MSI — Annual Report 2018

Nov 13, 2018

MICRO-STAR INTERNATIONAL CO., LTD. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS AND

REPORT OF INDEPENDENT ACCOUNTANTS DECEMBER 31, 2018 AND 2017

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

Representation Letter

In connection with the Consolidated Financial Statements of Affiliated Enterprises of MICRO-STAR INTERNATIONAL CO., LTD. and its subsidiaries (the “Consolidated FS of the Affiliates”), we represent to you that, the entities required to be included in the Consolidated FS of the Affiliates as of and for the year ended December 31, 2018 in accordance with the “Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises” are the same as those required to be included in the Consolidated Financial Statements of MICRO-STAR INTERNATIONAL CO., LTD. and its subsidiaries (the “Consolidated FS of the Group”) in accordance with International Financial Reporting Standard 10. Additionally, the information required to be disclosed in the Consolidated FS of Affiliates is disclosed in the Consolidated FS of the Group. Consequently, MICRO-STAR INTERNATIONAL CO., LTD. and its subsidiaries do not prepare a separate set of Consolidated FS of Affiliates.

Very truly yours,

MICRO-STAR INTERNATIONAL CO., LTD. By

Joseph Hsu, Chairman March 21, 2019

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REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE

To the Board of Directors and Shareholders of MICRO-STAR INTERNATIONAL CO., LTD. AND SUBSIDIARIES

Opinion

We have audited the accompanying consolidated balance sheets of MICRO-STAR INTERNATIONAL CO., LTD. AND SUBSIDIARIES (the “Group”) as of December 31, 2018 and 2017, and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of 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 audit reports of other independent accountants, 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

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our audit of the consolidated financial statements of the year ended December 31, 2018. 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.

Key audit matters for the Group’s consolidated financial statements of the year ended December 31, 2018 are stated as follows:

Occurrence of sales revenue from significant customers

Description

Please refer to Note 4(24) for accounting policies on revenue recognition. Other than international brands, the Group sells its products to customers in various countries. With the Group actively developing new products, sales revenue increases progressively every year, and the occurrence of sales revenue is critical to the financial statements. Thus, the occurrence of sales revenue from new significant customers, excluding international brands, was identified as a key audit matter. How our audit addressed the matter

We performed the following audit procedures in respect of the above key audit matter:

• A. Obtained an understanding of and assessed internal controls in relation to sales revenue from new significant customers, and validated the operating effectiveness of those above mentioned internal controls.

• B. Obtained detailed listing of sales revenue from new significant customers in the current year, and validated supporting documents, including sales invoices, customer purchase orders and delivery documents.

• C. Inspected contents and relevant evidences in relation to sales returns and discounts occurring subsequent to the reporting period and assessed the reasonableness of respective sales revenue recognised.

Estimation of allowance for inventory valuation losses

Description

Please refer to Note 4(11), for accounting policies on inventory valuation, Note 5(2) for the uncertainty of accounting estimates and assumptions applied on inventory valuation, and Note 6(4)

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for details of inventories. As of December 31, 2018, the balances of inventories and allowance for inventory valuation losses are NT$22,784,575 thousand and NT$731,713 thousand, respectively. The Group is primarily engaged in manufacturing and sales of motherboard, interface card, notebook computer and other electronic products. Due to the rapid technological innovations, shorter electronic product life cycles, and the fluctuation of market prices within the industry, there is a higher risk of inventory losses due from market value decline or obsolescence. The Group recognises inventories at the lower of cost and net realisable value. As the monetary values of inventories are material, and there are various types of inventories, the estimation and determination of the net realisable value of inventories as of the balance sheet date are subject to management’s judgement and contain a high level of uncertainty and have material effects on the financial statements, and therefore, it was identified as a key audit matter.

How our audit addressed the matter

We performed the following audit procedures in respect of the above key audit matter:

• A. Assessed the reasonableness and the consistency of policies in relation to the provision of allowance for inventory valuation losses and procedures based on our understanding of the Group’s operations and industry.

• B. Validated the appropriateness of system logic of the report of individually identified obsolete inventory prepared by management and confirmed the consistency with Group’s policies.

• C. Validated the appropriateness of estimation basis for net realisable value of inventories and inspected respective supporting documents, including sales prices or purchase prices, reperformed the calculation of the report and assessed the reasonableness of management’s determination of net realisable value of inventories.

Other matter –Reference to audits of other independent accountants

We did not audit the financial statements of certain consolidated subsidiaries and investments accounted for under the equity method that are included in the consolidated financial statements. 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 reports of the other independent accountants. Total assets of the abovementioned entities (including investments accounted for under the equity method) amounted to NT$9,411,349 thousand and NT$10,202,580

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thousand as of December 31, 2018 and 2017, constituting 17% and 21% of consolidated total assets, respectively. Sales revenue of the above mentioned entities amounted to NT$22,331,098 thousand and NT$24,629,128 thousand, for the years ended December 31, 2018 and 2017, constituting 19% and 23% of consolidated total sales revenue, respectively.

Other matter – Parent company only financial reports

We have audited and expressed an unmodified opinion with other matter section on the parent company only financial statements of MICRO-STAR INTERNATIONAL CO., LTD. as of and for the years ended December 31, 2018 and 2017.

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

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

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

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

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

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s

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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:

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

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

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

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

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

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

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

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

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

Liang, Hua-Ling

[Lai, Chung-Hsi ]

For and on behalf of PricewaterhouseCoopers, Taiwan March 21, 2019

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

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

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MICRO-STAR INTERNATIONAL CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

Assets	Notes 6(1) 6(2) 6(3) 6(3) 6(4) 6(5) 6(6) and 8 6(7) 6(22) 6(8) and 8	December31,2018 AMOUNT % $ 8,815,680 16 98,400 - 35,183 - 16,040,189 29 159,681 - 44,944 - 22,052,862 40 1,381,022 3 728,936 1 49,356,897 89 4,738,544 9 341,241 1 438,204 1 299,287 - 5,817,276 11 $ 55,174,173 100	December31,2017	December31,2017
		AMOUNT $ 8,815,680 98,400 35,183 16,040,189 159,681 44,944 22,052,862 1,381,022 728,936 49,356,897 4,738,544 341,241 438,204 299,287 5,817,276 $ 55,174,173	AMOUNT $ 10,028,064 20,916 21 15,108,103 340,610 4,984 16,321,027 1,292,728 68,835 43,185,288 5,087,802 337,892 348,019 194,388 5,968,101 $ 49,153,389	%
Current assets 1100 Cash and cash equivalents 1110 Financial assets at fair value through profit or loss - current 1150 Notes receivable, net 1170 Accounts receivable, net 1200 Other receivables 1220 Current income tax assets 130X Inventories, net 1410 Prepayments 1476 Other current financial assets 11XX Total current assets Non-current assets 1600 Property, plant and equipment 1760 Investment property - net 1840 Deferred income tax assets 1900 Other non-current assets 15XX Total non-current assets 1XXX Total assets				20 - - 31 1 - 33 3 -
				88
				10 1 1 -
				12
				100

(Continued)

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MICRO-STAR INTERNATIONAL CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

Liabilities and Equity

December31,2018 December31,2017 Notes AMOUNT % AMOUNT % 6(9) $ 3,000,000 6 $ - - 6(2) 5,555 - 24,448 - 200 - - - 14,933,624 27 16,032,335 32 6(10) 3,418,250 6 3,490,587 7 1,017,290 2 813,537 2 6(13) 501,095 1 454,744 1 1,796,905 3 - - 92,142 - 105,006 - 24,765,061 45 20,920,657 42 6(11) and 8 16,442 - 16,642 - 6(22) 2,297 - 16,967 - 6(12) 217,609 - 202,757 1 226,903 1 193,096 - 463,251 1 429,462 1 25,228,312 46 21,350,119 43 6(14) 8,448,562 15 8,448,562 17 6(15) 1,226,049 2 1,225,615 3 6(16) 4,378,464 8 3,884,722 8 421,815 1 389,482 1 15,976,937 29 14,276,704 29 ( 505,966) ( 1 ) ( 421,815 ) ( 1) 29,945,861 54 27,803,270 57 29,945,861 54 27,803,270 57 $ 55,174,173 100 $ 49,153,389 100

Current liabilities 2100 Short-term borrowings 2120 Financial liabilities at fair value through profit or loss - current 2150 Notes payable 2170 Accounts payable 2200 Other payables 2230 Current income tax liabilities 2250 Provision for liabilities - current 2365 Refund liabilities- current 2399 Other current liabilities, others 21XX Total current liabilities Non-current liabilities 2540 Long-term borrowings 2570 Deferred income tax liabilities 2640 Net defined benefit liability, non- current 2670 Other non-current liabilities, others 25XX Total non-current liabilities 2XXX Total liabilities Equity attributable to owners of parent Share capital 3110 Share capital - common stock Capital surplus 3200 Capital surplus Retained earnings 3310 Legal reserve 3320 Special reserve 3350 Unappropriated retained earnings Other equity interest 3400 Other equity interest 31XX Equity attributable to owners of the parent 3XXX Total equity 3X2X Total liabilities and equity

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

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MICRO-STAR INTERNATIONAL CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

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

Items

YearendedDecember31 2018 2017 Notes AMOUNT % AMOUNT % 6(17) $ 118,527,273 100 $ 106,419,905 100 6(4)(20) ( 102,397,587) ( 86) ( 91,388,612 ) ( 86) 16,129,686 14 15,031,293 14 6(20) ( 5,166,468) ( 4) ( 5,308,799 ) ( 5) ( 921,767) ( 1) ( 907,941 ) ( 1) ( 3,347,836) ( 3) ( 3,200,893 ) ( 3) ( 1,665) - - - ( 9,437,736) ( 8) ( 9,417,633 ) ( 9) 6,691,950 6 5,613,660 5 6(7)(18) 655,733 - 386,275 - 6(2)(19) ( 182,141) - ( 18,030 ) - ( 14,408) - ( 3,353 ) - 459,184 - 364,892 - 7,151,134 6 5,978,552 5 6(22) ( 1,110,005) ( 1) ( 1,041,130 ) ( 1) $ 6,041,129 5 $ 4,937,422 4 6(12) ($ 21,430) - ( $ 37,520 ) - 6(22) 8,461 - 6,378 - ( 12,969) - ( 31,142 ) - ( 84,151) - ( 191,655 ) - ( 84,151) - ( 191,655 ) - ($ 97,120) - ( $ 222,797 ) - $ 5,944,009 5 $ 4,714,625 4 $ 6,041,129 5 $ 4,937,422 4 $ 5,944,009 5 $ 4,714,625 4 6(23) $ 7.15 $ 5.84 $ 7.08 $ 5.79

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 Expected credit gain 6000 Total operating expenses 6900 Operating profit Non-operating income and expenses 7010 Other income 7020 Other gains and losses 7050 Finance costs 7000 Total non-operating income and expenses 7900 Profit before income tax 7950 Income tax expense 8200 Profit for the year Other comprehensive income Components of other comprehensive loss that will not be reclassified to profit or loss 8311 Actuarial loss on defined benefit plan 8349 Income tax related to components of other comprehensive income that will not be reclassified to profit or loss 8310 Components of other comprehensive loss that will not be reclassified to profit or loss Components of other comprehensive income that will be reclassified to profit or loss 8361 Financial statements translation differences of foreign operations 8360 Components of other comprehensive income that will be reclassified to profit or loss 8300 Total other comprehensive loss for the year 8500 Total comprehensive income for the year Profit attributable to: 8610 Owners of the parent Comprehensive income attributable to: 8710 Owners of the parent Earnings per share (in dollars) 9750 Basic earnings per share 9850 Diluted earnings per share

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

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MICRO-STAR INTERNATIONAL CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

2017 Balance at January 1, 2017 Profit for the year Other comprehensive loss for the year Total comprehensive income Appropriations of 2016 earnings : Legal reserve Cash dividends Cash dividends from capital surplus Balance at December 31, 2017 2018 Balance at January 1, 2018 Profit for the year Other comprehensive loss for the year Total comprehensive income Appropriations of 2017 earnings : Legal reserve Special reserve Cash dividends Due to donated assets received Balance at December 31, 2018	Notes						Equity attr	Equity attr	ib	utableto owners o	f t	he parent							Totalequity
			Share capital - commonstock			Capital	surplus							Retained earnings			Financial statements translation differences of foreignoperations
				Total capital surplus, additional paid-incapital		Treasury stock transactions		Capital surplus, Donated assets received		Employee stock warrants		Legal reserve		Special reserve		Unappropriated retained earnings
	6(16) 6(15) 6(16)		$ 8,448,562 - - - - - - $ 8,448,562 $ 8,448,562 - - - - - - - $ 8,448,562	$ 1,895,419 - - - - - ( 844,856 ) $ 1,050,563 $ 1,050,563 - - - - - - - $ 1,050,563		$ 130,592 - - - - - - $ 130,592 $ 130,592 - - - - - - - $ 130,592		$ - - - - - - - $ - $ - - - - - - - 434 $ 434		$ 44,460 - - - - - - $ 44,460 $ 44,460 - - - - - - - $ 44,460		$ 3,395,928 - - - 488,794 - - $ 3,884,722 $ 3,884,722 - - - 493,742 - - - $ 4,378,464		$ 389,482 - - - - - - $ 389,482 $ 389,482 - - - - 32,333 - - $ 421,815	$ 12,816,215 4,937,422 ( 31,142 ) 4,906,280 ( 488,794 ) ( 2,956,997 ) - $ 14,276,704 $ 14,276,704 6,041,129 ( 12,969 ) 6,028,160 ( 493,742 ) ( 32,333 ) ( 3,801,852 ) - $ 15,976,937		($ 230,160 ) - ( 191,655 ) ( 191,655 ) - - - ($ 421,815 ) ($ 421,815 ) - ( 84,151 ) ( 84,151 ) - - - - ($ 505,966 )	$ 26,890,498 4,937,422 ( 222,797 ) 4,714,625 - ( 2,956,997 ) ( 844,856 ) $ 27,803,270 $ 27,803,270 6,041,129 ( 97,120 ) 5,944,009 - - ( 3,801,852 ) 434 $ 29,945,861

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

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MICRO-STAR INTERNATIONAL CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax Adjustments Adjustments to reconcile profit (loss) Depreciation (including investment properties) Amortization (including long-term prepaid rents) Expected credit gain Net (gains) losses on financial assets and liabilities at fair value through profit or loss Interest expense Interest income (Gain) loss on disposal of property, plant and equipment Loss on disposal of investments Loss on unrealized foreign currency exchange Changes in operating assets and liabilities Changes in operating assets Financial asset held for trading Notes receivable, net Accounts receivable Other receivables Inventories, net Prepayments Other current financial assets Other non-current assets Changes in operating liabilities Notes payable Accounts payable Other payables Provision for liabilities - current Current refund liabilities Other current liabilities, others Net defined benefit liability Other non-current liabilities Cash inflow generated from operations Interest received Interest paid Income tax paid Net cash flows from operating activities

Years ended December 31 Notes 2018 2017 $ 7,151,134 $ 5,978,552 685,785 580,657 6(20) 9,188 9,134 1,665 ( 19,065 ) ( 70,334 ) 47,830 14,408 3,353 6(18) ( 88,788 ) ( 69,944 ) 6(19) ( 46,913 ) 933 2,849 345 28,275 34,708 ( 26,147 ) 129,420 ( 35,162 ) 8,309 899,718 ( 984,869 ) 182,643 ( 17,568 ) ( 5,731,835 ) 199,703 ( 88,294 ) ( 145,320 ) ( 660,101 ) ( 68,835 ) 3,808 ( 19,792 ) 200 - ( 1,098,711 ) ( 2,015,491 ) ( 69,781 ) ( 260,187 ) 46,351 144,006 ( 36,726 ) - ( 12,732 ) ( 259,395 ) ( 6,578 ) ( 6,557 ) - ( 27,731 ) 1,053,922 3,242,196 86,892 80,242 ( 13,974 ) ( 3,237 ) ( 1,042,224 ) ( 943,789 ) 84,616 2,375,412

(Continued)

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MICRO-STAR INTERNATIONAL CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Acquisition of investment properties Increase in refundable deposits Increase in other financial assets Net cash flows used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Increase in short-term borrowings Payment of long-term borrowings Increase in guarantee deposits received Cash dividends paid Cash distribution from capital reserve Net cash flows used in financing activities Effect of exchange rate 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 6(6) ($ 450,502 ) ($ 637,578 ) 50,311 3,319 6(7) ( 2,409 ) - ( 3,620 ) ( 1,315 ) ( 46,369 ) ( 34,211 ) ( 452,589 ) ( 669,785 ) 6(9) 3,000,000 - ( 898 ) ( 1,004 ) 33,807 46,701 6(16) ( 3,801,852 ) ( 2,956,997 ) 6(15) - ( 844,856 ) ( 768,943 ) ( 3,756,156 ) ( 75,468 ) ( 188,993 ) ( 1,212,384 ) ( 2,239,522 ) 6(1) 10,028,064 12,267,586 6(1) $ 8,815,680 $ 10,028,064

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

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MICRO-STAR INTERNATIONAL CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

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

1. HISTORY AND ORGANISATION

MICRO-STAR INTERNATIONAL CO., LTD. (the “Company”) was incorporated as a company limited by shares under the laws of the Republic of China (R.O.C.) in August 1986 and started its operations in the same year. The Company and its subsidiaries (collectively referred herein as the “Group”) are primarily engaged in the manufacture and sale of motherboards and computer hardware. The shares of the Company have been listed on the Taiwan Stock Exchange since October 1998. The Company is the Group’s ultimate parent company.

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

STATEMENTS AND PROCEDURES FOR AUTHORISATION

These consolidated financial statements were reported to the Board of Directors on March 21, 2019.

3. APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS

(1) Effect of the adoption of new standards and amendments to International Financial Reporting Standards (“IFRS”) as endorsed by the Financial Supervisory Commission (“FSC”)

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

New Standards,Interpretations and Amendments

Effective date by International Accounting Standards Board

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

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

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

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

the Group

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

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

Except for the following, the above standards and interpretations have no significant impact to the Group’s financial condition and financial performance based on the Group’s assessment. IFRS 16, ‘Leases

IFRS 16, ‘Leases’, replaces IAS 17, ‘Leases’ and related interpretations and SICs. The standard requires lessees to recognise a 'right-of-use asset' and a lease liability (except for those leases with terms of 12 months or less and leases of low-value assets). The accounting stays the same for lessors, which is to classify their leases as either finance leases or operating leases and account for those two types of leases differently. IFRS 16 only requires enhanced disclosures to be provided by lessors. The Group expects to recognise the lease contract of lessees in line with IFRS 16. The Group has elected to apply modified retrospective approach and not to restate the financial statements of prior period. On January 1, 2019, it is expected that ‘right-of-use asset’ and lease liability will be increased by $433,779 and $351,880, respectively, and other non-current assets will be reduced by $81,899.

(3) IFRSs issued by IASB but not yet endorsed by the FSC

New standards, interpretations and amendments issued by IASB but not yet included in the IFRSs as endorsed by the FSC are as follows:

endorsed by the FSC are as follows:
New Standards,Interpretations and Amendments	Effective date by International Accounting Standards Board
Amendment to IAS 1 and IAS 8, ‘Disclosure Initiative-Definition of Material’	January 1, 2020

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

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

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

(1) Compliance statement

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

• (2) Basis of preparation

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

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

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

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

• C. In adopting IFRS 9 and IFRS 15 effective January 1, 2018, the Group has elected to apply modified retrospective approach. The financial statements for the year ended December 31, 2017 were prepared in compliance with International Accounting Standard 39 (‘IAS 39’), International Accounting Standard 11 (‘IAS 11’), International Accounting Standard 18 (‘IAS 18’) and related financial reporting interpretations. Please refer to Notes 12(4) and (5) for details of significant accounting policies and details of significant accounts.

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(3) Basis of consolidation

• A. Basis for preparation of consolidated financial statements:

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

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

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

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

• B. Subsidiaries included in the consolidated financial statements:

Name of Investor	Name of subsidiaries	Main business activities	Ownership(%)	Ownership(%)	Note
			2018/12/31	2017/12/31
MICRO-STAR INTERNATIONAL CO., LTD. 〃	MICRO-STAR NETHERLANDS HOLDING B.V. [MSI (HOLDING)] MSI COMPUTER CORP.[MSI (LA)]	Investment holding company Sales and maintenance of computers and electronic components	100 100	100 100	B 〃

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Name of Investor	Name of subsidiaries	Main business activities	Ownership(%)	Ownership(%)	Note
			2018/12/31	2017/12/31
MICRO-STAR INTERNATIONAL CO., LTD. 〃 〃 〃 〃 MSI (HOLDING) 〃 〃 〃 〃 〃	MSI PACIFIC INTERNATIONAL HOLDING CO., LTD. [MSI (PACIFIC)] MSI COMPUTER JAPAN CO., LTD. [MSI (JAPAN)] MSI COMPUTER (AUSTRALIA) PTY. LTD. [MSI (AUSTRALIA)] MSI COMPUTER (CAYMAN) CO., LTD. [MSI COMPUTER (CAYMAN)] MYSTAR INVESTMENT HOLDING COMPANY LIMITED [MYSTAR INVESTMENT] MYSTAR COMPUTER B.V. [MYSTAR] MSI TECHNOLOGY GMBH [MSI (GMBH)] MSI COMPUTER SARL [MSI (SARL)] MSI COMPUTER (UK) LTD. [MSI (UK)] MSI POLSKA SP. Z O. O. [MSI (POLSKA)] MSI COMPUTER EUROPE B.V. [MSI (EUROPE)]	Investment holding company Sales support and maintenance of computers and electronic components Maintenaance and after-sales services of computers and electronic components Investment holding company General investment Sales support of computers and electronic components 〃 〃 〃 Maintenance and after-sales services of computers and electronic components Logistics services of computers and electronic components	100 100 100 100 - 100 100 100 100 99 100	100 100 100 100 - 100 100 100 100 99 100	A 〃 〃 B D B B and E B 〃 〃 〃

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Name of Investor	Name of subsidiaries	Main business activities	Ownership(%)	Ownership(%)	Note
			2018/12/31	2017/12/31
MSI (HOLDING) 〃 〃 MSI (EUROPE) 〃 〃 MSI (PACIFIC) 〃 〃 〃 〃	LLC MSI COMPUTER [MSI (RUSSIA)] MSI COMPUTER TECHNOLOGIES LIMITED COMPANY [MSI (TURKEY)] MSI ITALY S.R.L [MSI (ITALY)] MSI POLSKA SP. Z O. O. [MSI (POLSKA)] LLC MSI COMPUTER [MSI (RUSSIA)] MSI COMPUTER TECHNOLOGIES LIMITED COMPANY [MSI (TURKEY)] MSI KOREA CO., LTD. [MSI (KOREA)] STAR INFORMATION HOLDING CO., LTD. [STAR INFORMATION] MEGA INFORMATION HOLDING CO., LTD. [MEGA INFORMATION] MICRO-STAR INTERNATIONAL (B.V.I) HOLDING CO., LTD. [MSI (B.V.I.)] MICRO ELECTRONICS HOLDING CO., LTD. [MICRO ELECTRONICS]	Sales support and maintenance of computers and electronic components Sales support of computers and electronic components 〃 Maintenance and after-sales services of computers and electronic components Sales support and maintenance of computers and electronic components Sales support of computers and electronic components Sales and maintenance of computers and electronic components Investment holding company 〃 〃 〃	99 99 100 1 1 1 100 100 100 100 100	99 99 100 1 1 1 100 100 100 100 100	B B and F B 〃 〃 B and F B A 〃 〃 〃

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Name of Investor	Name of subsidiaries	Main business activities	Ownership(%)	Ownership(%)	Note
			2018/12/31	2017/12/31
MSI (PACIFIC) 〃 〃 〃 〃 〃 〃 〃 MEGA INFORMATION MICRO ELECTRONICS STAR INFORMATION MSI (B.V.I.)	MEGA TECHNOLOGY HOLDING CO., LTD. [MEGA TECHNOLOGY] MEGA COMPUTER CO., LTD. [MEGA COMPUTER] MHK INTERNATIONAL CO., LTD. [MSI (MHK)] MSI (SHANGHAI) SHENZHEN MEGA INFORMATION CO., LTD. [SHENZHEN MEGA INFORMATION] STAR COMPUTER HOLDINGCO.,LTD. [STAR COMPUTER] MOSA CO., LTD. [MOSA] LINKING FUTURE CO.,LTD.[LINKING] SHENZHEN MEGA INFORMATION CO., LTD. [SHENZHEN MEGA INFORMATION] MSI ELECTRONICS (KUNGSHAN) CO., LTD. [MSI ELECTRONICS (KUNSHAN)] MSI (SHENZHEN) CO., LTD. [MSI SHENZHEN] MSI COMPUTER (SHENZHEN) CO., LTD. [MSI COMPUTER (SHENZHEN)]	Investment holding company Sales support of computers and electronic components 〃 Sales and maintenance of computers and electronic components Examination and maintenance of computers, and electronic components General trade 〃 〃 Examination and maintenance of computers, and electronic components Sales and manufacture of computers, and electronic components Sales and maintenance of computers, and electronic components Sales and manufacture of computers and electronic components	100 100 100 100 100 - - - - 100 100 100	100 100 100 - - - - - 100 100 100 100	A B 〃 C and G A and I J and L 〃 J and N A and I A 〃 〃

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Name of Investor	Name of subsidiaries	Main business activities	Ownership(%)	Ownership(%)	Note
			2018/12/31	2017/12/31
MEGA TECHNOLOGY 〃 STAR COMPUTER 〃 MOSA 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃	MSI COMPUTER TRADING (SHENZHEN) CO., LTD. [MSI TRADING (SHENZHEN)] RAIDEALS INC.[RAIDEALS] MIDI CO., LTD. MYSTAR TRADING CLICK TRADING CO., LTD. EASYGOLD TRADING CO., LTD. MRL TRADING CO., LTD. BETTER TECHWIDE CO., LTD. LEAD TREND CO., LTD. SAILING OCEAN CO., LTD MULTI-STAR SHINE CO., LTD. WIDE RANGE TRADING CO., LTD. IDEAPLUS TRADING CO., LTD. MAXWIDE TRADING CO., LTD. STAR FIRST TRADING CO., LTD.	Sales and maintenance of computers and electronic components Sales computers and electronic components General trade 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃	100 100 - - - - - - - - - - - - -	100 - - - - - - - - - - - - - -	A C and H J and L J and M J and L 〃 〃 〃 〃 〃 〃 〃 J and K 〃 〃

Note A: These investee companies are included in the consolidated financial statement based on their financial statements which were audited by the Group’s independent accountants for the corresponding period.

• Note B: These investee companies are included in the consolidated financial statement based on their financial statements which were audited by other independent accountants for the corresponding period.

• Note C: As of December 31, 2018, these investee companies are included in the consolidated financial statements based on their financial statements which were audited by the Group’s independent accountants for the corresponding period.

• Note D: In November 2017, this subsidiary has completed the liquidation process.

• Note E: In November 2018, this subsidiary has completed the liquidation process. Note F: The subsidiary is in the process of liquidation.

• Note G: MSI (SHANGHAI) received capital infusion from MSI (PACIFIC) on March 7, 2018. Thus, it has been included in the consolidated financial statements from that date.

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  - Note H: RAIDEALS received capital infusion from MEGA TECHNOLOGY on July 2, 2018. Thus, it has been included in the consolidated financial statements from that date.

  - Note I: SHENZHEN MEGA INFORMATION has completed a shareholder structure change during the third quarter of 2018. It was changed from its original shareholder of MEGA INFORMATION to MSI (PACIFIC) directly holding the entire equity.

  - Note J: The company only sets up registration without any capital injection nor has any actual operation.

  - Note K: On May 1, 2018, this subsidiary has cancelled the registration.

  - Note L: On November 1, 2018, this subsidiary has cancelled the registration.

  - Note M: On May 1, 2017, this subsidiary has cancelled the registration. Note N: The subsidiary is in the process of cancelling the registration.

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

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

• E. Significant restrictions: None.

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

• (4) Foreign currency translation

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

• A. Foreign currency transactions and balances

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

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

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

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

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• B. Translation of foreign operations

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

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

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

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

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

• (5) Classification of current and non-current items

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

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

  • (b) Assets held mainly for trading purposes;

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

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

The Group classifies assets that do not meet the above criteria as non-current.

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

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

• (b) Liabilities arising mainly from trading activities;

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

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

The Group classifies liabilities that do not meet the above criteria as non-current.

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(6) Cash equivalents

Cash equivalents refer to short-term highly liquid investments that readily convert to known amount of cash and subject to an insignificant effect of value of changes in rate. Time deposits and money market fund that meet the definition above and are held for the purpose of meeting short-term cash commitments in operations are classified as cash equivalents.

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

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

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

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

(8) Accounts and notes receivable

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

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

(9) Impairment of financial assets

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

(10) Operating lease (lessor)

Lease income from an operating lease (net of any incentives given to the lessee) is recognised in profit or loss on a straight-line basis over the lease term.

(11) Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is determined using the weighted-average method. The cost of finished goods and work-in-process comprises raw materials, other direct costs and related production overheads. The item-by-item approach is used in applying the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and applicable variable selling expenses.

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(12) Property, plant and equipment

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

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

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

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

Buildings 5~55 years Machinery and equipment 2~10 years Other properties (include transportation equipment, office equipment, 2~10 years and leasehold improvements)

(13) Operating Lease (lessee)

Based on the terms of a lease contract, a lease is classified as an operating lease if the lessee does not assumes substantially all the risks and rewards incidental to ownership of the leased asset. Lease income from an operating lease (net of any incentives given to the lessee) is recognised in profit or loss on a straight-line basis over the lease term.

(14) Investment property

An investment property is stated initially at its cost and measured subsequently using the cost model. Except for land, investment property is depreciated on a straight-line basis over its estimated useful life of 20 years.

(15) Impairment of non-financial assets

The Group assesses at each balance sheet date the recoverable amounts of those assets where there is an indication that they are impaired. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell or value in use. Except for goodwill, when the circumstances or reasons for recognizing impairment loss for an asset in prior years no longer exist or diminish,

~25~

the impairment loss is reversed. The increased carrying amount due to reversal should not be more than what the depreciated or amortised historical cost would have been if the impairment had not been recognised.

• (16) Borrowings

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

(17) Notes and accounts payable

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

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

(18) Financial liabilities at fair value through profit or loss

• A. Financial liabilities are classified in this category of held for trading if acquired principally for the purpose of repurchasing in the short-term. Derivatives are also categorised as financial liabilities held for trading unless they are designated as hedges.

• B. At initial recognition, the Group measures the financial liabilities at fair value. All related transaction costs are recognised in profit or loss. The Group subsequently measures these financial liabilities at fair value with any gain or loss recognised in profit or loss.

(19) Provisions

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

(20) Employee benefits

• A. Short-term employee benefits

• Sort-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in respect of service rendered by employees before twelve months after the end of the annual reporting period, and should be recognized as expense in that period when the employees render service.

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B. Pensions

• (a) Defined contribution plans

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

• (b) Defined benefit plans

  • i. Net obligation under a defined benefit plan is defined as the present value of an amount of pension benefits that employees will receive on retirement for their services with the Group in current period or prior periods. The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognised past service costs. The net defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The rate used to discount is determined by using interest rates of government bonds (at the balance sheet date).

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

  • iii.Past service costs are recognised immediately in profit or loss.

• C. Termination benefits

• Termination benefits are employee benefits provided in exchange for the termination of employment as a result from either the Group’s decision to terminate an employee’s employment before the normal retirement date, or an employee’s decision to accept an offer of redundancy benefits in exchange for the termination of employment. The Group recognizes expense as it can no longer withdraw an offer of termination benefits or it recognises relating restructuring costs, whichever is earlier. Benefits that are expected to be due more than 12 months after balance sheet date shall be discounted to their present value.

• D. Employees’ bonus and directors’ and supervisors’ remuneration

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

(21) Income tax

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

• B. The current income tax expense is calculated on the basis of the tax laws enacted or substantively

~27~

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

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

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

• E. Current income tax assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. Deferred income tax assets and liabilities are offset on the balance sheet when the entity has the legally enforceable right to offset current tax assets against current tax liabilities and they are levied by the same taxation authority on either the same entity or different entities that intend to settle on a net basis or realise the asset and settle the liability simultaneously.

(22) Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or stock options are shown in equity as a deduction, net of tax, from the proceeds.

(23) Dividends

Dividends are recorded in the Company’s financial statements in the period in which they are approved by the Company’s shareholders. Cash dividends are recorded as liabilities.

• (24) Revenue recognition

• A. Sales of goods

  • (a) The Group manufactures and sells motherboards, graphic cards, a variety of computer hardware, and electronic components. Sales are recognised when control of the products has transferred, being when the products are delivered to the customer, the customer has full

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discretion over the channel and price to sell the products, and there is no unfulfilled obligation that could affect the customer’s acceptance of the products. Delivery occurs when the products have been shipped to the specific location, the risks of obsolescence and loss have been transferred to the customer, and either the customer has accepted the products in accordance with the sales contract, or the Group has objective evidence that all criteria for acceptance have been satisfied.

• (b) Revenue from the products is recognised based on the price specified in the contract, net of the estimated value added tax, returns and volume discounts and rebates. The volume discounts to the customers are estimated based on the anticipated annual sales quantities and the right of return for defective products is estimated on the basis of historical experience. Revenue is only recognised to the extent that it is highly probable that a significant reversal will not occur. The estimation is subject to an assessment at each reporting date. A refund liability is recognised for expected volume discounts payable to customers in relation to sales made until the end of the reporting period. The period between the transfer of the promised goods or services to the customer and payment by the customer does not exceed one year. As a result, the Group does not adjust any of the transaction prices for the time value of money.

• (c) The Group’s obligation to provide a refund for faulty products under the standard warranty terms is recognised as a provision.

• (d) A receivable is recognised when the goods are delivered as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due.

• B. Incremental costs of obtaining a contract

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

(25) Operating segments

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker is responsible for allocating resources and assessing performance of the operating segments.

5. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND KEY SOURCES OF ASSUMPTION UNCERTAINTY

The preparation of these consolidated financial statements requires management to make critical judgements in applying the Group’s accounting policies and make critical assumptions and estimates concerning future events. Assumptions and estimates may differ from the actual results and are continually evaluated and adjusted based on historical experience and other factors. The information is addressed below:

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

None.

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(2) Critical accounting estimates and assumptions

Evaluation of inventories

As inventories are stated at the lower of cost and net realisable value, the Group must determine the net realisable value of inventories on balance sheet date using judgements and estimates. Due to the rapid technology innovation, the Group evaluates the amounts of normal inventory comsumption, obsolete inventories or inventories without market selling value on balance sheet date, and writes down the cost of inventories to the net realisable value. Such an evaluation of inventories is principally based on the demand for the products within the specified period in the future. Therefore, there might be material changes to the evaluation. As of December 31, 2018, the carrying amount of inventories was $ 22,052,862.

6. DETAILS OF SIGNIFICANT ACCOUNTS

(1) Cash and cash equivalents

inventories was $ 22,052,862. TAILS OF SIGNIFICANT ACCOUNTS Cash and cash equivalents
Cash on hand and petty cash Checking accounts and demand deposits Time deposits	December 31,2018 4,007 $ 6,827,542 1,984,131 8,815,680 $	December 31,2017
		4,211 $ 7,675,545 2,348,308
		10,028,064 $

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

• B. As of December 31, 2018 and 2017, cash and cash equivalents amounting to $ 69,316 and $36,520, respectively, were pledged to others as collateral and classified as other financial assets.

(2) Financial assets and liabilities at fair value through profit or loss - current

Financial assets and liabilities at fair value through profit or loss-current
Asset items December 31,2018 Financial assets mandatorily measured at fair value through profit or loss Stock of publicly traded or listed companies 125,303 $ Derivatives – Forward exchange contract 6,376 Derivatives – Foreign exchange swap 7,956 139,635 Evaluation adjustment 41,235) ( Total 98,400 $ Liabilityitems December 31,2018 Financial liabilities held for trading Derivatives – Forward exchange contract $5,555	December 31,2017
	- $ 350 20,566
	20,916 -
	20,916 $
	December 31,2017
	24,448 $

• A. The Group recognised net gain (loss) of $70,334 and ($60,099) on financial assets held for trading for the years ended December 31, 2018 and 2017, respectively.

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B. The non-hedging derivative instrument transactions and contract information are as follows:

Derivative Financial Assets		December	31,2018
		Contract Amount Notional Principal (In thousands) EUR 6,000 GBP 3,500 AUD 4,200 USD 158,000 Contract Amount Notional Principal (In thousands) JPY 381,282 EUR 24,000 GBP 1,300 December	Contractperiod
Forward exchange contracts 〃 〃 Foreign exchange swap Derivative Financial Liabilities			2018.11.20~2019.01.08 2018.10.22~2019.02.01 2018.11.01~2019.02.01 2018.11.15~2019.02.25 Contractperiod
Forward exchange contracts 〃 〃 Derivative Financial Assets			2018.11.19~2019.02.01 2018.11.29~2019.02.11 2018.12.20~2019.01.24 31,2017
		Contract Amount Notional Principal (In thousands) JPY 224,100 RUB 57,575 GBP 1,100 USD 145,000 Contract Amount Notional Principal (In thousands) RUB 352,359 EUR 42,000 GBP 5,000 CAD 4,000 AUD 3,500	Contractperiod
Forward exchange contracts 〃 〃 Foreign exchange swap Derivative Financial Liabilities			2017.11.22~2018.02.01 2017.12.27~2018.01.10 2017.10.26~2018.01.24 2017.09.29~2018.03.16 Contractperiod
Forward exchange contracts 〃 〃 〃 〃			2017.11.23~2018.02.08 2017.09.29~2018.03.08 2017.10.26~2018.02.14 2017.12.05~2018.02.26 2017.12.13~2018.03.08

The Group entered into forward foreign exchange contracts to hedge exchange risk. However, these forward foreign exchange contracts are not accounted for under hedge accounting.

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

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

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(3) Accounts receivable

Accounts receivable
	December31,2018		December31,2017
Notes receivable	$	35,183	$	21
Accounts receivable	$	16,059,595	$	15,125,954
Less: Allowance for doubtful accounts	(	19,406)	(	17,851)
	$	16,040,189	$	15,108,103

• A. The ageing analysis of accounts receivable and notes receivable that were past due but not impaired is as follows:

is as follows:
Not past due 1 to 75 days 76 to 365 Over 365	Accounts receivable Notes receivable 12,943,013 $ 35,183 $ 3,078,726 - 37,097 - 759 - 16,059,595 $ 35,183 $ December 31,2018	December 31,2017
	Accounts receivable 12,943,013 $ 3,078,726 37,097 759 16,059,595 $	Accounts receivable 11,583,305 $ 3,492,218 39,736 10,695 15,125,954 $	Notes receivable
			21 $ - - -
			21 $

The above ageing analysis was based on past due date.

• B. Most of the Group’s accounts receivable have been insured or have collateral as security, and the Group will be able to obtain insurance claims or enforce a collateral in case these accounts default.

• C. As of December 31, 2018 and 2017, without taking into account any collateral held or other credit enhancements, the maximum exposure to credit risk in respect of the amount that best represents the Group’s notes and accounts receivable were $35,183 and $21, $16,040,189 and $15,108,103, respectively.

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

(4) Inventories

12(2). Inventories
Raw material Work-in-process Finished goods		December 31,2018
	Cost 7,536,411 $ 1,343,677 13,904,487 22,784,575 $	Allowance for valuation loss 325,737) ($ 1,987) ( 403,989) ( 731,713) ($	Book value
			7,210,674 $ 1,341,690 13,500,498
			22,052,862 $

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Raw material Work-in-process Finished goods		December 31,2017
	Cost 4,688,293 $ 702,826 11,269,390 16,660,509 $	Allowance for valuation loss 109,315) ($ 289) ( 229,878) ( 339,482) ($	Book value
			4,578,978 $ 702,537 11,039,512
			16,321,027 $

The cost of inventories recognised as expense for the period:

Cost of inventories recognised as expense Losses (gains) on decline or reversal in market value	2018 2017 102,397,587 $ 91,388,612 $ 392,240 7,199) (	2017

The Group recognised a reduction in costs of sales as a result of reversal of net realizable value from sale of inventories that were provisioned losses in market value decline in 2017.

(5) Prepayments

Prepayments
Office supplies Overpaid tax for offsetting the future tax payble Office supplies Prepayment for goods Others	December 31,2018 780,088 $ 364,726 20,507 215,701 1,381,022 $	December 31,2017
		676,566 $ 323,257 136,063 156,842
		1,292,728 $

(6) Property, plant and equipment

At January 1, 2018 Cost Accumulated depreciation 2018 Balance at January 1 Additions Reclassifications Disposals Depreciation charge Net exchange differences Balance at December 31 At December 31, 2018 Cost Accumulated depreciation

Land Buildings Machineries Others Total 1,466,996 $ 5,490,977 $ 4,502,339 $ 1,786,429 $ 13,246,741 $ - 3,232,185) ( 3,591,934) ( 1,334,820) ( 8,158,939) ( 1,466,996 $ 2,258,792 $ 910,405 $ 451,609 $ 5,087,802 $ 1,466,996 $ 2,258,792 $ 910,405 $ 451,609 $ 5,087,802 $ - 65,811 180,812 203,879 450,502 - 18,121 95) ( 146,472) ( 128,446) ( - - 368) ( 3,030) ( 3,398) ( - 253,551) ( 257,389) ( 124,070) ( 635,010) ( 634 19,680) ( 9,365) ( 4,495) ( 32,906) ( 1,467,630 $ 2,069,493 $ 824,000 $ 377,421 $ 4,738,544 $ 1,467,630 $ 5,368,187 $ 3,713,051 $ 1,715,434 $ 12,264,302 $ - 3,298,694) ( 2,889,051) ( 1,338,013) ( 7,525,758) ( 1,467,630 $ 2,069,493 $ 824,000 $ 377,421 $ 4,738,544 $

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		Land		Buildings		Machineries	Machineries		Others		Total
At January 1, 2017
Cost	$	1,467,204	$	5,540,609	$		4,620,658	$	1,727,107	$	13,355,578
Accumulated depreciation		-	(	3,105,622)	(		3,797,492)	(	1,360,072)	(	8,263,186)
	$	1,467,204	$	2,434,987	$		823,166	$	367,035	$	5,092,392
2017
Balance at January 1	$	1,467,204	$	2,434,987	$		823,166	$	367,035	$	5,092,392
Additions		-		93,785			318,109		225,684		637,578
Reclassifications		-	(	46,433)			-	(	17,217)	(	63,650)
Disposals		-		-	(		445)	(	3,807)	(	4,252)
Depreciation charge		-	(	206,202)	(		211,813)	(	114,100)	(	532,115)
Net exchange differences	(	208)	(	17,345)	(		18,612)	(	5,986)	(	42,151)
Balance at December 31	$	1,466,996	$	2,258,792	$		910,405	$	451,609	$	5,087,802
At December 31, 2017
Cost	$	1,466,996	$	5,490,977	$		4,502,339	$	1,786,429	$	13,246,741
Accumulated depreciation		-	(	3,232,185)	(		3,591,934)	(	1,334,820)	(	8,158,939)
	$	1,466,996	$	2,258,792	$		910,405	$	451,609	$	5,087,802

For the amount of borrowing costs capitalised as part of property, plant and equipment, please refer to Note 8.

(7) Investment property

to Note 8. Investment property
		Buildings
January 1, 2018
Cost	$	957,443
Accumulated depreciation	(	619,551)
	$	337,892
2018
Balance at January 1	$	337,892
Additions		2,409
Reclassifications		57,691
Depreciation charge	(	50,775)
Net exchange differences	(	5,976)
Balance at December 31	$	341,241
December 31, 2017
Cost	$	1,129,777
Accumulated depreciation	(	788,536)
	$	341,241

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		Buildings
January 1, 2017
Cost	$	862,379
Accumulated depreciation	(	517,721)
	$	344,658
2017
Balance at January 1	$	344,658
Reclassifications		46,291
Depreciation charge	(	48,542)
Net exchange differences	(	4,515)
Balance at December 31	$	337,892
December 31, 2017
Cost	$	957,443
Accumulated depreciation	(	619,551)
	$	337,892

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

investment property:
Rental income from the lease of the investment property Direct operating expenses arising from the investment property	2018 97,487 $ 69,936 $	2017
		82,274 $
		62,438 $

B. As of December 31, 2018 and 2017, the fair value of the Group’s investments in property amounting to $2,484,968 and $1,379,037, respectively, as derived from market prices in the nearby area, are included in Level 2.

(8) Long-term prepaid rents (shown as ‘Other non-current assets’)

Land use right Land use right	December 31,2018 81,899 $	December 31,2017
		92,600 $

A subsidiary of the Group signed a land use right contract with the Ministry of Land and Resources of the People's Republic of China for the use of the land at Kunshan City and Shenzhen City with a term of 50 years. The Group recognized rental expenses of $8,986 and $8,884 for the years ended December 31, 2018 and 2017, respectively.

(9) Short-term borrowings

hort-term borrowings
Type of borrowings Bank borrowings Bank unsecured borrowings		December 31,2018 Interest rate range Collateral 3,000,000 $ 0.94% ～ 0.99% None	Collateral

As of December 31, 2017, the Group did not have any short-term borrowings.

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(10) Other payables

Accrued salary and bonus Directors' and supervisors' remuneration and employees' bonus Accrued freight Advertising expenses payable Accrued molding expense Other accrued expenses	December 31,2018 1,319,253 $ 564,500 502,979 273,429 164,846 593,243 3,418,250 $	December 31,2017
		1,363,045 $ 490,900 433,492 243,872 186,854 772,424
		3,490,587 $

- (11) Long term borrowings

	Borrowing period and	Borrowing period and
Type of borrowings	repayment term		Interest rate range	Collateral	December	31,2018
Long-term bank
borrowings
Secured	Starting from March	24,	Three month	Land and	$	17,282
borrowings	2016 to March	24,	LIBOR plus	Building
	2021, repayment	of	1.75%
	principal and interest of
	USD 4,307.77 monthly
	and remaining principal
	on the due date.
Less: current portion					(	840)
					$	16,442
	Borrowing period and
Type of borrowings	repayment term		Interest rate range	Collateral	December	31,2017
Long-term bank
borrowings
Secured	Starting from March	24,	Three month	Land and	$	17,614
borrowings	2016 to March	24,	LIBOR plus	Building
	2021, repayment	of	1.75%
	principal and interest of
	USD 4,307.77 monthly
	and remaining principal
	on the due date.
Less: current portion					(	972)

(	972)
$	16,642

(12) Pensions

A. (a) The Company has a defined benefit pension plan in accordance with the Labor Standards Law, covering all regular employees’ service years prior to the enforcement of the Labor Pension

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Act on July 1, 2005 and service years thereafter of employees who chose to continue to be subject to the pension mechanism under the Law. Under the defined benefit pension plan, two units are accrued for each year of service for the first 15 years and one unit for each additional year thereafter, subject to a maximum of 45 units. Pension benefits are based on the number of units accrued and the average monthly salaries and wages of the last 6 months prior to retirement. The Company and its domestic subsidiaries contribute monthly an amount equal to 2% of the employees’ monthly salaries and wages to the retirement fund deposited with Bank of Taiwan, the trustee, under the name of the independent retirement fund committee. Also, the Company and its domestic subsidiaries would assess the balance in the aforementioned labor pension reserve account by December 31, every year. If the account balance is insufficient to pay the pension calculated by the aforementioned method to the employees expected to qualify for retirement in the following year, the Company and its domestic subsidiaries will make contributions for the deficit by next March.

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

	December	31,2018	December	31,2017
Present value of defined benefit obligations	$	502,487	$	470,631
Fair value of plan assets	(	284,878)	(	267,874)
Net defined benefit liability	$	217,609	$	202,757

(c) Movements in net defined benefit liabilities are as follows:

Year ended December 31, 2018 Balance at January 1 Current service cost Interest (expense) income Remeasurements: Return on plan assets (excluding amounts included in interest income or expense) Change in financial assumptions Experience adjustments Pension fund contribution Paid pension Balance at December 31		Present value of defined benefit obligations	Fair value of plan assets		Net defined benefit liability
	470,631 $ 2,764 5,177 478,572 - 5,335 23,774 29,109 - 5,194) ( 502,487 $		267,874) ($ - 2,947) ( 270,821) ( 7,679) ( - - 7,679) ( 11,572) ( 5,194 284,878) ($	202,757 $ 2,764 2,230 207,751 7,679) ( 5,335 23,774 21,430 11,572) ( - 217,609 $

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Year ended December 31, 2017 Balance at January 1 Current service cost Interest (expense) income Remeasurements: Return on plan assets (excluding amounts included in interest income or expense) Change in financial assumptions Experience adjustments Pension fund contribution Balance at December 31		Present value of defined benefit obligations	Fair value of plan assets		Net defined benefit liability
		425,511 $ 2,403 6,383 434,297 - 20,250 16,084 36,334 - 470,631 $	253,717) ($ - 3,806) ( 257,523) ( 1,186 - - 1,186 11,537) ( 267,874) ($	171,794 $ 2,403 2,577 176,774 1,186 20,250 16,084 37,520 11,537) ( 202,757 $

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

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

Discount rate Future salary increases	2018 1.00% 2.75%	2017
		1.10%
		2.75%

Assumptions regarding future mortality experience are set based on actuarial advice in

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accordance with published statistics and experience in each territory.

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

December 31, 2018 Effect on present value of defined benefit obligation December 31, 2017 Effect on present value of defined benefit obligation	Discount rate	Discount rate	Discount rate	Future salaryincreases	Future salaryincreases	Future salaryincreases
	Increase 0.25%	Decrease 0.25%		Increase 0.25%		Decrease 0.25%
	13,186) ($ 12,806) ($		13,699 $ 13,326 $		12,176 $ 11,901 $	11,802) ($ 11,517) ($

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

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

• (f) Expected contributions to the defined benefit pension plans of the Group for the year ending December 31, 2019 amount to $11,579.

• (g) As of December 31, 2018, the weighted average duration of the retirement plan is 11 years.

The analysis of timing of the future pension payment was as follows:

The analysis of timing of the future pension payment was as follows:
Within 1 year 1-2 year(s) 2-3 years 3-4 years 4-5 years 6-10 years Over 10 years	22,110 $ 28,301 30,237 33,522 25,646 118,204 302,588
	560,608 $

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

• (b) The Company’s mainland China subsidiaries have a defined contribution plan. Monthly contributions to an independent fund administered by the government in accordance with the

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pension regulations in the People’s Republic of China (PRC) are based on certain percentage of employees’ monthly salaries and wages. Other than the monthly contributions, the Group has no further obligations.

• (c) The pension costs under defined contribution pension plans of the Group for the years ended December 31, 2018 and 2017, were $262,954 and $251,304, respectively.

(13) Provisions for liabilities

Provisions for liabilities
Warranty			2018			2017
At January 1	$		454,744	$		310,738
Additional provisions			680,895			727,368
Used during the period	(		634,589)	(		583,363)
Exchange differences			45			1
At December 31	$		501,095	$		454,744
Analysis of total provisions:
		December 31,2018			December 31,2017
Current	$		501,095	$		454,744

The Group gives warranties on computer components and personal computers sold. Provision for warranty is estimated based on historical warranty data.

• (14) Share capital

As of December 31, 2018, the Company’s authorized capital was $15,000,000 (including 80,000 thousand shares reserved for employee stock options and 150,000 thousand shares reserved for convertible bonds issued by the Company), and the paid-in capital was $8,448,562 with a par value of $10 (in dollars) per share. All proceeds from shares issued have been collected.

(15) Capital surplus

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

• B. On June 15, 2017, the appropriation of cash dividends from capital surplus had been resolved by stockholders during their meeting as follows:

deficit unless the legal reserve is insufficient. On June 15, 2017, the appropriation of cash dividends from stockholders during their meeting as follows:	capital surplus had been resolved by	capital surplus had been resolved by
Cash dividends from capital surplus	Amount Dividends per share(dollar) 844,856 $ 1.00 $ 2016
	Amount 844,856 $
		1.00 $

The appropriation of cash dividends from capital surplus is the same as the appropriation resolved by the Board of Directors during their meeting.

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(16) Retained earnings

• A. Under the Company's Articles of Incorporation, the current year's earnings, if any, shall first be used to pay all taxes and offset prior year's operating losses, then 10% of the remaining amount shall be set aside or reversed as legal reserve. The balance plus unappropriated retained earnings at the beginning of the period shall be appropriated 10%~90% as proposed by the Board of Directors and resolved by the stockholders during their meeting.

• B. The Company’s dividend policy is summarized below: as the Company operates in a volatile business environment and is in the stable growth stage, except for the Company’s future expansion plans, stockholders’ interest is taken into consideration. The Group appropriated dividends in proportion to total number of shares, dividends could be distributed in stock or cash, and cash dividends shall account for at least 30% of the total dividends distributed.

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

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

• (b) The amounts previously set aside by the Company as special reserve on initial application of IFRSs in accordance with Jin-Guan-Zheng-Fa-Zi Letter No. 1010012865, dated April 6, 2012, shall be reversed proportionately when the relevant assets are used, disposed of or reclassified subsequently. Such amounts are reversed upon disposal or reclassified if the assets are investment property of land, and reversed over the use period if the assets are investment property other than land.

• E. The appropriations of 2017 and 2016 earnings had been resolved at the stockholders’ meeting on June 15, 2018 and June 15, 2017, respectively as follows:

Legal reserve Special reserve Cash dividend	Amount Dividends per share(dollar) 493,742 $ 32,333 3,801,852 4.50 $ 2017	Amount Dividends per share(dollar) 488,794 $ - 2,956,997 3.50 $ 2016	Amount Dividends per share(dollar) 488,794 $ - 2,956,997 3.50 $ 2016
	Amount 493,742 $ 32,333 3,801,852	Amount 488,794 $ - 2,956,997
			3.50 $

The appropriation of 2017 earnings as approved by the stockholders is the same as with the appropriation resolved by the Board of Directors during its meeting on May 3, 2018. Information about earnings appropriation of the Company as resolved by Board of Directors will be posted in the “Market Observation Post System” at the website of the Taiwan Stock Exchange.

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• F. For the information relating to employees’ compensation (bonuses) and directors’ and supervisors’ remuneration, please refer to Note 6(21).

(17) Operating revenue

The Group derives revenue from the transfer of goods at a point in time in the following major segment:

egment:
2018 Total segment revenue Timing of revenue recognition At a point in time 2017 Total segment revenue Timing of revenue recognition At a point in time		Computer and peripherals segment		General administration and other segments 3,800 $ 3,800 $ General administration and other segments 153,210 $ 153,210 $	Total
		118,523,473 $ 118,523,473 $ Computer and peripherals segment			118,527,273 $
					118,527,273 $
					Total
		106,266,695 $ 106,266,695 $			106,419,905 $
					106,419,905 $

(18) Other income

Other income
Interest income Rental revenue Others Total	2018 88,788 $ 97,487 469,458 655,733 $	2017
		69,944 $ 82,423 233,908
		386,275 $

(19) Other gains and losses

		2018			2017
Gains (losses) on financial assets
(liabilities) at fair value through profit or loss	$		70,334	($		60,099)
Net currency exchange (losses) gains	(		185,053)			53,480
Gains (losses) on disposal of property, plant
and equipment			46,913	(		933)
Other losses	(		114,335)	(		10,478)
Total	($		182,141)	($		18,030)

(20) Expenses by nature

By function By nature	2018	2018	2018	2017	2017	2017
	Operatingcosts	OperatingExpense	Total	Operatingcosts	OperatingExpense	Total
Employee benefit expense	2,200,949 $	4,852,864 $	7,053,813 $	2,084,112 $	4,668,349 $	6,752,461 $
Depreciation charges on property, plant and equipment	477,940	157,070	635,010	382,210	149,905	532,115
Amortized charges	8,226	962	9,188	7,905	1,229	9,134

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(21) Employee benefit expense

Employee benefit expense
Wages and salaries Labor and health insurance fees Pension costs Other personnel expenses	2018 6,083,937 $ 378,343 267,948 323,585 7,053,813 $	2017
		5,871,129 $ 356,710 256,284 268,338
		6,752,461 $

• A. According to the Articles of Incorporation of the Company, a ratio of distributable profit of the current year, after covering accumulated losses, shall be distributed as employees' compensation and directors’ remuneration. The ratio shall be 6%~10% for employees’ compensation and shall not be higher than 1% for directors’ remuneration.

• B. For the years ended December 31, 2018 and 2017, employees’ compensation (bonus) was accrued at $515,000 and $448,000, respectively; while directors’ remuneration was accrued at $49,500 and $42,900, respectively. The aforementioned amounts were recognised in salary expenses and other expenses, respectively.

• The employees’ compensation and directors’ remuneration were estimated and accrued based on distributable profit of the current year for the year ended December 31, 2018. Employees’ compensation and directors’ and supervisors’ remuneration of 2017 as resolved at the meeting of Board of Directors were in agreement with those amounts recognised in the 2017 financial statements.

Information about employees’ compensation (bonus) and directors’ remuneration of the Company as resolved by the Board of Directors and shareholders will be posted in the “Market Observation Post System” at the website of the Taiwan Stock Exchange.

• (22) Income tax

• A. Income tax expense

  • (a) Components of income tax expense:

e tax ome tax expense Components of income tax expense:
Current tax: Current tax on profits for the period Prior year income tax overestimation Total current tax Deferred tax: Origination and reversal of temporary differences Impact of change in tax rate Total deferred tax Income tax expense	2018 1,181,229 $ 167,618) ( 1,013,611 74,768 21,626 96,394 1,110,005 $	2017
		1,065,171 $ 23,489) (
		1,041,682
		552) ( -
		552) (
		1,041,130 $

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(b) The income tax (charge)/credit relating to components of other comprehensive income:

		2018		2017
Remeasurement of defined benefit
obligations	$	4,286	$	6,378
Impact of change in tax rate		4,175		-
	$	8,461	$	6,378
(c) The income tax charged/(credited) to equity during the period: None.
Reconciliation between income tax expense and accounting profit
		2018		2017
Tax calculated based on profit before tax and	$	1,525,635	$	1,120,233
statutory tax rate
Effect from items disallowed by tax regulation	(	77,194)	(	7,970)
Effect from investment tax credits	(	250,279)	(	190,105)
Prior year income tax overestimation	(	167,618)	(	23,489)
Additional 10% tax on undistributed earnings		57,835		142,461
Impact of change in tax rate		21,626		-
Income tax expense	$	1,110,005	$	1,041,130

• (c) The income tax charged/(credited) to equity during the period: None.

• B. Reconciliation between income tax expense and accounting profit

Note: The basis for computing the applicable tax rate are the rates applicable in the respective countries where the Group entities operate.

• C. Amounts of deferred tax assets or liabilities as a result of temporary differences, tax losses and investment tax credits are as follows:

investment tax credits are as	follows:
Temporary differences: -Deferred tax assets: Unrealized gross profit Loss on inventory Allowance for bad debts Unrealized exchange loss Remeasurement of defined benefit obligations Adjustment to unused paid annual leave Unrealized losses on forward exchange contract Others Subtotal		2018
	January1 162,601 $ 60,006 1,161 - 23,658 4,942 600 95,051 348,019	Recognised in profit or loss		Recognised in other comprehensive income - $ - - - 8,461 - - - 8,461	December 31
		14,420) ($ 87,626 96 3,462 - 871 600) ( 4,689 81,724			148,181 $ 147,632 1,257 3,462 32,119 5,813 - 99,740
					438,204

~44~

2018

January1 -Deferred tax liabilities: Unrealised exchange gain 16,252) ( Unrealized gains on forward exchange contract - Others 715) ( Subtotal 16,967) ( Total 331,052 $ January1 Temporary differences: -Deferred tax assets: Unrealized gross profit 194,038 $ Loss on inventory 68,894 Allowance for bad debts 3,019 Remeasurement of defined benefit obligations 17,280 Adjustment to unused paid annual leave 4,942 Unrealized losses on forward exchange contract - Others 55,147 Subtotal 343,320 -Deferred tax liabilities: Unrealised exchange gain 8,105) ( Unrealized losses on forward exchange contract 10,583) ( Others 510) ( Subtotal 19,198) ( Total 324,122 $	Recognised in profit or loss	Recognised in profit or loss
					435,907 $
		Recognised in profit or loss		Recognised in other comprehensive income December 31 - $ 162,601 $ - 60,006 - 1,161 6,378 23,658 - 4,942 - 600 - 95,051 6,378 348,019 - 16,252) ( - - - 715) ( - 16,967) ( 6,378 $ 331,052 $	December 31
	31,437) ($ 8,888) ( 1,858) ( - - 600 39,904 1,679) ( 8,147) ( 10,583 205) ( 2,231 552 $				162,601 $ 60,006 1,161 23,658 4,942 600 95,051
					348,019
					331,052 $

• D. The Company has not recognised taxable temporary differences associated with investment in subsidiaries as deferred tax liabilities. As of December 31, 2018 and 2017, the amounts of temporary difference unrecognised as deferred tax liabilities were $4,636,390 and $4,290,328, respectively.

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

~45~

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

(23) Earnings per share

income tax rate. Earnings per share
Basic earnings per share Profit attributable to ordinary shareholders of the parent Diluted earnings per share Profit attributable to ordinary shareholders of the parent Assumed conversion of all dilutive potential ordinary shares Employee bonus Profit attributable to ordinary shareholders of the parent plus assumed conversion of all dilutive potential ordinary shares Basic earnings per share Profit attributable to ordinary shareholders of the parent Diluted earnings per share Profit attributable to ordinary shareholders of the parent Assumed conversion of all dilutive potential ordinary shares Employee bonus Profit attributable to ordinary shareholders of the parent plus assumed conversion of all dilutive potential ordinary shares	Retroactively adjusted weighted-average outstanding ordinary Amount after tax shares(in thousands) 6,041,129 $ 844,856 6,041,129 $ 844,856 - 7,926 6,041,129 $ 852,782 2018 2017	Earnings per share (in NT dollars)
		7.15 $
		7.08 $
	Retroactively adjusted weighted-average outstanding ordinary Amount after tax shares(in thousands) 4,937,422 $ 844,856 4,937,422 $ 844,856 - 7,363 4,937,422 $ 852,219	Earnings per share (in NT dollars)
		5.84 $
		5.79 $

~46~

7. RELATED PARTY TRANSACTIONS

(1) Names of related parties and relationship

None.

(2) Significant related party transactions

None.

(3) Key management compensation

Salaries and other employee benefits

2018 343,134 $	2017
	307,645 $

8. PLEDGED ASSETS

The Group’s assets pledged as collateral are as follows:

Pledged asset Other non-current assets - Other financial assets Property, plant and equipment	December 31, December 31, 2018 2017 69,316 $ 36,520 $ 133,634 133,718 202,950 $ 170,238 $ Book value	Purpose
	December 31, 2018 69,316 $ 133,634 202,950 $
		Performance security guarantee For guarantee of long-term loans

9. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNISED CONTRACT

COMMITMENTS

• (1) Contingencies ： None.

(2) Commitments ： None.

10. SIGNIFICANT DISASTER LOSS

None.

11. SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE

None.

12. OTHERS

(1) Capital management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

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(2) Financial instruments

A. Financial instruments by category

nancial instruments Financial instruments by category
Financial assets Financial assets at fair value through profit or loss Financial assets mandatorily measured at fair value through profit or loss Financial assets at amortised cost Cash and cash equivalents Notes receivable Accounts receivable Other receivables Other financial assets Guarantee deposits paid Financial liabilities Financial liabilities at fair value through profit or Financial liabilities held for trading Financial liabilities at amortised cost Short-term borrowings Notes payable Accounts payable Other accounts payable Long-term borrowings (including current portion) Guarantee deposits received		December 31,2018 98,400 $ 8,815,680 35,183 16,040,189 159,681 728,936 26,348 25,904,417 $ December 31,2018		December 31,2017 20,916 $ 10,028,064 21 15,108,103 340,610 68,835 22,728 25,589,277 $ December 31,2017
		5,555 $ 3,000,000 200 14,933,624 3,418,250 17,282 226,903 21,601,814 $		24,448 $ - - 16,032,335 3,490,587 17,614 193,096 19,758,080 $

B. Risk management policies

The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial position and financial performance.

• C. Significant financial risks and degrees of financial risks

• (a) Market risk

Foreign exchange risk

• i. The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations.

• ii. Management has set up a policy to require group companies to manage their foreign

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exchange risk against their functional currency.

• iii. The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk.

• iv. The Group hedges foreign exchange rate by using forward exchange contracts. However, the Group does not adopt hedging accounting. Details of financial assets or liabilities at fair value through profit or loss are provided in Note 6(2).

• v. The Group’s businesses involve some non-functional currency operations. The information on assets and liabilities denominated in foreign currencies whose values would be materially affected by the exchange rate fluctuations is as follows:

(Foreign currency: functional currency) Financial assets Monetary items USD: NTD RMB:NTD EUR: NTD CAD:NTD GBP: NTD USD: RMB RUB: NTD Financial liabilities Monetary items USD: NTD USD: RMB EUR: NTD (Foreign currency: functional currency) Financial assets Monetary items USD: NTD EUR: NTD RMB:NTD GBP: NTD RUB: NTD Financial liabilities Monetary items USD: NTD USD: RMB		December 31,2018
	Foreign Currency Amount (In Thousands) 330,728 $ 352,127 44,719 15,079 8,128 8,443 585,852 488,018 22,115 10,117	Exchange rate 30.7150 4.4720 35.2000 22.5800 38.8800 6.8683 0.4421 30.7150 6.8683 35.2000 December 31,2017	Book Value (NTD)
			10,158,307 $ 1,574,712 1,574,113 340,492 315,999 259,331 259,005 14,989,481 679,263 356,121
	Foreign Currency Amount (In Thousands) 330,436 $ 41,733 205,989 5,697 416,553 466,801 37,746	Exchange rate 29.7600 35.5700 4.5650 40.1100 0.5167 29.7600 6.5192	Book Value (NTD)
			9,833,771 $ 1,484,442 940,340 228,503 215,233 13,891,992 1,123,329

~49~

• vi. The exchange (loss) gain arising from significant foreign exchange variation on the monetary items held by the Group for the years ended December 31, 2018 and 2017, amounted to ($185,053) and $53,480, respectively.

• vii. Analysis of foreign currency market risk arising from significant foreign exchange variation:

variation:
Financial assets Monetary items USD: NTD RMB:NTD EUR: NTD CAD:NTD GBP: NTD USD: RMB RUB: NTD Financial liabilities Monetary items USD: NTD USD: RMB EUR: NTD Financial assets Monetary items USD: NTD EUR: NTD RMB:NTD GBP:NTD RUB:NTD Financial liabilities Monetary items USD: NTD USD: RMB		Degree of variation	Effect on profit or loss (before tax) 2018 Sensitivityanalysis	Effect on other comprehensive income
		1% 1% 1% 1% 1% 1% 1% 1% 1% 1%	101,583 $ 15,747 15,741 3,405 3,160 2,593 2,590 149,895 6,793 3,561 2017	- $ - - - - - - - Effect on other comprehensive income
			Sensitivityanalysis
		Degree of variation	Effect on profit or loss (before tax)
		1% 1% 1% 1% 1% 1% 1%	98,338 $ 14,844 9,403 2,285 2,152 138,920 11,233	- $ - - - - - -

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Cash flow and fair value interest rate risk

• i. The Group’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk which is partially offset by cash and cash equivalents held at variable rates. For the years ended December 31, 2018 and 2017, the Group borrowings are issued at variable rate denominated in US dollars.

• ii. The Group analyses its interest rate exposure on a dynamic basis. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions, alternative financing and hedging. Based on these scenarios, the Group calculates the impact on profit and loss of a defined interest rate shift. For each simulation, the same interest rate shift is used for all currencies. The scenarios are run only for liabilities that represent the major interest-bearing positions.

• iii. At December 31, 2018 and 2017, if interest rates on USD and NTD denominated borrowings had been 1% higher/lower with all other variables held constant, post-tax profit for the years ended December 31, 2018 and 2017 would have been $138 and $146 lower/higher, respectively, mainly as a result of higher/lower interest expense on floating rate borrowings.

• (b) Credit risk

• i. Credit risk refers to the risk of financial loss to the Group arising from default by the clients or counterparties of financial instruments on the contract obligations. The main factor is that counterparties could not repay in full the accounts receivable cash flow based on the agreed terms.

• ii. According to the Group’s credit policy, each local entity in the Group is responsible for managing and analysing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. Internal risk control assesses the credit quality of the customers, taking into account their financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the management. The utilisation of credit limits is regularly monitored. Credit risk arises from credit exposures to wholesale and retail customers, including outstanding receivables.

• iii. The Group adopts following assumptions under IFRS 9 to assess whether there has been a significant increase in credit risk on that instrument since initial recognition. If the contract payments were past due over 90 days based on the terms, there has been a significant increase in credit risk on that instrument since initial recognition.

• iv. The Group adopts the assumptions under IFRS 9, the default occurs when the contract payments are past due over 150 days.

• v. The Group classifies customers’ accounts receivable in accordance with sales area. The Group applies the simplified approach using provision matrix, to estimate expected credit loss under the provision matrix basis.

~51~

• vi. The Group used the forecastability to adjust historical and timely information to assess the default possibility of accounts receivable. The Group’s expected credit loss rate of accounts receivable that are not past due are not significant for the year ended December 31, 2018.

• vii. The Group applies the simplified approach to provide loss allowance for accounts receivable that have no significant impact. The Group had not recognized related impact for the year ended December 31, 2018.

• viii. Credit risk information of 2017 is provided in Note 12(4).

• (c) Liquidity risk

• i. Cash flow forecasting is performed in the operating entities of the Group and aggregated by Group treasury. Group treasury monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Group does not breach borrowing limits or covenants on any of its borrowing facilities.

• ii. The table below analyses the Group’s non-derivative financial liabilities and net-settled or gross-settled derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date for nonderivative financial liabilities and to the expected maturity date for derivative financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows. Non-derivative financial liabilities:

Non-derivative financial liabilities:	ities:
Non-derivative financial liabilities: December 31, 2018 Less than 1 year Short-term borrowings 3,000,000 $ Notes payable 200 Accounts payable 14,933,624 Other payables 3,418,250 Long-term borrowings (including current portion) 1,588 Other financial liabilities 21,665 December 31, 2017 Less than 1 year Accounts payable 16,032,335 $ Other payables 3,490,587 Long-term borrowings (including current portion) 1,538 Other financial liabilities 23,185	Less than 1 year	Between 1 to 2years	Between 2 to 3years	Over 3years
		- $ - - - 1,588 110,576 Between 1 to 2years	- $ - - - 14,616 437 Between 2 to 3years	- $ - - - - 94,225 Over 3years
December 31, 2017 Accounts payable Other payables Long-term borrowings (including current portion) Other financial liabilities
	16,032,335 $ 3,490,587 1,538 23,185	- $ - 1,538 105,678	- $ - 1,538 -	- $ - 14,161 64,233

Derivative financial liabilities

As of December 31, 2018 and 2017, the derivative financial liabilities are foreign

~52~

exchange contracts that mature within 1 year.

• iii. The Group does not expect the timing of occurrence of the cash flows estimated through the maturity date analysis will be significantly earlier, nor expect the actual cash flow amount will be significantly different.

(3) Fair value information

• A. The different levels that the inputs to valuation techniques are used to measure fair value of financial and non-financial instruments have been defined as follows:

• Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. A market is regarded as active where a market in which transactions for the asset or liability takes place with sufficient frequency and volume to provide pricing information on an on going basis.

• Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

• Level 3: Unobservable inputs for the asset or liability.

• B. Financial instruments not measured at fair value

• The Group’s cash and cash equivalents, notes receivable, accounts receivable, other receivables, other financial assets, guarantee deposits paid, short-term borrowings, notes payable, accounts payable and other payables, guarantee deposits received are approximate to their fair values. The transaction value information is provided in Note 12(2)A. The fair value information of the Group’s investments in property is provided in Note 6(7).

• C. The related information of financial and non-financial instruments measured at fair value by level on the basis of the nature, characteristics and risks of the assets and liabilities is as follows:

December 31, 2018 Assets: Recurring fair value measurements Financial assets at fair value through profit or loss -Equity security -Forward exchange contract -Foreign exchange swap Total Liabilities: Recurring fair value measurements Financial liabilities at fair value through profit or loss -Forward exchange contract	Level 1 84,068 $ - - 84,068 $ - $	Level 2 - $ 6,376 7,956 14,332 $ 5,555 $	Level 3 - $ - - - $ - $	Total
				84,068 $ 6,376 7,956
				98,400 $
				5,555 $

~53~

December 31, 2017 Assets: Recurring fair value measurements Financial assets at fair value through profit or loss -Forward exchange contract -Foreign exchange swap Total Liabilities: Recurring fair value measurements Financial liabilities at fair value through profit or loss -Forward exchange contract	Level 1 - $ - - $ - $	Level 2 350 $ 20,566 20,916 $ 24,448 $	Level 3 - $ - - $ - $	Total
				350 $ 20,566
				20,916 $
				24,448 $

• D. The methods and assumptions the Group used to measure fair value are as follows:

• (a) The level 1 financial instruments-equity security held by the Group are listed shares, and the market quoted price is determined by the closing price of the security.

• (b) When assessing non-standard and low-complexity financial instruments, for example, debt instruments without active market, interest rate swap contracts, foreign exchange swap contracts and options, the Group adopts valuation technique that is widely used by market participants. The inputs used in the valuation method to measure these financial instruments are normally observable in the market.

• (c) The valuation of derivative financial instruments is based on valuation model widely accepted by market participants, such as present value techniques and option pricing models. Forward exchange contracts are usually valued based on the current forward exchange rate.

• E. For the years ended December, 2018 and 2017, there was no transfer between Level 1 and Level 2.

• F. For the years ended December 31, 2018 and 2017, there was no transfer in or out from Level 3.

(4) Effects on initial application of IFRS 9 and information on application of IAS 39 in 2017

• A. Summary of significant accounting policies adopted for financial assets at fair value through profit or loss and accounts receivable in 2017 is as follows:

• (a) Financial assets at fair value through profit or loss

  • i. Financial assets at fair value through profit or loss are financial assets held for trading. Financial assets are classified in this category of held for trading if acquired principally for the purpose of selling in the short-term. Derivatives are also categorized as financial assets held for trading unless they are designated as hedges.

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

  • iii. Financial assets at fair value through profit or loss are initially recognised at fair value. Related transaction costs are expensed in profit or loss. These financial liabilities are

~54~

subsequently remeasured and stated at fair value, and any changes in the fair value of these financial liabilities are recognised in profit or loss.

• (b) Receivables

  • Accounts receivable are created by the entity by selling goods or providing services to customers in the ordinary course of business. They are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. However, short-term accounts receivable without bearing interest are subsequently measured at initial invoice amount as the effect of discounting is immaterial.

• B. Credit risk information for the year ended December 2017 is as follows:

• (a) Credit risk refers to the risk of financial loss to the Company arising from default by the clients or counterparties of financial instruments on the contract obligations. According to the Company’s credit policy, each local entity in the Company is responsible for managing and analysing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. Internal risk control assesses the credit quality of the customers, taking into account their financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the Management. The utilisation of credit limits is regularly monitored. Credit risk arises from cash and cash equivalents, and deposits with banks and financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding receivables.

• (b) For the year ended December 31, 2017, no credit limits were exceeded during the reporting periods, and management does not expect any significant losses from non-performance by these counterparties.

• (c) The ageing analysis of financial assets that were past due but not impaired is as follows:

Account receivable December 31, 2017 Up to 75 days $ 3,235,573

• C. Initial application of IFRS 9 has no significant impact to the Company’s financial condition and financial performance based on the Company’s assessment as of December 31, 2017.

• (5) Effects of initial application of IFRS 15 and information on application of IAS 11 and IAS 18 in

• 2017

• A. The significant accounting policies applied on revenue recognition for the year ended December 31, 2017 are set out below.

  • (a) The Company manufactures and sells motherboards, graphic cards, a variety of computer hardware, and electronic components. Revenue is measured at the fair value of the consideration received or receivable taking into account of value-added tax, returns, rebates and discounts for the sale of goods to external customers in the ordinary course of the Company’s activities. Revenue arising from the sales of goods is recognised when the Company has delivered the goods to the customer, the amount of sales revenue can be

~55~

measured reliably and it is probable that the future economic benefits associated with the transaction will flow to the entity. The delivery of goods is completed when the significant risks and rewards of ownership have been transferred to the customer, the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold, and the customer has accepted the goods based on the sales contract or there is objective evidence showing that all acceptance provisions have been satisfied.

• (b) The Company offers customers volume discounts and right of return for defective products. The Company estimates such discounts and returns based on historical experience. Provisions are recorded when the sales are recognised. The volume discounts are estimated based on the anticipated annual sales quantities.

• B. Initial application of IFRS 15 has no significant impact to the Company’s financial condition and financial performance based on the Company’s assessment as of December 31, 2017.

13. SUPPLEMENTARY DISCLOSURES

(1) Significant transactions information

• A. Loans to others: None.

• B. Provision of endorsements and guarantees to others: None.

• C. Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures): Please refer to table 1.

• D. Acquisition or sale of the same security with the accumulated cost exceeding $300 million or 20% of the Company’s paid-in capital: None.

• E. Acquisition of real estate reaching NT$300 million or 20% of paid-in capital or more: None.

• F. Disposal of real estate reaching NT$300 million or 20% of paid-in capital or more: None.

• G. Purchases or sales of goods from or to related parties reaching NT$100 million or 20% of paidin capital or more: Please refer to table 2.

• H. Receivables from related parties reaching NT$100 million or 20% of paid-in capital or more: Please refer to table 3.

• I. Derivative financial instruments undertaken during the year ended December 31, 2018: Please refer to Note 6(2).

• J. Significant inter-company transactions during the reporting periods: Please refer to table 4.

(2) Information on investees (not including investees in Mainland China)

• Names, locations and other information of investee companies (not including investees in Mainland China): Please refer to table 5.

(3) Information on investments in Mainland China

• A. Basic information: Please refer to table 6.

• B. Significant transactions conducted with investees in Mainland China directly or indirectly through other companies in the third areas: Please refer to table 7.

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14. SEGMENT INFORMATION

(1) General information and measurement of segment information

The Group’s operating segment profit (loss) is measured by the operating income (loss), which is used as a basis in assessing the performance of operating segments. “Operating Segments,” the Group’s reportable operating segments are as follows:

Computer and peripherals business group: Mainly engages in development and sale of mother

boards, graphic cards, notebooks, and computer peripherals.

General administration and other segments: Mainly engages in development and sale of other products and in charge of general administration department expenses.

There is no material change in the basis for grouping of entities and division of segments in the Group or in the measurement basis for segment information during this period.

(2) Information about segment profit or loss, assets and liabilities:

The revenue and segment information provided to the chief operating decision-maker for the reportable segments is as follows:

For the year ended December 31, 2018

Total segment revenue Operating income (loss) Other non-operating revenue Profit before tax	Computer and General administration peripherals segment and other segments 118,523,473 $ 3,800 $ 6,991,151 $ 299,201) ($	Total
		118,527,273 $
		6,691,950 $
		459,184
		7,151,134 $

For the year ended December 31, 2017

Total segment revenue Operating income (loss) Other non-operating revenue Profit before tax	Computer and General administration peripherals segment and other segments 106,266,695 $ 153,210 $ 5,880,613 $ 266,953) ($	Total
		106,419,905 $
		5,613,660 $
		364,892
		5,978,552 $

The above revenue was derived from the transactions with external customers. The above amounts are provided to the chief operating decision-maker for allocating resources and assessing performance of operating segments.

(3) Reconciliation for segment income

Sales between segments are carried out at arm’s length. The revenue from external customers reported to the chief operating decision-maker is measured in a manner consistent with that in the statement of comprehensive income.

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A reconciliation of reportable segment income to the income before tax from continuing operations for the years ended December 31, 2018 and 2017 is provided as follows:

Reportable segments income Unappropriated amount: Other segments income Income before tax from continuing operations	2018 6,691,950 $ 459,184 7,151,134 $	2017
		5,613,660 $ 364,892
		5,978,552 $

(4) Information on products and services

Revenue from external customers is mainly from the sales of computer and peripherals and related components. Details of revenue are as follows:

components. Details of revenue are as follows:
Computer and peripherals sale revenue	2018 118,527,273 $	2017
		106,419,905 $

(5) Geographical information

Geographical information for the years ended December 31, 2018 and 2017 is as follows:

Asia Europe America Others	Revenue Non-current assets 56,989,139 $ 5,006,120 $ 31,237,944 175,745 28,327,803 138,585 1,972,387 417 118,527,273 $ 5,320,867 $ 2018	2017	2017
	Revenue 56,989,139 $ 31,237,944 28,327,803 1,972,387 118,527,273 $	Revenue 48,474,767 $ 31,205,584 24,797,274 1,942,280 106,419,905 $	Non-current assets
			5,279,062 $ 180,622 138,132 507
			5,598,323 $

(6) Major customer information

The Group had no individual customer whose sales amount accounts for more than 10% of net operating revenue in the consolidated statement of comprehensive income.

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MICRO-STAR INTERNATIONAL CO., LTD. AND SUBSIDIARIES

Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures) For the year ended December 31, 2018

Table 1

Expressed in thousands of NTD (Except as otherwise indicated)

Securities held by	Marketable securities	Relationship with the securities issuer	General ledger account	As of December 31, 2018	As of December 31, 2018	As of December 31, 2018	As of December 31, 2018	Footnote
				Number of shares	Book value	Ownership (%)	Fair value
MSI (HOLDING)	CVA ING GROEP	-	Financial assets at fair value through profit or loss - current	80,000	26,499 $	-	26,499 $	-
MSI (HOLDING)	DAIMLER	-	Financial assets at fair value through profit or loss - current	20,000	32,320	-	32,320	-
MSI (HOLDING)	DEUTSCHE POST	-	Financial assets at fair value through profit or loss - current	30,000	25,249	-	25,249	-

Table 1 Page 1

MICRO-STAR INTERNATIONAL CO., LTD. AND SUBSIDIARIES

Purchases or sales of goods from or to related parties reaching NT$100 million or 20% of paid-in capital or more

For the year ended December 31, 2018

Table 2

Expressed in thousands of NTD (Except as otherwise indicated)

Transaction company (Note 4)	Name of the counter party (Note 4)	Relationship with the counterparty	Description of the transaction	Description of the transaction	Description of the transaction	Description of the transaction	Description and reasons of difference in transaction terms compared to third party transactions	Description and reasons of difference in transaction terms compared to third party transactions	Accounts or notes receivable (payable)	Accounts or notes receivable (payable)	Footnote
			Purchases/(Sales)	Amount (Note 3)	% of total purchase(sale)	Credit terms	Unit price	Credit terms	Balance (Note 3)	% of total accounts or notes receivable/(payable)
MICRO-STAR INTERNATIONAL CO.,LTD.	MSI (LA)	Subsidiary	Sales	(15,843,711) $	(14)	80~100 days	Insignificant difference	Note 1	4,797,787 $	29	-
MICRO-STAR INTERNATIONAL CO.,LTD.	MEGA COMPUTER	Subsidiary	Sales	(6,305,267)	(5)	40-70 days	Insignificant difference	Note 1	793,935	5	-
MICRO-STAR INTERNATIONAL CO.,LTD.	MYSTAR	Subsidiary	Sales	(1,901,529)	(2)	40-70 days	Insignificant difference	Note 1	292,963	2	-
MICRO-STAR INTERNATIONAL CO.,LTD.	MSI (KOREA)	Subsidiary	Sales	(3,530,619)	(3)	50-70 days	Insignificant difference	Note 1	-	-	-
MEGA COMPUTER	MSI (SHENZHEN)	Affiliated company	Sales	(2,833,040)	(45)	40-70 days	Insignificant difference	Note 1	-	-	-
MEGA COMPUTER	MSI (SHANGHAI)	Affiliated company	Sales	(3,295,497)	(55)	40-70 days	Insignificant difference	Note 1	1,516,143	100	-
MSI (PACIFIC)	MSI COMPUTER (SHENZHEN)	Subsidiary	Processing overhead	3,038,535	71	Note 2	Insignificant difference	Note 2	(2,512,173)	(72)	-
MSI (PACIFIC)	MSI ELECTRONICS (KUNSHAN)	Subsidiary	Processing overhead	1,204,305	28	Note 2	Insignificant difference	Note 2	(716,789)	(21)	-
MSI (PACIFIC)	MICRO-STAR INTERNATIONAL CO.,LTD.	Ultimate parent company	Revenue from processing	(4,288,312)	(100)	Note 2	Insignificant difference	Note 2	3,475,976	100	-
MSI (SHENZHEN)	MSI (SHANGHAI)	Affiliated company	Sales	(861,526)	(22)	40-70 days	Insignificant difference	Note 2	18,034	100	-

Note 1: The credit terms to third parties are approximately 30 to 120 days. Note 2: Credit terms depend on the financial condition of the paying firm. Note 3: Balances after elimination in conformity with regulations. Note 4: Corresponding transactions are not disclosed.

Table 2 Page 1

MICRO-STAR INTERNATIONAL CO., LTD. AND SUBSIDIARIES

Receivables from related parties reaching NT$100 million or 20% of paid-in capital or more

December 31, 2018

Expressed in thousands of NTD

Table 3

(Except as otherwise indicated)

Creditor	Counterparty	Relationship with the counterparty	Balance as of December 31, 2018	Turnover rate	Overdue receivables	Overdue receivables	Amount collected subsequent to the balance sheet date	Allowance for doubtful accounts
					Amount	Action taken
MICRO-STAR INTERNATIONAL CO., LTD.	MSI (LA)	Subsidiary	$ 4,797,787	3.59	- $	-	1,574,713 $	- $
MICRO-STAR INTERNATIONAL CO., LTD.	MEGA COMPUTER	Subsidiary	793,935	8.18	-	-	128,023	-
MICRO-STAR INTERNATIONAL CO., LTD.	MYSTAR	Subsidiary	292,963	6.69	-	-	142,176	-
MSI (PACIFIC) (Note)	MICRO-STAR INTERNATIONAL CO., LTD.	Ultimate parent company	3,475,976	1.28	-	-	771,693	-
MSI COMPUTER (SHENZHEN) (Note)	MSI (PACIFIC)	Parent Company	2,512,173	1.25	-	-	565,471	-
MSI ELECTRONICS (KUNSHAN) (Note)	MSI (PACIFIC)	Parent Company	716,789	1.76	-	-	202,445	-
MSI (B.V.I.)	MSI (PACIFIC)	Parent Company	143,539	-	-	-	-	-
MEGA COMPUTER	MSI (SHANGHAI)	Affiliated company	1,516,143	4.35	-	-	111,800	-

Note: Processing overhead receivable.

Table 3 Page 1

MICRO-STAR INTERNATIONAL CO., LTD. AND SUBSIDIARIES

Significant inter-company transactions during the year ended December 31, 2018

Expressed in thousands of NTD

Table 4

(Except as otherwise indicated)

Table 4				合併資產 46,184,753 合併營收 24,553,252 (Except as otherwise indicated)	合併資產 46,184,753 合併營收 24,553,252 (Except as otherwise indicated)	合併資產 46,184,753 合併營收 24,553,252 (Except as otherwise indicated)	合併資產 46,184,753 合併營收 24,553,252 (Except as otherwise indicated)
Number	Company name (Note 4)	Counterparty (Note 4)	Relationship	Transaction
				General ledger account	Amount (Note 1)	Transaction terms	Percentage of consolidated total operating revenues or total assets
0	MICRO-STAR INTERNATIONAL CO.,LTD.	MSI (KOREA)	Parent company to subsidiary	Sales	3,530,619 $	Note 2	2.98%
0	MICRO-STAR INTERNATIONAL CO.,LTD.	MSI (LA)	Parent company to subsidiary	Sales	15,843,711	Note 2	13.37%
0	MICRO-STAR INTERNATIONAL CO.,LTD.	MEGA COMPUTER	Parent company to subsidiary	Sales	6,305,267	Note 2	5.32%
0	MICRO-STAR INTERNATIONAL CO.,LTD.	MYSTAR	Parent company to subsidiary	Sales	1,901,529	Note 2	1.60%
0	MICRO-STAR INTERNATIONAL CO.,LTD.	MSI (LA)	Parent company to subsidiary	Accounts receivable	4,797,787	Note 2	8.70%
0	MICRO-STAR INTERNATIONAL CO.,LTD.	MEGA COMPUTER	Parent company to subsidiary	Accounts receivable	793,935	Note 2	1.44%
0	MICRO-STAR INTERNATIONAL CO.,LTD.	MYSTAR	Parent company to subsidiary	Accounts receivable	292,963	Note 2	0.53%
0	MICRO-STAR INTERNATIONAL CO.,LTD.	MSI (PACIFIC)	Parent company to subsidiary	Accrued expenses payable	3,508,869	Note 2	6.36%
0	MICRO-STAR INTERNATIONAL CO.,LTD.	MSI (PACIFIC)	Parent company to subsidiary	Processing cost	4,066,892	Note 3	3.43%
0	MICRO-STAR INTERNATIONAL CO.,LTD.	MSI (KOREA)	Parent company to subsidiary	Operating expense	56,521	Note 2	0.05%
0	MICRO-STAR INTERNATIONAL CO.,LTD.	MEGA COMPUTER	Parent company to subsidiary	Operating expense	363,817	Note 2	0.31%
0	MICRO-STAR INTERNATIONAL CO.,LTD.	MSI (PACIFIC)	Parent company to subsidiary	Operating expense	233,152	Note 2	0.20%
0	MICRO-STAR INTERNATIONAL CO.,LTD.	MSI (EUROPE)	Parent company to subsidiary	Operating expense	189,609	Note 2	0.16%
0	MICRO-STAR INTERNATIONAL CO.,LTD.	MYSTAR	Parent company to subsidiary	Operating expense	168,084	Note 2	0.14%
0	MICRO-STAR INTERNATIONAL CO.,LTD.	MSI (POLSKA)	Parent company to subsidiary	Operating expense	151,665	Note 2	0.13%
0	MICRO-STAR INTERNATIONAL CO.,LTD.	MSI (MHK)	Parent company to subsidiary	Operating expense	130,578	Note 2	0.11%
0	MICRO-STAR INTERNATIONAL CO.,LTD.	MSI (RUSSIA)	Parent company to subsidiary	Operating expense	87,083	Note 2	0.07%

Table 4 Page 1

Number	Company name (Note 4)	Counterparty (Note 4)	Relationship	Transaction	Transaction	Transaction	Transaction
				General ledger account	Amount (Note 1)	Transaction terms	Percentage of consolidated total operating revenues or total assets
0	MICRO-STAR INTERNATIONAL CO.,LTD.	MSI (SARL)	Parent company to subsidiary	Operating expense	87,102 $	Note 2	0.07%
0	MICRO-STAR INTERNATIONAL CO.,LTD.	MSI (LA)	Parent company to subsidiary	Operating expense	122,733	Note 2	0.10%
1	MSI (PACIFIC)	MICRO ELECTRONICS	Subsidiary to subsidiary	Accrued expenses payable	95,592	Note 3	0.17%
1	MSI (PACIFIC)	MSI (B.V.I.)	Subsidiary to subsidiary	Accrued expenses payable	143,539	Note 3	0.26%
1	MSI (PACIFIC)	MSI ELECTRONICS (KUNSHAN)	Subsidiary to subsidiary	Accrued expenses payable	716,789	Note 3	1.30%
1	MSI (PACIFIC)	MSI COMPUTER (SHENZHEN)	Subsidiary to subsidiary	Accrued expenses payable	2,512,173	Note 3	4.55%
1	MSI (PACIFIC)	MICRO-STAR INTERNATIONAL CO.,LTD.	Subsidiary to parent	Accounts receivable	3,475,976	Note 3	6.30%
1	MSI (PACIFIC)	MICRO-STAR INTERNATIONAL CO.,LTD.	Subsidiary to parent	Processing Revenue	4,288,312	Note 3	3.62%
1	MSI (PACIFIC)	MSI ELECTRONICS (KUNSHAN)	Subsidiary to subsidiary	Processing overhead	1,204,305	Note 3	1.02%
1	MSI (PACIFIC)	MSI COMPUTER (SHENZHEN)	Subsidiary to subsidiary	Processing overhead	3,038,535	Note 3	2.56%
2	MEGA COMPUTER	MSI (SHANGHAI)	Subsidiary to subsidiary	Sales	3,295,497	Note 2	2.78%
2	MEGA COMPUTER	MSI (SHANGHAI)	Subsidiary to subsidiary	Accounts receivable	1,516,143	Note 2	2.75%
2	MEGA COMPUTER	MSI (SHANGHAI)	Subsidiary to subsidiary	Accrued expenses payable	50,488	Note 2	0.09%
2	MEGA COMPUTER	MSI (SHENZHEN)	Subsidiary to subsidiary	Sales	2,833,040	Note 2	2.39%
3	MSI (SHENZHEN)	MSI (SHANGHAI)	Subsidiary to subsidiary	Sales	861,526	Note 2	0.73%

Note 1: Balances after elimination in conformity with regulations.

Note 2: Transaction terms were approximately the same as those to third parties.

Note 3: Processing overhead was determined based on the quantities, contract amount and delivery time. Note 4: Individual transactions not exceeding $50,000 and their corresponding transactions are not disclosed.

Table 4 Page 2

MICRO-STAR INTERNATIONAL CO., LTD. AND SUBSIDIARIES

Information on investees (not including investees in Mainland China)

For the year ended December 31, 2018

Expressed in thousands of NTD

Table 5

(Except as otherwise indicated)

Investor	Investee	Location	Main business activities	Initial investment amount	Initial investment amount	Shares held as at December 31, 2018	Shares held as at December 31, 2018	Shares held as at December 31, 2018	Net profit (loss) of the investee for the year ended December 31, 2018	Investment income (loss) recognised by the Company for the year ended December 31, 2018	Footnote
				Balance as at December 31, 2018	Balance as at December 31, 2017	Number of shares	Ownership (%)	Book value
MICRO-STAR INTERNATIONAL CO.,LTD.	MSI (LA)	U.S.A	Sales and maintenance of computers,and electronic components	258,468 $	258,468 $	575,458	100.00	35,562 $	(17,931) $	(17,931) $	Direct subsidiary
MICRO-STAR INTERNATIONAL CO.,LTD.	MSI (AUSTRALIA)	Australia	Maintenance and after-sales service of computers and electronic components	57,420	57,420	221,836	100.00	6,526	(189)	(189)	Direct subsidiary
MICRO-STAR INTERNATIONAL CO.,LTD.	MSI (JAPAN)	Japan	Sales support and maintenance of computers and electronic components	20,411	20,411	1,400	100.00	12,954	910	910	Direct subsidiary
MICRO-STAR INTERNATIONAL CO.,LTD.	MSI (PACIFIC)	Cayman Islands	Holding company	1,511,382	2,016,877	30,204,118	100.00	6,320,046	412,993	428,993	Direct subsidiary
MICRO-STAR INTERNATIONAL CO.,LTD.	MSI (HOLDING)	Netherlands	Holding company	45,724	154,166	424,000	100.00	596,852	5,495	5,495	Direct subsidiary
MICRO-STAR INTERNATIONAL CO.,LTD.	MSI COMPUTER (CAYMAN)	Cayman Islands	Holding company	99,093	99,093	50,000	100.00	127,131	(877)	(877)	Direct subsidiary
MSI (PACIFIC)	MSI (KOREA)	South Korea	Sales and maintenance of computers and electronic components	24,374	24,374	80,000	100.00	275,004	35,890	-	Indirect subsidiary
MSI (PACIFIC)	MSI (B.V.I.)	British Virgin Island	Holding company	1,784,681	1,784,681	47,465,071	100.00	3,756,616	252,772	-	Indirect subsidiary
MSI (PACIFIC)	MICRO ELECTRONICS	British Virgin Island	Holding company	1,168,593	1,168,593	33,315,472	100.00	2,274,045	198,217	-	Indirect subsidiary
MSI (PACIFIC)	STAR INFORMATION	British Virgin Island	Holding company	144,721	144,721	4,502,601	100.00	35,870	3,204	-	Indirect subsidiary

Table 5 Page 1

Investor	Investee	Location	Main business activities	Initial investment amount	Initial investment amount	Shares held as at December 31, 2018	Shares held as at December 31, 2018	Shares held as at December 31, 2018	Net profit (loss) of the investee for the year ended December 31, 2018	Investment income (loss) recognised by the Company for the year ended December 31, 2018	Footnote
				Balance as at December 31, 2018	Balance as at December 31, 2017	Number of shares	Ownership (%)	Book value
MSI (PACIFIC)	MEGA TECHNOLOGY	British Virgin Island	Holding company	92,819 $	91,296 $	3,050,000	100.00	(6,090) $	(1,831) $	-	Indirect subsidiary
MSI (PACIFIC)	MEGA INFORMATION	British Virgin Island	Holding company	-	23,940	-	-	-	1,063	-	Indirect subsidiary
MSI (PACIFIC)	MEGA COMPUTER	Hong Kong	Sales support of computers and electronic components	-	-	1	100.00	6,650	(575)	-	Indirect subsidiary
MSI (PACIFIC)	MSI (MHK)	Hong Kong	Sales support of computers and electronic components	-	-	1	100.00	13,387	6,297	-	Indirect subsidiary
MSI (HOLDING)	MYSTAR	Netherlands	Sales support of computers and electronic components	71,353	71,353	-	100.00	135,090	15,699	-	Indirect subsidiary
MSI (HOLDING)	MSI (RUSSIA)	Russia	Sales support and maintenance of computers and electronic components	68,258	68,258	-	99.00	30,443	2,680	-	Indirect subsidiary
MSI (HOLDING)	MSI (GMBH)	Germany	Sales support of computers and electronic components	71,471	71,471	-	100.00	-	(872)	-	Indirect subsidiary (Note 3)
MSI (HOLDING)	MSI (POLSKA)	Poland	Maintenance and after-sales services of computers and electronic components	46,077	46,077	-	99.00	32,558	2,322	-	Indirect subsidiary
MSI (HOLDING)	MSI (SARL)	France	Sales support of computers and electronic components	26,646	26,646	-	100.00	50,061	4,796	-	Indirect subsidiary
MSI (HOLDING)	MSI (UK)	Britain	Sales support of computers and electronic components	37,226	37,226	-	100.00	12,506	1,618	-	Indirect subsidiary
MSI (HOLDING)	MSI (TURKEY)	Turkey	Sales support of computers and electronic components	3,229	3,229	-	99.00	(90)	-	-	Indirect subsidiary (Note 2)
MSI (HOLDING)	MSI (ITALY)	Italy	Sales support of computers and electronic components	2,153	2,153	-	100.00	1,551	971	-	Indirect subsidiary
MSI (HOLDING)	MSI (EUROPE)	Netherlands	Logistics services of computers and electronic components	37,620	37,620	-	100.00	43,676	4,880	-	Indirect subsidiary
MSI (EUROPE)	MSI (RUSSIA)	Russia	Sales support and maintenance of computers and electronic components	689	689	-	1.00	563	2,680	-	Indirect subsidiary

Table 5 Page 2

Investor	Investee	Location	Main business activities	Initial investment amount	Initial investment amount	Shares held as at December 31, 2018	Shares held as at December 31, 2018	Shares held as at December 31, 2018	Net profit (loss) of the investee for the year ended December 31, 2018	Investment income (loss) recognised by the Company for the year ended December 31, 2018	Footnote
				Balance as at December 31, 2018	Balance as at December 31, 2017	Number of shares	Ownership (%)	Book value
MSI (EUROPE)	MSI (POLSKA)	Poland	Maintenance and after-sales service of computers and electronic components	467 $	467 $	-	1.00	180 $	2,322 $	-	Indirect subsidiary
MSI (EUROPE)	MSI (TURKEY)	Turkey	Sales support of computers and electronic components	33	33	-	1.00	27	-	-	Indirect subsidiary (Note 2)
MEGA TECHNOLOGY	RAIDEALS	U.S.A	Sales of computers and electronic components	1,523	-	-	100.00	1,500	(35)	-	Indirect subsidiary

Note 1: The table is presented in New Taiwan dollars. Except for the initial investment amount is valued at historical exchange rate, the others are valued with exchange rate 1USD=30.715 NTD; 1EUR=35.20 NTD on December 31, 2018 and average rate with 1USD=30.1437 NTD; 1EUR=35.6002 NTD for the year ended December 31, 2018.

Note 2: As of December 31, 2018, the liquidation process has not been completed.

Note 3: In November 2018, this subsidiary has completed the liquidation process.

Table 5 Page 3

MICRO-STAR INTERNATIONAL CO., LTD. AND SUBSIDIARIES

Information on investments in Mainland China - Basic information

For the year ended December 31, 2018

Expressed in thousands of NTD

Table 6

(Except as otherwise indicated)

Investee in Mainland China	Main business activities	Paid-in capital	Investment method	Accumulated amount of remittance from Taiwan to Mainland China as of January 1, 2018	Amount remitted from Taiwan to Mainland China/ Amount remitted back to Taiwan for the year ended December 31, 2018	Amount remitted from Taiwan to Mainland China/ Amount remitted back to Taiwan for the year ended December 31, 2018	Accumulated amount of remittance from Taiwan to Mainland China as of December 31, 2018	Net income of investee as of December 31, 2018	Ownership held by the Company (direct or indirect)	Investment income (loss) recognised by the Company for the year ended December 31, 2018 (Note 2)	Book value of investments in Mainland China as of December 31, 2018	Accumulated amount of investment income remitted back to Taiwan as of December 31, 2018	Footnote
					Remitted to Mainland China	Remitted back to Taiwan
MSI COMPUTER (SHENZHEN)	Sales and manufacture of computers, and electronic components	1,726,857 $	Note 1	1,726,857 $	- $	- $	1,726,857 $	252,687 $	100.00	252,687 $	3,594,505 $	- $	-
MSI ELECTRONICS (KUNSHAN)	Sales and manufacture of computers, and electronic components	1,772,675	Note 1	1,772,675	-	-	1,772,675	197,093	100.00	197,093	2,167,684	-	-
SHENZHEN MEGA INFORMATION	Examination and maintenance of computers, and electronic components	23,940	Note 1	23,940	-	-	23,940	1,062	100.00	1,062	22,139	-	-
MSI COMPUTER TRADING (SHENZHEN)	Sales and maintenance of computers and electronic components	91,296	Note 1	-	-	-	-	(1,795)	100.00	(1,795)	(7,589)	-	Note 3
MSI (SHENZHEN)	Sales and maintenance of computers and electronic components	30,092	Note 1	-	-	-	-	2,983	100.00	2,983	22,172	-	Note 4
MSI (SHANGHAI)	Sales and maintenance of computers and electronic components	29,275	Note 1	-	-	-	-	(68,625)	100.00	(68,625)	(40,209)	-	Note 5

Investment amount approved by the

Ceiling on investments in Mainland China

		Investment amount approved by the	Ceiling on investments in Mainland China
Companyname	Accumulated amount of remittance from Taiwan toMainland China as of December31,2018	Investment Commission of the Ministry of EconomicAffairs (MOEA)	imposed by the Investment Commission of MOEA
MICRO-STAR INTERNATIONAL CO., LTD.	3,602,547 $	3,850,987 $	17,967,517 $

Note 1: The investments were made indirectly through 100% owned subsidiary of the Company.

Note 2: Evaluated based on audited financial statements of the investee companies.

Note 3: The amount of US $3,000 thousand was remitted by the Company's subsidiary, MSI (Pacific), to MSI COMPUTER TRADING (SHENZHEN). Note 4: The amount of US $1,000 thousand was remitted by the Company's subsidiary, MSI (Pacific), to MSI (SHENZHEN).

Note 5: The amount of US $1,000 thousand was remitted by the Company's subsidiary, MSI (Pacific), to MSI (SHANGHAI).

Note 6: In pursuance of Shen-Zi Letter No.09704604680 from the Ministry of Economic Affairs dated August 29, 2008. The amended "Regulations for examination of investments and technical cooperation in Mainland Area" sets the limitation for investments in Mainland China to be higher of net book value or 60% of consolidated net book value.

Note 7: The table is presented in New Taiwan dollars. Except for the initial investment amount is valued at historical exchange rate, the others are valued with exchange rate 1USD=30.715 NTD on December 31, 2018 and average rate with 1USD=30.1437 NTD for the year ended December 31, 2018.

Table 6 Page 1

MICRO-STAR INTERNATIONAL CO., LTD. AND SUBSIDIARIES

Information on investments in Mainland China - Significant transactions conducted with investees in Mainland China directly or indirectly through other companies in third areas

For the year ended December 31, 2018

Table 7

Expressed in thousands of NTD (Except as otherwise indicated)

Investee in Mainland China	Sales/(Purchase)	Sales/(Purchase)	Propertytransaction	Propertytransaction	Accounts receivable/(payable)	Accounts receivable/(payable)	Amount of endorsements/guarantees secured with collaterals	Amount of endorsements/guarantees secured with collaterals		Accommodation of funds	Accommodation of funds		Others(Note)
	Amount	%	Amount	%	Balance as of December 31,2018	%	Balance as of December 31,2018	Purpose	Ceiling amount	December 31, 2018	Interest rate range	Interest expense
MSI (SHENZHEN) MSI COMPUTER (SHENZHEN) MSI ELECTRONICS (KUNSHAN) MSI (SHANGHAI)	2,833,040 $ - - 3,295,497	45 - - 55	$ - - - -	- - - -	- $ (2,512,173) (716,789) 1,516,143	- 72) ( 21) ( 100	$ - - - -	- - - -	$ - - - -	$ - - - -	- - - -	$ - - - -	$ - 3,038,535 1,204,305 -

Note: Processing overhead.

Table 7 Page 1