board of Directors (including independent directors) will be ended on June 5, 2019 and will be fully reelected in accordance with the law in the shareholders’ meeting on June 12, 2019.
(2) 7 directors including 3 independent directors of the Ninth Board will be elected in the shareholders’ meeting. The term of the new board of directors will started from June 12, 2019 to June 11, 2022. The nominated candidates were approved by the Board of Directors in accordance with the Article 192-1 of the Company Act. More details information of nominated candidates, please refer to attachment 6.

Other Matters

Proposed by the Board of Directors

Subject: To release Non-Competition Restriction on Newly-Elected Directors of the Ninth Board.

Explanatory Notes: To release Non-Competition Restriction on Newly-Elected Directors of the Ninth Board.

Motions

Adjournment

Attachment 1

Business Report

Dear Shareholders,

I would like to thank you for your continuing support throughout the year. DAVICOM has responded to the changing business climate by adopting an aggressive stance in strengthening our competitiveness. As of the end of December – 2018, our company generated net income of NT $42.85 million on consolidated revenue of NT $261 million. Our company has been continuously posting profits for 52 quarters.

The Company has three major product lines: ethernet chip, electronic paper driver chip and video decoder chip. Last year revenue didn’t grow up as expected due to new products still wait for customers’ final approval. We expect the new products will be in mass production this year. With the gradual development of the Internet of Thing (IoT) industry, where Ethernet network plays a key role in IoT architecture, our company’s network chip products have been widely used in various areas including smart grid, smart home, healthcare, security, industrial control, etc. We have gained significant market share by applying electronic paper-driven chip to banking system such as financial cards and prepaid cards, electronic shelf labels, and other emerging markets. In addition, our company’s video decoder chip has recently been applied to car rear-view system of German automotive industry, and also successfully designed in AVM platform of the main solution provider of the Korean car manufactures.

Looking forward to the year of 2019, in addition to the launch of GigaPhy and artificial intelligence AI chips, with the continued growth of IoT and development of related network platforms, we look forward to future opportunities in the communications industry. We also expect that the growing demand for energy-saving electronic paper, the Company’s newly developed electronic paper driver chip will be introduced into mass production, which will enable the development of the electronic paper application market more widely. And surround view monitoring system of high-end vehicles will improve our company’s financial performance in second half of the year.

In contrast, since the Sino-US trade war that has lasted over a year, it has caused China's high degree of vigilance against semiconductor technology and industry autonomy, and to increase the intensity of self-developed IC products, it will pose a certain degree of threat to Taiwanese manufacturers. In addition to paying close attention to the development of IC design companies that overlap with the company's products in China, Davicom will also focus on the development of high-precision and high-performance products to avoid competition from each other's prices.

Although the impact of the rise of nationalism on global trade is still difficult to quantify, in terms of the overall environment, the trend has gradually taken shape and cannot be underestimated. In addition, the potential threat of IC design industry in mainland China and the rapid changes of product applications, the market is full of opportunities and risks, the company will remain flexible in the strategy operation to seek the best business opportunities in the market. We will continue the spirit of pragmatic approach to governance. Our management team and all

the employees are making strides in achieving our company’s goal – to create the most value for all shareholders – by implementing business plan, improving cost management and enhancing operating efficiency. Develop high-performance, power-saving, industrial-grade, and diverse interfaces from key core technologies of Ethernet to meet the market requirements of IoT and Industry 4.0 for smart grid, home, medical, security monitoring, automotive, industrial control, etc. The market needs to expand the series of e-paper driver chips for financial smart cards and electronic shelf labels, and actively develop and integrate relevant platforms to provide customers with high-quality and competitive products to stabilize customer relationships and to provide customers with customer-oriented to reach a win-win goal. Davicom gains a deep understanding of market application trends for market opportunities, and work closely with supply chain partners to obtain full support for expecting higher return on investment for shareholders to thank all shareholders for their long-term support.

Last but not the least, we would like to thank you - our shareholders - for your continuous support and belief in our efforts.

We wish you all health and happiness Sincerest regards,

Chairman President Accounting Supervisor Ting Hao Nien-Tai Chen Kuei-Feng Chiu

Attachment 2

Audit Committee’s Review Report

The Company’s 2018 Financial Statements have been agreed by Audit Committee members of the Company and approved by the by the Board of Directors. The CPA firm of PricewaterhouseCoopers Taiwan was retained to audit the Company’s Financial Statements and has issued an audit report relating to the Financial Statements.

The Board of Directors has prepared the Company’s 2018 Business Report and proposal for allocation of profits. The 2018 Business Report and profit allocation proposal have been reviewed and determined to be correct and accurate by the Audit Committee members of the Company. According to relevant requirements of the Securities and Exchange Act and the Company Law, we hereby submit this report.

DAVICOM Semiconductor Inc.

Independent Director ： Wen-Hui Wan Independent Director ： Ting-Hsin Li

Independent Director ： Yung-Teng Lin

March 11, 2019

Attachment 3

DAVICOM SEMICONDUCTOR , INC.

PARENT COMPANY ONLY FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT ACCOUNTANTS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

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

REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE

To the Board of Directors and Stockholders of DAVICOM Semiconductor, Inc.

Opinion

We have audited the accompanying parent company only balance sheets of DAVICOM Semiconductor, Inc. (the “Company”) as at December 31, 2018 and 2017, and the related parent company only statements of comprehensive income, of changes in equity and of cash flows for the years then ended, and notes to the parent company only financial statements, including a summary of significant accounting policies.

In our opinion, based on our audits and the reports of other auditors (please refer to Other matter section of our report), the accompanying parent company only financial statements present fairly, in all material respects, the parent company only financial position of the Company as at December 31, 2018 and 2017, and its parent company only financial performance and its parent company only cash flows for the years then ended in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”.

Basis for opinion

We conducted our audits in accordance with the “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants” and generally accepted auditing standards in the Republic of China (ROC GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Parent Company Only Financial Statements section of our report. We are independent of the Company in accordance with the Code of Professional Ethics for Certified Public Accountants in the Republic of China (the “Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. Based on our audits and the reports of other auditors, 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 judgement, were of most significance in our audit of the parent company only financial statements of the current period. These matters were addressed in the context of our audit of the parent company only financial statements as a whole and, in forming our opinion thereon, we do not provide a separate opinion on these matters.

The Company’s key audit matters are as follows:

Evaluation of accounts receivable

Description

Please refer to Note 4(7) for accounting policies on accounts receivable recognition and accounts receivable valuation, Note 5 for uncertainty of accounting estimates and assumptions in relation to impairment of accounts receivable valuation, Note 6(3) for details of accounts receivable. The balance of accounts receivable amounted to NT$39,994 thousand as at December 31, 2018.

The Company’s accounts receivable arises from selling goods, and collecting in accordance with credit period which is determined by the Credit Quality Control Policy of individual customers’ credit quality.

Allowance for uncollectible accounts are based on expected credit losses during its existing period. For the purpose of measurement, underlying receivable should be grouped appropriately and the assumptions should be judged and analyzed. The aging of intervals, expected loss ratio and forward-looking information usually include subjective judgement, therefore, we determined the valuation of accounts receivable as one of the key areas of focus for this year’s audit.

How our audit addressed the matter

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

Checked and tested the assumptions of expected credit losses and assessed the reasonableness of the aging of intervals, including objective evidences used to determine the accuracy of periods and credit terms. Verified whether there are long overdue unrecoverable accounts receivable on the list to assess the adequacy of allowance for uncollectible accounts.
Checked and tested accounts receivable aging schedule which is classified based on customer types, based on subsequent collections, and discussed with management for its assessment of recoverability of past due receivables.

Evaluation of inventories

Description

Please refer to Note 4(10) for accounting policy on inventory valuation, Note 5 for uncertainty of accounting estimates and assumptions in relation to inventory valuation, Note 6(4) for details of inventory. The balance of inventory and allowance for inventory valuation losses amounted to NT$32,082 thousand and NT$13,971 thousand as at December 31, 2018, respectively

The Company is engaged in research, development, production, manufacturing and sales of local area network chipset. Due to rapid changes in technology, the life cycle of products is short and easily affected by market prices, there is a higher risk of incurring inventory valuation losses or having obsolete inventory. The Company measures inventory for normal sales at the lower of cost or net realisable value method. For inventory aging over certain period, individual inventory valuation losses and obsolete inventory, provision for loss is made through individual identification and measured at net realizable value. As a result of the significant amount, numerous items, and since identifying obsolete and damaged inventory usually involves management judgement, it also belongs to one of the audit scopes involving professional judgement. Therefore, we determined the estimate of inventory valuation losses as one of the key areas of focus for this year’s audit.

How our audit addressed the matter

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

Obtained an understanding of the business, industry, products and inventory aging to assess the provision policy of allowance for inventory valuation losses, verifying whether the related accounting policies are consistent with the last period, and evaluating whether the provision policy is reasonable.
Obtained inventory aging report from management, analyse and compare the different reasons for loss due to market value decline and obsolete and slow-moving inventories to assess the appropriateness of loss for market value decline and obsolete and slow-moving inventory policy.
For summary statement that management uses to valuate loss for market value decline and obsolete and slow-moving inventories, confirming whether it agrees with the statement details generated from system, and verifying that obsolete and slow-moving inventories which were provided valuation losses, has been completely listed in the statement.
Tested book value of ending inventory, through selecting samples and obtaining invoices of last period to verify whether they were measured at the lower of cost or net realizable value method, and recalculating and valuating the reasonableness of changes in allowance for inventory valuation losses.

Participating and observing the year-end physical inventory count to verify the existence and completeness of inventory, and checking the condition of inventory to assess the appropriateness of allowance for inventory valuation losses of obsolete and slow-moving inventories.

Other matters

The report of the other independent accountants

The share of profit or loss of related companies recognised under the equity method, which is recognised in the audit report of the other independent accountants, for the years ended December 31, 2018 and 2017, is NT$3,873 thousand and NT($2,343) thousand, respectively. The shares were NT$0 thousand and NT$7 thousand, respectively. As of December 31, 2018 and 2017, the balance of the investments using the equity method was NT$219,402 thousand and NT$209,711 thousand, respectively.

Responsibilities of management and those charged with governance for the Parent Company Only financial statements

Management is responsible for the preparation and fair presentation of the parent company only financial statements in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”, and for such internal controls as management determines is necessary to enable the preparation of parent company only financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the parent company only 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.

Independent accountant’s responsibilities for the audit of the Parent Company Only financial statements

Our objectives are to obtain reasonable assurance about whether the individual financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ROC GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these parent company only financial statements.

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

Identify and assess the risks of material misstatement of the parent company only 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 controls.
Obtain an understanding of internal controls 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 controls.
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 report to the related disclosures in the parent company only 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 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 parent company only financial statements, including the footnote disclosures, and whether the parent company only financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the parent company only financial statements. We are responsible for the direction, supervision and performance of the Company’s audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding the planned scope and timing of the audit, 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 parent company only financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the

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

Se-Kai Lin Chun-Yuan Hsiao For and on behalf of PricewaterhouseCoopers, Taiwan

March 11, 2019

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

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

DAVICOM SEMICONDUCTOR, INC.

PARENT COMPANY ONLY BALANCE SHEETS

		(Expressed in thousands of	(Expressed in thousands of	New Taiwan dollars)
				December 31, 2018			December 31, 2017
	Assets		Notes	AMOUNT	%		AMOUNT	%
	Current assets
1100	Cash and cash equivalents	6(1)	$	524,498	44	$	581,327	46
1150	Notes receivable, net	6(3)		64	-		62	-
1170	Accounts receivable, net	6(3)		39,994	3		35,407	3
1200	Other receivables			5,483	-		270	-
130X	Inventories, net	6(4)		32,082	3		37,029	3
1410	Prepayments			1,440	-		1,347	-
11XX	Current Assets			603,561	50		655,442	52
	Non-current assets
1510	Financial assets at fair value	6(2)
	through profit or loss - noncurrent			41,958	3		-	-
1523	Available-for-sale financial assets	12(4)
	- noncurrent			-	-		50,901	4
1550	Investments accounted for under	6(5)
	equity method			317,811	26		307,067	24
1600	Property, plant and equipment	6(6)		121,633	10		125,105	10
1760	Investment property - net	6(7)		105,860	9		108,780	9
1780	Intangible assets			152	-		125	-
1840	Deferred income tax assets	6(22)		7,521	1		9,452	1
1900	Other non-current assets	6(8)		8,338	1		6,888	-
15XX	Non-current assets			603,273	50		608,318	48
1XXX	Total assets		$	1,206,834	100	$	1,263,760	100

(Continued)

DAVICOM SEMICONDUCTOR, INC.

PARENT COMPANY ONLY BALANCE SHEETS

Liabilities and Equity	(Expressed in thousands of New Taiwan dollars) December 31, 2018 December 31, 2017 Notes AMOUNT % AMOUNT % $ 4,687 - $ 7,306 1 5,557 1 8,461 1 6(9) 28,959 2 28,392 2 6(22) - - 674 - 390 - 992 - 39,593 3 45,825 4 6(22) 572 - 512 - 6(10) 17,317 2 17,508 1 17,889 2 18,020 1 57,482 5 63,845 5 6(13) 846,551 70 846,551 67 6(14) 219,776 18 250,252 20 6(15) 70,549 6 65,446 5 6(22) 37,829 3 51,033 4 ( 8,977) ( 1) ( 13,367) ( 1) 6(13) ( 16,376) ( 1) - - 1,149,352 95 1,199,915 95 9 $ 1,206,834 100 $ 1,263,760 100
Current liabilities 2150 Notes payable 2170 Accounts payable 2200 Other payables 2230 Current income tax liabilities 2310 Advance receipts 21XX Current Liabilities Non-current liabilities 2570 Deferred income tax liabilities 2600 Other non-current liabilities 25XX Non-current liabilities 2XXX Total Liabilities Equity Share capital 3110 Common stock Capital surplus 3200 Capital surplus Retained earnings 3310 Legal reserve 3350 Undistributed earnings Other equity interest 3400 Other equity interest Treasury shares 3500 Treasury shares 3XXX Total equity Significant contingent liabilities and unrecognised contract commitments 3X2X Total liabilities and equity

Liabilities and Equity

(Expressed in thousands of New Taiwan dollars)
December 31, 2018
December 31, 2017
Notes
AMOUNT
%
AMOUNT
%
$ 4,687
-
$ 7,306
1
5,557
1
8,461
1
6(9)
28,959
2
28,392
2
6(22)
-
-
674
-
390
-
992
-
39,593
3
45,825
4
6(22)
572
-
512
-
6(10)
17,317
2
17,508
1
17,889
2
18,020
1
57,482
5
63,845
5
6(13)
846,551
70
846,551
67
6(14)
219,776
18
250,252
20
6(15)
70,549
6
65,446
5
6(22)
37,829
3
51,033
4
(
8,977) (
1) (
13,367) (
1)
6(13)
(
16,376) (
1)
-
-
1,149,352
95
1,199,915
95
9
$ 1,206,834
100
$ 1,263,760
100

Current liabilities
2150
Notes payable
2170
Accounts payable
2200
Other payables
2230
Current income tax liabilities
2310
Advance receipts
21XX
Current Liabilities
Non-current liabilities
2570
Deferred income tax liabilities
2600
Other non-current liabilities
25XX
Non-current liabilities
2XXX
Total Liabilities
Equity
Share capital
3110
Common stock
Capital surplus
3200
Capital surplus
Retained earnings
3310
Legal reserve
3350
Undistributed earnings
Other equity interest
3400
Other equity interest
Treasury shares
3500
Treasury shares
3XXX
Total equity
Significant contingent liabilities
and unrecognised contract
commitments
3X2X
Total liabilities and equity

The accompanying notes are an integral part of these parent company only financial statements.

DAVICOM SEMICONDUCTOR , INC. PARENT COMPANY ONLY STATEMENTS OF COMPREHESIVE INCOME (Expressed in thousands of New Taiwan dollars, except earnings per share)

Items		ecember 31
	2018	2017
4000 Sales revenue 5000 Operating costs 5900 Net operating margin Operating expenses 6100 Selling expenses 6200 General and administrative expenses 6300 Research and development expenses 6450 Impairment on expected credit losses 6000 Total operating expenses 6900 Operating income Non-operating income and expenses 7010 Other income 7020 Other gains and losses 7050 Finance costs 7070 Share of profit (loss) of associates and joint ventures accounted for under equity method 7000 Total non-operating income and expenses 7900 Income from continuing operations before income tax 7950 Income tax expense 8000 Profit for the year from continuing operations 8200 Profit for the year Other comprehensive income, net Components of other comprehensive income that will not be reclassified to profit or loss 8311 Other comprehensive income, before tax, actuarial gains (losses) on defined benefit plans 8349 Income tax related to components of other comprehensive income that will not be reclassified to profit or loss 8310 Components of other comprehensive income that will not be reclassified to profit or loss Components of other comprehensive income that will be reclassified to profit or loss 8361 Financial statement translation differences of foreign operations 8362 Unrealized gain on valuation of available- for-sale financial assets 8380 Share of other comprehensive income ventures accounted for under equity method- items that will not be reclassified to profit or loss 8399 Income tax relating to the components of other comprehensive income 8360 Components of other comprehensive income that will be reclassified to profit or loss 8300 Other comprehensive income for the year, net 8500 Total comprehensive income for the year Basic earnings per share 9750 Net income Diluted earnings per share 9850 Net income The accompanying notes are a
		$

DAVICOM SEMICONDUCTOR, INC. PARENT COMPANY ONLY STATEMENTS OF CHANGES IN EQUITY

(Expressed in thousands of New Taiwan dollars)

Year 2017 Balance at January 1, 2017 Profit for the year Other comprehensive income (loss) for the year Total comprehensive income Appropriation and distribution of 2016 earnings Legal reserve Cash dividends Cash dividends distributed from capital surplus Issuance of restricted stocks to employees Balance at December 31, 2017 Year 2018 Balance at January 1, 2018 Efffects of retrospective application Balance at January 1 after adjustments Profit for the year Other comprehensive income for the year Total comprehensive income Differences between equity purchase price and carrying amount arising from actual acquisition of subsidiaries Appropriation and distributed of 2017 earnings Legal reserve Cash dividends Cash dividends distribution from capital surplus Restricted stocks to employees Treasure share repurchase Balance at December 31, 2018	Notes	Share capital	Share capital	Capital	surplus	surplus		Retained earnings	Retained earnings	Retained earnings	Other equityinterest	Other equityinterest	Other equityinterest	Treasuryshares
		Common stock		Additional paid- in capital		Others		Legal reserve		Undistributed earnings	Exchange differences from translation of foreign operations	Unrealized gain or loss on available-for- sale financial assets	Unearned compensation for restricted employee share of stock
	6(15) 6(14) 6(12)(13) 12(4) 6(15) 6(14) 6(12)(13) 6(13)		$ 832,551 - - - - - - 14,000 $ 846,551 $ 846,551 - 846,551 - - - - - - - - - $ 846,551	$ 221,162 - - - - - ( 27,474 ) - $ 193,688 $ 193,688 - 193,688 - - - - - - ( 30,476 ) 3,570 - $ 166,782	$ 38,714 - - - - - - 17,850 $ 56,564 $ 56,564 - 56,564 - - - - - - - ( 3,570 ) - $ 52,994			$ 58,312 - - - 7,134 - - - $ 65,446 $ 65,446 - 65,446 - - - - 5,103 - - - - $ 70,549	$ 71,340 52,327 ( 1,394 ) 50,933 ( 7,134 ) ( 64,106 ) - - $ 51,033 $ 51,033 - 51,033 37,635 588 38,223 ( 610 ) ( 5,103 ) ( 45,714 ) - - - $ 37,829		$ 2,542 - ( 5,487 ) ( 5,487 ) - - - - ($ 2,945 ) ($ 2,945 ) - ( 2,945 ) - 1,182 1,182 - - - - - - ($ 1,763 )	($ 4,629 ) - 9,751 9,751 - - - - $ 5,122 $ 5,122 ( 5,122 ) - - - - - - - - - - $ -	$ - - - - - - - ( 15,544 ) ($ 15,544 ) ($ 15,544 ) - ( 15,544 ) - - - - - - - 8,330 - ($ 7,214 )	$ - - - - - - - - $ - $ - - - - - - - - - - - ( 16,376 ) ($ 16,376 )

The accompanying notes are an integral part of these parent company only financial statements.

DAVICOM SEMICONDUCTOR, INC. PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS

(Expressed in thousands of New Taiwan dollars)

Years ended December 31
Notes
2018
2017
$ 42,436
$ 59,005
6(6)(7)
6,725
6,807
6(20)
3,034
3,593
6(3) and 12(2)
1,201
-
6(12)(13)
8,330
2,306
4,912
193
6(17)
(
1,716 )
(
1,654 )
6(19)
31
31
6(5)
(
3,744 )
6,706
6(18)
-
(
636 )
6(2)(18)
3,443
-
(
2 )
3
(
5,788 )
6,956
(
196 )
225
4,947
(
9,141 )
(
93 )
1,252
(
2,619 )
1,367
(
2,904 )
1,971
567
(
6,441 )
(
602 )
523
164
(
3,616 )
58,126
69,450
1,599
1,632
(
8,182 )
(
17,509 )
51,543
53,573

(Continued)

DAVICOM SEMICONDUCTOR, INC. PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS

(Expressed in thousands of New Taiwan dollars)

				Years ended December	31
		Notes	2018		2017

1. CASH FLOWS FROM INVESTING ACTIVITIES				0. 1.		2.
13.Proceeds from disposal of available-for-sale financial assets	4. 5.		6. 7.$ 8. -	9. 0. 1. 2.$ 3.6,806		4.
25.Acquisition of investments accounted for under equity method	6. 7.6(5)		8. 9. 0.7,650	1. 2. 3. 4. 5. -		6.
37.Acquisition of property, plant and equipment	8. 9.6(6)		0. 1. 2.333	3. 4. 5. 6. 7.907		8.
49.Acquisition of financial assets at fair value through profit or	0. 1.			6.
loss			2. 3. 4.26,373	5. 7. 8. 9. -		0.
61.Proceeds from disposal of financial assets at fair value through	2. 3.			8.
profit or loss			4. 5. 6.27,973	7. 9. 0. 1. -		2.
73.Increase in refundable deposits	4. 5.		6. 7. 8. -	9. 0. 1. 2. 3.7		4.
85.Increase in intangible assets	6. 7.		8. 9. 0.212	1. 2. 3. 4. 5.57		6.
97.Increase in other assets	8. 9.		0001.02.9,211	03040506.07.4,909		08
109.Net cash flows (used in) from investing activities	1011.		1213.14.15,806	15161718.19.926		20
121. CASH FLOWS FROM FINANCING ACTIVITIES	223.		2425.26.	27282930.31.		32
133.Payments of cash dividends	3435.6(15)		3637.38.76,190	39404142.43.91,580		44
145.Advance receipts for capital stock	4647.6(13)		4849.50. -	51525354.55.14,000		56
157.Treasure stock repurchase	5859.		6061.62.16,376	63646566.67. -		68
169.Net cash flows used in financing activities	7071.		7273.74.92,566	75767778.79.77,580		80
181.Net decrease in cash and cash equivalents	8283.		8485.86.56,829	87888990.91.23,081		92
193.Cash and cash equivalents at beginning of year	9495.		9697.98.581,327	99000102.03.604,408		04
205.Cash and cash equivalents at end of year	0607.		0809.10.524,498	11121314.15.581,327		16

The accompanying notes are an integral part of these parent company only financial statements.

DAVICOM SEMICONDUCTOR, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS AND

REPORT OF INDEPENDENT ACCOUNTANTS FOR THE YEARS ENDED DECEMBER 31, 2018 AND

2017

DAVICOM Semiconductor, Inc.

Declaration of Consolidated Financial Statements of Affiliated Enterprises

For the year ended December 31, 2018, pursuant to “Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises,” the company that is required to be included in the consolidated financial statements of affiliates, is the same as the company required to be included in the consolidated financial statements of parent and subsidiary companies under International Financial Reporting Standard 10. Also, if relevant information that should be disclosed in the consolidated financial statements of affiliates has all been disclosed in the consolidated financial statements of parent and subsidiary companies, it shall not be required to prepare separate consolidated financial statements of affiliates.

Hereby declare,

Company name: DAVICOM SEMICONDUCTOR, INC.

Representative: HAO, TING

March 11, 2019

REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE To the Board of Directors and Stockholders of DAVICOM Semiconductor, Inc.

Opinion

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

In our opinion, based on our audits and the reports of other auditors (please refer to Other matter section of our report), the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2018 and 2017, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission.

Basis for opinion

We conducted our audits in accordance with the “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants” and generally accepted auditing standards in the Republic of China (ROC GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the Code of Professional Ethics for Certified Public Accountants in the Republic of China (the “Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. Based on our audits and the reports of other auditors, 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 judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole and, in forming our opinion thereon, we do not provide a separate opinion on these matters.

The Group’s key audit matters are as follows:

Evaluation of accounts receivable

Description

Please refer to Note 4(8) for accounting policies on accounts receivable recognition and accounts receivable valuation, Note 5 for uncertainty of accounting estimates and assumptions in relation to impairment of accounts receivable valuation, Note 6(3) for details of accounts receivable. The balance of accounts receivable amounted to NT$40,243 thousand as at December 31, 2018.

The Group’s accounts receivable arises from selling goods, and collecting in accordance with credit period which is determined by the Credit Quality Control Policy of individual customers’ credit quality.

How our audit addressed the matter

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

Checked and tested the assumptions of expected credit losses and assessed the reasonableness of the aging of intervals, including objective evidences used to determine the accuracy of periods and credit terms. Verified whether there are long overdue unrecoverable accounts receivable on the list to assess the adequacy of allowance for uncollectible accounts.
Checked and tested accounts receivable aging schedule which is classified based on customer types, based on subsequent collections, and discussed with management for its assessment of recoverability of past due receivables.

Evaluation of inventories

Description

Please refer to Note 4(11) for accounting policy on inventory valuation, Note 5 for uncertainty of accounting estimates and assumptions in relation to inventory valuation, Note 6(4) for details of inventory. The balance of inventory and allowance for inventory valuation losses amounted to NT$34,159 thousand and NT$13,971 thousand as at December 31, 2018, respectively.

The Group is engaged in research, development, production, manufacturing and sales of local area network chipset. Due to rapid changes in technology, the life cycle of products is short and easily affected by market prices, there is a higher risk of incurring inventory valuation losses or having obsolete inventory. The Group measures inventory for normal sales at the lower of cost or net realisable value method. For inventory aging over certain period, individual inventory valuation losses and obsolete inventory, provision for loss is made through individual identification and measured at net realizable value. As a result of the significant amount, numerous items, and since identifying obsolete and damaged inventory usually involves management judgement, it also belongs to one of the audit scopes involving professional judgement. Therefore, we determined the estimate of inventory valuation losses as one of the key

areas of focus for this year’s audit.

How our audit addressed the matter

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

Obtained an understanding of the business, industry, products and inventory aging to assess the provision policy of allowance for inventory valuation losses, verifying whether the related accounting policies are consistent with the last period, and evaluating whether the provision policy is reasonable.
Obtained inventory aging report from management, analyse and compare the different reasons for loss due to market value decline and obsolete and slow-moving inventories to assess the appropriateness of loss for market value decline and obsolete and slow-moving inventory policy.
For summary statement that management uses to valuate loss for market value decline and obsolete and slow-moving inventories, confirming whether it agrees with the statement details generated from system, and verifying that obsolete and slow-moving inventories which were provided valuation losses, has been completely listed in the statement.
Tested book value of ending inventory, through selecting samples and obtaining invoices of last period to verify whether they were measured at the lower of cost or net realizable value method, and recalculating and valuating the reasonableness of changes in allowance for inventory valuation losses.
Participating and observing the year-end physical inventory count to verify the existence and completeness of inventory, and checking the condition of inventory to assess the appropriateness of allowance for inventory valuation losses of obsolete and slow-moving inventories.

Other matters

The report of the other independent accountants

We did not audit the financial statements of a wholly-owned consolidated subsidiary that are included in the financial statements. Total assets of the subsidiary amounted to NT$221,908 thousand and NT$211,680 thousand as at December 31, 2018 and 2017, constituting 18.35% and 16.72% of consolidated total assets respectively. Operating income of the subsidiary amounted to NT$10,641 thousand and NT$5,895 thousand, for the years ended December 31, 2018 and 2017, constituting 4.08% and 1.92% of consolidated total operating income, respectively. Those financial statements were audited by other independent accountants whose reports thereon have been furnished to us, and our opinion expressed herein is based solely on the audit reports of the other independent accountants.

Parent company only financial reports

We have audited and expressed an unqualified opinion on the parent company only financial statements of DAVICOM Semiconductor, Inc. as at and for the years ended December 31, 2018 and 2017.

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

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

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

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

Independent accountant’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ROC GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

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

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls.
Obtain an understanding of internal controls relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal controls.
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 Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our report to the related disclosures in the parent company only 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 report. However, future events or conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the footnote disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group’s audit. We remain solely responsible for our audit opinion.

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

Se-Kai Lin Chun-Yuan Hsiao For and on behalf of PricewaterhouseCoopers, Taiwan March 11, 2019

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

DAVICOM SEMICONDUCTOR, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

		(Expressed in thousands of	(Expressed in thousands of	New Taiwan dollars)
				December 31, 2018			December 31, 2017
	Assets		Notes	AMOUNT	%		AMOUNT	%
	Current assets
1100	Cash and cash equivalents	6(1)	$	835,857	69	$	881,406	70
1150	Notes receivable, net	6(3)		64	-		62	-
1170	Accounts receivable, net	6(3)		40,243	3		35,407	3
1200	Other receivables			5,504	1		290	-
130X	Inventories, net	6(4)		34,159	3		37,060	3
1410	Prepayments			1,443	-		2,963	-
1470	Other current assets			46	-		88	-
11XX	Total Current Assets			917,316	76		957,276	76
	Non-current assets
1510	Financial assets at fair value	6(2)
	through profit or loss - noncurrent			47,247	4		-	-
1523	Available-for-sale financial assets	12(4)
	- noncurrent			-	-		56,348	4
1600	Property, plant and equipment,	6(5)
	net			122,860	10		126,720	10
1760	Investment property, net	6(6)		105,860	9		108,780	9
1780	Intangible assets			153	-		124	-
1840	Deferred income tax assets	6(21)		7,573	-		9,603	1
1900	Other non-current assets	6(7)		8,338	1		6,888	-
15XX	Total Non-current assets			292,031	24		308,463	24
1XXX	Total assets		$	1,209,347	100	$	1,265,739	100

(Continued)

DAVICOM SEMICONDUCTOR, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

(Expressed in thousands of New Taiwan dollars)

Liabilities and Equity	December 31,2018 December 31,2017 Notes AMOUNT % AMOUNT % $ 4,687 - $ 7,306 1 6,515 1 8,461 1 6(8) 29,306 2 28,590 2 6(21) 75 - 674 - 389 - 2,439 - 40,972 3 47,470 4 6(21) 625 - 663 - 6(9) 17,317 2 17,508 1 17,942 2 18,171 1 58,914 5 65,641 5 6(12) 846,551 70 846,551 67 6(13) 219,776 18 250,252 20 6(14) 70,549 6 65,446 5 6(21) 37,829 3 51,033 4 ( 8,977) ( 1) ( 13,367) ( 1) 6(12) ( 16,376) ( 1) - - 1,149,352 95 1,199,915 95 1,081 - 183 - 1,150,433 95 1,200,098 95 9 $ 1,209,347 100 $ 1,265,739 100
Current liabilities 2150 Notes payable 2170 Accounts payable 2200 Other payables 2230 Current income tax liabilities 2300 Other current liabilities 21XX Current Liabilities Non-current liabilities 2570 Deferred income tax liabilities 2600 Other non-current liabilities 25XX Non-current liabilities 2XXX Total Liabilities Equity attributable to owners of parent Share capital 3110 Common stock Capital surplus 3200 Capital surplus Retained earnings 3310 Legal reserve 3350 Undistributed earnings Other equity interest 3400 Other equity interest Treasury shares 3500 Treasury shares 31XX Equity attributable to owners of the parent 36XX Non-controlling interest 3XXX Total equity Significant contingent liabilities and unrecognised contract commitments 3X2X Total liabilities and equity

Liabilities and Equity

December 31,2018
December 31,2017
Notes
AMOUNT
%
AMOUNT
%
$ 4,687
-
$ 7,306
1
6,515
1
8,461
1
6(8)
29,306
2
28,590
2
6(21)
75
-
674
-
389
-
2,439
-
40,972
3
47,470
4
6(21)
625
-
663
-
6(9)
17,317
2
17,508
1
17,942
2
18,171
1
58,914
5
65,641
5
6(12)
846,551
70
846,551
67
6(13)
219,776
18
250,252
20
6(14)
70,549
6
65,446
5
6(21)
37,829
3
51,033
4
(
8,977) (
1) (
13,367) (
1)
6(12)
(
16,376) (
1)
-
-

1,149,352
95
1,199,915
95
1,081
-
183
-
1,150,433
95
1,200,098
95
9
$ 1,209,347
100
$ 1,265,739
100

Current liabilities
2150
Notes payable
2170
Accounts payable
2200
Other payables
2230
Current income tax liabilities
2300
Other current liabilities
21XX
Current Liabilities
Non-current liabilities
2570
Deferred income tax liabilities
2600
Other non-current liabilities
25XX
Non-current liabilities
2XXX
Total Liabilities
Equity attributable to owners of
parent
Share capital
3110
Common stock
Capital surplus
3200
Capital surplus
Retained earnings
3310
Legal reserve
3350
Undistributed earnings
Other equity interest
3400
Other equity interest
Treasury shares
3500
Treasury shares
31XX
Equity attributable to owners
of the parent
36XX
Non-controlling interest
3XXX
Total equity
Significant contingent liabilities
and unrecognised contract
commitments
3X2X
Total liabilities and equity

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

DAVICOM SEMICONDUCTOR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

Items	Year ended December 31 2018 2017 Notes AMOUNT % AMOUNT % 6(15) $ 261,095 100 $ 307,342 100 6(4)(19)(20) ( 87,299) ( 33) ( 97,270) ( 32) 173,796 67 210,072 68 6(19)(20) and 7 ( 32,280) ( 12) ( 34,657) ( 11) ( 46,524) ( 18) ( 45,847) ( 15) ( 83,811) ( 32) ( 76,230) ( 25) 6(3) and 12(2) ( 1,201) ( 1) - - ( 163,816) ( 63) ( 156,734) ( 51) 9,980 4 53,338 17 6(6)(16) 29,485 11 25,928 9 6(17) 3,417 1 ( 20,658) ( 7) 6(18) ( 31) - ( 31) - 32,871 12 5,239 2 42,851 16 58,577 19 6(21) ( 4,928) ( 2) ( 6,697) ( 2) 37,923 14 51,880 17 $ 37,923 14 $ 51,880 17
4000 Sales revenue 5000 Operating costs 5900 Net operating margin Operating expenses 6100 Selling expenses 6200 General and administrative expenses 6300 Research and development expenses 6450 Impairment on expected credit losses 6000 Total Operating Expenses 6900 Operating income Non-operating income and expenses 7010 Other income 7020 Other gains and losses 7050 Finance costs 7000 Total non-operating income and expenses 7900 Income from continuing operations before income tax 7950 Income tax expense 8000 Profit for the year from continuing operations 8200 Profit for the year

Items

Year ended December 31
2018
2017
Notes
AMOUNT
%
AMOUNT
%
6(15)
$ 261,095
100
$ 307,342
100
6(4)(19)(20)
(
87,299) (
33) (
97,270) (
32)
173,796
67
210,072
68
6(19)(20) and 7
(
32,280) (
12) (
34,657) (
11)
(
46,524) (
18) (
45,847) (
15)
(
83,811) (
32) (
76,230) (
25)
6(3) and 12(2)
(
1,201) (
1)
-
-
(
163,816) (
63) (
156,734) (
51)
9,980
4
53,338
17
6(6)(16)
29,485
11
25,928
9
6(17)
3,417
1
(
20,658) (
7)
6(18)
(
31)
- (
31)
-
32,871
12
5,239
2
42,851
16
58,577
19
6(21)
(
4,928) (
2) (
6,697) (
2)
37,923
14
51,880
17
$ 37,923
14
$ 51,880
17

4000
Sales revenue
5000
Operating costs
5900
Net operating margin
Operating expenses
6100
Selling expenses
6200
General and administrative
expenses
6300
Research and development
expenses
6450
Impairment on expected
credit losses
6000
Total Operating Expenses
6900
Operating income
Non-operating income and
expenses
7010
Other income
7020
Other gains and losses
7050
Finance costs
7000
Total non-operating
income and expenses
7900
Income from continuing
operations before income tax
7950
Income tax expense
8000
Profit for the year from
continuing operations
8200
Profit for the year

(Continued)

DAVICOM SEMICONDUCTOR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	(Expressed in thousands of New Taiwan	(Expressed in thousands of New Taiwan	dollars, except	earnings per share)	earnings per share)	earnings per share)	earnings per share)
				Year ended		December 31
			2018					2017
	Items	Notes	AMOUNT	%				AMOUNT	%
8311	Other comprehensive	6(10)
	income, before tax, actuarial
	gains (losses) on defined
	benefit plans	$		354	-	($		1,680)	-
8349	Income tax related to	6(21)
	components of other
	comprehensive income that
	will not be reclassified to
	profit or loss			234	-			286	-
8310	Components of other
	comprehensive income
	that will not be
	reclassified to profit or
	loss			588	-	(		1,394)	-
	Components of other
	comprehensive income that
	will be reclassified to profit or
	loss
8361	Financial statement
	translation differences of
	foreign operations		1,182		1	(		5,487) (	2)
8362	Unrealized gain on valuation
	of available-for-sale financial
	assets			-	-			11,377	4
8399	Income tax relating to the
	components of other
	comprehensive income			-	-	(		1,626) (	1)
8360	Components of other
	comprehensive income that
	will be reclassified to profit or
	loss		1,182		1			4,264	1
8500	Total comprehensive income
	for the year	$	39,693		15		$	54,750	18
	Profit (loss), attributable to:
8610	Owners of parent	$	37,635		14		$	52,327	17
8620	Non-controlling interest			288	-	(		447)	-
		$	37,923		14		$	51,880	17
	Comprehensive income
	attributable to:
8710	Comprehensive income,
	attributable to owners of
	parent	$	39,405		15		$	55,197	18
8720	Non-controlling interests			288	-	(		447)	-
		$	39,693		15		$	54,750	18
	Basic earnings per share	6(22)
9750	Net income	$		0.44			$		0.63
	Diluted earnings per share	6(22)
9850	Net income	$		0.44			$		0.62

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

DAVICOM SEMICONDUCTOR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Expressed in thousands of New Taiwan dollars)

					Equityattributable t	Equityattributable t	Equityattributable t	Equityattributable t	o	owners of the	parent	parent					Non- controlling interest
Share Capital		Capital Surplus			Retaine		d Earnings				O	ther equityinter	est		Treasury shares	Total
Common stock	A	dditional paid-in capital		Others	Legal reserve			Undistributed earnings	t	Exchange differences from ranslation of foreign operations	a	Unrealized gain or loss on vailable-for-sale financial assets	Unearned compensation for restricted employee share of stock
			e a			$ 58,312 - - - 7,134 - - - $ 65,446 $ 65,446 - 65,446 - - - - - 5,103 - - - - $ 70,549 of these conso	li	$ 71,340 52,327 ( 1,394 ) 50,933 ( 7,134 ) ( 64,106 ) - - $ 51,033 $ 51,033 - 51,033 37,635 588 38,223 ( 610 ) - ( 5,103 ) ( 45,714 ) - - - $ 37,829 dated financial st	at	$ 2,542 - ( 5,487 ) ( 5,487 ) - - - - ($ 2,945 ) ($ 2,945 ) - ( 2,945 ) - 1,182 1,182 - - - - - - - ($ 1,763 ) ements.		($ 4,629 ) - 9,751 9,751 - - - - $ 5,122 $ 5,122 ( 5,122 ) - - - - - - - - - - - $ -		$ - - - - - - - ( 15,544 ) ($ 15,544 ) ($ 15,544 ) - ( 15,544 ) - - - - - - - - 8,330 - ($ 7,214 )	$ - - - - - - - - $ - $ - - - - - - - - - - - - ( 16,376 ) ($ 16,376 )	$ 1,219,992 52,327 2,870 55,197 - ( 64,106 ) ( 27,474 ) 16,306 $ 1,199,915 $ 1,199,915 ( 5,122 ) 1,194,793 37,635 1,770 39,405 ( 610 ) - - ( 45,714 ) ( 30,476 ) 8,330 ( 16,376 ) $ 1,149,352	$ 630 ( 447 ) - ( 447 ) - - - - $ 183 $ 183 - 183 288 - 288 - 610 - - - - - $ 1,081

DAVICOM SEMICONDUCTOR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax
Adjustments
Adjustments to reconcile profit (loss)
Depreciation (including investment property)
Amortisation
Impairment on expected credit losses
Deferred charges transferred to research and experimental
expenses
Cost of restricted stocks to employees
Interest income
Interest expense
Gain on disposal of available-for-sale financial assets
Net loss on financial assets at fair value through profit or loss
Changes in operating assets and liabilities
Changes in operating assets
Notes receivable
Accounts receivable
Financial assets at fair value through profit or loss- noncurrent
Other receivables
Inventories
Prepayments
Other current assets
Changes in operating liabilities
Notes payable
Accounts payable
Other payables
Net defined benefit liabilities
Other current liabilities
Cash inflow generated from operations
Interest received
Income tax paid
Net cash flows from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of available-for-sale financial assets
Acquisition of property, plant and equipment
Acquisition of financial assets at fair value through profit or loss
Proceeds from disposal of financial assets at fair value through
profit or loss
Increase in intangible assets
Decrease in refundable deposits
Increase in other assets
Net cash flows (used in) from investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of cash dividends
Advance receipts for capital stock
Treasury stock repurchase
Net cash flows used in financing activities
Effect of foreign exchange rate changes on cash and cash
equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

Years ended December 31
Notes
2018
2017
$ 42,851
$ 58,577
6(5)(6)
7,113
7,194
6(19)
3,034
3,592
6(3)and 12(2)
1,201
-
4,911
108
6(11)
8,330
2,306
6(16)
(
2,950
)
(
2,509
)
6(18)
31
31
6(16)
-
(
2,041
)
6(2)(17)
108
-
(
2
)
3
(
6,037
)
6,956
2,247
-
(
197
)
(
251
)
2,901
(
9,172
)
1,520
(
362
)
42
(
70
)
(
2,619
)
1,367
(
1,946
)
1,971
716
(
6,628
)
164
(
3,616
)
(
2,050
)
1,967
59,368
59,423
2,833
2,974
(
8,233
)
(
17,609
)
53,968
44,788
-
10,672
6(5)
(
333
)
(
907
)
(
26,373
)
-
27,973
-
(
212
)
(
232
)
-
23
(
9,212
)
(
4,647
)
(
8,157
)
4,909
6(14)
(
76,190
)
(
91,580
)
6(12)
-
14,000
6(12)
(
16,376
)
-
(
92,566
)
(
77,580
)
1,206
(
5,480
)
(
45,549
)
(
33,363
)
881,406
914,769
$ 835,857
$ 881,406

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

Attachment 5

DAVICOM ANNUAL PROFIT DISTRIBUTION TABLE Year 2019

Year 2019
Items	Total(NTD)
Beginning unappropriated retained earnings	$ 216,283
_Add:_retained earnings---Actuarial present value of	588,894
promised retirement benefits
_Add:_net profit after tax of 2018	37,635,199
_Less:_retained earnings---Difference between equity	(609,952)
purchase price and carrying amount arising from actual
acquisition of subsidiaries
Distributable net profit	37,830,424
Less:
10% legal reserve	(3,844,038)
Distributable items:
Dividend to shareholders--- NT$0.4 per share	(33,256,036)
Unappropriated retained earnings	$730,350

Chairman: Hao Ting President: Chen Nien Tai Accounting Supervisor: Chiu Kuei Feng

Attachment 6

The nominated candidates of Directors and Independent Directors

Type	Name	Education	Experiences	Current occupation	Current Shareholding
Director	Ting Hao	Doctor,Business Management, Victoria University Master, EECS, UC Berkeley Bachelor, Electrical and Control Engineering, National Chiao TungUniversity	Chairman of DAVICOM Semiconductor, Inc.	Chairman of DAVICOM Semiconductor, Inc.	1,602,800
Director	Goodyears Investments Ltd.		Director of DAVICOM Semiconductor, Inc.	Director of DAVICOM Semiconductor, Inc.	3,982,475
Director	Tzay Hua Ltd.		Director of DAVICOM Semiconductor, Inc.	Director of DAVICOM Semiconductor, Inc.	1,480,652
Director	Lin, Yun-Ping	Executive Master of Business Administration (EMBA), National Chung Hsing University	Owner of Sane Way Enterprises Co.. Ltd. Owner of Crown Star International Investment Co., Ltd.	Owner of Sane Way Enterprises Co.. Ltd. Owner of Crown Star International Investment Co., Ltd.	858,000
Independent Director	Ueng, Chang- Yue	Ph.D. of Statistics, Colorado State University, USA Master of Business Administration, National Taiwan University	Controller Sonavox Electronic Co., Ltd. VP & CFO, Finance and Administration Center Ichia Technologies,Inc.	Controller Sonavox Electronic Co., Ltd.	150,000
Independent Director	Hwang, Jen- Jyh	Ph.D, Dept. of Mechanical Engineering, The Pennsylvania State University, USA Master of Engineering, Dept. of Power Mechanical	Associate Professor, National Sun- Yatsen University(Retired 2008)	Adjunct Associate Professor, Natl. Sun-Yatsen Univ., Since 2008	0

		Engineering, National Tsing- Hua Univetsity, Taiwan,ROC
Independent Director	Wei, Niang- Shou	Executive Master of Business Administration (EMBA), National Tsing Hua University	Director of Production and Operations Center Shanghai Fanfeng Vacuum Machinery Co., Ltd.		2,000

Appendix 1 Current shareholding of Directors and Independent Directors

Record Date: April 14,2019	Record Date: April 14,2019	Record Date: April 14,2019	Record Date: April 14,2019
Title	Name	Current shareholding	Shareholding ratio
Chairman	Ting Hao	1,602,800	1.89%
Director	Goodyears Investments Ltd.	3,982,475	4.70%
Director	Tzay Hua Ltd.	1,480,652	1.75%
Independent Director	Wen-Hui Wan	32,258	0.04%
Independent Director	Ting-Hsin Li	0	0.00%
Independent Director	Yung-Teng Lin	0	0.00%
Total Shares of Directors Hold		7,065,927	8.35%
Total Shares of Directors Required		6,772,047	8.00%

DAVICOM Total Issued Shares: 84,655,089 shares

AI assistant

DAVICOM — AGM Information 2019

52295_rns_2019-06-19_7830bdc3-72ad-4d91-a50b-0fb30ac81b3f.pdf

DAVICOM Semiconductor, Inc.

2019 Annual General Shareholders’ Meeting Handbook

Table of Contents

DAVICOM Semiconductor, Inc.

2019 Annual General Shareholders’ Meeting Procedure

DAVICOM Semiconductor, Inc.

2019 Annual General Shareholders’ Meeting Agenda

Agenda:

1. Call Meeting to Order

3. Report Items

7. Motions

8.Adjournment

Report Items

1. To report the business of 2018 and operating plan of 2019

2. Audit Committee’s review report of 2018

3. To report 2018 employees’ bonus and directors’ compensation

Explanatory Notes:

Explanatory Notes:

Explanatory Notes:

Approval and Discussion Item

Proposal 1

Subject: To accept 2018 Business Report and Financial Statements

Proposal 2

Subject: To approve the proposal for distribution of 2018 earnings

Proposal 3

Subject: To approve the proposal for additional cash distribution of 2018 from its reserved surplus earnings.

Proposal 4

Subject: To amend the Procedures for Acquisition or Disposal of Assets

Proposal 5

Election Matters

Other Matters

Motions

Adjournment

Attachment 1

Business Report

Dear Shareholders,

Attachment 2

Attachment 3

DAVICOM SEMICONDUCTOR , INC.

REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE

Opinion

Basis for opinion

Key audit matters

Evaluation of accounts receivable

Description

How our audit addressed the matter

Evaluation of inventories

Description

How our audit addressed the matter

Other matters

The report of the other independent accountants

Responsibilities of management and those charged with governance for the Parent Company Only financial statements

Independent accountant’s responsibilities for the audit of the Parent Company Only financial statements

DAVICOM SEMICONDUCTOR, INC.

PARENT COMPANY ONLY BALANCE SHEETS

DAVICOM SEMICONDUCTOR, INC.

PARENT COMPANY ONLY BALANCE SHEETS

DAVICOM SEMICONDUCTOR , INC. PARENT COMPANY ONLY STATEMENTS OF COMPREHESIVE INCOME (Expressed in thousands of New Taiwan dollars, except earnings per share)

DAVICOM SEMICONDUCTOR, INC. PARENT COMPANY ONLY STATEMENTS OF CHANGES IN EQUITY

DAVICOM SEMICONDUCTOR, INC. PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS

DAVICOM SEMICONDUCTOR, INC. PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS

DAVICOM Semiconductor, Inc.

Declaration of Consolidated Financial Statements of Affiliated Enterprises

Opinion

Basis for opinion

Key audit matters

Evaluation of accounts receivable

Description

How our audit addressed the matter

Evaluation of inventories

Description

How our audit addressed the matter

Other matters

The report of the other independent accountants

Parent company only financial reports

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

Independent accountant’s responsibilities for the audit of the financial statements

DAVICOM AGM Information 2019