MSI — Annual Report 2018

Jun 24, 2019

Stock Code:2377

MICRO‐STAR INTERNATIONAL CO., LTD.

2018 ANNUAL REPORT

Taiwan Stock Exchange Market Observation Post System:

http://mops.twse.com.tw

MSI annual report is available at: http://www.msi.com Printed on April 30, 2019

Notice to readers

This English‐version annual report is a summary translation of the Chinese version and is not an official document of the shareholders’ meeting. If there is any discrepancy between the English and Chinese versions, the Chinese version shall prevail.

I. SPOKESPERSON & DEPUTY SPOKESPERSON

Spokesperson: Hung,Pao‐Yu Title: Chief Financial Officer Tel.: 886‐2‐3234‐5599 E‐mail: 080419861@msi.com

DEPUTY SPOKESPERSON

Deputy Spokesperson: Lin,Yi‐Kai Title: Senior Manager Tel.: 886‐2‐3234‐5599 E‐mail: 080419863@msi.com

DEPUTY SPOKESPERSON: Chang,Ju‐Ting

Title: Senior Manager Tel.: 886‐2‐3234‐5599 E‐mail: 080419862@msi.com

II. HEADQUARTERS AND PLANTS

Tel.: 886‐2‐3234‐5599

Address: No.69, Lide St., Zhonghe Dist., New Taipei City 235, Taiwan (R.O.C)

Ⅲ .SECURITIES DEALING INSTITUTE

Name : Chinatrust Transfer Agent Address : 5F, No.83, Sec. 1, Chung‐Chin S. Rd., Zhongzheng Dist., Taipei City Tel. : 886‐2‐6636‐5566 Website : http://www.ctbcbank.com

IV. AUDITORS

Name : CPA: Liang, Hua‐Ling & Lai,Chung‐Hsi CPA Firm : PricewaterhouseCoopers, Taiwan Address : 27F, No.333, Sec. 1, Keelung Rd., Xinyi Dist., Taipei City 110 Tel. : (886) 2 2729‐6666 E‐mail : http://www.pwc.com

V. EXCHANGEABLE BOND EXCHANGE MARKETPLACE

None

VI. COMPANY WEBSITE

http://www.msi.com

CONTENTS

Page Ⅰ . Letter to shareholders…………………………………………………………………………………………………………………1 Ⅱ . Introduction of the company………………………………………………………………………………………………………4 ( Ⅰ )Establishment date……………..…...………………………..……………………………………………...…………………4 ( Ⅱ )Development history...………………………………………………………………………………………….………………4 Ⅲ .Corporate governance report…………………………………………………………………………………......………………8 ( Ⅰ )Corporate Organization…………………………………………………………………………………………………………8 ( Ⅱ )Directors, Supervisors, President, Vice President, Assistant V.P., and department heads...………...……………………………………………………………………………………………………………………10 ( Ⅲ )Remuneration paid during the most recent fiscal year to directors, supervisors, president and vice presidents..…………………………………………………………………………………………………………………16 ( Ⅳ )Corporate governance…………………………………………………………..……………………………………………20 ( Ⅴ )CPAs fees………...…..…………………………………………………………………………………………………………… 42 ( Ⅵ )CPA’s information……………………………………………………………………………………………………………… 42 ( Ⅶ ) MSI’s chairman, president, and managers in charge of its finance and accounting operations did not hold any positions within MSI’s independent audit firm or its affiliates in the most recent year.……………………………………………………………………………………………………………………… 42 ( Ⅷ )Information on Net Change in Shareholding and Net Change in Shares Pledged by Directors, Supervisors, Department Heads, and Shareholders of 10% shareholding or more …………… 43 ( Ⅸ )Relationship among the Top Ten Shareholders ……………………………………………………………………43 ( Ⅹ )Ownership of Shares in Affiliated Enterprises………………………………………………………………………43 Ⅳ . Capital Overview ………………………………………………………………….……………………………………………………44 ( Ⅰ )Capital and shares ……………………………………………..…………………………………………………………………44 ( Ⅱ )Corporate bonds ………………………………………………..…………………………………………………………………49 ( Ⅲ )Preferred shares ……………………………………………………………………………………………………………………49 ( Ⅳ )Overseas depositary receipts…………………………………………………………………………………………………49 ( Ⅴ )Employee stock warrants………………………………………………………………………………………………………49 ( Ⅵ )Restricted Employee Shares …………………………………………………………………………………………………49 ( Ⅶ )The section on issuance of new shares in connection with mergers or acquisitions or with acquisitions of shares of other companies shall specify the following matters…………………… 49 ( Ⅷ )The status of implementation of capital allocation plans………………………………………………………49 Ⅴ . Operation summary …………………………..…………………………………………………………………………………… 50 ( Ⅰ )Business content………………………………………………………………………………………………………………..…50 ( Ⅱ )Market analysis and the condition of sale and production ……………………………………………………60 ( Ⅲ )Employees ……………………………………………………………………………………………………………………………65 ( Ⅳ )Environmental expenditures information………………………………………………………………………………65 ( Ⅴ )Employee / employer relation ………………………………………………………………………………………………66 ( Ⅵ )Material Contracts…………………………………………………………………………………………………………………69 Ⅵ . Financial information …………………………………………………………………………………………..……………………70 ( Ⅰ )Five‐year Financial Summary ……………………………………..…………………………………………………………70 ( Ⅱ )Five‐year Financial Analysis……………………………………………………………………………………………………73 ( Ⅲ )Supervisors’ /Audit Committee’s Report for the most recent year…………………………………………76 ( Ⅳ )Financial statements in the most recent year…………………………………………...………………………… 76 ( Ⅴ )Corporation‐only financial report audited and attested by a CPA from the most recent year............................................................................................................................................76 ( Ⅵ ) State the financial position of the Company if any insolvency occurs in the Company or affiliates in the most recent year until the date this report is printed…………………………………….……………76 Ⅶ . Review of Financial Conditions, Financial Performance, and Risk Management…….………………… 77 ( Ⅰ )Analysis of Financial Status……………………………………………………………………………………………………77 ( Ⅱ )Analysis of Financial Performance……………...…………………………………………………………………………78 ( Ⅲ )Analysis of cash flows……………………………………………………………………………………………………………79 ( Ⅳ ) Major capital expenditures and impact on financial and business in the most recent year …79

( Ⅴ ) Reinvestment in the most recent year…………………………………………………………………………….……79 ( Ⅵ )Risk analysis and evaluation in the most recent year and up to the date of the annual report printed…………………………………………………………………..……………………….…..……………………………… 80 ( Ⅶ )Other material events……………………………………………………………….…………………...…………………… 85 Ⅷ . Special disclosures………………………………………………………………..……………………….…..…………………… 86 ( Ⅰ )Related party ………………………………………………………………………………………..…......…..…………………86 ( Ⅱ )Subscription of marketable securities privately in the most recent year and up to the date of the report printed ……………………….…………………………...….………...…………...……………………………………93 ( Ⅲ )Status of MSI Common Shares Acquired, Disposed of, and Held by Subsidiaries ………………… 93 ( Ⅳ )Other Necessary Supplement………………………………...….………...…………...…………………………………93 ( Ⅴ )Occurrence of events difined in Securities Transaction Law Article 36.2.2 that has great impact on shareholders’ equity or security price in the most recent year and up to the date of the repost printed ………………….………………………………...….………...…………...……………………………………93

Ⅰ .Letter to Shareholders

Dear Shareholders:

Looking back at 2018, business operation was facing adverse challenges against the backdrop of U.S.‐China trade tensions and European economic slowdown. The entire PC market was nearing saturation point and slightly declining. However, the demand for gaming continued to grow and the players showed an increased need for high and mid‐end PCs as related competition events and live streaming platforms became increasingly popular. Despite the sudden reversal of the demand for graphics cards driven by cryptocurrencies , such fall in the demand for high‐end graphics cards, once boosted by the mining rush which caused the products to be in short supply, pushed the demand back to the e‐sports market. In addition to the long‐term effort in cultivating the high‐end gaming market with continuous development of gaming‐related PC products to fit the players’ needs and responding to the great needs for artwork creation, the Company launched high‐end image processing series. Moreover, the Company made a major progress in servers, industrial computers and AIoT for auto electronics, adding impetus to its growth momentum. The Company’s consolidated revenues and profits both hit new highs in 2018. Looking ahead to 2019, the Company will continue to show its strength in R&D, production and sales by coming up with all‐round gaming series and all types of commercial products and software solutions to create higher values for itself, the clients and the shareholders.

( Ⅰ ) Operating Performance in 2018

• 1.Consolidated financial results

(Ⅰ) Operating Performance in 2018 1.Consolidated financial results	(Ⅰ) Operating Performance in 2018 1.Consolidated financial results	(Ⅰ) Operating Performance in 2018 1.Consolidated financial results	(Ⅰ) Operating Performance in 2018 1.Consolidated financial results	(Ⅰ) Operating Performance in 2018 1.Consolidated financial results
Unit: NT$thousands
Year Item	2018	2017	Growth amount	Growth rate
Sales revenue	118,527,273	106,419,905	12,107,368	11.38%
Grossprofit	16,129,686	15,031,293	1,098,393	7.31%
After‐taxprofit	6,041,129	4,937,422	1,103,707	22.35%
Basic earnings per share(After‐tax) (NT$)	7.15	5.84	1.31	22.43%
Diluted earnings per share (After‐tax) (NT$)	7.08	5.79	1.29	22.28%

1. Profitability analysis

(NT$) 2. Profitabilityanalysis	(NT$) 2. Profitabilityanalysis
Year Item		Financial Analysis for the Last Two‐Years
		2018	2017
Financial structure(%)	Debt to asset ratio (%)	45.72	43.44
	Long‐term capital to property, plant and equipment(%)	641.74	554.91
Solvency(%)	Current ratio(%)	199.30	206.42
	Quick ratio(%)	104.68	122.23
	Interest earned ratio (times) (%)	49,733.08	178,404.56
Profitability (%)	Return on assets (%)	11.60	9.92
	Return on shareholders’equity (%)	20.92	18.05
	Profit ratio (%)	5.10	4.64
	Basic after‐tax EPS(NT$)	7.15	5.84

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3.Research and Development Status

As the leading brand in gaming PCs, MSI has always held the belief that it is its responsibility and obligation to develop a product beyond the players’ expectation. In addition to the R&D personnel being the players who go to the field to interact directly with the consumer players and listen to them to understand their needs and expectations for the products, whether by working with the pro team leagues or through cross‐industry cooperation with world‐class makers, the Company provides the users not only with hardware specs, but also a comprehensive all‐around gaming ecosystem experience.

The MSI gaming notebook computer is equipped with the latest high‐definition graphics card and central processing unit, combining features such as wide viewing angle, wide color gamut, ultra‐high update rate, exclusive True Color for accurate color correction, one‐button colorful esport keyboard, built‐in Hi‐ Res Audio headphone amplifier and maximized Giant Speaker to provide players with great enjoyment of both vision and hearing. The Prestige series notebooks, specially developed for all types of creators, intelligently detects the editing and drawing software used by creators for system optimization. With continuous commitment to professional mobile workstations, the MSI Mobile Workstation has received a number of ISV certifications, providing the best compatibility experience for ISV software computing in all areas of expertise. The MSI display card comes in the SEA HAWK, VENTUS, and AERO series for different cooling system requirements so that players can get the maximum performance. For the desktop product, the "Trident X" was launched, which is not only the smallest gaming desktop in the industry, but also supports the latest Intel® overclock Core[TM] i9‐9900K series processors that can only be coupled with a large mainframe. It also carries the latest NVIDIA® GeForce® RTX[TM] 20 Series graphics card and the first‐ever interchangeable transparent tempered glass side panel which allows the possibility of maximum and rapid upgrades for users, making it the largest competitor for general game consoles. For the esports screen products, the Company launched the curved "Optix MPG27CQ" for esports, which combines SteelSeries® GameSense's first RGB lighting effects that can be synchronized with the game. It also introduces the industry's first "Gaming OSD APP", which allows users to use the keyboard and mouse in an intuitive way to optimize the settings for the curved gaming screen.

Both the MSI Optix MPG27 series surface esports screen and the MSI GE73 Raider RGB esports notebook won recognition from the jurors in the 2018 Computex; while the FUNTORO smart fleet management and cloud service platform, FUNTORO smart course business service solution claimed major awards, showing the Company’s strength and determination to step into the field of software service platforms; and in 2018, a total of 14 products won the Taiwan Excellence Award with an award‐winning rate as high as 70%. It is MSI’s commitment to continue to concentrate its efforts on innovation, design and performance to bring higher values to e‐sports players and all users.

( Ⅱ ) Operating Plan for 2019

To adjust to the future environment, MSI’s adopted operation guidelines, estimated goals and important sales strategies for 2018 are as follows:

1.Operation guideline

(1)Sales and marketing aspect: progressively explore new markets and new customers and establish a long‐term entrusted stable business relationship with customers with potentials and sound financial status to create mutual benefits.

(2)Product R&D aspect: Develop products which meet users’ needs.

(3)Finance aspect: uphold the principle of steady and stable operation, and control various financial risks.

(4)Manufacturing, quality and service aspect: continue implementing automated manufacturing to increase quality and efficiency. Improve repair and services to enhance customer satisfaction.

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1. Expected Sales and Rationales

2. The Company has a wide range of products. Besides continuing to develop the market for high‐end products as it helps with robust growths of various types of products, the Company is also making concurrent efforts in the development and marketing of new products in order to increase the shipment. Room for growth is expected on the market for motherboards, graphic cards, laptops, desktop computers, Gaming monitors, Gaming peripheral products, servers, industrial computers, telematics, among others. MSI will aim to enhance the overall profits by proactively increasing the market shares of respective products. It is expected that up to 20 million pieces are possible for the component products shipment in 2019.

3. 3.Important sales policies

4. (1)Production policy aspect: Always paying attention to the global major political and economic situations to respond to the possible change in market demand and the suppliers’ productivity. To increase capacity utilization rate by adopting planned procurement of components. To adopt flexible production to reduce stock level yet fulfilling customer’s order demand. To observe the dynamic of supply chains and to ensure an effective production of employees, equipment, materials, and manufacturing methods.

5. (2)Sales policy aspect: to provide good quality products that fulfill customers’ need. To gain a win‐win success in sales target with our customers.

Facing the challenge of current global IT industry environment changes and the dynamic, intense competition, MSI will stand by our hardcore RD strength, combining sales and marketing endeavors to achieve the goal of profit increase. We believe with the hard work of all the employees, our overall sales performance will hit continuous growth. I hereby on behalf of the MSI management team express our appreciation to all our shareholders, customers and suppliers. We also appreciate the hard efforts of all employees and directors made during the past year. We hope our shareholders will keep supporting and encouraging us. We will work harder to achieve a greater performance and sales results to share with you.

Sincerely yours,

Chairman: Hsu, Hsiang

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II. Introduction of the Company

( Ⅰ )Establishment date: August 4, 1986

( Ⅱ )Development history

(Ⅱ)De	velopment history
2019	 MSI's products were favored by CES 2019 jurors with GS65 e‐sports notebook, Infinite e‐sports desktop, Trident X e‐sports desktop, GeForce® RTX™ 2080 Ti GAMING X TR10 e‐sports display card, Prestige PS341WU display, Optix MPG341QR smart e‐sports display and Optix MAG271QR curved e‐sports display claimed a total of 12 major awards for innovation including the CES Computer Hardware and Components Innovation Award, CES E‐sports Innovation Award, CES High‐performance Home Audio / Video Innovation Award, CES Computer Peripheral Innovation Award, CES e‐sports Innovation Award and so forth.  MSI passed the rigorous tests in the four areas of “Research and Development”, “Design”, “Quality” and “Marketing” with its notebooks, e‐sports desktops, e‐sports peripherals, industrial computers, automatic electronics, etc.” under the careful evaluation and discussion of more than 90 well‐known local experts across the industry, government and academia to win the Taiwan Excellence Award for 21 consecutive years. Not only that, the game linking RGB colorful lighting curved LED e‐sports screen Optix MPG27CQ/MPG27C, in addition to being the winner of Taiwan Excellence Awards, won the "Silver Award" for its characteristics of linking with games.
2018	 MSI won the CES 2018 Best E‐sports Innovation Gold Award with its powerful and clear‐cut Trident 3 Arctic. In addition, along with Trident 3 Arctic, MSI Technology's high‐performance Z370 GODLIKE GAMING e‐sports motherboard, top GTX 1080Ti Lightning e‐sports display card, innovative Optix MPG27CQ curved e‐sports display and the new generation Infinite X e‐sports desktop also won five CES 2018 Innovation Awards in the computer hardware and component category and the e‐sports category.  MSI passed the rigorous tests in the four areas of “Research and Development”, “Design”, “Quality” and “Marketing” with its products such as notebooks, motherboard, display card, e‐sports desktops, e‐sports peripherals, industrial computers and servers to win the Taiwan Excellence Award for 20 consecutive years. Not only that, the VR One e‐sports backpack, in addition to be the winner of Taiwan Excellence Awards, won the "Silver Award" for its emphasis on the wireless VR e‐sports experience.  Winning the internationally renowned iF Product Design Award, known as the Oscar Award for Product Design, means an exceptional glory of the product for being selected out of thousands of its kind. As the world‐leading e‐sports brand, MSI shone forth to win 3 major iF awards with its outstanding e‐sports GL63 which carries gaming‐panel display, the lightest and thinnest backpack e‐sports box VR ONE, and the pure white high‐quality motherboard X299 TOMAHAWK AC.  For the 17th COMPUTEX Best Choice Award for Innovative Technology of the Year, MSI's 4 products stood out from the 350 competing items to win 5 awards. The MSI Optix MPG27 series of curved e‐sports display won the double champions for "Best Design Award" and "Category Award". MSI has been developing its the automotive electronics brand for many years and its FUNTORO smart fleet management and cloud service platform, with its brilliant performance, won the "Gold Award". The MSI GE73 Raider RGB e‐sports notebook, and MSI FUNTORO smart court business service solution, both claimed the "Category Award", once again affirming MSI's leading position in the global e‐sports field, as well as its ambition to step into the field of software platform services.  The Computex Taipei Innovation Design Award was jointly organized by the Taiwan External Trade Development Council (TAITRA) and iF International Forum Design GmbH (Germany). In 2018, MSI once again unveiled the breath‐taking next‐gen PRO 24X AIO computer to create a new era for the high ‐tech industry.  MSI was nominated as one of the “2018 Taiwan Top 20 International Brands”in the “Taiwan International Brand Value Survey”conducted by Interbrand, a global authoritative brand value survey agency which was commissioned by Taiwan Institute of Economic Research under the program sponsored bythe Industrial Development Bureau of the Ministryof Economic Affairs.

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2017	MSI VR One Backpack PC, GS63VR Stealth Pro gaming laptop and Z270 GAMING M7 gaming motherboard won CES 2017 Innovations Award.
	MSI has been awarded from Taiwan Excellence, including gaming NB, MB, VGA, Desktop and headset products.
	MSI won two iF Design Awards with Z270 TOMAHAWK gaming motherboard and Trident 3 gaming desktopPC.
2016	MSI GS40 Phantom,AIO Gaming27XT,and Vortex GamingTower won CES 2016 Innovations Award.
	GT80 Titan won iF DESIGN AWARD 2016
	MSI GAMING notebook won Readers' Choice Awards 2016
2015	MSI GT72 Dominator Pro laptop, GS30 Shadow, AG240 4K Edition AIO and X99 GAMING 9 are prestigious CES Innovations 2015 honorees.
	MSI has been awarded from Taiwan Excellence for 17 consecutive years. 8 products are awarded, includingMB/VGA/NB/AIOproducts.
	Honored as World’s 4th Best Laptop Brand of 2015 and NO.1 in Ranking of Asian Brands by Laptop Magazine.
2014	MSI GS70 laptopand AG2712AgamingAll‐in‐One PC areprestigious CES Innovations 2014 honorees.
	MSI has been awarded from Taiwan Excellence for 16 consecutive years. A total of 13 MSI products are awarded, including the Z87M GAMING motherboard, the GK‐601 Dragon Edition gaming keyboard, the ultrathin GS70 laptop, the GT60 3K Edition laptop, the N780 Lightning graphics card, the AG2712AgamingAll‐in‐One PC and the Adora24 ultra‐slim All‐in‐One PC.
	MSI Z97 XPOWER AC won COMPUTEX TAIPEI 2014 d&i and Best Choice Award
2013	The No. 1 and OnlyBest Choice Golden Awarded Motherboard‐ MSI Z87‐GD65 GAMING
	MSI Taiwan Excellence Award Winner, 15 years of affirmation. Eleven product of the leading company are awarded
	MSI has won the 2013 CES Innovations Awards with the GT70 Dragon Edition notebook and the N680GTX Lightning graphics card.
2012	MSI X79 Series Mainboards break the World Record of 170MHz Base Clock and 5.83GHz CPU Clock of Sandy
	MSI GT70 notebook is the only winner awarded Buyer's Choice, Best Choice, and Media's Choice in Computex 2012.
	15products of MSIgot 2012 Taiwan Excellence Award.
	MSI Z68A‐GD80(G3)and GT780DXR won CES 2012 Innovations Award.
2011	MSI Won one of Top100 Taiwan Brands Distinguished among500 brands.
	All the 23 products MSI participated in Taiwan Excellence Award selection won the prize, WindTop AE2420 3D AIO won the Gold Award.
	MSI Z68A‐GD80(G3),GT780DXR and N460GTX Hawk receive CES Innovations Award Honors.
2010	X‐Slim X340 was handed the Taiwan Excellence Silver Award and voted second mostpopular.
	MSI BigBang‐Fuzion mainboard and Telematics both won Best Choice of COMPUTEX.
	MSI participated in 2010 Taiwan Excellence Award selection, and all nominated products won the prize.
2009	MSI has been chosen as one of “2009 Top 50 Corporate Citizens” from CommomWealth Magazine (Issue 416) in Taiwan. MSI has been chosen as one of "2009 Top 70 CSR Excellent Enterprises" from Global Views magazine(Issue 273)in Taiwan.
	MSI Netbook & Car Infotainmentproduct won the Best Choice of COMPUTEX TAIPEI 2009.
	Announced the world'spower‐savingNo. 1 Netbook.
	Announced the 1st Ultra Slim Notebook.
	Announced the 1st All‐in‐One PC
2008	Announced the world's 1st Hybrid Storage Netbook.
	MSI has been ranked No. 19 of the Top20 Taiwan Global Brands
	MSI has been awarded "16th Industrial Technology Advancement Awards" by the Ministry of Economic Affairs. "Excellent Enterprise Innovation Award" & "Individual Achievement Award" affirmed the MSI R&D innovation strategyand management.
	MSI is the only one winner of Best Enterprise of COMPUTEX TAIPEI 2008; MSI mainboard & notebook were honored to receive the "Best Choice of COMPUTEX TAIPEI 2008".
	Announced the 1st Car Infotainmentproduct.

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	Announced the world's 1st 10” Netbookproduct.
2007	Announced the 1st double‐wheel and smart video & music interactive navigation service robot.
	The onlyone mainboard won the Best Choice of COMPUTEX 2007 award.
	Announced the world's 1st overclockingnotebook.
	MSI Notebook(PR200)won the "Red Dot Award: Product Design 2007".
	Announced the world's 1st Crystal Collection Notebookproduct.
	Announced the world's 1st HATO Notebook(Concept Product).
2006	MSI CEproducts won the iF Design Award in Germany.
	MSI is the only one winner in Tom's Hardware Guide (Worldwide No. 1 online IT Media) Both "Editor's Choice awards for Intel® P975 and P965platform.
	Announced the world's 1st Pocket Size DTV.
	Obtained ULQC 080000 hazardous substanceprocess management system certification.
	Announced the world's 1st solar‐powered notebook and MP3 Playerproduct(Concept Product).
2005	MSI CEproducts won the iF Design Award in Germany.
2004	Announced the 1st Portable Multimedia Playerproduct.
	MSI CEproducts won the Good Design Awards in Japan.
2003	Announced the 1st Notebookproduct.
	Obtained BVQI OHSAS 18000:1999 occupational health and safetymanagement system certification.
	Announced the 1st Pen Tablet PCproduct
	Obtained ULQS 9000:1998qualitymanagement system certification.
2002	Announced the world's 1st PC2PC WLAN mainboard.
	Announced the 1st MSI communicationproduct.
	Announced the world's 1st PC2PC Bluetooth mainboard.
	Inaugurated its EU Hub in Netherlands.
2001	Established MSI Electronics(Kunshan)Co.,Ltd.
	Established China service center in Shanghai.
	Announced the 1st Optical Deviceproduct.
	Inaugurated the MSI PlantⅢin Jung‐He,Taipei County.
2000	Announced the 1st Serverproduct.
	Established MSI Computer(Shenzhen)Co.,Ltd.
1999	Obtained BVQI ISO 14001:1996 environmental management system certification.
1998	MSI became a public company as it went on IPO (Initial Public Offering) on the Taiwan Stock Exchange (TAIEX).
	Announced the industry's 1st mainboard designed for Socket 7 processor, which supports 100MHz FSB.
	Announced industry's 1st mainboard designed to support Dual PentiumR IIprocessor.
1995	Inaugurated the MSI Plant I in Jung‐He,the suburb of Taipei.
	Obtained TUV ISO 9001:1994qualitymanagement system certification.
1991	Announced the 1st Graphics Cardproduct.
1989	Announced the 1st Bareboneproduct.
1988	Obtained TUV ISO 9002:1994qualitymanagement system certification.
1986	Announced the 486 and 586 mainboards.
	MSI was established,focusingon the design and manufacture of Mainboards and Add‐on Cards.
	Announced the 386DX mainboards.
	Announced the 1st overclocking286 mainboards.

1. The most recent fiscal year as well as the current fiscal year up to the date of publication of the annual report, include information on the following, Investment,merger and acquisition activities,corporate reorganization ： None.

2. (1) The most recent fiscal year as well as the current fiscal year up to the date of publication of the annual report, include information on the following,merger and acquisition activities,corporate reorganization ： None.

3. (2) Investment in affiliates in the past year and up to the date of report ：

   • For investments in affiliated enterprises, please see page 87 ～ 88 of this report.

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1. Instances in which a major quantity of shares belonging to directors, supervisors, or shareholders holding greater than a 10 percent stake in the company is transferred or otherwise changes hands; any change in managerial control; any material change in operating methods or type of business; and any other matters of material significance that could affect shareholders' equity. This section shall further explain how the above matters will affect the company:None.

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Ⅲ. Corporate governance report

(Ⅰ)Corporate Organization

1. Organization Chart

==> picture [730 x 369] intentionally omitted <==

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

Shareholders’ Meeting
Audit Committee
Board of Directors Internal Audit office
Remuneration Committee
Chairman
Vice Chairman
Management Committee
President
& Accounting & Finance
CEO
Administration Management
President Office
Human Resources
Note Book Graphics and Computing Customized Enterprise Industrial Automotive Corp. Corp. Corp. Corp. Corp.
B.U. peripheral and Display Product Platform Platform & Commercial Sales & R&D Supply Manufacture Quality
BU BU Solutions Solution Soluation Solution Marketing Chain Assurance
BU B.U. B.U. B.U.
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----- End of picture text -----

2.Major Corporate Function

Department	Functions
Internal Audit Office	To investigate and assess the soundness, suitability, adequacy, status of implementation, and operating performance of departmental internal controls.
President & CEO	To manage the corporate operation and development affairs, to set development and operationalgoals,and to supervise implementprocess.
President Office	To offer the general manager suggestions on policy decisions based on affair statistics with regard to organizational operations and development, including labor safety and health, legal affairs, intellectual property management, IT system development, corporate sustainable development plan,the use and maintenance of hardware and system software etc.
Each Products B.U.	Product development,sales and related business.
Corp.Sales & Marketing	PO management, market cultivation, business information collection, and customer credit investigation.
Corp.R&D	Design, development and quality control of products; process enhancement;and technologyimprovement.
Corp.Supply Chain	Procurement, control and management of raw materials, and production schedulingand management.
Corp.Manufacture	Product manufacturing.
Corp.Quality Assurance	Quality assurance, quality control, customer complaints, and post‐delivery service.
Finance & Accounting Division	(A) Accounting Division: Accounting and billing affairs, voucher preparation, receipt review, and financial reports' preparation and analysis. (2)Finance Division: Fund dispatch, risk management, investment management, and registrar and transfer operation.
Administration Management Division	General affairs, public works, and asset management.
Human Resources Division	Personnel administration, employee benefits, health, training and education,and human resources development.

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( Ⅱ ) Directors, Supervisors, President, Vice President, Assistant VP, and department heads

1. Directors and Supervisors

							As of: April 16,2018 Unit: Shares	As of: April 16,2018 Unit: Shares	As of: April 16,2018 Unit: Shares	As of: April 16,2018 Unit: Shares	As of: April 16,2018 Unit: Shares	As of: April 16,2018 Unit: Shares	As of: April 16,2018 Unit: Shares	As of: April 16,2018 Unit: Shares	As of: April 16,2018 Unit: Shares	As of: April 16,2018 Unit: Shares	As of: April 16,2018 Unit: Shares
Title	Nationality/ Country of Origin	Name	Gender	Date elected	Term (Years)	Date of first elected	Shareholding when elected		Current Shareholding		Spouse & Minor Shareholding		Shareholding by Nominee Arrangement		Executives, Directors or Supervisors who are spouses or within two degrees
							Shares	%	Shares	%	Shares	%	Shares	%	Title	Name	Relation
Chairman. (Note 1)	R.O.C	Hsu,Hsiang	Male	2018.06.15	3	1986.07.23	51,983,151	6.15%	51,983,151	6.15%	18,864,257	2.23%	9,376,328	1.11%	－	－	－
Vice Chairman		Huang,Chin‐Ching	Male	2018.06.15	3	1986.07.23	20,937,377	2.48%	20,937,377	2.48%	2,148,564	0.25%	7,521,761	0.89%	Director	Liao,Chun‐Keng	2nd consanguinity
Director		Lin,Wen‐Tung	Male	2018.06.15	3	1986.07.23	25,672,499	3.04%	25,672,499	3.04%	62,895	0.01%	─	─	－	－	－
Director		Yu,Hsien‐Neng	Male	2018.06.15	3	1986.07.23	17,892,824	2.12%	17,892,824	2.12%	184,922	0.02%	─	─	－	－	－
Director (Note 1.2)		Chiang,Sheng‐Chang	Male	2018.06.15	3	2009.06.16	1,117,074	0.13%	1,117,074	0.13%	0	0.00%	─	─	－	－	－
Director		Kuo,Hsu‐Kuang	Male	2018.06.15	3	2018.06.15	0	0.00%	50,000	0.01%	0	0.00%	─	─	－	－	－
Director		Liao,Chun‐Keng	Male	2018.06.15	3	2018.06.15	35,000	0.00%	35,000	0.00%	0	0.00%	─	─	Vice Chairman	Huang,Chin‐Ching	2nd consanguinity
Director		Hung,Yu‐Sheng	Male	2018.06.15	3	2018.06.15	306,660	0.04%	306,660	0.04%	0	0.00%	─	─	－	－	－
Independent Director (Note2)		Wang,Sung‐Chou	Male	2018.06.15	3	2003.05.28	0	0.00%	0	0.00%	468	0.00%	─	─	－	－	－
Independent Director		Liu ,Cheng‐Yi	Male	2018.06.15	3	2012.06.15	0	0.00%	0	0.00%	0	0.00%	─	─	－	－	－
Independent Director (Note2)		Hsu,Kao‐Shan	Male	2018.06.15	3	1998.02.28	418,686	0.05%	418,686	0.05%	220,924	0.03%	─	─	－	－	－

Note 1 ： To follow the instructions of the competent authority in conducting to promote corporate governance.

Retiring ： President ： Mr.Hsu,Hsiang ； new appointments ： President & CEO ： Mr. Chiang,Sheng‐Chang

Note2 ： Mr. Chiang, Sheng‐Chang, existing director between June 16, 2009 and June 15, 2012, was elected again on June 12, 2015; Mr. Wang, Sung‐Chou, existing director between May 28, 2003 and June 14,

2006 and independent director between June 14, 2006 and June 16, 2009, was elected again as independent director on June 15, 2012 and June 12, 2015; Mr.Hsu,Kao‐Shan, existing director between Feb 28, 1998 and June 14, 2006, was elected as supervisor between June 14, 2006 and June 12, 2015 ,resigned on May 20, 2016.

10

Title	Name	Education	Current Job	Current Job
		Experience	Title	Representative
Chairman	Hsu,Hsiang	The electronic engineeringfrom National ChengKungUniversity.	The Chairman of MSI Director & President of MICRO‐STAR NETHERLANDS HOLDING B. V.	MICRO STAR INTERNATIONAL CO., LTD.
		The engineer of Sony Industries Taiwan Co., Ltd.
Vice Chairman	Huang,Chin‐Ching	The electronics from ChungYuan Christian University.	The Vice Chairman and Senior Vice President of MSI Director & President of the following companies: MSI COMPUTER (AUSTRALIA) PTY. LTD. MSI COMPUTER CAYMAN CO., LTD. Director of the following companies: MSI COMPUTER CORP. LLC“MSI Computer” Executive Director & President of the following company: MSI ELECTRONIC(KUNSHAN)CO.,LTD.	MICRO STAR INTERNATIONAL CO., LTD. MICRO STAR INTERNATIONAL CO., LTD. MICRO STAR INTERNATIONAL CO., LTD. MSI (HOLDING) MICRO ELECTRONICS
		The engineer of Sony Industries Taiwan Co., Ltd.
Director	Lin,Wen‐Tung	The electronic engineering from the Lien Ho Industrial and Technological Junior College.	The Senior Vice President of MSI Director & President of MSI COMPUTER JAPAN CO., LTD. Director of the following company: MSI COMPUTER(AUSTRALIA)PTY. LTD.	MICRO STAR INTERNATIONAL CO., LTD. MICRO STAR INTERNATIONAL CO.,LTD.
		The engineer of Sony Industries Taiwan Co., Ltd.
Director	Yu,Hsien‐Neng	The electronics from Feng Chia University.	The Senior Vice President of MSI Director & President of the following companies: MICRO‐STAR INTERNATIONAL (B.V.I) HOLDING CO., LTD. MSI POLSKA SP. Z O.O Director of MSI COMPUTER CORP. Executive Director & President of the following company: MSI COMPUTER (SHENZHEN) CO., LTD. SHENZHEN MEGA INFORMATION CO.,LTD.	MSI PACIFIC MSI HOLDING MICRO STAR INTERNATIONAL CO., LTD. MSI(B.V.I.) MEGA INFORMATION
		The engineer of Sony Industries Taiwan Co., Ltd.
Director	Chiang,Sheng‐Chang	The institute of electronics from National Chiao Tung University.	The President & Chief Executive Officer of MSI
		The assistant vice president of ALi Corporation.
Director	Kuo,Hsu‐Kuang	The master of business administration from University of Southern Queensland	The Executive Vice President & NB BU GM of MSI
		The manager of Chun‐Sheng Computer
Director	Liao,Chun‐Keng	The master of business administration from University of South Australia	The Executive Vice President & GNP BU GM of MSI
		The sales manager of Magic Systech Inc
Director	Hung,Yu‐Sheng	ITI International Business Administration Program Shih Chien College of Design and Management	The Executive Vice President & CND BU GM of MSI Director & President of the following companies: LLC “MSI COMPUTER” The Executive Director of the following companies: MSI (Shenzhen) Co., Ltd. MSI(Shanghai)Co.,Ltd.	MSI HOLDING STAR INFORMATION HOLDING CO., LTD MSI PACIFIC
		MA of Pou Chen Group
Independent Director	Wang,Sung‐Chou	The master of business administration from National Chengchi University.	Independent Director of MICRO STAR INTERNATIONAL CO., LTD. Director of the following companies: Kae Lee Investment Co., Ltd. Supervisor of the following companies: Videoland Inc.、KK Enterprise Co., Ltd.、Taiwan Sports Lottery Company
		Director of the KGI INVESTMENT ADVISORY CORPORATION China Securities Co., Ltd.( now KGI Securities Co., Ltd.) Supervisor of the GARND PACIFIC PETROCHEMICAL CORPORATION
Independent Director	Liu ,Cheng‐Yi	The master of science in finance from The City University of New York.	None
		Director of Administration Division of Micro Star International Co., Ltd. Supervisor of TXC CORPORATION Independent Director of Jochu Technology Co., Ltd. The Assistant Manager of Twin Head International Corp.
Independent Director	Hsu,Kao‐Shan	Criminal investigation of Central Police University	Li Tsai Attorneys‐At‐Law
		Supervisor of Micro Star International Co., Ltd. Attorneyof YungJan Attorneys‐At‐Law

11

Criteria Name	With over fiveyears ofjob experience and the followingbusinessqualification	With over fiveyears ofjob experience and the followingbusinessqualification		Independence Criteria(Note)	Independence Criteria(Note)	Independence Criteria(Note)	Independence Criteria(Note)	Independence Criteria(Note)	Independence Criteria(Note)	Independence Criteria(Note)	Independence Criteria(Note)	Independence Criteria(Note)	Independence Criteria(Note)	Also an independent director of other public company
	Teachers of public or private colleges for the subject of commerce, law, finance, accounting,or business	Judge, prosecutor, attorney, accountant, or business salespersons passed national exam & certified specialists or technicians	With job experience in commerce, law, finance, accounting,or business	1	2	3	4	5	6	7	8	9	10
Hsu,Hsiang			v					v		v	v	v	v	0
Huang,Chin‐Ching			v				v	v		v		v	v	0
Lin,Wen‐Tung			v				v	v		v	v	v	v	0
Yu, Hsien‐Neng			v				v	v		v	v	v	v	0
Chiang,Sheng‐Chang			v		v	v	v	v	v	v	v	v	v	0
Kuo,Hsu‐Kuang			v		v	v	v	v	v	v	v	v	v	0
Liao,Chun‐Keng			v		v	v	v	v	v	v		v	v	0
Hung,Yu‐Sheng			v		v	v	v	v	v	v	v	v	v	0
Wang,Sung‐Chou		v	v	v	v	v	v	v	v	v	v	v	v	0
Liu ,Cheng‐Yi			v	v	v	v	v	v	v	v	v	v	v	0
Hsu,Kao‐Shan		v	v	v	v	v	v	v	v	v	v	v	v	0

Note: Directors and supervisors who have qualified the following conditions two years before being elected and during the term are to tick the box of the corresponding condition.

1.Not an employee of the company or any related party;

• 2.Not a director or supervisor of the company or any related party (except for being an independent director of the company or any related party, or, the subsidiary that is with over 50% shareholding with voting rights held directly or indirectly by the company);

• 3.Does not hold more than 1% of total stock issued directly or indirectly nor a natural shareholder on the top‐ten shareholdings list;

• 4.Not the spouse nor a relative within two degrees of lineal consanguinity of an individual falling in the first three categories;

• 5.Not a Director, Supervisor, or employee of the legal shareholder that holds over 5% of total stock issued directly or indirectly; or on the top‐five shareholdings list of the Company;

• 6.Not a Director (executive), Supervisor, management, or a shareholder with over 5% shareholdings of accompany or organization that is in business with the Company;

7.Not an owner, partner, Director, Supervisor, management of a partnership or institution and his/her spouse that provides commerce, law, finance, accounting and consulting service to the Company or related party. Including but not limited to Regulations Governing the Appointment and Exercise of Powers by the Remuneration Committee of a Company Whose Stock is listed on the Stock Exchange or Traded Over the Counter and the Remuneration Committee in accordance with the Power Exercise described in Article.

• 8.Not the spouse nor a relative within two degrees of lineal consanguinity of an individual;

• 9.Free of any of the behaviors as defined in Article 30 of Company Act;

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

12

2. Information of the management

Base Date: April 16, 2018 Unit: Shares

Title	Nationality /Country of Origin	Name	Gender	Date Elected	Shareholding	Shareholding	Spouse & Minor Shareholding	Spouse & Minor Shareholding	Shareholding by Nominee Arrangement	Shareholding by Nominee Arrangement	Experience (Education)	Other Position	Managers who are Spouses or Within Two Degrees of ShareholdingKinship	Managers who are Spouses or Within Two Degrees of ShareholdingKinship	Managers who are Spouses or Within Two Degrees of ShareholdingKinship
					Shares	%	Shares	%	Shares	%			Title	Name	Relation
President (Note1)	R.O.C	Hsu,Hsiang	Male	1994.4	51,983,151	6.15%	18,864,257	2.23%	9,376,328	1.11%	The electronic engineering from National Cheng Kung University. The engineer of Sony Industries Taiwan Co.,Ltd.	Refer to page 11	－	－	－
President & Chief Executive Officer (Note1)		Chiang,Sheng‐Chang	Male	2010.3	1,117,074	0.13%	0	0.00%	－	－	The institute of electronics from National Chiao Tung University. The assistant vice president of ALi Corporation.	None	－	－	－
Senior Vice President of Management Committee		Huang,Chin‐Ching	Male	2001.7	20,937,377	2.48%	2,148,564	0.25%	7,521,761	0.89%	The electronics from Chung Yuan Christian University. The engineer of Sony Industries Taiwan co.,Ltd.	Refer to page11	SVP	Liao,Chun ‐Keng	2nd consangu inity
Senior Vice President of Management Committee		Lin,Wen‐Tung	Male	2001.7	25,672,499	3.04%	62,895	0.01%	－	－	The electronic engineering from the Lien Ho Industrial and Technological Junior College. The engineer of Sony Industries Taiwan co.,Ltd.	Refer to page 11	－	－	－
Senior Vice President of Management Committee		Yu,Hsien‐Neng	Male	2001.7	17,892,824	2.12%	184,922	0.02%	－	－	The electronics from Feng Chia University. The engineer of Sony Industries Taiwan co.,Ltd.	Refer to page 11	－	－	－
Senior Vice President of Management Committee		Lu,Chi‐Long	Male	2001.7	18,650,835	2.21%	1,965,350	0.23%	－	－	The electronics from National Taiwan University of Science and Technology. The engineer of Sony Industries Taiwan co.,Ltd.	None	－	－	－
Executive Vice President & NB BU GM		Kuo,Hsu‐Kuang	Male	2013.4	50,000	0.01%	0	0.00%	－	－	The master of business administration from University of Southern Queensland The manager of Chun‐ShengComputer	None	－	－	－
Executive Vice President& GNP BU GM		Liao,Chun‐Keng	Male	2014.4	35,000	0.00%	0	0.00%	－	－	The master of business administration from University of South Australia The Sales Manager of Magic Systech Inc.	None	EVP & GNP BU GM	Huang,Chi n‐Ching	2nd consangu inity
Executive Vice President & CND BU GM		Hung,Yu‐Sheng	Male	2012.4	306,660	0.04%	0	0.00%	－	－	ITI International Business Administration Program Shih Chien College of Design and Management MA of Pou Chen Group	Refer to page 11	－	－	－
President of the EPS B.U.		Tsai,Rong‐Fong	Male	2010.3	297,647	0.04%	297,646	0.04%	－	－	The electronics from Chung Yuan Christian University. The General Manager of DTK Technology (HongKong).	None	－	－	－

13

President of IPS B.U.	R.O.C	Lu,Hui‐Chang	Male	2012.4	1,000	0.00%	13,188	0.00%	－	－	The master of business administration from Macau University of Science and Technology International Currency Technology Corp. Special Assistant	None	－	－	－
Vice President & CPS BU GM		Wu,Ta‐Hsin	Male	2019.1	0	0.00%	0	0.00%	－	－	Communications, University of the Pacific. FICA Sales Director	None	－	－	－
Vice President of Corp. R&D		Teng,Chi‐Hung	Male	2010.3	543,183	0.06%	1,124	0.00%	－	－	The institute of electronics from National Chiao Tung University. Ali Corporation Technical Manager	None	－	－	－
Vice President of Corp. Manufacture & Quality Assurance		Li,Chao‐Ming	Male	2010.3	11,498	0.00%	0	0.00%	－	－	The master of mechanical system from University of Liverpool ACER INCORPORATED Manager	None	－	－	－
Vice President of Corp. Sales & Marketing		Chiu,Chih‐Keng	Male	2015.4	152,925	0.02%	0	0.00%	－	－	Institute of Technology and Industrial Engineering from St. John’s & St. Mary’s College DTK Computer M.D.	Director on behalf of MSI HOLDING & President of the following companies: MSI COMPUTER SARL MSI COMPUTER EUROPE B.V. MYSTAR COMPUTER B.V. MSI COMPUTER (UK) LTD. MSI ITLAY S.R.L.	－	－	－
Vice President of Corp. Sales & Marketing		Tung,Ti‐Chun	Male	2019.4	0	0.00%	0	0.00%	－	－	University of Phoenix DFI‐ITOX Inc. Tech Support & MIS	Director & President of MSI COMPUTER CORP. (MICRO‐STAR INTERNATIONAL CO., LTD. representative)	－	－	－
Vice President of Corp. Supply Chain		Chen,Te‐Ling	Female	2019.1	0	0.00%	0	0.00%	－	－	Department of Foreign Languages and Literatures,National Taiwan University . D‐LINK CORPORATION Administrator	None	－	－	－
Vice President of NB BU R&D Division		Lin,Chin‐Kuan	Male	2014.4	370,375	0.04%	0	0.00%	－	－	Institute of Electrical and Control Engineering from National Chiao Tung University Wistron Corporation Manager	None	－	－	－
Vice President of NB Product Mgt. Division		Peng,Jen‐Fang	Male	2017.4	159,671	0.02%	0	0.00%	－	－	National Taiwan University of Science and Technology	None	－	－	－
Vice President of NB BU R&D Division		Lu,Kuo‐Huang	Male	2017.4	0	0.00%	0	0.00%	－	－	Hwa Hsia Institute of Agricultural Technology	None	－	－	－
Vice President of NB Operations Mgt. Division		Pan,Tsai‐Yu	Male	2019.4	0	0.00%	0	0.00%	－	－	National Taiwan Unversity Of Science and Technology AskeyComputer Corporation. Manager	None	－	－	－
Vice President of EPS BU Sales & Marketing Division		Lu,Cheng‐Lung	Male	2015.4	91,555	0.01%	0	0.00%	－	－	Department of Business Administration, Tamkang University JUMBO POWER TRADING CO.,LTD. Special Assistant	None	－	－	－
Vice President of ACS ODM R&D Division		Huang,Wen‐Shan	Male	2019.4	723	0.00%	0	0.00%	－	－	The electronics from National Taiwan University of Science and Technology. Twinhead International Corp. Assistant Manager	None	－	－	－
Vice President of Corp. Marketing Division		Cheng,Hui‐Cheng	Male	2019.4	0	0.00%	0	0.00%	－	－	Fu Jen Catholic University Wistron Corporation. Product manager	None	－	－	－
Senior Special Assistant of President Office Business Planning	R.O.C	Tsai,Wei‐Hsin	Male	2010.3	77	0.00%	0	0.00%	－	－	Chinese Culture University Department of International Business Administration LITE‐ON TECHNOLOGY CORP. Communications Group Accounting Department Assistant Vice President	None	－	－	－

14

Vice President of Finance & Accounting Division		Hung,Pao‐Yu	Female	2016.4	343,218	0.04%	0	0.00%	－	－	Finance MBA, National Taiwan University President Securities Corp. Underwriting Department Manager	Supervisor of the following companies: MSI COMPUTER (SHENZHEN) CO., LTD. (MSI(B.V.I.)Representative) SHENZHEN MEGA INFORMATIO CO., LTD. (MEGA INFORMATION Representative) MSI TRADING (SHENZHEN) CO., LTD. (MEGA TECHNOLOGY HOLDING CO., LTD. Representative) MSI (Shenzhen) Co., Ltd. (STAR INFORMATION Representative) MSI (Shanghai) Co., Ltd. (MSI PACIFIC Representative) Director on behalf of MICRO STAR of the following company: MSI PACIFIC INTERNATIONAL HOLDING CO., LTD. Director on behalf of MSI PACIFIC of the following companies: MICRO ELECTRONICS HOLDING CO., LTD. MEGA INFORMATION HOLDING CO., LTD. MEGA TECHNOLOGY HOLDING CO., LTD. MEGA COMPUTER CO., LTD. MHK INTERNATIONAL CO., LTD. STAR INFORMATION HOLDING CO., LTD. LINKING FUTURE CO., LTD. Director on behalf of MEGA TECHNOLOGY of the following company: RAIDEALS INC.	N －	－	－
Assistant Vice President of Internal Auditing Office		Liu,Chu‐Hao	Male	2010.3	10,000	0.00%	19,609	0.00%	－	－	Department of Accounting, Tamkang University Mag Technology Co., Ltd. Audit Assistant Manager	The Executive Director of MSI TRADING (SHENZHEN) CO., LTD.(MEGA TECHNOLOGY HOLDING CO., LTD. Representative) Supervisor of MSI ELECTRONIC (KUNSHAN) CO., LTD (MICRO ELECTRONICS Representative) Supervisor of MSI KOREA CO., LTD.(MSI PACIFIC Representative Supervisor of MSI COMPUTER JAPAN CO., LTD. (MICRO STAR Representative)	－	－	－

Note1 ： To follow the instructions of the competent authority in conducting to promote corporate governance. Retiring ： President ： Mr. Hsu,Hsiang ； new appointments ： President & CEO ： Mr. Chiang,Sheng‐Chang

15

( Ⅲ )Remuneration paid during the most recent fiscal year to directors, supervisors, president and vice presidents

1.Remuneration of Directors, Supervisors

(1) Remuneration of Directors (including Independent Directors)

Unit ： NT$

																						Unit：NT$
					Remuneration of Directors					Ratio of Total			Remuneration received byDirectors who are also employees							Ratio of Total
		Base Compensation(A)		Severance Pay(B)		Remuneration to Directors (C)		Allowances(D)		Remuneration (A+B+C+D) to Net Income(%)		Salary, Bonuses, and Allowances(E)		Severance Pay (F)		Remuneration		to Employee(G)		Compensation (A+B+C+D+E+F+G) to Net Income(%)		Compensation Paid to Directors from an Invested
Title	Name		Companies		Companies		Companies		Companies		Companies		Companies		Companies			Companies in the			Companies	Company Other
			in the		in the		in the		in the		in the		in the		in the	MSI		consolidated			in the	than the
		MSI	consolidated	MSI	consolidated	MSI	consolidated	MSI	consolidated	MSI	consolidate	MSI	consolidate	MSI	consolidated			Financial statements		MSI	consolidated	Company’s
			financial		financial		financial		financial		financial		financial		financial	Cash	Stock	Cash	Stock		financial	Subsidiary
			statements		statements		statements		statements		statements		statements		statements	amount	amount	amount	amount		statements
Chairman	Hsu,Hsiang
Vice Chairman	Huang,Chin‐Ching
Director	Lin,Wen‐Tung
Director	Yu,Hsien‐Neng
Director	Chiang,Sheng‐Chang
Director	Kuo,Hsu‐Kuang
Director	Liao,Chun‐Keng	0	0	0	0	49,500,000	49,500,000	0	0	0.82%	0.82%	103,091,664	103,091,664	175,500	175,500	38,500,000	0	38,500,000	0	3.17%	3.17%	None
Director	Hung,Yu‐Sheng
Independent Director	Wang,Sung‐Chou
Independent Director	Liu,Cheng‐Yi
Independent Director	Hsu,Kao‐Shan
*Remuneration received in the most		recentyear bythe director of the companyfor renderingservices(such as servingas a non‐employed consultant)to anycompanylisted in the Financial Report：None.

			Remuneration Bracket
			Name of Directors
Range of Remuneration	Total MSI		of(A+B+C+D) Companies in the consolidated financial statements H	Total of(A+B+C+D+E+F+G) MSI Companies in		the consolidated financial statements (Ⅰ)
Below 2,000,000
	Hsu,Hsiang、Huang,Chin‐Ching、Lin,Wen‐Tung、Yu,		Hsu,Hsiang、Huang,Chin‐Ching、Lin,Wen‐Tung、Yu,	Wang,Sung‐Chou、Liu ,Cheng‐Yi、Hsu,Kao‐Shan	Wang,Sung‐Chou、Liu ,Cheng‐Yi、Hsu,Kao‐Shan
2,000,000～5,000,000	Hsien‐Neng、Chiang,Sheng‐Chang、Kuo,Hsu‐Kuang、 Liao,Chun‐Keng、Hung,Yu‐Sheng、		Hsien‐Neng、Chiang,Sheng‐Chang、Kuo,Hsu‐Kuang、 Liao,Chun‐Keng、Hung,Yu‐Sheng、Wang,Sung‐Chou、
	Wang,Sung‐Chou、Liu ,Cheng‐Yi、Hsu,Kao‐Shan		Liu ,Cheng‐Yi、Hsu,Kao‐Shan
5,000,000～10,000,000
10,000,000～15,000,000
				Hsu,Hsiang、Huang,Chin‐Ching、Lin,Wen‐Tung、Yu,	Hsu,Hsiang、Huang,Chin‐Ching、Lin,Wen‐Tung、Yu,
15,000,000～30,000,000				Hsien‐Neng、Chiang,Sheng‐Chang、 Kuo,Hsu‐Kuang、Liao,Chun‐Keng、	Hsien‐Neng、Chiang,Sheng‐Chang、 Kuo,Hsu‐Kuang、Liao,Chun‐Keng、
				Hung,Yu‐Sheng		Hung,Yu‐Sheng
30,000,000～50,000,000
50,000,000～100,000,000
Over 100,000,000
Total	49,500,000		49,500,000	191,267,164		191,267,164

(2) Remuneration of Supervisors: The Company established an Audit Committee to replace supervisors on June 15, 2018 and the supervisors are relieved of the position starting on that day.

16

2. Remuneration of President and Vice Presidents

2. Remuneration of President and Vice	Presidents
								Unit：NT$
Title	Name	Salary(A)		Severance Pay(B)		Bonuses and	Allowances (C)	Remuneration to Employee(D)				Ratio of total compensation (A+B+C+D) to net income(%)		Compensation paid to the President and Vice President from an Invested Company Other Than the Company’s Subsidiary
		MSI	Companies in the consolidated financial statements	MSI	Companies in the consolidated financial statements	MSI	Companies in the consolidated financial statements	MSI		Companies in the consolidated financial statements		MSI	Companies in the consolidated financial statements
								Cash amount	Stock amount	Cash amount	Stock amount
President ( Note)	Hsu,Hsiang	75,316,293	75,316,293	1,953,000	1,953,000	139,070,050	139,070,050	70,600,000	0	70,600,000	0	4.75%	4.75%	None
President & Chief Executive Officer(Note)	Chiang,Sheng‐Chang
Senior Vice President of Management Committee	Huang,Chin‐Ching
Senior Vice President of Management Committee	Lin,Wen‐Tung
Senior Vice President of Management Committee	Yu,Hsien‐Neng
Senior Vice President of Management Committee	Lu,Chi‐Long
Executive Vice President & NB BU GM	Kuo,Hsu‐Kuang
Executive Vice President& GNP BU GM	Liao,Chun‐Keng
Executive Vice President & CND BU GM	Hung,Yu‐Sheng
President of the EPS B.U.	Tsai,Rong‐Fong
President of IPS B.U.	Lu,Hui‐Chang
Vice President & CPS BU GM	Wu,Ta‐Hsin
Vice President of Corp. R&D	Teng,Chi‐Hung
Vice President of Corp. Manufacture & Quality Assurance	Li,Chao‐Ming
Vice President of Corp. Sales & Marketing	Chiu,Chih‐Keng
Vice President of Corp. Sales & Marketing	Tung,Ti‐Chun
Vice President of Corp. SupplyChain	Chen,Te‐Ling
Vice President of NB BU R&D Division	Lin,Chin‐Kuan
Vice President of NB Product Mgt. Division	Peng,Jen‐Fang
Vice President of NB BU R&D Division	Lu,Kuo‐Huang
Vice President of NB Operations Mgt. Division	Pan,Tsai‐Yu
Vice President of EPS BU Sales & Marketing Division	Lu,Cheng‐Lung
Vice President of ACS ODM R&D Division	Huang,Wen‐Shan
Vice President of Corp. MarketingDivision	Cheng,Hui‐Cheng
Senior Special Assistant of President Office Business Planning	Tsai,Wei‐Hsin
Vice President of Finance & AccountingDivision	Hung,Pao‐Yu

17

Remuneration Bracket

		Remuneration Bracket	Remuneration Bracket	Remuneration Bracket	Remuneration Bracket	Remuneration Bracket	Remuneration Bracket	Remuneration Bracket
Range of Remuneration		Name of President and Vice President
		MSI			Companies in the consolidated financial statements E
Below 2,000,000
2,000,000～5,000,000
5,000,000～10,000,000		Tsai,Wei‐Hsin、Lu,Hui‐Chang、Lu,Cheng‐Lung、Chiu,Chih‐Keng、Peng,Jen‐Fang、Lu,Kuo‐Huang、 Wu,Ta‐Hsin、Tung,Ti‐Chun、Chen,Te‐Ling、Pan,Tsai‐Yu、Huang,Wen‐Shan、Cheng,Hui‐Cheng、Hung,Pao‐Yu			Tsai,Wei‐Hsin、Lu,Hui‐Chang、Lu,Cheng‐Lung、Chiu,Chih‐Keng、Peng,Jen‐Fang、Lu,Kuo‐Huang、 Wu,Ta‐Hsin、Tung,Ti‐Chun、Chen,Te‐Ling、Pan,Tsai‐Yu、Huang,Wen‐Shan、Cheng,Hui‐Cheng、Hung,Pao‐Yu
10,000,000～15,000,000		Teng,Chi‐Hung、Li,Chao‐Ming、Tsai,Rong‐Fong、Lin,Chin‐Kuan、Kuo,Hsu‐Kuang、Liao,Chun‐Keng、 Hung,Yu‐Sheng			Teng,Chi‐Hung、Li,Chao‐Ming、Tsai,Rong‐Fong、Lin,Chin‐Kuan、Kuo,Hsu‐Kuang、Liao,Chun‐Keng、 Hung,Yu‐Sheng
15,000,000～30,000,000		Hsu,Hsiang、Chiang,Sheng‐Chang、Huang,Chin‐Ching、Lin,Wen‐Tung、Yu,Hsien‐Neng、Lu,Chi‐Long			Hsu,Hsiang、Chiang,Sheng‐Chang、Huang,Chin‐Ching、Lin,Wen‐Tung、Yu,Hsien‐Neng、Lu,Chi‐Long
30,000,000～50,000,000
50,000,000～100,000,000
Over 100,000,000
	Total	286,939,343					286,939,343
		Names of managers receivingremuneration to employees,and status of allocation thereof
Managers		Title	Name	Stock Amount		Cash Amount	Total	Ratio of Total Amount to Net Income(%)
	President		Hsu,Hsiang	0		72,000,000	72,000,000	1.19%
	President & Chief Executive Officer		Chiang,Sheng‐Chang
	Senior Vice President of Management Committee		Huang,Chin‐Ching
	Senior Vice President of Management Committee		Lin,Wen‐Tung
	Senior Vice President of Management Committee		Yu,Hsien‐Neng
	Senior Vice President of Management Committee		Lu,Chi‐Long
	Executive Vice President & NB BU GM		Kuo,Hsu‐Kuang
	Executive Vice President & GNP BU GM		Liao,Chun‐Keng
	Executive Vice President & CND BU GM		Hung,Yu‐Sheng
	President of the EPS B.U.		Tsai,Rong‐Fong
	President of IPS B.U.		Lu,Hui‐Chang
	Vice President & CPS BU GM		Wu,Ta‐Hsin
	Vice President of Corp. R&D		Teng,Chi‐Hung
	Vice President of Corp.Manufacture &QualityAssurance		Li,Chao‐Ming
	Vice President of Corp. Sales & Marketing		Chiu,Chih‐Keng
	Vice President of Corp. Sales & Marketing		Tung,Ti‐Chun
	Vice President of Corp. SupplyChain		Chen,Te‐Ling
	Vice President of NB BU R&D Division		Lin,Chin‐Kuan
	Vice President of NB Product Mgt. Division		Peng,Jen‐Fang
	Vice President of NB BU R&D Division		Lu,Kuo‐Huang
	Vice President of NB Operations Mgt. Division		Pan,Tsai‐Yu
	Vice President of EPS BU Sales & MarketingDivision		Lu,Cheng‐Lung
	Vice President of ACS ODM R&D Division		Huang,Wen‐Shan
	Vice President of Corp. MarketingDivision		Cheng,Hui‐Cheng
	Senior Special Assistant of President Office Business Planning		Tsai,Wei‐Hsin
	Vice President of Finance & AccountingDivision		Hung,Pao‐Yu
	Assistant Vice President of Internal AuditingOffice		Liu,Chu‐Hao

Note ： To follow the instructions of the competent authority in conducting to promote corporate governance. Retiring ： President ： Mr.Hsu,Hsiang ； new appointments ： President & CEO ： Mr. Chiang,Sheng‐Chang

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3.Compare and state the ratio of total remuneration paid to the company’s Directors, Supervisors, President, and V.P. by the company and the companies in the consolidated financial statements to net income in the last two years; also, describe the policy, standard, and combination of remuneration paid; moreover, the procedure of defining remuneration and its relation to business performance and future risks.

(1)Analyze the ratio of the total remuneration paid to the company’s Directors, Supervisors, President, and V.P. in the last two years to net income:

Year Item	Directors & Supervisors	Directors & Supervisors	President and Vice President	President and Vice President
	Ratio of the total remuneration paid to the company’s Directors, Supervisors in the last two years to net income		Ratio of the total remuneration paid to the President, and V.P. in the last two years to net income
	2018	2017	2018	2017
	0.82%	0.87%	4.75%	4.79%
1.Policies of remuneration	Articles 19‐1 of Incorporation of Micro‐Star International Co., Ltd. The pre‐tax income of the current fiscal year shall first offset the accumulated deficits. If the balance is positive, then the Company shall allocate the remuneration to be distributed to employees, directors and supervisors in accordance with the following ratio. Employee remuneration in the percentage of 6% to 10%. Individuals eligible for employee remuneration include the Company’s employees and the employees of the Company’s subsidiaries meeting certain requirements. Such requirements are to be set by the Board of Directors. Remuneration to be distributed to directors and supervisors shall not exceed 1%. The decision of the percentage of remuneration to be distributed to employees, directors and supervisors set forth in the preceding Paragraph, the forms of distribution (cash or stock dividends) and the amounts and shares thereof shall be made through the special resolutions of the Board of Directors and reported to the shareholders’ meeting. (The Companyestablished an Audit Committee to replace supervisors on June 15,2018)		Carried out in accordance with the Company’s Remuneration Management Regulations, Performance Review Regulation, Employee Bonus Evaluation and Distribution Rules.
2.Criteria and composition of remuneration	The remunerations of directors are distributed based on the number of directors and considering the contribution of individual directors to the Company.		Includes base salary, Duty allowance and performance bonuses.
3.Procedures to fix remuneration	Resolved by the board meeting, and approved by the general meeting of shareholders.		Based on their educational and professional backgrounds.
4.Interrelationship with MSI business	Based on the Company’s performance and profitability.		Remuneration is paid based on target achievement rate, performance, profitability and contribution of the respective.

(2) Except for the Company, all the other companies included in the Consolidated Statement did not pay remunerations for the directors, supervisors, president, and vice presidents of the Company.

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( Ⅳ ) Corporate governance

1.Board of Directors

) Corporate governance 1.Board of Directors
The Board had 11(A)meetings during2018/1/1~2019/4/30:
Title Name	Attendance	By Proxy	Attendance Remarks
	in Person(B)		Rate(%) (B/A)
Chairman Hsu,Hsiang	11	0	100.00%
Vice Chairman Huang,Chin‐Ching	8	3	72.73%
Director Lin,Wen‐Tung	10	1	90.91%
Director Yu,Hsien‐Neng	8	3	72.73%
Director Chiang,Sheng‐Chang	9	2	81.82%
Director Kuo,Hsu‐Kuang	8	0	100.00% Note1
Director Liao,Chun‐Keng	8	0	100.00% Note1
Director Hung,Yu‐Sheng	8	0	100.00% Note1
Independent Director Wang,Sung‐Chou	11	0	100.00% Note2
Independent Director Liu,Cheng‐Yi	11	0	100.00% Note2
Independent Director Hsu,Kao‐Shan	8	0	100.00% Note1、Note2
Note1: June 15,2018 Newly appointed.
Note2: Independent directors attended inperson in 2018 and upto date till the Annual Reportprinted(with			an attendance rate of 100%).

Other mentionable items:

1. Where one of the following circumstances apply for the operations of the Board of Director meetings, the date, session, topic discussed, opinions of every independent directors, and actions of the independent directors’ opinions shall be explained:

2. (1) The Board of Director meetings, the date, session, topic discussed, opinions of every independent directors, and this Corporations’ handling of the opinions of the independent directors shall be explained, please see page 39 ～ 41 of this report.

3. (2) Any one of the matters listed in Article 14‐3 of the Securities and Exchange Act: For resolutions of this Corporation on matters listed in Article 14‐3 of the Securities and Exchange Act, there are no dissenting or qualified opinions from the independent director.

4. (3) In addition to the aforementioned matters, any other resolutions from the Board of Directors where an independent director expressed dissenting or qualified opinions that have been recorded or stated by writ: None

5. 2.If there are directors’ avoidance of motions in conflict of interest, the directors’ names, contents of motion, causes for avoidance and voting should be specified:

(1)Date：2018.2.2、2018.3.23

• Directors’ names：Hsu,Hsiang、Huang,Chin‐Ching、Lin,Wen‐Tung、Yu, Hsien‐Neng、Chiang,Sheng‐Chang 、Tsai,Rong‐Fong、Lu,Chi‐Long Proposal: Remuneration Proposal.

Reason for recusal upon conflicts of interest and voting status: The Board reminded in advance, due to conflicts of interest, should not provide each directors’ remuneration at the meeting.

Hsu,Hsiang、Huang,Chin‐Ching、Lin,Wen‐Tung、Yu, Hsien‐Neng、Chiang,Sheng‐Chang 、Tsai,Rong‐Fong、Lu,Chi‐Long did not take part in the discussions and the voting session, due to conflictsof interest.

(2)Date：2018.7.27、2018.10.4、2019.1.25、2019.3.21

Directors’ names：Hsu,Hsiang、Huang,Chin‐Ching、Lin,Wen‐Tung、Yu, Hsien‐Neng、Chiang,Sheng‐Chang、Kuo,Hsu‐Kuang、 Liao,Chun‐Keng、Hung,Yu‐Sheng

Proposal: Remuneration Proposal.

• Reason for recusal upon conflicts of interest and voting status: The Board reminded in advance, due to conflicts of interest, should not provide each directors’ remuneration at the meeting.

Hsu,Hsiang、Huang,Chin‐Ching、Lin,Wen‐Tung、Yu, Hsien‐Neng、Chiang,Sheng‐Chang、Kuo,Hsu‐Kuang、Liao,Chun‐Keng、Hung,Yu‐Sheng

• 3.Measures taken to strengthen the functionality of the board: The Board of Directors has established a Remuneration Committee to assist the board in carrying out its various duties.

• (1) Voluntarily to establish Independent directors in 2012.

• (2) To accommodate electronic voting during shareholders’ meetings, the Articles of Incorporation were revised on June 17, 2014, and the nomination system is adopted for the election of Board members.

• (3) Proposals in shareholders’ meetings between 2014 to 2016 were voted on one by one and recorded the results of agree, against, and given up of each proposal in the meeting minutes.

• (4) The average attendance rate of all directors at this period (from June 15, 2018 up to date Annual Report printed) was 94.32%。

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2. Audit Committee or Attendance of Supervisors at Board Meetings:

• (1)Attendance of Supervisors at Board Meetings:The Company established an Audit Committee to replace supervisors on June 15, 2018 and the supervisors are relieved of the position starting on that day.

(2)Operation of the Audit Committee:

• 4(A) Audit Committee meetings in 2018, the attendance of the independent directors is as follows:

Title	Name	Attendance in Person (B)	Attendance Rate (%) 【Ｂ/Ａ】	Remarks
Independent director	Wang,Sung‐Chou	4	100.00%	June 15,2018 Newly appointed
Independent director	Liu,Cheng‐Yi	4	100.00%	June 15,2018 Newly appointed
Independent director	Hsu,Kao‐Shan	4	100.00%	June 15,2018 Newly appointed
Other items that shall be recorded: 1. If any of the following applies to the operations of the Audit Committee , the date and session of the Board of Directors’ Meeting, as well as the resolutions, resolutions of the Audit Committee and the corporation’s actions in response to the opinions of the Audit Committee should be stated. (1)Items listed in Article 14(5) of the Securities and Exchange Act. (2)Except the items in the preceding issues, other resolutions approved by two‐thirds of all directors but yet to be approved by the Audit Committee:None. 2. Execution process where the independent director abstain from begin a stakeholder, the name of the director, the content of proposal, the reson of abstinence and the results of the votingshould be stated: None

Audit Committee Meeting Date	Agenda	Audit Committee Resolution Results	Audit Committees’ opinions	Audit Committees’ opinions	Audit Committees’ opinions	Corporation’s responses to the comments of the Audit Committee	Execution process where the independent director abstain from begin a stakeholder	Execution process where the independent director abstain from begin a stakeholder
			Wang,Sung ‐Chou	Liu,Cheng ‐Yi	Hsu,Kao‐Shan
							The reson of abstinence	The results of the voting should be stated
2018.08.09 (2018/1)	(1)Financial Report of second quarter, 2018 (2)Evaluated the report concerning the independence of this Company’s CPA. (3)Revise the corporation’s ”Internal Control System”, “Implementation Rules for Internal Auditing”	Proposal approved	None	None	None	None	None	None
2018.11.09 (2018/2)	(1)Financial Report of third quarter, 2018	Proposal approved	None	None	None	None	None	None
2019.03.21 (2019/1)	(1)2018 Financial Statement of this Company. (2)The Statement on Internal Control System of 2018 of this Company. (3)Amendments to Procedure for the Endorsement and Guarantee Operations Procedure, Operations Procedure for Loaning of Funds to Other Parties, Acquisition and Disposal of Assets	Proposal approved	None	None	None	None	None	None
2019.04.30 (2019/2)	(1)Business Performance Report ‐ First Quarter 2019	Proposal approved	None	None	None	None	None	None

• 3.Communication between directors and head of internal audit and CPA (including material issues, audit methods and results relating to the corporation’s finances and business).

• (1) The internal audit supervisor submits an audit summary report to the Audit Committee on a monthly basis in accordance with the annual audit plan.

• (2) The Company convenes an audit committee, and invites the accounting and auditing supervisors attend and invites relevant supervisors as needed. (3) The independent directors of the Company and the internal audit supervisors and certified accountants can communicate with each other directly and exchange opinions efficiently.

• (4) The independent directors and accountants or internal audit supervisors hold communication meetings on an irregular basis. For the communication details, please refer to the Company's website.https://tw.msi.com/about/company/

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3. Corporate Governance Implementation Status and Deviations from “Corporate Governance Best‐Practice Principles for TWSE/TPEx Listed Companies”

Evaluation Item				Implementation Status	Implementation Status	Implementation Status	Implementation Status	Implementation Status	Implementation Status	Implementation Status	Implementation Status	Implementation Status	Implementation Status	Deviations from “the Corporate Governance Best‐Practice Principles for TWSE/TPEx Listed Companies” and Reasons
	Y	N		Abstract Illustration
1. If the Company established and disclosed Corporate Governance Principles in accordance with Corporate Governance Best‐Practice Principles for TWSE/TPEx Listed Companies?	V			The Company has established the Corporate Governance Best‐Practice Principles based on “Corporate Governance Best‐Practice Principles has been disclosed on the Company’s website.										None
2. Shareholding Structure & Shareholders’ Rights (1) If the Company established internal procedures to handle shareholder suggestions, proposals, complaints and litigation and execute accordingly?	V			In addition to the existing hotline and email channels, the Company has established an internal operating procedure, and has designated appropriate departments, such as Investor Relations, Public Relations, Legal Department, to handle shareholders’ suggestions, doubts, disputes and litigation.										None
(2) If the Company maintained of a list of major shareholders and a list of ultimate owners of these major shareholders?	V			The Finance Dept is responsible for collecting the updated information of major shareholders and the list of ultimate owners of those shares.										None
(3) If risk management mechanism and “firewall” between the Company and its affiliates are in place?	V			「Group business management regulations」are made to strictly regulate the activities of trading, endorsement and loans between the Company and its affiliates. In addition, the “Criteria of Internal Control Mechanism for a Public Company”, outlined by the Financial Supervisory Commission when drafting the guidelines for the “Supervision and Governance of Subsidiaries”, was followed in order to implement total risk control with espect to subsidiaries.										None
(4) If the Company established internal policies that forbid insiders from trading based on non‐disclosed information?	V			To protect shareholders’ rights and fairly treat shareholders, the Company has established the internal rules to forbid insiders trading on undisclosed information. The Company has also strongly advocated these rules in order to prevent anyviolations.										None
3.Structure of Board of Directors and its responsibility (1) Does the Board of Directors set and implement a diversification policy?	V			The Company has the “Corporate Governance Principles” in place and diversified policies are established with regard to the composition of members of the Board of Directors. The directors (including independent directors) are nominated. The Board of Directors members are nominated according to law by shareholders and naturally elected during a shareholders’ meeting. Member diversification is considered by the Board members. Factors taken into account include, but are not limited to gender, age, cultures, educational background, race, professional experience, skills, knowledge and terms of service. The members of board of directors possess a diveres range of expertise in the fields of Operational Decision Making, Operations Management, Crisis Management, Industy Knowledge, International Market Outlook, Leadership Decision Making, Finance& Accounting and law, can adequately fulfill the Company’s future development needs. Name Gender Operational Decision Making Operation Management Crisis Management Industry Knowledge International Market Outlook Leadership Decision Making Finance& Accounting law Hsu,Hsiang Male V V V V V V V V Huang,Chin‐Ching Male V V V V V V Lin,Wen‐Tung Male V V V V V V Yu,Hsien‐Neng Male V V V V V V Chiang,Sheng‐Chang Male V V V V V V Kuo,Hsu‐Kuang Male V V V V V V Liao,Chun‐Keng Male V V V V V V Hung,Yu‐Sheng Male V V V V V V Wang,Sung‐Chou Male V V V V Liu,Cheng‐Yi Male V V V V Hsu,Kao‐Shan Male V V V V										None
				Name	Gender	Operational Decision Making	Operation Management	Crisis Management	Industry Knowledge	International Market Outlook	Leadership Decision Making	Finance& Accounting	law
				Hsu,Hsiang	Male	V	V	V	V	V	V	V	V
				Huang,Chin‐Ching	Male	V	V	V	V	V	V
				Lin,Wen‐Tung	Male	V	V	V	V	V	V
				Yu,Hsien‐Neng	Male	V	V	V	V	V	V
				Chiang,Sheng‐Chang	Male	V	V	V	V	V	V
				Kuo,Hsu‐Kuang	Male	V	V	V	V	V	V
				Liao,Chun‐Keng	Male	V	V	V	V	V	V
				Hung,Yu‐Sheng	Male	V	V	V	V	V	V
				Wang,Sung‐Chou	Male		V		V	V		V
				Liu,Cheng‐Yi	Male		V		V	V		V
				Hsu,Kao‐Shan	Male		V		V	V			V

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(2) If the Company established any other functional committee in addition to Compensation Committee, Audit Committee as required by law?	V		In order for the sound supervision and reinforcement of management, the Company established the Remuneration Committee and Audit Committee. The functional committees shall be responsibilities for the Board of Directors.	The company has not yet established other functional committee. Scheduled to gradually establish according to the laws and regulations as well as the practical requirement of the company.
(3) If the Company established methods and procedures to assess the performance of the Board and conduct assessment on annual basis?	V		The Company has the Guidelines for Evaluating Performance of the Board of Directors in place. Self‐assessments are organized once a year and cover participation in corporate operation, quality of decisions made by the Board of Directors, the composition and structure of the Board of Directors, the election and continuing education of Board directors, among others. The questionnaires were sent out in November 2018 to respective directors. The 2018 Board of Directors self‐assessment was completed on December 31, 2018 and the results are disclosed on the website of the Company.	None
(4) If the Company assess the independence of CPA periodically?	V		The Board has reviewed the qualification of CPA’s independency on August 9, 2017. The review includes the evaluation,as below items: Assessment assessment result(Y/N) Independence (Y/N) The designated accountant does not have direct or indirect financial interest relationshipwith the Company. N Y The designated accountant does not have a financing or guarantee relationship with the Companyor anydirector of the Company. N Y The designated accountant does not have close business relationship or potential employment relationshipwith the Company. N Y The designated accountant does/did not currently/ in the recent two years serve as a director, supervisor, or manager of the Company or play a role having significant influence on the audit case. N Y The designated accountant does not promote or act as an intermediate for the shares or other securities issued bythe Company. N Y The designated accountant does not serve as the advocate of the Company nor as the representative of the Company to mediate the dispute between the Company and anythirdparty. N Y The designated accountant does not have kinship with any directors or managers of the Companyor theperson havingsignificant influence on the audit service. N Y The assessment results show that the declaration of independence has not been breached in the relationship between the Companyand the CPAs;independence disqualified.	None

23

4. Should the listed company establish a department dedicated to corporate governance on a part‐time basis, or assign the responsibility of monitoring corporate governance and related affairs to a person (including but not limited to providing directors and supervisors with the necessary materials for executing their business responsibilities, handling of matters related to the Board of Directors Meeting and the Shareholders' Meeting pursuant to the relevant laws and regulations, handling of company registration and changes in registration status, and preparation of the meeting minutes of the Board of Directors Meeting and the Shareholders' Meeting etc.)?	V			The Financial Department of the Company is set up with dedicated corporate governance personnel who have more than 3 years of experience in the managerial work such as corporate finance, stock affairs and meeting proceedings with the scope of duties as follows: providing the information required by the directors to conduct business, propagating the regulations related to the operation, assisting the directors with compliance with laws and regulations arranging for directors for further study, handling matters related to the board of directors and shareholders' meeting, changing registration and corporate governance, etc. The board of directors pass the resolution on March 21st, 2019 t have these personnel supervised by a corporate governance supervisor who is qualified as a manager and reports the implementation to the board of directors at least once a year. Business execution in the most recent year is as follows: (1) Corporate governance and securities‐related acts promotion (2) Assistance with the convening of Board of Directors and Shareholders Meetings (3) Preparation of the Board's agenda, provision of meeting materials and delivery of notices, reminding of avoidance of conflict of interests, production and mailing of the proceedings (4) Publication of the Company’s major news (5) Arrangement of the annual training of the directors (6) Registration of the shareholders' meeting, and production of the meetings notice, the annual report, the handbooks within the statutory time limit (7) Change registration with the Ministry of Economic Affairs after amendment of the by‐laws or re‐election of directors.	o None
5. If the Company established communication channel with interested parties (Including but not limited to shareholders, employees, customers and suppliers, etc.) and disclosed key corporate social responsibility issues frequently enquired by stakeholders on the designated area of the corporate website?	V			The Company's website has a “Stakeholder Section” under Corporate Social Responsibility, which provides information including investors/shareholders, customers/consumers, suppliers/contractors, employees, government agencies and the media to the stakeholders who are responsible for verification. The information is compiled through public information observatories, the Company’s website, financial reports, corporate social responsibility reports and online questionnaires to confirm the issues concerned by the stakeholders on MSI and degree and importance of the concerns, and prioritize or incorporate the issues of concern into the Company’s annual goals. In addition, the company's website discloses the information of the "Stakeholders' Complaints Channel" and provides the information to the responsible units through the contact window as the communication channel for the stakeholders and the Company responds to the important issues of concern to stakeholders by meetings, phone calls and emails to protect the rights and interests of all stakeholders. Relevant chapters on stakeholder concerns, communication methods and frequency, and information on topics of concern are disclosed at http://tw.msi.com/Corporate Governance/Corporate Social Responsibility/Corporate Social Responsibility Report. The information is reported to the Board of Directors at least once ayear. Disclosure of Information Market Observation Post System http://mops.twse.com.tw (Stock Code:2377) MSI Investor Information https://tw.msi.com/about/investor/ MSICorporate Governancehttps://tw.msi.com/about/company/ MSI Corporate Social Responsibilityhttps://tw.msi.com/html/popup/csr_tw/index.html	None
				Disclosure of Information
				Market Observation Post System http://mops.twse.com.tw (Stock Code:2377) MSI Investor Information https://tw.msi.com/about/investor/ MSICorporate Governancehttps://tw.msi.com/about/company/ MSI Corporate Social Responsibilityhttps://tw.msi.com/html/popup/csr_tw/index.html
6. If the Company engaged professional transfer agent to host annual general shareholders’ meeting?	V			The Company has delegated the share administrations agency of Chinatrust Commercial Bank to handle shareholder meetings and related services.	None
7. Information Disclosure (1) If the Company set up a corporate website to disclose information regarding the Company’s finance,business and corporategovernance?	V			The Company has a section on its website to disclose related information of its finance, operation, and corporate governance. Investors may also obtain information about the Company through the Market Observation Post System http://mops.twse.com.tw.	None
(2) If the Company adopted any other information disclosure channels (e.g., maintaining an English‐language website, appointing designated personnel to handle information collection and disclosure, appointing spokespersons, webcastinginvestors conference,etc)?	V			The Company has websites in 20 languages, including Chinese and English, such ashttp://tw.msi.com/(Chinese) and http://www.msi.com/about/investor (English) and dedicated employees to take charge of the Company’s information collection and disclosure. The spokesperson system isestablished and implemented.	None
8. If the Company had other important information to facilitate better understanding of the Company’s corporate governance practices (including but not limited to employee rights, employee wellness, investor relations, supplier relations, rights of stakeholders, directors’ and supervisors’ training records, the implementation of risk management policies and risk evaluation measures, the implementation of customer relations policies,andpurchasinginsurance for directors and supervisors)?	V			1. Employees’ remuneration policy is regulated the distribution ratio in the Company’s Articles of Incorporation and is handled according to the “Remuneration Guidelines”, “the Employee Performance Regulations”, and “the Employee Remuneration Distribution and Stock Option Regulations”. Operation profits are shared with employees according to the fulfillment rate of business target, performance, and contribution. 2. The Company has an Employee Welfare Committee with steady funds coming from the Company holding events andprovidingbenefitprograms for employees.	None

24

(1) Employee rights				3. Besides having employees covered by Labor Insurance and National Health Insurance as required by law so that they can be assured safety while at work, the Company also offers the group insurance for extra protection to employees and their family.
(2) Employee care employee wellness	V			The Company was certified by OHSAS18001 (Occupation Health and Safety Assessment Series Certification) in December 2003 and received the “health promotion symbol for spontaneous healthy workplace certification”. Besides periodical employee health examinations, the Company has a employee clinic, nursing room, various health‐related tests, workshops, and training from time to time, there are also diversified society events and employees are provided with related consultation services and help solutions on issues such as career, workplace inter‐person relationship, emotions at work, work management, physical and mental stress, communications between husband and wife, child care and education, gender relations, laws in life, wealth management, and tax reduction so that the health of employees in all aspects, physical,mental,and spiritual,is taken well care of.	None
(3) Investor relations	V			The Company discloses information from time to time through the Market Observation Post System and the Company’s website, and has the “Investor Relations Contact Window” available for the shareholders to contact by phone or through email in order to maintain the investor relationship.	No Deviation
(4) Supplier Relations	V			1. In order to protect the rights of suppliers, as long as not against regulatory requirements and damage to our shareholders’ rights, financial information required by the suppliers for the Company’s creditline evaluation will be provided. 2. In order to accomplish sustainable management for the Company and for all suppliers, suppliers continue to be asked to promise compliance with regulations concerning health and safety, the environment, labor, and ethics as well as guidelines for the management system and risk control and suppliers will receive educational training and periodic audits, among other related auxiliary measures, to help them keep enforcing and improving the said regulations andguidelines.	None
(5) Stakeholder rights	V			1. The Company discloses on its website information on corporate governance, finance, sustainability, and products and also related information on the Market Observation Post System for the stakeholders’ reference. 2. The Company has a section “Contact MSI” on website. If stakeholders have issues about economy, environment, and society, they can communicate the issues with the Company through the said channel; this helps protect the rights of respective stakeholders.	None
(6) Further education status of directors and supervisors	V			The Company’s directors, supervisors, and high‐ranking managers receive continuing education as required by “the Directions for the Implementation of Continuing Education for Directors and Supervisors” of TWSE Listed and TPEx Listed Companies on ayearlybasis. The continuingeducationprograms are listed below.	None
(7) Risk management policy and risk measurement measures	V			The Company’s policy towards risk management is to set various rules and regulations in order to weigh and evaluate possible impacts of the various risk matters on the profits and losses of the Company and to stipulate respective response policies accordingly. For the analysis and evaluation of risk matters, other important risks and response measures, please refer to Page 83~85	None
(8) Implementation of customer policy	V			Regulations to be followed are established in the Company’s internal control system to ensure fulfillment of customer service and product protection and the responsible unit is available for real‐time communication during transaction with customers in order to ensure that customers’ rights areprotected.	None
(9) Purchase of liability insurance for directors and supervisors	V			Directors are covered by the Company’s D&O insurance. (And disclosed in the Market Observation Post System http://mops.twse.com.tw)	None
9. Please describe the improvements of the corporate governance evaluation results released by the corporate governance center of the Taiwan Stock Exchange Corporation in the last year, and propose priority matters or measures to strengthen areas yet unimproved. Reasons for failure to get scores during corporate governance rating:

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(1) To improve information disclosure of the English version materials, the English version meeting notice and meeting handbook were produced for the 2017 shareholders meeting and English version meeting notice, meeting handbook and annual report were produced in the 2018 shareholders meeting, both of which were required to be uploaded within a specified period. (2)The Company set up the Audit Committees to replace the responsibilities of the supervisors.

(3)To follow the instructions of the competent authority in conducting to promote corporate governance. Retiring ： President ： Mr.Hsu,Hsiang ； new appointments ： President & CEO ： Mr. Chiang,Sheng‐Chang

Continuing Education/Training of Directors、Supervisors and Managements

Year	TrainingCourse	Host by	Duration	Attendees
2003	Corporate Governance	Fu Jen Catholic University	3 hours	All Directors、Supervisors and Managements
2004	Corporate Governance and Risk Management	The Taiwan Corporate Governance Association	3 hours	All Directors、Supervisors and Managements
2005	Use financial statements to analyze and improve businessperformance	Securities & Futures Institute	3 hours	Directors、Supervisors and Managements
2006	Directors, Supervisors and Senior Managers' Responsibilities for Financial Reporting	Securities & Futures Institute	3 hours	All Directors、Supervisors and Managements
2007	Audit Strategyof Corporate Governance and Enterprise Tax Planning	The Taiwan Corporate Governance Association	3 hours	All Directors、Supervisors and Managements
2008	Business Transformation and Change Management	The Taiwan Corporate Governance Association	3 hours	All Directors、Supervisors and Managements
2009	Brand Management and Innovation	The Taiwan Corporate Governance Association	3 hours	All Directors、Supervisors and Managements
2010	Corporate Governance under International Taxation	The Taiwan Corporate Governance Association	3 hours	All Directors、Supervisors and Managements
2011	Financial statements and analysis of trends in the industry	The Taiwan Corporate Governance Association	3 hours	All Directors、Supervisors and Managements
2012	Disputes and Risks Caused byTaiwan Enterprises' Investment in China	The Taiwan Corporate Governance Association	3 hours	All Directors、Supervisors and Managements
2013	Financial thinkingof business transformation	The Taiwan Corporate Governance Association	3 hours	All Directors、Supervisors and Managements
2014	New Trend of Internal Control Practice ‐ Corporate Social Responsibility and Risk Management	The Taiwan Corporate Governance Association	3 hours	All Directors、Supervisors and Managements
2015	Comprehensively improve adaptability ‐ Enterprise crisis management	The Taiwan Corporate Governance Association	6 hours	All Directors、Hsu,Fen‐Lan、Hsu,Gau‐Shan and Managements
2015	In 2015, the latest tax update issued the latest information analysis	Taiwan CPA Association, ROC	6 hours	Hsu,Jun‐Shyan (National Association of Certified Public Accountants lecturer)
2016	The reform and sustainable management of the board of directors; the key strategies and practices of breakthroughs in business innovation	The Taiwan Corporate Governance Association	6 hours	All Directors、Supervisors and Managements
2017	Big Data Analysis and Corporate Fraud Detection	The Taiwan Corporate Governance Association	3 hours	All Directors(exceptTsai,Rong‐Fong)、Supervisors and Managements
2017	Reconstruction of IT Security Strategy from Cyber Crime View	The Taiwan Corporate Governance Association	3 hours	All Directors(exceptTsai,Rong‐Fong)、Supervisors and Managements
2017	Corporate Governance Forum series‐sustainable operation	Taiwan academyof Bankingand Finance	3 hours	Tsai,Rong‐Fong
2017	2017 Insider Tradingand Corporate Social ResponsibilityForum	Securities & Futures Institute	3 hours	Tsai,Rong‐Fong
2018	The introduction for the latest income tax or value‐added tax reforms in China and the United States and the trend and impact of global anti‐tax avoidance regulations.	The Taiwan Corporate Governance Association	3 hours	All Directors、Managements and Corporate overnance Officer
2018	Global Economic Outlook	The Taiwan Corporate Governance Association	3 hours	All Directors、Managements and Corporate overnance Officer
2018	The 12 thTaipei Corporate Governance Forum	Financial SupervisoryCommission	6 hours	Liao,Chun‐Keng
2018	The 12 thTaipei Corporate Governance Forum	Financial SupervisoryCommission	3 hours	Hung,Yu‐Sheng
2018	2018 Forbid Insider TradingPromotion Meeting	Taiwan Stock Exchange Corporation	3 hours	Hung,Yu‐Sheng、Kuo,Hsu‐Kuang
2018	Discussion on fraud cases of corporate financial statements	Securities & Futures Institute	3 hours	Kuo,Hsu‐Kuang

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4.Professional Qualifications and Independence Analysis of Remuneration Committee Members

(1)Established：The Borad of directors of the company set up the Remuneration Committee on December 18, 2011.

A.Remuneration Committee members information：

Title	Criteria Name	Meets one of the following professional qualification requirements, together with at least five years’ work experience	Meets one of the following professional qualification requirements, together with at least five years’ work experience	Meets one of the following professional qualification requirements, together with at least five years’ work experience	Independence Criteria （Note）	Independence Criteria （Note）	Independence Criteria （Note）	Independence Criteria （Note）	Independence Criteria （Note）	Independence Criteria （Note）	Independence Criteria （Note）	Independence Criteria （Note）	Number of other public companies in which the individual is concurrently serving as an Compensation Committee member	Remarks
		An instructor of higher position in a department of commerce, law, finance, accounting, or other academic department related to the business needs of the company in a public or private junior college, college or university	A judge, public prosecutor, attorney, CPA, or other professional or technical specialist who has passed a national examination and been awarded a certificate in a profession necessary for the business of the company	Have work experience in the areas of commerce, law, finance, accounting, or otherwise necessary for the business of the company	1	2	3	4	5	6	7	8
Independent Director	Hsu,Kao‐Shan												0
Independent Director	Wang,Sung‐Chou												0
Independent Director	Liu,Cheng‐Yi												0

Note：During the 2 years before being appointed or during the term of office, a remuneration committee member shall have been or be any of the following:

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

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

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

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

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

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

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

• 8.Not a person of any conditions defined in Article 30 of the Company Law.

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B. Attendance of Members at Remuneration Committee Meetings

• ① There are 3 members in the Remuneration Committee.

• ② Tenure of the current of Remuneration committee is from June 15, 2018 to June14, 2021. A total of 4 (A) meetings of the Remuneration Committee were held in 2018, The attendance record of the Remuneration Committee members was as follows:

Title	Name	Attendance in Person (B)	By Proxy	Attendance Rate (%) B/A	Remarks
Convener	Hsu,Kao‐Shan	4	0	100%	June 15,2018 Newlyappointed
Member	Wang,Sung‐Chou	4	0	100%
Member	Liu,Cheng‐Yi	4	0	100%
Other mentionable items: 1. If the board of directors declines to adopt or modifies a recommendation of the remuneration committee, it should specify the date of the meeting, session, content of the motion, resolution by the board of directors, and the Company’s response to the remuneration committee’s opinion (eg., the remuneration passed by the Board of Directors exceeds the recommendation of the remuneration committee, the circumstances and cause for the difference shall be specified): None. 2. Resolutions of the remuneration committee objected to by members or subject to a qualified opinion and recorded or declared in writing, the date of the meeting,session,content of the motion,all members’ opinions and the response to members’ opinion should be specified: None.

(2)Scope of duties：

A.

• ① Establishing and periodically reviewing the annual and long‐term performance goals for the directors, supervisors, and managerial officers of this Corporation and the policies, systems, standards, and structure for their compensation.

• ② Periodically assessing the degree to which performance goals for the directors, supervisors, and managerial officers of this Corporation have been achieved, and setting the types and amounts of their individual compensation.

B. Execution in the most recent year

. most recentyear
Remuneration Committee MeetingDate	Session	Agenda	Remuneration Committee Resolution Results	Corporation’s responses to the comments of the Remuneration Committee
2018.01.24	2018/1	(1) Distribution of year‐end bonus for managers of the Company.	Proposal approved	None
2018.03.15	2018/2	(1) Proposed distribution of 2017 compensation for employees, directors and supervisors. (2) Adjustment of the salaries of the Company's managers and distribution ofperformance bonus.	Proposal approved Proposal approved	None
2018.07.27	2018/3	(1) Distribution of 2017 compensation for the Company’s managers, directors and supervisors.	Proposal pproved	None
2018.10.04	2018/4	(1) Distribution of performance bonus of the Company’s managers.	Proposal approved	None
2019.01.25	2019/1	(1) Amendment of various compensation measures of the Company. (2) Promotion of managers and review of their salary structure. (3) Distribution ofyear‐end bonus of the Company's managers.	Proposal approved Proposal approved Proposal approved	None None None
2019.3.13	2019/2	(1) Proposed distribution of 2018 compensation of employees and directors. (2) Adjustment of the salary of the Company’s managers and distribution of theirperformance bonus.	Proposal approved Proposal approved	None None

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5.Implementation of Corporate Social Responsibility

5.Implementation of Corporate Social Responsibility
Item			Implementation Status	Different from “the CSR best practice principles” issued by TWSE and its reason(s)
	Y	N	Summary
1. Exercising Corporate Governance (1)If the Company established corporate social responsibility (“CSR”) policy or system and reviewed its implementation and effectiveness?	V		The Company has established its Corporate Social Responsibilities to be followed and discloses them on the Company’s website and the Market Observation Post System according to the Corporate Social Responsibility Best Practice Principles for TWSE/GTSM Listed Companies. The substantial implementation and enforcement efficacy discussions are described in the following.	None
(2)If the Company conducted CSR related trainings?	V		Besides educational training on social responsibilities for new hires, the Company also holds educational training and meetings to communicate to existing employees from time to time. For suppliers,the Companyholds supplier conferences and field auditsperiodically.	None
(3)If the Company set up a unit exclusively or concurrently to execute CSR policies and if the Board appointed member(s) of management team to supervise and report its implementation status to the Board?	V		With regard to the framework of corporate social responsibilities promoted by the Company, the Board of Directors authorizes the general manager to command respective full‐time (part‐time) units to establish and discuss corporate social responsibilities‐related policies and the enforcement of systems. Meanwhile, the sustainable development office is available to take charge of organizing related matters on corporate social responsibilities and to periodically report to the Board of Directors. For the operation and implementation status, refer to the Company’s Corporate Social ResponsibilityReport for detailshttp://tw.msi.com.	None
(4)If the Company adopted appropriate remuneration policies, integrated employee performance appraisal with CSR policies, and established a clear and effective incentive and discipline system？	V		The Company has remuneration policies in place. Reasonable salaries and remunerations are given to employees according to their responsibilities and contribution at work as determined by the performance evaluation. Various remuneration regulations are approved by the Remuneration Committee. Meanwhile, the “Work Rules” of the Company clearly specify employee behavior and discipline, award/punishment are given according to employee performance.	None
2.Fostering a Sustainable Environment (1)If the Company endeavored to utilize resources more efficiently and utilized renewable materials which have a lower impact on the environment?	V		Based on the requirements of international regulations, customer requests and eco‐labels, we identify related environmental aspects and impacts according to the standard process to discover significant influences as priorities for improvement. With technology and cost feasibility, we establish rigorous requirements for design management and implement them on product life cycle by considering resource conservation, recycling and reuse, energy saving, pollution prevention and other environmental impacts. 1. The packaging materials are designed in a way that they can be decomposed by hand without using tools for reduced consumption of composite materials. 2. The instruction manuals are electronized to realize paperless product publications for reduced use of pulp. 3. Modular design is adopted for products to improve recycling efficiency. 4.Soy ink is used for packaging and printing pigments to improve the recycling rate of packagingmaterials when discarded.	None

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(2)If the Company established proper environment management system based on the characteristics of the industry where the Company belongs to?	V		We establish related environmental management methods according to the operating and production characteristics. MSI have passed the certifications of ISO 14001、IECQ/QC 080000、ISO14064‐1 & 2、ISO 14006 and ISO 14072.	None
(3)If the Company monitored the impact of climate change on the Company’s business operations, checked greenhouse gas inventory and established corporate strategies on energy conservation and reduction on carbon and greenhouse gas emission?	V		The probability and severity of natural disasters (including drought, mites, snowstorms, high temperature/heat waves, typhoons/strong rainfall) brought about by extreme weathers may affect the Company's production and operations. The risks may include production constraints, operations, equipment, and investment cost rise and inefficiency, etc. By including the issue of climate change in the risk management of sustainable business operations. MSI aims to implement climate change management mechanism through “mitigation” and “adaption” for reduction of the magnitude of impact of climate change on businesses. The Company also strengthens its resilience through the risk through adoption of the carbonation measures of feasibility assessment through the management mechanism of climate change in the two directions of “mitigation” and “adjustment”. Continue to pay attention to changes in relevant domestic and international regulations after the Paris Climate Agreement and evaluate the internal response of the company. The Company strengthens its resilience through appropriate regulatory measures with the specific mehods as follows: (1)Regularly check and update the organization's carbon footprint to achieve the goal of organizing greenhouse gas reduction. (2)Evaluate feasible technologies and materials for product design and reduce energy loss of products. (3)Save water, improve the reuse rate of rainwater and wastewater, and establish emergency measures for water resources.	None
3.Preserving Public Welfare (1)If the Company followed relevant labor laws, and internationally recognized human rights principal, and established appropriate management policies and procedures?	V		MSI is a melting pot of talents from different ethnic groups all from over the world. Therefore, we treat employees in the same way without distinction of any kind, such as race, color, sex, age, religion, political or other opinions, national or social origins, or other status. All the employees are treated equally with regard to their opportunities in employment, appraisal, promotion, salary, benefits and training to ensure equality of their rights. We ensure to respect labor rights and the implementation of equal treatment.	None
(2)If the Company established grievance channel for employees and handled complaints appropriately?	V		The Company has the employee assistance plan (EAP) and audit office mailbox available for employees to file a complaint anonymouslyor non‐anonymously.	None

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(3)If the Company provided safe and healthy working environment to employees and conducted relevant training on safety and health management to employees periodically?	V		The Company has established labor safety and health management units, environmental safet health management committees, food committees and medical offices and other related unit regular safety and health education for employees and contractors to provide a safe working environment and ensure the physical and mental health of employees. The company has received the OHSAS18001 Occupational Safety and Health Management Sys Certification and the “Healthy Workplace Self‐certified Health Promotion Label”. In order to p the safety of the working environment and physical protection of employees, the company co to carryout related equipment maintenance and safetytesting.	The Company has established labor safety and health management units, environmental safet health management committees, food committees and medical offices and other related unit regular safety and health education for employees and contractors to provide a safe working environment and ensure the physical and mental health of employees. The company has received the OHSAS18001 Occupational Safety and Health Management Sys Certification and the “Healthy Workplace Self‐certified Health Promotion Label”. In order to p the safety of the working environment and physical protection of employees, the company co to carryout related equipment maintenance and safetytesting.	y and s and tem romote ntinues None
			Item	Equipment Maintenance(SafetyTest)
			Firefighting (fire extinguisher,smoke detector)	Once/Monthly, quarterly
			Air conditioning (heat dissipation, blower, ice water host)	Once/Monthly, quarterly	No
			Electricity (generator, power outage maintenance)	Once/Monthly, quarterly
			Carbon dioxide	Once/Biannually (Test)
			Noise	Once/Biannually (Test)
			Illuminance	Once/Annually (Test)
			Wind speed control(laboratorylocal exhaust)	Once/Annually (Test)
			Organic solvent (isopropyl alcohol, methanol, n‐hexane)	Once/Biannually (Test)
			Lead,tin	Once/Biannually (Test)
			Drinkingwater	Biannually (Samplingtest)
			Employee cafeteria food ingredients and tableware	Bimonthly (Samplingtest)
(4)If the Company established a periodical communication mechanism to employees and notified employees of significant changes that may impact the Company’s operation in a proper manner?	V		In order to maintain sound communication channels with its employees, the Company also encourages employees to make suggestions. There are the internal portal website and the email where the Company completely discloses employee information, management guidelines, and operational announcements so that employees know in real time major changes in operations.		None
(5)If the Company provided career planning, relevant training and skill development for employees?	V		The Company highly values training and career developments for its employees. In order to continue promoting quality talent cultivation and key skills management, there are the Regulations Governing Educational Training that address continuing education and training for employees. Meanwhile, budget is appropriated on a yearly basis to facilitate organization of various types of educational training. Lecturers are hired periodically or from time to time to hold workshops. Reflective of the different rankings and levels of professionalism, internal or external educational training is provided to help employees form complete professional skills and inspire them to seek self‐growth.		None
(6) If the Company established any consumer protection measures with regard to the process of research and development, procurement, production, operations and services and its grievance channels?	V		Besides purchasing appropriate product liability insurance in order to protect the rights of customers and consumers, global service systems are created in countries and regions such as Taiwan, Europe, America, Japan, Korea, and China, including self‐operated or outsourced maintenance sites and customer service centers and websites that have multiple language options. Downloading and updates online, after‐sales service, product maintenance and repairs,technical support,and complaintprocedures are available for consumers as well.		None
(7)If the Company followed relevant laws and regulations and international guidelines on marketing and labeling of products and services?	V		Products by Micro‐Star are marketed and labeled in compliance with applicable laws and regulations and industrial standards and there are dedicated departments to make sure that requirements are fulfilled according to internal operating and regulatory documents. Product verification, quality control, and third‐party testing help ensure that products are marketed and labeled in compliance of applicable standards.		None

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(8)Prior to engaging commercial dealings, if the Company assessed whether the supplier had track record o negative impact on the environment and society?	V		The Company has established the Supplier Management Guidelines. New suppliers go through evaluation that covers human rights, the environmental and social responsibilities. For existing suppliers, there are also supplier evaluations from time to time in order to ensure that suppliers comply with corporate social responsibilities. It also reduces losses in bilateral transactions orgood will because of the environmental or social responsibilities.	None
(9)If the contracts with major suppliers stipulated a clause that allowed the Company to terminate or rescind the contract at any time shall the suppliers violate CSR policies and cause significant impact to the environment and society?	V		The Company specifies in the supplier procurement contract that if suppliers violate its corporate social responsibility policy and the violation has a significant influence on the environment and the society, Micro‐Star may terminate or dismiss the terms and conditions in the contract at any time. The Company also enforces the policy that requires all suppliers to sign its customprocurement contract.	None
4.Enhancing Information Disclosure If the Company disclosed CSR report and other relevant information on its corporate website and MOPS?	V		Through the Chinese and English web pages of the corporate social responsibility section on the Company’s website:http://tw.msi.com/,the Company updates related information on its corporate social responsibilities in real time and discloses it in the Market Observation Post System.	None
5. If the Company established any guideline of corporate social responsibility in accordance with “Corporate Social Responsibility Best‐Practice Principles for TWSE/GTSM‐Listed Companies” and please state the implementation status of the guideline and any reasons for non‐implementation: None. Pursuant to the "Listed Company Corporate Governance Best Practice Principles" and passed by the Board of Directors, the Company has established the "MSI Corporate Governance Best Practice Principles", of which the Board of Directors.
6.Other material information that helps to understand the operation of corporate social responsibility: MSI continues to engage the community and participate in education, charity auction and environmental protection activities through sponsorship and employee volunteers. In Taiwan, we not only get involved in public services through investment of our internal resources, but also joined in the activities of charity groups. Through the process of service to and in the communities, we expand our love and care into the world and unify our employees' values and commitment towards MSI's corporate social responsibilities. MSI will continue to make its presence in services for the rural areas and disadvantaged groups. (1)Education Care A.Support for Education Year The benefited schools(Total) The benefited students(Total) 2018 57 6,812 B.Tutor Service for Disadvantaged Students ①Education Assistance Program For a long time, MSI has been paying attention to the education of children from disadvantaged families. Therefore, we continue to provide tutor services to schools in the North Coast Area. This program aims to help the students develop the foundation skills for learning, help the children from disadvantaged families build self‐confidence, develop their potential and create a caring and loving community with the value of mutual help. Year The benefited schools The benefited class The benefited students 2018 33 113 2,044 ②MSI English Enhancement Program for Students from Disadvantaged Families MSI teamed up with Hsinchu County Government to launch the MSI English Enhancement Program. This program was designed to boost students' willingness to learn English through reading English stories and illustrated story books. The goals are to develop the children's abilities in reading and build the foundation skills for learning of English. This program is expected to close the rural‐urban gap in distribution of learningresources and English learningbrought about bysocio‐economic disadvantages. Year The benefited schools The benefited class The benefited students 2018 23 2,873 360

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C.Technological Creation

MSI PowerTech Creative Technology Program for Youth Arising from the global maker fever and the education ideology of STEAM – science, technology, engineering, art and math – MSI advocates hands‐on and creative science learning. MSI sponsored the fund for a one‐year program. The sponsorship extends to summer PowerTech Camps for elementary and junior high schools in New Taipei City and PowerTech clubs, as well as competitions and training courses. This program aims to boost students' interest in exploring science, develop the potential for technology and cultivate new‐generation technology talents. This industrial‐academic collaboration consolidates corporate and education resources to advocate the idea of creative and innovative science and technology. This program is targeted at enhancing the maker skills of participating students and teachers, as well as learning of general science. Year The benefited schools (Total) The benefited students (Total) 2018 25 1,271 D.New Taipei City Family Day for Children in Special Education The New Taipei City Government Bureau of Education has a wealth of life experience for special education programs students. For each second half of the year, students will have a special school day for family education. They can arrange activities through the Bureau of Education and traffic pick up service to ease the burden of many parents. It will make it easier for children to experience different life experiences. The children are more willing to go outdoors to feel comfortable learning and happy growth. Year Location 2018 Leofoo Village (Hsinchu City) E. Sistema Taiwan Program: Sponsored Sistema Taiwan Charity Music Education Program to help disadvantaged children learn music and develop their potential through art. Under this program, a total of 138 course sessions were organized with 2,484 people served. F.Toy Bank Program: Sponsored the Toy Bank Logistics Center and the toy truck of the Social Welfare Department, New Taipei City Government and organized the toy flagship store to provide service in various ways. By combining and distributing various resources, MSI is able to network with social service units and volunteer manpower to enrich the resources for young children and elderly care in New Taipei City. (2)Assistance with the underprivileged A.Dream‐come‐true Scholarship Fund: Provided the “Dream‐come‐true Scholarship Fund” to help the students in New Taipei City who live in poverty or are challenged by sudden domestic calamity but strive to complete their study so they can be free from the difficulties caused by their family or personal conditions and focus on their study with a peace of mind. B.High‐risk care receivers caring program: Sponsored the MSI Care Program of the Hongdao Senior Citizens’ Welfare Foundation to provide All‐in‐One service to high‐risk families, home caretaking service, respite care service and value‐added service with a total of 369 people/times served in two months. C.Donation of active and passive limbs training machine: Donated the active and passive trainers to the New Taipei City Hospital to provide limbs treatment to the handicapped and the elderly people. with needs for upper and lower limbs of vulnerable groups such as the disabled and the elderly. (3)Corporate volunteering: The clubs formed by the employees of MSI are always enthusiastic in organizing or participating in various charity activities as they pursue their personal growth or indulge themselves in leisure. A. Invoices for New Year couplets: MSI invited its employees to engage in charity work at the end of the lunar year by donating their uniform invoices in exchange for the New Year Couplets. A total of 1,355 invoices were donated to the Taiwan Fund for Children and Families. B.Northeastern Region Cheerleaders of the Intellectually Disabled: MSI volunteers participated the “Cheerleaders Contest of the Intellectually Disabled” to serve as the sharers and helpers for guiding the teams from the schools throughout the contest process.Ya Te Cup Sports Games for the Intellectually Disabled: MSI volunteers participated in the Ya Te Cup Sports Games for the Intellectually Disabled to provide service. C. Tatung Orphanage volunteers: The MSI golf club volunteers assists the Tatung Orphanage with charity service activities such as cleaning, tidying and wall paintings. D. Gardening charity: The MSI gardening club held a Valentine Day bonsai DIY activity and donated the sign‐up fee of 2,700 NTD to the Taiwan Fund for Children and Families. E. Charity donation: The dance club held a charity donation activity through viewing the performance by the IfKids Theatre Studio with the sign‐up fee of 6,300 NTD donated to the Child Welfare League Foundation. F. Charity walking: To care for women’s health and promote the awareness of prevention against breast cancer, the MSI jogging club invited the colleagues to participate in a walking activity held by the Formosa Cancer Foundation and donated all the sign‐up fee to the organization. G. Badge charity sale ： The photography club invited colleagues to make magnetic badges for charity sale. The badges can be placed on the chest or be attached to screens, iron cabinets and refrigerators for display and commemorative purposes. The income from the sale, a total of 10,000 NTD was donated to the ST. Camillus Center for Intellectual Disability.

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(Ⅳ)Medical Assistance
Blood Donation: Since 2002, MSI infirmary in Taipei has invited the local blood center of Taiwan Blood Services Foundation to organize the Fraternity Grows. Besides, MSI Shenzhen periodically holds blood donation activities as
well. Manyemployees roll upsleeves and donate their blood to help patients who are in need to express their fraternity.
Year The number of Employees Bags(250ml)
2018 371 624
(Ⅴ)Bnefit the community
1.The Groundskeeper God Cultural Festival：Sponsored the two‐day Groundskeeper God Cultural Festival organized by the Zhonghe District Office, New Taipei City.
2. Environmental adoption: Adopted the afforested slope beside the Huazhong Bridge and the afforested strip along the Qiaohe Road to beautify the streets and benefit the community.
(VI)Computer donation
1. Walk Beside You Social Care Association in Hualien County: Donated 12 desktops to the Hualien County Walk Beside You Social Care Association with the students of the National Dong Hwa University being teachers to provide
one‐on‐one instruction on English, Chinese and mathematics to the children who are falling behind in their academic study three times a week.
2. Children and Youth Section, Social Welfare Department: Donated 10 desktops to the Young Youth Base of Children and Youth Section, Social Welfare Department, New Taipei City Government‐ development of the youth’s ability
to participate in various issues as citizens, social care, provision of occupation training, counseling, job seeking service platform, referral service.
3. Shi Fu Elementary School in Hualien County: Donated 3 desktops to the “MSI Hope Project” of the Shi Fu Elementary School in Hualien County‐ a remedial teaching workshop and digital experimental teaching program.
4. Rock Social Welfare Foundation: Donated 8 desktops to the Rock Social Welfare Foundation to enhance brain and muscle activity of children with cerebral palsy and reduce or delay their muscle atrophy and cultivate their life
and work skills for them to learn basic typing and clerical skills and acquire job skills and enhance their chance for finding a job in the future.
5. ROC Federation of Spinal Cord Injury: Donated 1 desktop to the ROC Federation of Spinal Cord Injury to help promote prevention education of spinal cord injury.
(Ⅶ) Environmental protection events
1 Planting trees in Jinshan: The Company took part in the Arbor Day coastal forestation at Zhongjiaoshazhu Bay of Jinshan District, New Taipei City. The saplings have been cared by the Tse‐Xin Organic Agriculture Developmental
Fund thereafter so that they could continue to grow strong and exercise the functions of preventing against wind, fixating sand, protecting the coast, reducing flying sand, preventing against invasion by strong wind, and
improving the micro‐climate.
2 Safeguarding wetland ecology: The Company sponsored the wetland rehabilitation plan in Wugu of the Society of Wilderness so that the latter can conduct a wetland ecology census, create a waterfowl beach, have volunteers
to take part, and promote environmental education, among others.
3 Adopting and growing organic rice: The Company adopted 4850 square meters of natural agricultural field in Nanao and harvested the rice before donating it to the Food Bank of the Social Welfare Department, New Taipei City
Government to be the food for minority groups.
4. Beach cleaning: MSI’s swimming club held a beach cleaning activity in the northern coast for a more sustainable beach environment.
(Ⅷ)Emergency relief
1. Donated 5 million NTD to the Hualien County social relief account to help the earthquake victims recover after the disaster.
7.Please provide further description for company product or corporate social responsibility report which is certified by relevant organization:
The MSI 2018 CSR Report is in compliance with the core options in the GRI Standard (2018 version),	and has attained assurance from third party (BSI Taiwan) as part of Moderate Assurance Level in AA1000AS‐2008 Type
MSI 2018 CSR report will be released by June 29, 2019 and can be found on Market Observation Post System.

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6.Implementation of Ethical Practice：

6.Implementation of Ethical Practice：
Indicator	Operation			Variation from Corporate Governance Best Practice Principles and Reason
	Yes	No	Summary
1.Codify Ethical Management Policies and Plans (1)Does the Company demonstrate its ethical management policies in its regulations and documents communicating with external parties, and do the Board and management actively fulfill their commitments through business policy？	V		The Company’s Board of Directors and management are proactively fulfilling its commitment demonstrated in its operation policy. The “EICC Electronics Industry Code of Conduct” was introduced in 2008. Both the Company and suppliers must follow high‐standard ethical requirements, including ethical management and absence of illegitimate income, among others.	None
(2)Does the Company have safeguards against unethical behavior in place including clear procedures, code of conduct, penalties for violations and a grievance mechanism? Are these enforced？	V		In order to prevent against dishonest behavior that occurs during operations, the Company’s Board of “Directors Rules of Procedure” require that directors recuse themselves in proposals concerning their own interest and there are the “Corporate Governance Principles”, “Ethical Management Principles”, “Code of Moral Conduct”, and “Work Rules” in place to govern the moral behavior of directors, supervisors, managers, and employees, punishment upon violation,and appeal systems,respectivelyand theyarepreciselyenforced.	None
(3)Does the Company have safeguards against business activities identified as being at higher risk of unethical behavior in “Article 7 Paragraph 2 or other sections” of the “Ethical Corporate Management Best Practice Principles for TWSE/GTSM‐Listed Companies”？	V		According to regulatory requirements, the Company does not allow bribery or acceptance of bribery, political contributions or improper charity donations, offering or acceptance of unreasonable gifts, hospitality or other illegitimate interest and has reinforced its internal control system in order toprotect againstpossible dishonest behavioral risks.	None
2.Implementing ethical management (1)Does the Company evaluate the ethical record of its transaction parties and explicitly include clauses on ethical behavior in contracts？	V		The Company has articles about honest behavior in its business contract and avoids doing business with people with records of dishonest behavior.	None
(2)Does the Company have a dedicated corporate ethics unit that is overseen and regularly reports to the Board of Directors？	V		In order to prevent against conflicts of interest and to offer channels for proper statements, independent directors form the part‐time unit in charge of ethical management at the Company in order to promote and consolidate honest operations and the unit reports to the Board of Directorsperiodically.	None
(3)Does the Company have a conflict‐of‐interest prevention policy with suitable channels for reportingsuch conflicts,and enforces such apolicy？	V		In case of any illegal condition in violation of honest operation, complaints may be filed with or the condition maybe reported to the Company’s supervisors or the Internal Audit Office.	None
(4)Does the Company have an effective accounting system and internal control system for ensuring ethical management that is regularly audited by an internal audit unit or public auditor？	V		The Internal Audit Office audits the Company’s accounting system, internal control system, and fulfillment of honest operations on a yearly basis according to the Regulations Governing Establishment of Internal Control Systems by Public Companies and the Ethical Management Principles.	None
(5)Does the Company regularly host internal and external training on ethical management?	V		The Company communicates the belief in ethical management on its website and holds internal and external educational trainingsessions for its employeesperiodically.	None
3.Operation of the corporate whistleblower system (1)Does the Company have an explicit whistleblower and incentive scheme in place that protects whistleblowers and assigns appropriate personnel for investigating the target of the whistleblower complaint？	V		In the event that stakeholders discover that the Company’s directors and Independent directors, managers, and employees are engaged in illegal behavior in violation of ethical management (including corruption and immoral behavior), they may file a complaint with or report to the Company’s supervisors or Internal Audit Office. If it is found to be true, punishment will be imposed according to the internal rules and applicable laws and regulations.	None
(2)Does the Company have a standard operating procedure for investigating whistleblower complaints and the related mechanism for ensuringconfidentiality？	V		The Company’s Procedures of Whistleblower stipulate the standard investigation procedure and related confidentialitymechanism through which matters reported areprocessed.	None

35

(3)Does the Company have measures to protect whistleblowers against retaliation？	V		The reporter and the receiving head shall assist the audit unit in conducting an investigation. No unilateral investigation, comments, transcribing the case and the reporter is allowed. No inquiry about or release of the true identity of the reporter or disciplining the reporter and the reportedpartyis allowed,either.	None
4.Greater disclosure (1)Does the Company disclose is ethical management principles and progress on its promotion through its website or the Market Observation Post System website？	V		Besides in the Market Observation Post System, the contents of the Company’s Ethical Management Principles and the promotion efficacy are disclosed on the Company's website http://tw.msi.com/.	None
5.If the Company has drafted an ethical management principle according to “Ethical Corporate Management Best Practice Principles for TWSE/GTSM‐Listed Companies,” the operation of the principle and the deviation from the principle should be clearly stated: The Companyhas established “Code of Ethical” based on TWSE/GTSM’s “Ethical Corporate Management Principles”.
6.Other material information that helps to understand the operation of the Company’s ethical management (such as the Company’s declaration of its resolve and policies to its business partners; the Company’s invitation of trainingto itspartners;and the Company’s revision of its ethical managementprinciples)：None

1. How to search for the Corporate Governance Principles and applicable rules:

2. In order to create a corporate culture of ethical management and normalize its development, the Company has established the Ethical Management Principles, Code of Moral Conduct, and also the Board of Directors Rules of Procedure, Scope of Responsibilities of Independent Directors, and Corporate Governance Principles in compliance with the Corporate Governance Best Practice Principles for TWSE/TPEx Listed Companies (all are disclosed on the Market Observation Post System website http://mops.twse.com.tw) in order to promote the operating efficiency, decision‐making ability of the Board of Directors and the moral standards.

8. Other Information:

• (1)Continuing education for directors: The Company holds seminars on topics relating corporate governance from time to time for directors to attend. The status of continuing education is disclosed on the Market Observation Post System website as required.

• For detailed continuing education received by directors and high‐ranking managers of the Company over the past few years, refer to Page 26 .

• (2) Coverage of directors by liability insurance: The Company revised its Articles of Incorporation on June 9, 2004 that the Board of Directors may be authorized to decide to purchase liability insurance for all directors and supervisors to cover liability risk within the scope of their operation when duty. The Company purchases liability insurance for directors every year and disclose the information on the Market Observation Post System website.

• (3) Presence of absence of an operating procedure for handling significant information: The Company has an operating procedure for handling information in place as part of its internal control system and periodically audits it.

• (4)The selection and remuneration of the company's senior executives were approved by the board of directors and the remuneration committee. In order to implement the succession plan of key management and cooperate with the competent authorities to promote corporate governance. The succession plan was drafted several years ago, including assessment of current high‐ranking managers based on their professionalism, performance, and personality traits, continuous cultivation of successors at all levels within the organization and recruitment of excellent talents when needed to achieve internal benign competition and succession.

• On June 16, 2009, Mr. Chiang Shengchang, an excellent manager, was recruited into the board of directors and was promoted to be the executive vice president and general manager of the Desktop Platform Division in March 2010 so that he can have a complete experience. With the internal organization adjustment on Jan.1, 2019, the succession plan was formally launched as Mr. Hsu Hsiang becoming the chairman of the company and Mr. Chiang Shengchang the general manager and CEO of the Company, adhering to the practice that the chairman and general manager of the Company are not the same person. In the future, the board of directors and management committee will continue to advance the succession plan, implement corporate governance and realize sustainable operation.

36

(5) Annual work focuses and operational situation of the Audit Committee:

	Annual work focuses	Operational situation	Operational situation
1.	Main items reviewed by the audit committee:	Frequency	The first audit committee of the Company was established on June 15, 2018. It consists of three independent directors and Mr. Wang, Sung‐Chou was elected as the convener. The current audit committee has held four meetings as of Apr.30, 2019 and operates smoothly.
	(1)Adoption or amendment of an internal control system pursuant to Article 14‐1 of the Securities and Exchange Act.	Depends on actual needs
	(2)Assessment of the effectiveness of the internal control system.	Onceperyear
	(3)Adoption or amendment, pursuant to Article 36‐1 of the Securities and Exchange Act., of handling procedures for financial or operational actions of material significance, such as acquisition or disposal of assets, derivatives trading, extension of monetary loans to others, or endorsements orguarantees for others.	Depends on actual needs
	(4)A matter bearing on the personal interest of a director.	Depends on actual needs
	(5)A material asset or derivatives transaction.	Depends on actual needs
	(6)A material monetary loan, endorsement, or provision of guarantee.	Depends on actual needs
	(7)The offering, issuance, or private placement of any equity‐type securities.	Depends on actual needs
	(8)The hiring or dismissal of an attesting CPA, or the compensation given thereto.	Once per year
	(9)The appointment or discharge of a financial, accounting, or internal auditingofficer.	Personnel change
	(10)Annual and semi‐annual financial reports.	Once per quarter
	(11)Any other material matter so required by the company or the Competent Authority.	Depends on the situation
2.	Communication with internal audit supervisors	Once per quarter	Communicate with the audit supervisor on the following matters: the annual audit plan, the implementation of the audit plan for the previous year, internal control deficiencies and the improvement of anomalies, the audit report and the follow‐upreport,etc.
	Communication with CPA	Twice a year	Communicate with CPA on the following matters: allowable expression of the financial statements, the annual financial statement check plan, the group's appointed checkingindividuals and the keycheck.

37

1. Internal Control System

2. (1)Statement of Internal Control System

Micro Star International Co., Ltd. Statement of Internal Control System

March. 21, 2019

Based on the findings of self‐assessment, the company states the following with regard to its internal control system in 2018:

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

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

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

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

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

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

7. This Statement has been passed by the Board of Directors in their meeting held on March. 21, 2019 with zero of eleven attending directors expressing dissenting opinions, and the remainder all affirming the content of this Statement.

Micro Star International Co., Ltd.

Chairman：HSU,HSIANG

President：Chiang,Sheng‐Chang

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

38

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

2. The Major Resolutions of Shareholders’ Meeting and Board Meetings in the most recent year and up to the date of the annual report:

(1)Major Resolutions of Shareholders’ Meeting

Meeting date	Abstract of important proposals	Abstract of important proposals	Execution situation	Execution situation	Execution situation	Execution situation
2018.06.15	1. Report Item： (1)Business report of 2017. (2)Supervisors' review report of 2017. (3)Report of Employees’ Compensation and Directors and Supervisors’ Compensation for 2017. (4)Report of Amendments to Code of Ethical Conduct. 2. Adoption Items： (1)To adopt 2017 Business Report and Financial Statements. (2)To adopt the proposal for distribution of 2017 profits. 3. Discussion Items： (1)Amendment to the ‟Articles of Incorporation” (2)Amendment to the ‟Rules Governing the Election of Directors and Supervisors”. (3)Amendment to the ‟Operational Procedures for Loaning of Company Funds”. (4)Amendment to the ‟Operational Procedures for Endorsements and Guarantees ”. (5)Amendment to the ‟Operational Procedures for Acquisition and Disposal of Assets”. (6)Amendment to the ‟ Operational Procedures for Trading Derivatives”. (7)Election of Directors. (8)Proposal of Release the Prohibition on Directors from Participation in Competitive Business.		1. The 2018 shareholders’ meeting minutes were disclosed on the Market Observation Post System website on June 26, 2018. 2. Remunerations for employees, directors, and supervisors were issued on August 3, 2018. 3. Distribution of 2017 earnings: Shareholders’ bonus ‐ dividend in the value of $4.5 per share; August 28, 2018 was set to be the record date and the dividends were issued on September 20, 2018. 4. Revising the ‟Rules Governing the Election of Directors and Supervisors” and renamed to ‟Rules for Election of Directors” ‟Operational Procedures for Loaning of Company Funds” ‟Operational Procedures for Endorsements and Guarantees” ‟Operational Procedures for Acquisition and Disposal of Assets” ‟ Operational Procedures for Trading Derivatives”，and the information was disclosed on the Market Observation Post System website on June 15, 2018. 5、In line with the establishment of the Audit Committee to replace the supervisors, the shareholders meeting in 2018 passed the resolution to amend the articles of incorporation and elected directors (including independent directors). Directors elected: Hsu,Hsiang、Huang,Chin‐Ching、Lin,Wen‐Tung、Yu, Hsien‐Neng、 Chiang,Sheng‐Chang、Kuo,Hsu‐Kuang、Liao,Chun‐Keng、Hung,Yu‐Sheng; Independent directors elected:Wang,Sung‐Chou、Liu ,Cheng‐Yi、Hsu,Kao‐Shan They convened a board of directors meeting and elected Hsu‐hsiang as Chairman and Mr. Huang, Chin‐ching as vice chairman on June 15, 2018. The Ministry of Economic Affairs approved the registration change at on July 31, 2018.
(2)Major Resolutions of Board Meetings
Board of Directors Meeting	Session	Contents proposed		Opinion of independent director		The company’s handling of independent director’s opinion
				Independent Director
				Wang,Sung‐Chou	Liu ,Cheng‐Yi
2018.02.02	2018/1	1.Report Item: (1)Derivative product undertaking. 2.Adoption and Discussion Items： (1)Salary Compensation Committee Recommendation (2)Self‐Evaluation or peer Evaluation of the Board of this Company. (3)Approved the Business Plan of 2018 for this Company.		None	None	None
2018.03.23	2018/2	1.Report Items： (1)Audit reports (2)Derivative product undertaking. 2.Adoption and Discussion Items： (1)Approved the 2017 Financial Statement of this Company. (2)Approved The Statement on Internal Control System of 2017 of this Company. (3)Salary Compensation Committee Recommendation (4)Bank credit line approval. (5)Approved the stipulation of Audit Committee Charter. of this Company. (6)Matters related to the convening of the 2018 shareholders’ meeting. (7)Matters related to the shareholders’ general meeting acceptance of shareholderproposals.		None	None	None

39

		(8)Approved the Election of directors. and Matters related to the shareholders’ general meeting acceptance of directors (independent directors) candidates nominated by shareholders. (9)Approved amendments to Standards for Ethical Conduct. (10)Approved the amendments to the Articles of Incorporation of this Company. (11)Approved title change and amendments to Regulations for the Election of Directors and Supervisors of this Company. (12)Approved amendments to Procedure for the Endorsement and Guarantee Operations Procedure, Operations Procedure for Loaning of Funds to Other Parties, Acquisition and Disposal of Assets, Procedure for Handling Derivatives Trading of this Company. (13)Approved amendments to Procedure for the Rules of Procedure for Board of Directors Meetings, Rules Governing the Scope of Powers of Independent Directors, Remuneration Committee Charter of this Company. (14)Import International Financial Reporting Standard No. 16 "Lease" (15)Capital decrease of the subsidiaries.
2018.05.03	2018/3	1.Report Items： (1)Business Performance Report ‐ First Quarter 2018. (2)Audit reports (3)Derivative product undertaking. 2.Adoption and Discussion Items： (1)Prepare the 2017 surplus distribution proposal of the Company. (2)Review and approval directors (independent directors) candidates nominated by shareholders. (3)Eliminated an anti‐competition restriction for newly appointed directors and their representatives.	None	None	None

		directors and their representatives.
Board of Directors Meeting	Session	Contents proposed	Opinion of independent director			The company’s handling of independent director’s opinion
			Independent Director
			Wang,Sung‐Chou	Liu ,Cheng‐Yi	Hsu,Kao‐Shan
2018.06.15	2018/4	1.Report Items:None. 2.Adoption and Discussion Items： (1)Election of new chairman and vice chairman. (2)Establishment of The Audit Committee. (3)Board of Directors approved to appoint the Remuneration Committee members.	None	None	None	None
2018.07.27	2018/5	1.Report Items: (1)Derivative product undertaking. (2)Liability insurance for Directors and Supervisors of this Company. 2.Adoption and Discussion Items： (1)Approved the proposition to determine the base date for the distribution of cash dividend to shareholders. (2)SalaryCompensation Committee Recommendation.	None	None	None	None
2018.08.09	2018/6	1.Report Items: (1)Report Items: Financial Report of second quarter, 2017. (2)Audit reports 2.Adoption and Discussion Items： (1)Evaluated the report concerning the independence of this Company’s CPA. (2)Approved amendments to”Internal Control System” , ”Implementation Rules for Internal Auditing”. (3) Approved amendments to”Corporate Governance Best Practice Principles”,”Corporate Social Responsibility Best Practice Principles”,”Ethical Corporate Management Best Practice Principles”,”Procedures for halt and resumption applications”.	None	None	None	None

40

2018.10.04	2018/7	1.Report Items: (1)Derivative product undertaking. 2.Adoption and Discussion Items： (1)Salary Compensation Committee Recommendation	None	None	None	None
2018.11.09	2018/8	1.Report Items: (1)Financial Report of third quarter, 2017. (2)Audit reports (3)Derivative product undertaking. (4)Implemented the audit report for Corporate Social Responsibility. (5)Implemented the audit report for ethical corporate management. 2.Adoption and Discussion Items： (1)Approved the 2018 audit plan. (2)Approve the appointment of President of the Company.	None	None	None	None
2019.01.25	2019/1	1.Report Items: (1)Derivative product undertaking. 2.Adoption and Discussion Items： (1)Salary Compensation Committee Recommendation (2)Approved the Business Plan of 2019 for this Company.	None	None	None	None
2019.03.21	2019/2	1.Report Items： (1)Audit reports (2)Derivative product undertaking. 2.Adoption and Discussion Items： (1)Approved the 2018 Financial Statement of this Company. (2)Approved The Statement on Internal Control System of 2018 of this Company. (3)Salary Compensation Committee Recommendation (4)Matters related to the convening of the 2018 shareholders’ meeting. (5)Matters related to the shareholders’ general meeting acceptance of shareholder proposals. (6)Approved the amendments to the Articles of Incorporation of this Company. (7)Approved amendments to Procedure for the Operations Procedure for Loaning of Funds to Other Parties,Endorsement and Guarantee Operations Procedure, Acquisition and Disposal of Assets of this Company. (8)Aappointed Corporate Governance Officer. (9)Approved amendments to Procedure for the Rules of Procedure for Board of Directors Meetings. (10)Bank credit line approval.	None	None	None	None
2019.04.30	2019/3	1.Report Items: (1)Business Performance Report ‐ First Quarter 2019 (2)Audit reports (3)Derivative product undertaking. 2.Adoption and Discussion Items： (1)Prepare the 2018 surplus distribution proposal of this Company. (2)Approval of the Company’s cash distribution with capital reserve.	None	None	None	None

12.Major Issues of Record or Written Statement Made by Any Director Dissenting to Important Resolutions Passed by the Board of Directors in most recent year and up to date of the annual report: None.

13.Resignation or Dismissal of Personnel Involved in the Company:

To follow the instructions of the competent authority in conducting to promote corporate governance. Retiring ： President ： Mr.Hsu,Hsiang ； new appointments ： President & CEO ： Mr. Chiang,Sheng‐Chang

41

( Ⅴ ) CPAs Fees

PAs Fees	PAs Fees
AccountingFirm		Name	of CPA			Period Covered byCPAs’ Audit		Remarks
PricewaterhouseCoopers,Taiwan		Liang,Hua‐Ling	Lai,Chung‐Hsi				2018
							Unit: NT$thousands
Fee Range		Fee Items		Auditing Fees			Non‐AuditingFees
						Amount	Items
1	Below 2,000 thousand					1,676	BEPS Project and Transferpricingfee
2	2,000 thousand(included)~4,000 thousand			3,986
3	4,000 thousand(included)~6,000 thousand
4	6,000 thousand(included)~8,000 thousand
5	8,000 thousand(included)~10,000 thousand
6	Over 10,000 thousand(included)

  1. In case the non‐auditing fees paid to CPAs, CPA firm and the CPA firm’s related party account for over a quarter of the total auditing fees, the auditing amount and non‐auditing amount; also, the non‐auditing service must be disclosed: The non‐audit service project is the BEPS project consultant fee and transfer pricing report.

  2. In case the auditing fee paid in the year retaining service from another CPA firm is less than the auditing fee paid in the year before, the amount of auditing fee before / after the change of CPA Firm and the reasons for the said change must be disclosed: None.

  3. Reduction of auditing fees by more than 15% compared to the previous year: None.

• ( Ⅵ )CPA’s Information:None.

• (VII)MSI’s chairman, president, and managers in charge of its finance and accounting operations did not hold any positions within MSI’s independent audit firm or its affiliates in the most recent year.

• ( Ⅷ )Information on Net Change in Shareholding and Net Change in Shares Pledged by Directors, Supervisors, Department Heads, and Shareholders of 10% shareholding or more

• 1.Changes in Shareholding of Directors, Supervisors, Managers and Major Shareholders:

Unit: shares

				Unit: shares	Unit: shares
Title	Name	2018(Note)		2019/1/1~2019/04/16(Note)
		Holding Increase (Decrease)	Pledged Holding Increase(Decrease)	Holding Increase (Decrease)	Pledged Holding Increase(Decrease)
Chairman	Hsu,Hsiang	0	0	0	0
Vice Chairman & Senior Vice President of Management Committee	Huang,Chin‐Ching	0	0	0	0
Director & Senior Vice President of Management Committee	Lin,Wen‐Tung	0	0	0	0
Director & Senior Vice President of Management Committee	Yu,Hsien‐Neng	0	0	0	0
Director & President & Chief Executive Officer	Chiang,Sheng‐Chang	0	0	0	0
Director & Executive Vice President & NB BU GM	Kuo,Hsu‐Kuang	50,000	0	0	0
Director & Executive Vice President & GNP BU GM	Liao,Chun‐Keng	0	0	0	0
Director & Executive Vice President & CND BU GM	Hung,Yu‐Sheng	0	0	0	0
Independent Director	Wang,Sung‐Chou	0	0	0	0
Independent Director	Liu,Cheng‐Yi	0	0	0	0
Independent Director	Hsu,Kao‐Shan	0	0	0	0
Senior Vice President of Management Committee	Lu,Chi‐Long	0 (155,000)	0	0	0
President of the EPS B.U.	Tsai,Rong‐Fong	0	0	0	0
President of IPS B.U.	Lu,Hhi‐Chang	0	0	0	0
Vice President & CPS BU GM(Note1)	Wu,Ta‐Hsin	0	0	0	0
Vice President of Corp. R&D	Teng,Chi‐Hung	0 (10,000)	0	0	0
Vice President of Corp. Manufacture &QualityAssurance	Li,Chao‐Ming	0	0	0	0
Vice President of Corp. Sales & Marketing	Chiu,Chih‐Keng	0	0	0	0
Vice President of Corp. Sales & Marketing(Note2)	Tung,Ti‐Chun	0	0	0	0
Vice President of Corp. SupplyChain(Note1)	Chen,Te‐Ling	0	0	0	0
Vice President of NB BU R&D Division	Lin,Chin‐Kuan	0	0	0	0
Vice President of NB Product Mgt. Division(Note2)	Peng,Jen‐Fang	0	0	0	0
Vice President of NB BU R&D Division	Lu,Kuo‐Huang	0	0	0	0
Vice President of NB Operations Mgt. Division	Pan,Tsai‐Yu	0	0	0	0
Vice President of EPS BU Sales & MarketingDivision	Lu,Cheng‐Lung	0	0	0	0
Vice President of ACS ODM R&D Division(Note2)	Huang,Wen‐Shan	0	0	0	0
Vice President of Corp. MarketingDivision(Note2)	Cheng,Hui‐Cheng	0	0	0	0
Senior Special Assistant of President Office Business Planning	Tsai,Wei‐Hsin	0	0	0	0
Vice President of Finance & AccountingDivision	Hung,Pao‐Yu	0	0	0	0
Assistant Vice President of Internal Auditing Office	Liu,Chu‐Hao	9,000 (9,000)	0	0	0

Note1: January 1,2019 Newly appointed. Note2: April 1,2019 Newly appointed.

42

2.Information of Shares Transferred: Not transferred to related parties.

3.Information of Equity Pledged: None.

( Ⅸ )Relationship among the Top Ten Shareholders

							2019/04/16 Unit：Share；％	2019/04/16 Unit：Share；％	2019/04/16 Unit：Share；％
Name	Shareholding		Spouse and	Minor	Shareholding by Nominee Arrangement		Name and Relationship Between the Company’s Top Ten Shareholders, or Spouses or Relatives Within Two Degrees		Remark
	Shares	%	Shares	%	Shares	%	Name	Relations
Hsu,Hsiang	51,983,151	6.15%	18,864,257	2.23%	9,376,328	1.11%	Hsu,Fen‐Lan	Spouse
Fubon Life Insurance Co.,Ltd.	32,599,000	3.86%	‐	‐	‐	‐
Cathay Life insurance fully authorizes HSBC Global Asset management (Taiwan) Ltd. Investment Account	27,631,000	3.27%	‐	‐	‐	‐
Lin,Wen‐Tung	25,672,499	3.04%	62,895	0.01%	‐	‐	‐	‐
Huang,Chin‐Ching	20,937,377	2.48%	2,148,564	0.25%	7,521,761	0.89%	‐	‐
Nan Shan Life Insurance Company,Ltd.	19,125,000	2.26%	‐	‐	‐	‐
Lu,Chi‐Lung	18,650,835	2.21%	1,965,350	0.23%	‐	‐	‐	‐
Yu,Hsien‐Neng	17,892,824	2.12%	184,922	0.02%	‐	‐	‐	‐
INVESTEC GLOBAL STRATEGY FUND‐ASIAN EQUITY FUND	16,329,000	1.93%	‐	‐	‐	‐	‐	‐
Hsu,Fen‐Lan	13,408,517	1.59%	57,438,891	6.80%	9,376,328	1.11%	Hsu,Hsiang	Spouse

(Ⅹ)Ownership of Shares in Affiliated Enterprises：

(Ⅹ)Ownership of Shares in Affiliated En	terprises：	terprises：	terprises：	terprises：	terprises：	terprises：
	As of Dec. 31,2018 Unit：Share；％
Long‐Term Investment（Note）	Ownership by MSI		Ownership by Directors,Management or Direct/Indirect affiliates		Total
	Shares	%	Shares	%	Shares	%
MICRO‐STAR INTERNATIONAL(B.V.I.)HOLDING CO.,LTD.	0	0%	47,465,071	100%	47,465,071	100%
MSI COMPUTER CORP.	575,458	100%	0	0%	575,458	100%
MYSTAR COMPUTER B.V.	0	0%	0	100%	0	100%
MSI COMPUTER(AUSTRALIA)PTY. LTD.	221,836	100%	0	0%	221,836	100%
MICRO‐STAR NETHERLANDS HOLDING B.V.	424,000	100%	0	0%	424,000	100%
MSI COMPUTER JAPAN CO.,LTD.	1,400	100%	0	0%	1,400	100%
MSI COMPUTER SARL	0	0%	0	100%	0	100%
MSI COMPUTER(SHENZHEN)CO.,LTD.	0	0%	0	100%	0	100%
MSI COMPUTER(CAYMAN)CO.,LTD.	50,000	100%	0	0%	50,000	100%
MSI COMPUTER(UK)LTD.	0	0%	0	100%	0	100%
MSI ELECTRONIC(KUNSHAN)CO.,LTD	0	0%	0	100%	0	100%
MSI COMPUTER EUROPE B.V.	0	0%	0	100%	0	100%
STAR INFORMATION HOLDING CO.,LTD.	0	0%	4,502,601	100%	4,502,601	100%
MICRO ELECTRONICS HOLDING CO.,LTD.	0	0%	33,315,472	100%	33,315,472	100%
MSI PACIFIC INTERNATIONAL HOLDING CO.,LTD.	30,204,118	100%	0	0%	30,204,118	100%
MSI KOREA CO.,LTD.	0	0%	80,000	100%	80,000	100%
MEGA INFORMATION HOLDING CO.,LTD.	0	0%	0	100%	0	100%
SHENZHEN MEGA INFORMATION CO.,LTD.	0	0%	0	100%	0	100%
MSI POLSKA SP. Z O.O.	0	0%	0	100%	0	100%
MEGA TECHNOLOGY HOLDING CO.,LTD.	0	0%	3,050,000	100%	3,050,000	100%
MSI TRADING(SHENZHEN)CO.,LTD.	0	0%	0	100%	0	100%
MEGA COMPUTER CO.,LTD.	0	0%	1	100%	1	100%
LLC“ MSI COMPUTER”	0	0%	0	100%	0	100%
MSI COMPUTER TECHNOLOGIES LIMITED COMPANY	0	0%	0	100%	0	100%
MSI ITALY S.R.L.	0	0%	0	100%	0	100%
MHK INTERNATIONAL CO.,LTD.	0	0%	1	100%	1	100%
MSI(SHENZHEN)Co.,LTD.	0	0%	0	100%	0	100%
LINKING FUTURE CO.,LTD.	0	0%	1	100%	1	100%
MSI(SHANGHAI)CO.,LTD.	0	0%	0	100%	0	100%
RAIDEALS INC.	0	0%	0	100%	0	100%

Note: Long‐term investment accounted for using equity method.

43

Ⅳ . Capital Overview

( Ⅰ )Capital and Shares

1.Capital and Shares

Unit:1,000 Shares；NT$ thousands

	1.Capital	and Shares	and Shares			Unit:1,000 Shares；NT$ thousands	Unit:1,000 Shares；NT$ thousands	Unit:1,000 Shares；NT$ thousands
Month /Year	Par Value (NT$)	Authorized Capital		Paid‐in Capital		Remark
		Shares	Amount (NT$1,000)	Shares	Amount (NT$1,000)	Sources of Capital	Capital Increased by Assets Other than Cash	Other
1986.08	－	500	5,000	500	5,000	Incorporation	None	－
1990.06	10	3,000	30,000	3,000	30,000	Issuance of Shares for cash 25,000	None	－
1991.08	10	6,000	60,000	6,000	60,000	Issuance of Shares for cash 30,000	None	－
1994.05	10	10,000	100,000	10,000	100,000	Issuance of Shares for cash 40,000	None	－
1995.07	10	18,000	180,000	18,000	180,000	Issuance of Shares for cash 80,000	None	－
1996.10	16	60,000	600,000	40,750	407,500	Issuance of Shares for cash137,500 and Capitalization of retained earnings 90,000	None	JUL 10,1996 Taiwan‐Finance‐Securit ies‐I‐NO.41320
1997.06	30	100,000	1,000,000	70,800	708,000	Issuance of Shares for cash 48,280 and Capitalization of retained earnings 244,500 and Capitalization of employees’ bonuses 7,720	None	APR 28,1997 Taiwan‐Finance‐Securit ies‐I‐No.32301
1998.04	－	126,000	1,260,000	109,200	1,092,000	Capitalization of retained earnings 283,200, Capitalization of reserves 70,800 and Capitalization of employees’ bonuses 30,000	None	MAR 9, 1998 Taiwan‐Finance‐Securit ies‐I‐ No.23751
1999.03	108	126,000	1,260,000	136,800	1,368,000	Issuance of Shares for cash 276,000	None	DEC 17,1998 Taiwan‐Finance‐Securit ies‐I‐ No.98986
1999.07	－	320,000	3,200,000	196,376	1,963,760	Capitalization of retained earnings 547,200 and Capitalization of employees’ bonuses 48,560	None	JUN 10,1999 Taiwan‐Finance‐Securit ies‐I‐ No. 54332
2000.07	－	320,000	3,200,000	291,000	2,910,000	Capitalization of retained earnings 883,692 and Capitalization of employees’ bonuses 62,548	None	MAY 26,2000 Taiwan‐Finance‐Securit ies‐I‐ No.45969
2001.01	－	320,000	3,200,000	291,914	2,919,136	Conversion of bonds 9,136	None	－
2001.05	－	680,000	6,800,000	376,582	3,765,818	Capitalization of retained earnings 729,784 and Capitalization of employees’ bonuses 116,898	None	MAY 23,2001 Taiwan‐Finance‐Securit ies‐I‐No.132149
2002.01	－	680,000	6,800,000	386,027	3,860,270	Conversion of bonds 94,451	None	－
2002.03	－	680,000	6,800,000	395,283	3,952,834	Conversion of bonds 92,564	None	－
2002.07	－	680,000	6,800,000	555,632	5,556,326	Capitalization of retained earnings 1,383,492 and Capitalization of employees’ bonuses 220,000	None	MAY 28,2002 Taiwan‐Finance‐Securit ies‐I‐No.129029
2003.09	－	960,000	9,600,000	660,477	6,604,775	Capitalization of retained earnings 833,448 and Capitalization of employees’ bonuses 215,000	None	JUL 17,2003 Taiwan‐Finance‐Securit ies‐I‐No.0920132258
2003.11	－	960,000	9,600,000	670,395	6,703,956	Conversion of bonds 99,181	None	－
2004.09	－	960,000	9,600,000	756,435	7,564,351	Capitalization of retained earnings 670,395 and Capitalization of employees’ bonuses 190,000	None	JUN 28 ,2004 Taiwan‐Finance‐Securit ies‐I‐ No.0930128388
2005.07	－	1,020,000	10,200,000	782,128	7,821,282	Capitalization of retained earnings 226,931 and Capitalization of employees’ bonuses 30,000	None	JUL 11,2005 Taiwan‐Finance‐Securit ies‐I‐ No.0940127923
2006.07	－	1,500,000	15,000,000	880,562	8,805,624	Capitalization of retained earnings 860,341 and Capitalization of employees’ bonuses 124,000	None	JUL 21,2006 Financial‐Supervisory‐S ecurities‐I No.0950132069
2007.07	－	1,500,000	15,000,000	882,447	8,824,474	Employee stock option exercise 18,850	None	－

44

2007.09	－	1,500,000	15,000,000	947,781	9,477,811	Capitalization of retained earnings 528,337 and Capitalization of employees’ bonuses 125,000	None	JUL 9,2007 Financial‐Superviso ry‐Securities‐I No.0960035165
2007.10	－	1,500,000	15,000,000	950,277	9,502,770	Employee stock option exercise 24,960	None	－
2008.02	－	1,500,000	15,000,000	950,754	9,507,540	Employee stock option exercise 4,770	None	－
2008.05	－	1,500,000	15,000,000	950,937	9,509,372	Employee stock option exercise 1,831	None	－
2008.08	－	1,500,000	15,000,000	951,304	9,513,040	Employee stock option exercise 3,669	None	－
2008.09	－	1,500,000	15,000,000	951,459	9,514,590	Employee stock option exercise 1,550	None	－
2008.10	－	1,500,000	15,000,000	1,007,696	10,076,965	Capitalization of retained earnings 380,374 and Capitalization of employees’ bonuses 182,000	None	JUL 1,2008 Financial‐Superviso ry‐Securities‐I No. 0970032658
2008.10	－	1,500,000	15,000,000	1,008,028	10,080,285	Employee stock option exercise 3,320	None	－
2009.02	－	1,500,000	15,000,000	1,008,074	10,080,745	Employee stock option exercise 460	None	－
2009.04	－	1,500,000	15,000,000	1,008,246	10,082,455	Employee stock option exercise 1,710	None	－
2009.07	－	1,500,000	15,000,000	1,008,742	10,087,416	Employee stock option exercise 4,961	None	－
2009.09	－	1,500,000	15,000,000	1,067,626	10,676,262	Capitalization of retained earnings 504,123 and Capitalization of employees’ bonuses 79,533 Employee stock option exercise 5,190	None	JUL 1,2009 Financial‐Superviso ry‐Securities‐I No. 0980032766
2009.10	－	1,500,000	15,000,000	1,068,132	10,681,322	Employee stock option exercise 5,060	None	－
2010.01	－	1,500,000	15,000,000	1,068,667	10,686,672	Employee stock option exercise 5,350	None	－
2010.05	－	1,500,000	15,000,000	1,069,191	10,691,912	Employee stock option exercise 5,240	None	－
2010.07	－	1,500,000	15,000,000	1,069,249	10,692,492	Employee stock option exercise 580	None	－
2010.11	－	1,500,000	15,000,000	1,069,347	10,693,472	Employee stock option exercise 980	None	－
2011.01	－	1,500,000	15,000,000	1,070,225	10,702,252	Employee stock option exercise 8,780	None	－
2011.04	－	1,500,000	15,000,000	1,071,223	10,712,232	Employee stock option exercise 9,980	None	－
2011.09	－	1,500,000	15,000,000	996,157	9,961,572	Treasury stock cancellation 750,660	None	JUL 4,2011 Financial‐Supervisory‐S ecurities‐I No.1000031682 AUG 26,2011 Financial‐Supervisory‐S ecurities‐I No. 1000040409
2011.11	－	1,500,000	15,000,000	964,157	9,641,572	Treasury stock cancellation 320,000	None	OCT 28,2011 Financial‐Supervisory‐S ecurities‐I No.1000052520
2012.02	－	1,500,000	15,000,000	924,856	9,248,562	Treasury stock cancellation 393,010	None	FEB 13,2012 Financial‐Supervisory‐S ecurities‐I No. 1010004861
2012.04	－	1,500,000	15,000,000	884,856	8,848,562	Treasury stock cancellation 400,000	None	APR 18,2012 Financial‐Supervisory‐S ecurities‐I No.1010016081
2012.07	－	1,500,000	15,000,000	844,856	8,448,562	Treasury stock cancellation 400,000	None	JUL 18,2012 Financial‐Supervisory‐S ecurities‐I No.1010033145

45

(1)Type of shares

(1)Type of shares	(1)Type of shares	(1)Type of shares	(1)Type of shares	(1)Type of shares
As of APR 16,2019 Unit：Shares
ype of shares	Authorized Capital			Remarks
	Issued Shares (Note)	Un‐issued Shares	Total Shares
ommon stock	844,856,199	655,143,801	1,500,000,000	Authorized capital stock, of which, 150,000 thousand shares are reserved for exercising Conversion of bonds and 80,000 thousand shares are reserved for employee stock options.

Note：Listed stock.

(2)Information for Shelf Registration: None.

2.Status of Shareholders

As of APR 16,2019 Unit：Shares	As of APR 16,2019 Unit：Shares	As of APR 16,2019 Unit：Shares	As of APR 16,2019 Unit：Shares	As of APR 16,2019 Unit：Shares	As of APR 16,2019 Unit：Shares
Government Agencies	Financial Institutions	Other Juridical Persons	Domestic Natural Persons	Foreign Institutions & Natural Persons	Total
0	30	222	46,638	624	47,514
0	103,509,940	79,869,768	358,683,140	302,793,351	844,856,199
0.00%	12.25%	9.45%	42.46%	35.84%	100.00%

3.Shareholding Distribution Status

(1)Common Shares

As of APR 16,2019Unit：Shares

(1)Common Shares			As of APR 16,2019Unit：Shares
Class of Shareholding	Number of Shareholders	Shareholding (Shares)	%
1～999	21,860	3,571,496	0.42%
1,000～5,000	20,229	40,055,491	4.74%
5,001～10,000	2,727	20,665,744	2.45%
10,001～15,000	832	10,323,807	1.22%
15,001～20,000	413	7,585,149	0.90%
20,001～30,000	404	10,253,106	1.21%
30,001～40,000	209	7,418,797	0.88%
40,001～50,000	110	5,048,904	0.60%
50,001～100,000	261	18,950,866	2.24%
100,001～200,000	144	20,404,507	2.42%
200,001～400,000	107	30,870,174	3.65%
400,001～600,000	60	29,224,563	3.46%
600,001～800,000	21	14,383,742	1.70%
800,001～1,000,000	17	15,147,557	1.79%
1,000,001 or over	120	610,952,296	72.32%
Total	47,514	844,856,199	100.00%

(2)Preferred share：The company did not issue any preferred share.

46

4.List of Major Shareholders

4.List of Major Shareholders
	As of APR 16,2019 Unit：Shares
Share holding Holder's Name	Shares	％
Hsu,Hsiang	51,983,151	6.15%
Fubon Life Insurance Co., Ltd.	32,599,000	3.86%
Cathay Life insurance fully authorizes HSBC Global Asset management(Taiwan)Ltd. Investment Account	27,631,000	3.27%
Lin,Wen‐Tung	25,672,499	3.04%
Huang,Chin‐Ching	20,937,377	2.48%
Nan Shan Life Insurance Co., Ltd.	19,125,000	2.26%
Lu,Chi‐Lung	18,650,835	2.21%
Yu,Hsien‐Neng	17,892,824	2.12%
INVESTEC GLOBAL STRATEGY FUND‐ASIAN EQUITY FUND	16,329,000	1.93%
Hsu,Fen‐Lan	13,408,517	1.59%

5. Market Price, Net Worth, Earnings, and Dividends per Share

	Unit: Shares;NT$	Unit: Shares;NT$	Unit: Shares;NT$	Unit: Shares;NT$	Unit: Shares;NT$	Unit: Shares;NT$	Unit: Shares;NT$
Items	Year				2018	2017	As of April 30, 2019
Market price per Share	Highest Market Price				131.00	82.00	89.80
	Lowest Market Price				63.50	59.10	71.80
	Average Market Price				92.03	71.69	81.78
Net worth per share	Before Distribution				35.44	32.91	37.14(Note2)
	After Distribution				(Note1)	28.41	(Note1)
Earnings per share	Weighted average shares			Basic	844,856,199	844,856,199	844,856,199 (Note2)
				Diluted	852,782,222	852,219,286	852,397,983 (Note2)
	Earnings per share	Before adjustment		Basic	7.15	5.84	1.55 (Note2)
				Diluted	7.08	5.79	1.53 (Note2)
		After adjustment		Basic	(Note1)	5.84	‐
				Diluted	(Note1)	5.79	‐
Dividends per share	Cash dividends	Dividends from Retained earnings			(Note1)	NT$4.5/Share	‐
		Dividends from Capital Surplus			(Note1)	‐	‐
	Stock dividends	Dividends from Retained earnings			‐	‐	‐
		Dividends from Capital Surplus			‐	‐	‐
	Accumulated undistributed dividends				‐	‐	‐
Analysis of return on investment	Price/Earning Ratio		Basic		12.81	12.19	‐
			Diluted		12.94	12.29	‐
	Price/Dividend Ratio				(Note1)	15.82	‐
	Cash dividendsyield rate				(Note1)	6.32%	‐

Note1: Subject to the approval of 2019 annual shareholders’ meeting.

Note2: 2019Q1 financial report was reviewed by CPA.

47

6.Dividend policy of the company and its implementation

• (1)Dividend Policy

The Company is in a highly changeable industry. Many high‐end lucrative products are in growth. The distribution of dividends shall be made taking into consideration the needs of Company future development and operation, and the interests of shareholders. If the annual results shall have profit, such profits should first pay all taxes and reimburse accumulative loss, then take 10% legal reserve and special reserve according to the Company Act. After previous deductions and reserves, the Company can take 10% to 90% of the distributable earnings plus undistributed retained earnings as bonus. The Board of Directors shall propose profit distribution plan to be approved by the shareholders’ meeting.

• Shareholders’ bonus shall be distributed in accordance with the percentage of the shares owned among the total outstanding shares of the Company. Shareholders’ bonus will be distributed through the forms of both cash and stock dividends. In such distribution combination, cash dividends shall take no less than 30% of the total distributed bonus.

In the event there are deductions under the account of shareholders' equity which cannot be allocated from after‐tax profits of the current fiscal year, whether accumulated from previous year or occurred in the current year, the Company shall allocate sufficient special reserves from the beginning aggregate balance of undistributed earnings and subtract such shareholders’ equity deductions before profits distribution.

• (2)Proposed Distribution of Dividend：

Proposed Distribution of Dividend：	Proposed Distribution of Dividend：
2018
Cash dividend from retain earnings	NT$4.5(per Share)
Cash dividend from capital reserve	NT$0.5(per Share)
Total	NT$5.0(per Share)

(3)Any expected major changes in the dividend policy: None

• 7.Impact to the company's business performance and earnings per share (EPS) for free shares allotment proposed by this shareholders' meeting: Not applicable.

• 8.Compensation for employees and directors

• (1)Quantity or scope of compensation for employees, directors as prescribed by the articles of association (Article 19‐1)

The pre‐tax income of the current fiscal year shall first offset the accumulated deficits. If the balance is positive, then the Company shall allocate the remuneration to be distributed to employees and directors in accordance with the following ratio.

• A.Employee remuneration in the percentage of 6% to 10%. Individuals eligible for employee remuneration include the Company’s employees and the employees of the Company’s subsidiaries meeting certain requirements. Such requirements are to be set by the Board of Directors.

• B. Remuneration to be distributed to directors shall not exceed 1%.

The decision of the percentage of remuneration to be distributed to employees, directors set forth in the preceding Paragraph, the forms of distribution (cash or stock dividends) and the amounts and shares thereof shall be made through the special resolutions of the Board of Directors and reported to the shareholders’ meeting.

• (2) Accouting methods for the differences between the remunerations’ provision amount and actual distribution amount:

• The remunerations provision for employees, directors in 2018 is according to contemporary profits and with reference to the distribution ratio from the year before and the percentage specified in the Articles of Incorporation. In case of any difference between the actual distributed value decided by the Board of Directors, it will be handled as changes in accounting estimates.

• (3)Situation of the Board of Directors’ passing remuneration distribution：

• A. The amount of employee, director remuneration in cash or stock distribution. If it differs from the estimated amount in the recognized expense year, the balance, reason, and handling situation shall be disclosed: The Board of Directirs passed a resolution, determining that the remuneration of employees in 2018 is

• NTD515,000,000, and the remuneration of directors in 2018 is NTD 49,500,000, which are the same as the recognized expense amount in 2018.

• B. The proportion of employee remuneration amount in stock distribution based on the net profit after tax from stand alone financial statements of this period and the total employee remuneration: None

48

• (4)For the actual distribution situation of employees, directors and supervisors remuneration last year (including distributed shares, amount, and stock price), if it differs from the recognized employees, directors and supervisors remuneration, the balance, reason, and handling situation shall be specified:

• In 2017, the relevant information on the employees, directors and supervisors remuneration is summarized below: Employees bonus distribution:NTD 448,000,000; directors and supervisors remuneration distribution: NTD42,900,000. It is the same as the recognized expense amount in 2017.

9.Repurchase by the company of its own shares: None.

• ( Ⅱ )Corporate bond: None.

• ( Ⅲ )Preferred shares: None.

• ( Ⅳ )Overseas depositary receipt: None.

• ( Ⅴ )Employee stock warrant: None.

• ( Ⅵ )Restricted Employee Shares: None.

• ( Ⅶ )The section on issuance of new shares in connection with mergers or acquisitions or with acquisitions of shares of other companies shall specify the following matters:

• 1.If, during the most recent fiscal year or during the current fiscal year up to the date of publication of the annual report, the company has completed any issuance of new shares in connection with a merger or acquisition or with acquisition of shares of any other company：None.

• Where the board of directors has, during the most recent fiscal year or during the current fiscal year up to the date of publication of the annual report, adopted a resolution approving any issuance of shares in connection with a merger or acquisition or with acquisition of shares of any other company：None.

• ( Ⅷ )The status of implementation of capital allocation plans：

• A description of the plan

Where various issuance or private placement of securities have yet to be completed, or have been completed in the most recent 3 years but where the benefits of the plan have yet to be realized：

All securities of the Company have been issued and no unrealized benefits.

• 2.Status of implementation: Not Applicable

49

Ⅴ . Operation summary

( Ⅰ )Business content

1.Scope of business

• (1)The purpose for which the Company is formed shall be as follows:

• Design of various computer hardware and software and manufacture, sale and purchase of computer products, parts and components;

• Manufacture and sale of electronic components and parts;

• Import‐export trading business in relation of the foregoing businesses;

• Agency business for quotation, bid and distribution of related products;

• CC01030 Manufacturing business of electric appliances;

• CC01060 Manufacturing business of wired communications equipments;

• CC01070 Manufacturing business of wireless communications equipments;

• CE01030 Manufacturing business of optical devices;

• CH01040 Manufacturing business of toys;

• F109040 Wholesale business of toys and entertainment products;

• F113020 Wholesale business of electric appliances;

• F113050 Wholesale business of office machines and equipments;

• F113070 Wholesale business of telecommunications equipments and materials;

• F209030 Retail business of toys and entertainment products;

• F213030 Retail business of office machines and equipments;

• F213060 Retail business of telecommunications equipments and materials;

• F213010 Retail business of electric appliances;

• CC01101 Manufacturing business of regulated RF telecommunications equipments and materials;

• F401021 Import business of regulated RF telecommunications equipments and materials;

• CF01011 Manufacturing business of medical equipments;

• F108031 Wholesale business of medical equipments;

• F208031 Retail business of medical equipments;

• CE01010 Manufacturing business of general equipments; and

• ZZ99999 All other businesses not prohibited or restricted by laws and regulations except businesses requiring special permits.

(2)Proportion of each business

2018

		Unit: NT$thousands
Major product	Sales revenue	%
Computer and peripherals	118,527,273	100%

50

• (3) Current products and services of the Company

• A. Motherboard: Intel® and AMD® platform Gaming and Content Creation motherboards

• B. Professional Graphics Card: NVIDIA® and AMD® platform graphics cards ； Professional Gaming Gears: Keyboard, Mouse, Headset, Control Devices

• C. Server: Server system, Workstation, Storage system, Network application system, Intrusion prevention system (IPS) & Unified threat management (UTM), Telecom next generation firewall (NGFW), IoT edge server and gateway, IoT facial recognition gateway.

• D. Desktop computer: Gaming Desktops, Mini Desktops, Desktops, All‐in‐One, Gaming ALL‐in‐One

• E. Industrial computer: Industrial computer motherboard, industrial computer system, POS, PPC, industrial hand‐held tablet, High‐end Harsh Environment Products, Industrial 4.0 and AIoT.

• F. Telematics and Automotive Electronics: FMS Solution, Telematics Solution and Interactive Infotainment Solution.

• G. Laptop: High‐performance flagship gaming laptops, Ultra‐thin and light gaming laptops,High‐performance multimedia laptops, Content Creation laptops, Mobile workstations

• H. Monitors: Gaming Monitors for high‐end gamers

• I. Case: RGB Gaming Cases and Content Creation Cases

• (4) New products (services) planned to be developed

• A. Motherboard:

• Development of motherboard with multi‐core processors for better performance.

• Development of motherboard utilizing the latest AI and human‐computer interaction technology, for better user experience

• Development of motherboard with better thermal solution and more durable components.

• Improvement of the RGB LED effects and better synchronization with other peripherals.

• B. Professional Graphics Cards:

• Development of graphics card and thermal modules with better performance and lower energy consumption.

• Development of overclocking graphics card with the latest technology and components.

• Development of fans with better heat dissipation and lower noise.

• Development of graphics card with improved RGB lighting effects and functions.

• Continuous improvement and integration of graphics card applications.

• Development of graphics card with “Real‐Time Ray Tracing” and “AI deep learning” technologies.

• Professional Gaming Gears:

• Catering to the gamers’ needs, we plan to develop professional “Gaming Keyboard”, “Gaming Mouse”, “Gaming Headset” with innovative functions and effects.

• Development of professional gaming peripherals, like “Gaming control devices”, “Gaming mouse pad”, etc.

C. Server:

• Development of the new generation Server & Workstation for Intel® Whitley & Tatlow platform.

• Development of the new generation Network application system for Intel® Whitley & Tanner Ridge platform.

• Development of the new generation multi‐function IoT facial recognition gateway

• Development of the multi‐function IoT edge server and gateway

• Development of the next generation Telecom firewall (NGFW) 16U system

• Development of the high‐density Unified threat management (UTM) for Intel® Whitley platform

• Enhancement of the new generation Intrusion prevention system (IPS) for Intel® Mehlow platform

D. Desktop computer:

• Development of the gaming desktop series for the newest Intel® 400 platform.

• Innovating the Cubi mini computer series for the newest Intel® CML‐U series platform.

• Continuing the development of the All‐in‐One products for the Intel® platform.

• Continuing the development of the high‐end gaming desktop with the exclusive Silent Storm cooling design.

• Innovating flagship gaming desktop with the industry’s leading skills and technology.

• Continuing the development of desktop computers that caters to the need of the LAN Party gamers.

• Development of a technology that can deeply integrate gaming monitors with gaming desktops.

• Applying AI technology to gaming desktops.

51

 Innovating desktops that are suitable for professionals within the Multimedia and Content Creation industry.

E. Industrial computer:

• Development of the Intel® Coffee Lake fan‐free and expandable PCI Express and PCI Express robust system.

• Development of wide Temperature/Voltage product series which can comply with EN50155/IEC61373 in vehicle Transportation market.

• Development of expansion cards for add‐on values and functionalities.

• Development of industrial M12 connector waterproof and dust‐proof high‐performance system.

• Development of the Intel® Whiskey Lake low‐power consumption and high‐performance fanless super thin digital electronic bulletin board system that includes the HDMI 2.0 high‐resolution image processing feature.

• Development of the newest generation thin high‐performance image processing motherboard with over‐voltage and over‐current protection.

• Development of the changeable‐structured products with an expandable I/O module motherboard integrated with the system.

• Development of the IoT system with a total package solution.

• Development of the single unit digital electronic bulletin board and a beginner's simple editing software to provide a quick and easy advertisement managing solution.

• Development of the Pico‐ITX broad‐temperature small low power‐consumption CPU module product

• Development of the broad temperature small IoT fanless embedded system supporting railway regulations.

• Development of a system that can support two sets of PoE and CAN Bus at the same time.

• Development of an automobile embedded system supporting broad temperature and broad pressure specifications.

F. Telematics and Automotive Electronics:

• FUNTORO FMS Solution focus on fleet efficiency, driver performance, driving safety and cost reduction into one stop total solution for fleet owner combine with hardware, software and cloud‐based services.

• FUNTORO Telematics Solution focus on vehicle management and tracking, driving safety and passenger safety, passenger information/station and route information/public address system integration, interactive advertising and sensor data processing and cloud analyzing with embedded AIoT technology.

• FUNTORO Infotainment Solution focuses on integration with passenger information/CCTV/LED and LCD display/interactive multimedia/smart advertising/passenger load/on‐line shopping. This is ideal for operator making creative cash flow and new business models to get the competitive advantage. With this solution, we provide passengers with new experiences different from traditional multimedia function and operator reaps the benefits from enhanced brand image, increased passenger load and revenue.

G. Laptop:

• Breaking boundaries in design, and leading the advancements in the gaming notebook industry, MSI introduced the first ever thin bezel gaming notebook to the market. Even with reduced dimensions and lightweight, the notebook is still capable of high‐performance and high heat dissipation, bringing the best user experience to users.

• Development of high‐end gaming notebooks with latest graphic cards and CPUs, wide‐view, wide color gamut, high refresh rates, High‐Res Audio for headsets, and single/multi‐colored backlit gaming keyboards. MSI gaming notebooks also come with MSI exclusive features to provide the best visual and auditory user experience, including True Color, for accurate color display, and Giant speaker, for immersive sound.

• MSI worked with famous App emulator Developer to provide MSI App Player, an emulator that can enable users to play mobile games on PCs, to enjoy bigger screen and better performance. It also supports multiple sessions, allowing multiple games/Apps to run smoothly at the same time.

• MSI Prestige Series are developed especially for content creators, and capable of auto‐detecting content creator‐related software and optimize system performance accordingly. Considering creators’ needs for mobility and long‐work hours, Prestige Series are designed to be light weight with long battery life.

• MSI has been dedicated to develop mobile workstations that have been certified by various ISVs to have the best compatibility for their software. MSI has also spent much effort in creating thinner and lighter workstations with higher performance, better heat dissipation capabilities, and best mobility.

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H. Monitors:

• Development of the high‐end curved gaming monitors with features such as wide screen size, 4K and WQHD high resolution.

• Continuing the development of the gaming monitors that adhere to the standard of eSports tournaments.

• Continuing the development of gaming monitors that can show game‐related status and information on the monitor panel

• Applying AI technology to gaming monitors.

• Innovating monitors that are suitable for professionals within the multimedia and content creation industry.

• I. Case:

• Development of the gaming cases focused on the RGB LED effects and can utilize 3D printing technology for personalization.

• Development of the content creation workstation case focused on airflow and space.

2.Industry Overview

• (1) Current Status and Development of the Industry

• According to the IDC data, overall PC shipments in 2018 are still showing a decline. However, continuous introduction of new technologies by the upstream semiconductor industry continues to introduce new technologies, innovation of e‐sports related products, booming development of e‐sports events and broadcast platforms, users' increased demand for high‐end PCs and emerging applications such as internet of things will help increase sales opportunities for related products. The current status of the relevant business development of the company is summarized as follows:

A. Parts and components:

For the overview of the global motherboard market in 2018, the total amount shows a slight decline. However, the booming development of global e‐sports related industries and users' increasing need for high‐end computing have powered up the demand for the middle and high‐level e‐sports dedicated motherboards and the display card. Looking forward to 2019, Intel, AMD and NVIDIA will all have new products launched, and the innovation of many game masterpieces is believed to stimulate PC platform users to upgrade or complete system replacement, the segmentation of demand will continue to be the trend. This will also drive users to choose products that better suit their needs. Considering these two factors, it is expected that MSI motherboards and display cards will have further growth in the middle and high‐end computer market in 2019.

B. Systematic products:

The current global PC market has reached saturation point. High‐end PCs such as e‐sports ones have become the way out for manufacturers to seek transformation and growth, whether they produce desktops or notebooks. Moreover, the booming development of e‐sports‐related industries, the engagement of many operators and the continuous launch of various PC games are conducive to the expansion of the gaming and e‐sports market. MSI has been deeply involved in the field of e‐sports for many years with the system product development centered around users and software and hardware highly integrated as it continues to develop more user‐friendly new functions. In the high‐end PC markets such as e‐sports, MSI has become the first choice for players. In addition, MSI has also created a new high‐performance thin and light notebook for the creators, which adheres to the Company’s tradition of basing the design on the needs of creators with an aim to become the best partner of the creators.

• C. Servers, industrial computers, and automobile electronics:

• Industrial PCs are mainly applied in different industries and in a variety of special purposes; their design and functions are mostly tailored to different customer needs, which belongs to a business model of diverse products in small quantities. Customization and specialty also bring higher gross profits, and the average gross profit margin of global industrial computer manufacturers can reach as high as 30% to 40%. According to IDC statistics, 2018 global server shipments were forecast to grow by 18% to a total of 12 million units. In 2019, shipments are forecast to grow by 2.6% to a total of 12.32 million units. According to the survey by the Topology Research Institute, the global automobile sales volume only increased by 1% in 2019 as compared with 2018, however, the proportion of automotive electronic components is gradually rising. The Industrial Technology Research Institute (IEK) estimates that the global automotive

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electronics market will reach US$360 billion by 2025. The business opportunities are huge. However, as vehicles need to face various weather and terrain challenges, electronic components must pass strict certification, making the technical threshold high and difficult to enter. Once the client’s certification is passed, a long‐term stable suppliership can be established.

(2)Correlation of the upstream, midstream, and downstream of the industry:

Upstream Mid‐Stream Dowmstream

==> picture [451 x 331] intentionally omitted <==

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

Semiconductor
Special IC Motherboard
CPU
Network server
Static memory
Monitor
Logic circuit pinch
Programmable (ROM) Work station
Interface cards
Diode
PSU Desktop
Metallic plastic
PCB Computer case Notebook
CPU socket
Connectors
Computer keyboard
Sockets
Software Soft/Hard Drives
Basic I/O Systems
OS Other I/O
----- End of picture text -----

(3)Product development trends ：

A. Parts and components:

Intel, AMD and NVIDIA are major chip suppliers with new products launched in 2019, of which the specifications and performance will surpass existing products. With the trend of blockchain technology being applied to digital currencies has fading, the demand e‐sports players can finally be met for the market to return to a healthy state; a new wave of high‐end computer markets is expected to grow more significantly as more games become available. As for the manufacturing of PC components, Taiwanese manufacturers such as MSI are still in a leading position.

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• B. Systematic products:

• The computer industry is gradually entering a stage featuring diversified changes. The development of products is no longer limited to the hardware itself; rather, it is the integration of software and hardware platforms. Starting off with the deep demand of users, with regard to systematic products such as laptops and desktop computers, MSI is devoted to integrating hardware and software, addition of new features, and enhancement of audio‐visual experiences. With the addition of Gaming screens to the product line, the PC and the screen are integrated at a depth and features of new software and hardware are re‐defined from the perspective of players so that the two are mutually complementary and players are able to enjoy unprecedented experiences.

• C. Servers, industrial computers, and automobile electronics: Industrial computers are developing toward total solutions from hardware to software and from the front end to the back end. Vertical integration of services and applications requires the capability to develop the firmware and the technicality for vertical integration so that high‐performance, integrative, expansive, and highly compatible system platforms may be applied to a variety of sectors. Therefore, individual manufacturers are developing the vertical integration application market and expediting their technicality required for a high level of integration. A flexible operational pattern and cost leadership will be the new wave of challenges. Cloud computing has brought about structural changes for the server market. The large data center increases the shipment and revenue for server suppliers on the one hand yet the demand for new servers from the business circle will be decreased as businesses are using server applications in a virtual way or using services provided by cloud service providers directly on the other hand. For the server business, MSI's server business continues to have a strategic presence in both ODM and SI operations with the mainstream x86 architecture being the strength for transition to the new platform. The Company also made inroads into the Power architecture market with small shipments and engages in the ODM of global Unified Threat Management (UTM) to provides a comprehensive solution for all‐around security.

In the development of automobile electronics, smart safety is the mainstream, including telematics, self‐driving cars, and the Internet of vehicles, among others. With foreign heavyweight manufacturers putting in resources, Taiwan telematics suppliers are following suit and entering the automobile electronic field. MSI is a long‐term investigator of telematics systems and has built a deep and solid R&D foundation. Certified by related international standards, it will continue to apply its robust capabilities in integrating software and hardware to contribute to total solutions such as FMS.

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3. Overview of Technology and Research and Development

Research and development expenses and technologies or products successfully developed in the most recent year and up to the date the annual report was printed

Unit: NT$thousands

	Unit: NT$thousands
Annual research and development expenditure	Research and development outcome
2018.1.1~2018.12.31 3,347,836 2019.1.1~2019.3.31 781,550	A. Motherboard  Intel®300 series motherboards support the 9th generation core processors.  AMD®400 series motherboards supports the 2nd generation Ryzen™ processors  The M.2 Xpander Aero card is the PCI‐E to M.2 add‐on card with the best thermal solution in the market for user to adopt four M.2 SSD with Raid settings.  The Streaming Boost card is the capture card solution for gamer to get the content from mobile devices and console. It is also a great bridge among PC, console and mobile game market and satisfies the demands from gamers.  The OLED Dynamic Dashboard is an on‐board panel for gamer to monitor all the status. It even allows gamers to put customized logo by themselves.  The pre‐installed I/O Shielding gives end users a better DIY experience via pre‐installed components and prevents users from damaging their motherboard while building the desktop and decreasing the RMA issue.  The Audio Boost HD is the latest sound technology, which enhances the bass effect with powerful sound experience. The Audio Boost HD also received the Hi‐Res Audio certification for its perfect sound performance.  The System Save adopts the special integrated IC and optimized BIOS for end users. It provides user an easy way to reset the default setting or update the latest BIOS to avoid system crash.  Next generation of M.2 Shield Frozr adopts the new improved “sandwich structure” to ensure the M.2 SSD is always in a good temperature environment even under full loading. B. Professional Graphics Cards  Utilized the latest thermal module and GPU to develop graphics card with better performance and lower energy consumption.  Developed graphics card with “Real‐Time Ray Tracing” , “AI deep learning” and “graphic acceleration” technologies, for a new gaming experience.  Developed a total S/W and H/W solution which utilized the latest GPU and visualization software for accelerated operation, to provide stunning images.  Developed professional graphics cards dedicated for block chain application  Developed high‐end graphics card with both water‐cooling and fan‐cooling based thermal solution. The new water‐cooling architecture helps improved overall thermal efficiency for the chipset, memory and power module.  Developed new graphics card with the MSI exclusive patented “TriFrozr” thermal design. This design utilized the latest Torx fan, a huge heatsink and numerous heat pipes to provide the maximum thermal efficiency. The graphics card also provides the cool MSI dragon RGB lighting system for visual satisfaction.  Enhanced the MSI exclusive “TWIN FROZR” thermal module, letting the airflow steering control technology to be more refined, allowing the airflow to be redirected towards the SuperSU heat pipes.  MSI exclusive design of square thermal conduction surface, combined with large super heat pipes, to greatly improve thermal conductivity.  MSI exclusive patented “HybridFrozr” energy‐saving low‐noise technology provides temperature monitoring function, which automatically adjusts fan speed based on actual usage.  Developed the new generation of MSI exclusive patented “Torx Fan 3.0” technology, with a further breakthrough of combining traditional and drainage fan blades, and utilizing a curve shape design, to increase the angle of wind direction and decrease fan noise.  Developed new generation of high‐speed graphics card using the NVLink GPU bridge which can seamlesslyconnect 2 high end NVIDIA® RTX™graphics cards,topreciselyshow 4K high‐definition/

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high‐resolution and high‐speed screen update frequency, eliminate screen aliasing, slow display and input delay, for a smoother gaming experience.  Continuous improvement of MSI exclusive “Afterburner” application, which can accurately monitor and adjust clock, voltage and related parameters. Professional Gaming Gears  Developed Vigor gaming mechanical keyboards for gamers who utilized introverted aluminum dark metal brushed top cover and 4 interchangeable metal key caps. The metal keys caps provide better “feedback feeling” and also prevent key cap printing wear. Vigor keyboard have numerous multimedia control keys, which user can customize for any application.  Developed the first gaming mouse specifically designed for shooting game. This gaming mouse utilized the latest gaming induction motor and Japan‐made gaming micro‐switch, designed specifically for right hand user. It uses the intensive asymmetric mouse foot design, combined with gold plated USB connector and braided cable, to create a Clutch USB Ergonomic Design Gaming Grade Mouse. C. Servers  Development of the new generation Server and Workstation to support latest Intel’s processors to improve computing capability and performance.  Development of the new generation Network application system for Intel® Purley & Mehlow platform to fulfill multi‐application at SDN/NFV and SD‐WAN/vCPE.  Development of the new generation multi‐function IoT facial recognition gateway, and focus on slim and wide‐range application.  Development of IoT edge server and gateway and integrated LPWAN solution to fulfill wireless environment and demand.  Development of the high‐density 6U/4U Unified threat management (UTM).  Development of the new generation Intel® FPGA DDoS attack defense equipment.  Development of the new generation Intrusion prevention system (IPS) for Intel® Mehlow platform D. Desktop computers  Development of the gaming desktops series for the newest Intel® 400 platform, providing the newest products in the industry for the customers.  Innovating the Cubi mini computer series for the newest Intel® CML‐U series platform, combining the fanless design to provide the best user experiences while promoting the life‐span of the products.  Continuing the development of the All‐in‐One products for the Intel® platform, following the beautiful, thin, bezel‐less design trend and supporting the 10 point touch technology, creating an office hardware that is both decorative and convenient for business and personal purposes.  Continuing the development of high‐end gaming desktop with the exclusive Silent Storm cooling design, refining the product lines and establishing the leading position with the industry.  Innovating flagship gaming desktop with leading skills in the industry, providing powerful and noise‐free gaming powerhouse.  Continuing the development of desktop computer that caters to the need of LAN Party gamers, providing both powerful hardware spec and eye‐catching ID design that can take the LAN party by storm.  Development of a technology that can deeply integrate gaming monitors with gaming desktops and achieve best integral experience.  Applying AI technology to gaming desktops. With the information captured in big data, gaming desktops now offers more personal applications.  Innovating desktops that are suitable for professionals within the multimedia and content creation industry, taking in more niche market within the field of desktops. E. Industrial computers  The highly expandable and robust fanless system is researched and developed. The integration ability is higher and it effectively addresses cooling issues.  Development of expansion cards for add‐on values and functionalities,and flexible upgrade.

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		The HDMI 2.0 high‐resolution image and the SPDIF digital sound effects are integrated for added
		value to the audio‐visual digital electronic bulletin board system.
		The low power consumption and low profile are further developed with 2 LVDS dual‐output high
		performance industrial products.
		Developed Industrial M12 connector waterproof and dust‐proof high‐performance systems to
		address the user demand on the outdoor application market.
		The user‐friendly operation is upgraded with reinforced Easy Maintenance and the mechanism
		designed for the maintenance.
		The changeable‐structured products with an expandable I/O module motherboard integrated with
		the system is researched and developed to effectively address the demand on the diversified
		application market for a versatile unit.
		Developed the fanless diversified expandable assembly application system.
		Developed the broad temperature small IoT fanless embedded system
		Developed the built‐in PoE and CAN Bus interfacing inside the embedded system.
		Developed the high performance Coffee Lake CPU module.
		Continuously developing COM Express product line to fulfill the demands of Industrial market
		application.
	F.	Telematics and Automotive Electronics

• FUNTORO Sleeper Bus Solution focuses on specific area to solve the MOD solution weakness. It also integrates the advertising/LBS/remote cloud management to expand the value added function.

• FUNTORO WiFi Streaming MOD Solution focuses on infotainment for bus and coach. It integrates passenger internet access/vehicle information/navigation/advertising/LBS/remote cloud management function.

• FUNTORO Sightseeing Solution focuses on tourism oriented bus operator. It integrates interactive multimedia platform with LBS/backend cloud management system.

• FUNTORO Hybrid Stadium & Arena Solution focuses on sports related activity with wire and wireless multimedia function. It also integrates live event/highlight moment/instant message announcement/F&B ordering and on‐line shopping for stadium or arena owner running new business models.

G. Laptops

		MSI has been dedicated in gaming notebook for more than 10 years. Through professional gaming
		experience sharing, sponsoring gaming events, and absorbing gaming enthusiasts into the
		company, MSI understands gamers’ needs and design products that satisfy gamers’ dreams.
		Incorporated latest technologies, including Intel® 8th Gen. CPUs, in all gaming notebook products
		First to bring gaming notebooks with NVIDIA® RTX™ 20 Series Graphic cards to the market, while
		added multiple gaming features such as Overclocking, auto/manual temperature control, and
		gaming environment optimization.
		MSI is the only company to design different gaming notebooks targeting at different player
		segments: those who desire extreme performance and those who prioritize mobility. Customers in
		each segments group are free to pick the gaming notebook that is most suitable for their user
		behaviors.
		Continued partnership with top Gaming brand Steel Series® to improve backlit gaming keyboard
		and software. Per‐key gaming keyboard allows users to adjust backlight color for each individual
		key. Moreover, keyboard backlights can be linked to designated games to provide different effects
		based on users’ settings.
		In recent years, social media and self‐media flourished, and the needs for graphics and video
		editing grew accordingly. For these creators, MSI designed the Prestige Series, focused on panel
		color saturation and accuracy. It also comes with specially‐designed management software that
		can be used for system optimization and battery life management. MSI is also the first to bring
		Quick Charging, supporting Qualcomm® QC 3.0, to notebooks. MSI has been dedicated to provide
		low‐noise products as well. As a result, MSI’s Prestige became the first and only notebook ever to
		receive Quiet Mark certification, an international approval program awarding designs with minimal
		noises in its category.

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 Expanding market for professional high‐end mobile workstations that are designed for high‐performance graphics cards specialized in computer‐aided design and imagery.  MSI notebooks’ recognition has reached a new height, maintaining the position of gamers’ favorite gaming notebook brand. H. Monitors  Development of the high‐end curved gaming monitor with features such as wide screen size, and 4K and WQHD high resolution.  Continuing the development of the gaming monitors that adhere to the standard of eSports tournaments and expanding the product coverage to the flat screen market.  Development of a technology that can deeply integrate gaming monitors with gaming desktops and achieve the best gaming experience.  Continuing the development of gaming monitors that can show game‐related status and information on the monitor panel. Cooperating with multiple gaming companies to promote the interactivity between the user and monitor, making the monitor more than just a display.  Applying AI technology to gaming monitors. With the information captured in big data, gaming monitors now offers more personal applications.  Innovating monitors that are suitable for professionals within the multimedia and content creation industry. Fine‐tuning the wide color gamut element that all the artists and creators care about.

4.Short‐term and long‐term development plan

• (1)Short‐term development plan ：

Brand marketing: Cultivation and management of distribution channels continued and MSI expects itself to become the No. 1 choice of Gaming products. Self‐brands are being expanded. The overall steady growths in various types of products such as laptops, desktop computers, motherboards, display cards, industrial computers, servers, automobile electronics, among others are the primary development focus in current‐stage business marketing.

OEM: The Company works closely with international heavyweights in order to find out profitable commercial models. The economics of scale approach is adopted to continue bring down the production cost and to enhance the overall profits for the customers and the company.

Research and development, manufacturing, and service: From research and development of products to manufacturing, and mass production, customers are provided with high‐quality products and after‐sales services.

• (2)Long‐term development plan ：

The Company builds on its solid R&D capabilities and has been well received among customers and users with its outstanding quality of products and optimal services. In the future, it will continue to be devoted to creating instant competitive advantages for its core capabilities and seeking opportunities to diversify its operations. Besides motherboards, display cards, laptops, servers, and desktop computers that it specializes in, it will also work hard to gradually become a profitable leader in other products such as industrial computers and automobile electronics.

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• ( Ⅱ ) Market Analysis and The Conditions of Sales and Production: 1. Market Analysis

• (1)Sales Regions:

Unit: NT$ thousands

	Year	2018	2018	2017	2017
Sales Region		Net Sales	%	Net Sales	%
Export sales	Europe	31,237,944	26.36	31,205,584	29.32
	Asia	53,313,499	44.98	45,529,098	42.78
	America	28,327,803	23.90	24,797,274	23.30
	Others	1,972,387	1.66	1,942,280	1.83
Subtotal		114,851,633	96.90	103,474,236	97.23
Domestic sales		3,675,640	3.10	2,945,669	2.77
Total		118,527,273	100.00	106,419,905	100.00

• (2) Market share and market demand and supply and market growth

• A. Market Share

• The Company is one of the heavyweight PC manufacturers in the world, with product lines including motherboards, display cards, desktop computers, laptops, and other commercial products. Because of its continuous devotion to increasing investment in research and development and brand management and focus on high‐end markets with high gross profits such as that for Gaming, the Company is able to secure a steady leading position in terms of the sales and market shares of laptops and display cards. The motherboards, on the other hand, remain steady as one of the Top 3 on the market.

• B. Supply

• PCs are a mature sector. With respective suppliers paying increased attention to the market for high‐end Gaming, competition is turning more and more fierce as well. Estimated by the survey and investigation institute IDC, the global NB shipment in 2019 is expected to consist of around 165 million units, remaining flattish with 2018. As far as desktop computers are concerned, on the other hand, the shipment in 2018 consists of nearly 90 million units, a decline of 5% and a 5% decline is expected for 2019 as well. On emerging markets, however, business opportunities keep growing for Gaming. Multiple brands continue to invest in the research and development as well as marketing of Gaming‐related products. Despite the competition, the Company will continue listening to the users in order to know their needs and will create products that meet users’ needs with its professional R&D capabilities and production technology so as to become the No. 1 high‐end brand referred by users.

• C. Demand

• According to a survey conducted by IDC (International Data Corporation) and Newzoo, the e‐sports industry is booming as the PC market output value and the number of effective players continue to rise. At the same time, the thrive of many live broadcast platforms has also led to the growth of the viewership of the e‐sports games and triggered the interest of more live gaming broadcasters. Therefore, given the two major demands of games and live broadcasts, the performance of low‐cost computers can no longer satisfy players who pursue high performance. The players’ crave for performance has directly pumped up their demand for middle and high‐end personal computers, motherboards and display cards. The significant growth of revenues from gaming of NVIDIA in recent years is also an evidence that the demand for personal computers is moving towards medium and high‐end ones.

• D. Competitive niche and advantageous and disadvantageous factors for future developments as well as response measures

• ① Competitive niche and advantageous factors for future developments

• a. Outstanding product development capabilities

• The Company has a management team with more than 20 years of experiences in research and development and technical experiences. The members are heads of respective business groups and supervisors at the main office. As such, they have a deep understanding of promising technologies and are efficient in making decisions. Meanwhile, they can combine numerous technical trends to make the best of teamwork. Research and development staff, on the other hand, are highly experienced professionals; they contribute to the outstanding R&D accomplishments of the Company and the award‐winning stream of its products over the past years. The excellent rating with regard to its performance by professional media and user referral on respective major markets are the best proof.

• b. Productivity featuring high quality and flexibility

• From design, development, to mass production, the Company is known for its quality mass production technology and highly efficient productivity. Meanwhile, the Company constantly introduces and

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updates automatic and smart equipment in order to improve production quality and to bring down the cost. In addition, the Company has a systematic management process and complete educational training programs for operators so that the product yield rate exceeds 99%, which contributes significantly to both improved quality and product image.

• c. Outstanding management capability

• Information technology products are known for their short life cycle and fast changing prices. Potential competitors do not necessarily come from the same sector. In response to the quick changes in competition on the market, the Company pays attention to market dynamics at all times in order to respond quickly and to reduce the inventory stress. Risk management is concerned, the Company adheres to its credit policy for the security of outstanding accounts recevibable to keep the actual bad debt amount low. Therefore, its management capability demonstrated through both its management of the inventory and accounts receivable is highly recognized.

• d. Sound management system and outstanding product quality

• The Company is certified by ISO9001 Quality Management Systems, ISO14001 Environmental Management Systems, OHSAS18001 Occupational Health and Safety Assessment Series, IECQ QC 080000 Hazardous Substance Process Management System Requirements, IATF Automotive Quality Management System, and TL 9000 Telecommunications Quality Management System. Order processing, material preparation, production control, field management, shipment and environmental protection, safety and health, risk management, and quality assurance are all included as part of standard and specification management. Engineering staff for research and development and manufacturing, among others, are also constantly devoted to the improvement of reasonable and automatic processes and reducing impacts on the environment as well as investigating alternative materials in order to improve the yield rate while at the same time bringing down the cost.

• e. Pursuit of satisfying services for customers

• Customers have increased demand for technical support and after‐sales service. In order to increase customer satisfaction, the Company has after‐sales service centers and online customer service available on major markets so that real‐time assistance can be provided to customers and customers are entitled to convenient and quick services and technical support. The Company can also quickly keep track of market and user dynamics and investigate customer satisfaction to be the basis for quality advancement.

• f. Flourishing developments of the Gaming and gaming sectors

• Statistics of the market survey institute Newzoo show that Gaming games are growing at a two‐digit rate each year. The production value of global Gaming games in 2018 totaled around USD 870 million and it is expected to reach USD 1.1 billion in 2019. Digi Capital also estimates that the income from hardware and software in the global gaming industry will reach USD 230 billion by 2022. Governments around the world are paying increased attention to the Gaming industry and recognition of the industry in society is on the rise, too. There are large Gaming games organized and broadcast both domestically and internationally. The market for the Gaming industry is constantly expanding. The enormous business opportunities deriving from Gaming are a focus of the Company’s products.

• ② Disadvantageous factors for future developments

• a. Short life span of information technology products. Spearheaded by main suppliers that have an effect on product development, downstream manufacturers can only follow market trends or the footsteps of international heavyweights in producing homogeneous products, which tends to result in price cut competition on the market and the difficulty to maintain reasonable profits. Many manufacturers in the industry try to secure their market share by reducing their prices, which, however, also squeezes the room for profitability.

• b. Sectors accounting for a higher ratio in exportation is more easily affected by the volatility of exchange rate. Drastic changes in the exchange rate will affect their profitability.

• ③ Countermeasures

• a. Reinforced collaboration with key part suppliers in the upstream to develop competitive new products early on; devotion to R&D to help improve product efficacy and create high value‐added and touching products for strengthened brand value and for creating reasonable profits for the Company; maintaining sufficient throughput to be capable of accepting ODM/OEM orders from international heavyweight clients and to improve income; and introduction of automatic and smart manufacturing to deal with diversification of products in small quantities and to more flexibly meet customers’ demand by adjusting the production lines.

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  - b. Increased ratio of paying in foreign currencies to bring up the natural hedging ratio to counterbalance assets and liabilities in foreign currencies and continued adoption of hedging measures such as foreign exchange hedging transactions to reduce risks associated with the volatility in exchange rate along with close attention paid to impacts of various policies of major countries, including tax reform and balance sheet reduction in the US and the changes in regional political and economic situations as a result of emerging trade protectionism and cautious response to impacts caused by capital flows in Asian and Central American countries, global exchange rates, and financial credit.

1. Important purposes and production/preparation processes of primary products

2. (1) Purposes of main products

The Company mainly manufactures and sells computers, motherboards, and interface cards. Motherboards are important components of computers that are responsible for output and input features, including sending images, controlling the network, sound effects, and other multi‐media features; they are indispensable for computers.

omputers.
Name of product	Purpose
Motherboard	Important component of personal computers, taking care of internal computing, output, and input features of a computer system, the backbone of a computer
Laptop	A mobile PC with high‐performance calculation.
Interface card	One of the important components of a PC, which converts the display information required by the computer system, drives and controls the display to present correct information, and an important component for human‐machine dialogue.

(2) Production processes

==> picture [482 x 147] intentionally omitted <==

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3. Supply of Major Raw Materials:

Major Products	Major Raw Materials	Suppliers	Supply Status
Motherboard	Integrated Circuit	B	Stable supply available
		C	Stable supply available
	Printed Circuit Board	Global Brands Manufacture Ltd.	Stable supply available
		APCB Electronics (S.Z.)co., Ltd.	Stable supply available

Note: Due to confidential business information and nondisclosure agreement concerns, some real vendors’ names are substituted with codes.

1. Major Customers with over 10% Net Sales and Suppliers with over 10% total Purchases of the Last Two Fiscal Years:

2. (1) Purchases

Major Suppliers of the Last Two Fiscal Years

Unit: NT$ thousands

									Unit: NT$thousands	Unit: NT$thousands	Unit: NT$thousands	Unit: NT$thousands
Year	2018				2017				2019Q1
Item	Name	Amount	Percentage of net annual purchase〔%〕	Relation with issuer	Name	Amount	Percentage of net annual purchase 〔%〕	Relation with issuer	Name	Amount	Percentage of net purchase of Q1〔%〕	Relation with issuer
1	B	23,647,793	22.73	None	B	20,947,946	23.84	None	B	6,629,747	29.61	None
	Others	80,404,710	77.27		Others	66,931,982	76.16		Others	15,760,299	70.39
	Net purchase amount	104,052,503	100.00		Net purchase amount	87,879,928	100.00		Net purchase amount	22,390,046	100.00

Note1: Due to confidential business information and nondisclosure agreement concerns, some real vendors’ names are substituted with codes. Note2: Causes of increase and decrease － Supply chain diversification.

(2) Sales: Not Applicable.

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5. Production Quantities and Values of the Last Two Fiscal Years:

Unit: 1000 pieces; NT$ thousands

				Unit: 1000 pieces; NT$ thousands	Unit: 1000 pieces; NT$ thousands	Unit: 1000 pieces; NT$ thousands
Year Product	2018			2017
	Capacity	Output	Amount	Capacity	Output	Amount
Computer andperipherals	38,689	25,199	98,609,096	47,632	25,654	85,705,873

6. Sales Quantities and Values of the Last Two Fiscal Years:

Unit: 1000 pieces; NT$ thousands

					Unit: 1000 pieces; NT$ thousands	Unit: 1000 pieces; NT$ thousands	Unit: 1000 pieces; NT$ thousands	Unit: 1000 pieces; NT$ thousands
Year Product	2018				2017
	Domestic Sales		Export Sales		Domestic Sales		Export Sales
	QTY	Amount	QTY	Amount	QTY	Amount	QTY	Amount
Computer andperipherals	410	3,675,640	19,250	114,851,633	409	2,945,669	20,771	103,474,236

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( Ⅲ )Employees

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

Item	Year	2018	2017	As of April 30,2019
Employee	Sales & Management	996	925	1,011
	Technician	1,374	1,401	1,356
	Total	2,370	2,326	2,367
Average age(years)		37.80	37.18	38.00
Averageyears of service(years)		8.48	8.01	8.70
Education (%)	Ph.D	0.17	0.17	0.17
	Masters	22.07	22.53	22.31
	College/University	73.50	74.38	73.29
	Senior High School	3.76	2.68	3.76
	Junior High School and below	0.50	0.24	0.47
	Total	100.00	100.00	100.00

( Ⅳ )Environmental expenditures information

The company's operating activities are mainly about the production, assembly, research and development, sales of electronic products and related administrative operations as it belongs to the non‐high pollution and high energy consumption industry, but the MSI is still committed to improving environmental protection and green product management. The relevant performance is as follows:

• 1.The total value of losses or dispositions borne due to polluting the environment, the countermeasures, and possible expenditure in the most recent year and up to the date the Annual Report was printed: None.

2. The management performance of the green products:

• (1) The total amount of fines or derivative losses incurred in the most recent year due to product violations of international environmental laws or clients’ requirements on hazardous substances: None.

• (2) Issued “Green Product Control Regulations” and regularly revises them according to the latest international environmental protection laws and clients’ requirements as the basis for the management of hazardous substances in the supply chain, as well as the internal green product design and selection criteria.

• (3)MSI completed component qualification management more than130,000 parts/components.

3.Environmental Management Performance:

The MSI operating activities are based on compliance with environmental laws 、continuous improvement of processes、work environment and equipment to reduce pollutant emissions、energy consumption and safety and health risks. Each environmental performance has a dedicated unit responsible for management and regular monitoring. The following will describe the status of various environmental performances during the reporting period.

• (1) Passed the ISO 14001 environmental management system certification.

• (2) Passed the 14064‐1 Greenhouse Gas Accounting and Verification Certification for continuous improvement of greenhouse gas reduction.

• (3) Waste disposal and management of organizations and products met environmental protection requirements in 2018.

• (4) The air/noise/sewage test results in compliance with the requirements of the regional regulatory authority in 2018.

4. Greenhouse Gas Management:

• (1) The Company has carried out verification of greenhouse gas emission data since 2008 and has continually and actively implemented energy conservation practices.

• (2) In 2010, the Company began to be surveyed for the Carbon Disclosure Project (CDP).

• (3)MSI is committed to managing carbon emission and greenhouse gas emission. We pledge to achieve the following before 2025: 50% reduction in greenhouse gas emissions (2007 base).

• (4)Greenhouse Gas Emission of the reporting period(2018) : 62,713.95 tons.

• (5)Greenhouse gas emission record has been verified by Bureau Veritas Certification Taiwan (“BVC”).

Unit ： CO2 t CO2e/Year 2018 2017 +‐ Verified by third party 62,713.95 69,557.12 ‐6843.17[IS0 14064‐1 VERIFICATION STATEMENT GREENHOUSE GAS ] EMISSIONS

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5. The electricity saving measures management:

Since the Company deals mainly with factory assemblies and office R&D processes, there are no highly

• energy‐consuming operations at all. Water and electricity account for the majority of our consumption. As such, we are promoting water conservation, electricity saving, and improved power efficiency as part of our energy‐saving efforts. Related measures are described below:

• (1) Opening hours of boilers in the factory regulated living areas: Hot water usage is controlled by the IC card to reduce the use of fuels.

• (2) Use of the air‐compressor residual heat recycle system: Heat generated by the air compressor is recycled and re‐heated to reduce the use of fuels.

• (3) Air‐cooling efficiency regulation: By means of regular inspections, hot spots for air‐conditioning and areas with relatively few people go through proper temperature regulation to reduce the use of electricity resources.

• (4)Zoned electricity consumption control: Electricity meters are installed in respective segments of production lines throughout the factory to control the electricity consumed for air‐conditioning, lighting, and power. This is also enforced for the public cold‐water machine room and nitrogen air compressor machine room.

• (5) Lighting modification: Office spaces of Micro‐Star have all been switched to use LED lights, which does not only increase the required lighting intensity in workplaces but also is more effective in terms of energy‐saving.

6. Waste Electrical and Electronic Equipment Management:

• (1)EU zone: entered into recycling system or undertaken waste product recycling plans according to EU's Waste Electrical and Electronic Equipment (WEEE) Directive and legal requirements in various EU nations. Products sold in EU zones should be entered into local recycling systems, and products need to be labeled with WEEE recycle bin to clearly ensure that we are in full compliance with WEEE Directive's regulations.

• (2)Taiwan: recycling process of waste IT products is primarily handled by the Environmental Protection Administration (EPA) in Taiwan. The Company pays fees pertaining to recycle processing according to regulations for imported products, and these fees will be used toward recycling, issuing subsidies, audit approval for quantities processed, management of recycling firms, and administration duties by the EPA.

• (3) Other zones: the Company undertakes relevant procedures and registers at qualified recycling systems according to local governmental requirements at different regions.

• Corporate environmental protection expenditure and investments in 2017 are described as follows:

Item	Amount (NTD)	The goal and benefits
The total expenditure on environmental protection	14,824,333	Includes waste disposal, sewage control and inspection, external environment management services, management system verification etc.
The total amount of investments in environmental protection	119,120,494	The company's environmental equipment operation and maintenance cost ensure that the equipment is working properly.

(V) Employer‐employee relations

1. The various employee benefits, continuing education, training, retirement system available at the Company and their implementation and the agreement between the employer and employees as well as protection of the various rights of employees

(1)Employee benefits:

The Company believes in sharing its operational accomplishments with its employees. We have the Employee Welfare Committee in place and we plan benefits for employees according to the Employee Welfare Guidelines so that our employees have a steady life and their rights are protected. The various benefits we offer to employees include group insurance, birthday giftfund, child birth and wedding giftfund, funeral and illness consolationfund, gifts (vouchers) on Labor Day and Mid‐autumn Festival, arts and cultural events, society activities, periodic health examinations, travel subsidies, employee restaurants, cafeteria, dormitory, subsidies for gatherings, library, medical assistance room, nursery room, outstanding performance reward, year‐end bonus, employee rewards, and other preferred solutions from time to time.

(2) Employee health management:

The Company cares about the health of its employees. There are professional medical assistance rooms available on respective premises and health examinations are organized periodically in order to keep track of and care about employees with abnormal health conditions. During flue seasons, there are reminders for employees so that they

66

reduce visiting public areas and pay closer attention to personal hygiene. The Company also reinforce cleaning and disinfection of office areas and pay for the French trivalent Pasteur flu vaccine that it arranges for staff to receive. If a rapid screen is determined by the physician that finds a positive flu result, the employee will be entitled to 3 consecutive days off on official leave so that he/she can stay home and get well soon.

• (3)Employee Assistance Program (EAP) ：

The Employee Assistance Project (EAP) was initiated on 1 November, 2011. By dialing 8585 (help me, help me in Taiwanese), employees can get help for the following issues: work stress, emotional problems, tax, legal affairs, medical care, and others. By combing internal and external services, EAP helps employees to solve related problems and release work stress and emotions to regain mental health, so that their family will not need to worry about their physical and mental condition.

(4)Employee Development:

• Employee development is our focus. Given employees are indispensable from the future development of MSI; therefore, we begin with the selection, education, and retention of employees. As for employee education, we start from plan and implement internal and external training for employees. We have also established the Training and Education Management Regulations as the reference of continuing education and internal training of employees. Employees at MSI can receive continuing education and seek self‐development through comprehensive learning channels and resources, such as internal training, external training, and expatriation. A.Newcomer general education

• Regularly held newcomer consensus trainings with contents including work rules, employees' rights and related channels, the introduction to the MSI management system, green product concept, and corporate laws, general education of hazardous substance, business continuity management, first‐aid knowledge, introduction of infirmary, fire safety, labor safety and health education, IT Center, and other trainings with basic concepts and case studies of current events. The training ratio for newcomers is 100%.

• B.MSI University

• We began planning the MSI University (MSIU) in 2009 to cope with the highly competitive business environment in the electronics industry with talent cultivation. By improving the R&D and innovation capacity in key technology and with the improvement of managerial competency and efficiency, we aim to enhance MSI employees' competitiveness in the electronics industry.

• ① Leadership College

• This is a complete set of courses on the leadership and management skills needed to become a supervisor. All supervisor‐level employees are required to complete this set of courses. This series of courses aims to reinforce supervisors’ awareness and knowledge of the Company's internal system and operating procedures and provides supervisors the opportunities to learn leadership and management skills. The design of these courses allows supervisors to reinforce their weak areas and refresh the skills they have acquired and enables new supervisors to learn new skills quickly.

• ②Sales and Marketing College This series of courses include semi‐annually skill development activities aimed at reinforcing the sales and management skills of overseas managers. A series of courses is also planned for sales executives overseas and at the head office to reinforce their abilities in market information surveying, selling and management and marketing. These courses simulate actual market scenarios in Europe and the US, and cover product knowledge, surveying customer needs, and actual selling at different stages. They focus on hands‐on skills that can be directly applied to everyday operations.

• ③R & D College：Focuses on helping the staff expand their research and development vision and think about breakthrough methods. At the same time, the Company will study the application and development of artificial intelligence (AI), and continue to strengthen R&D management capabilities such as market analysis and product planning and problem analysis and resolution. At the same time, our internal R&D Technology Committee hosts R&D Managers’ Conference quarterly to enable sharing and discussion of technology resources and applications through a cross‐division information exchange platform for new technologies

• ④Technical Skills College Technical skills courses are designed to enable continuous development of manufacturing technology and mapping out of future directions.

2017	Educational training	Total	Headcount	Total hours
External training	Professional technical training	515,307	37	499
External training	Management skills training, professional training, general education	2,780,453	2,973	23,465

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• (5)Pension plan:

The wage and pension system at MSI complies with local laws and regulations. The employee pension benefit plans are constituted precisely and apply to the length of service for all formal employees before the implementation of Labor Pension Act in July 1, in 2005. The plans are also applied to the seniority of those who choose to fall under the Labor Standards Act after the implementation of Labor Pension Act. In the name of Supervisory Committee of Business Entities Labor Retirement Reserve, retirement accounts are opened in Bank of Taiwan. In accordance with the old‐age insurance system in the P.R.C., the MSIS and MSIK allocate pension premium for local workers based on a certain proportions of their payroll every month. The pensions of all staff would be made overall arrangements by the government. Please refer to page 129~132 & 192~195.

(6)Since MSI was first established, in addition to constructing a positive, fair work environment and planning comprehensive employee benefits, we have also established the "Work Protocols" as the basic set of behavioral guide for employees to comply with. This is to clearly state the rights and obligations of both that the employees and the management, as well as employee behavior and ethics. The content of which is as follows:

• A. Employees should abide by the law and the Articles of Association and to abide by the supervision of their supervisors.

• B. Employees should not harm the good name and reputation of the Company, nor should employees use their positions to receive gifts.

• C. Employees shall not disclose the company's business, technical, and other confidential information.

• D. Establish the standards of employee salaries, cash rewards, bonuses, retirement, leaves, and standards of incentives and disincentives.

• E. Sexual harassment prevention.

2.Losses borne due to employer‐employee conflicts in the most recent year and up to the date the annual report was printed, possible estimated values at present and in the future, and countermeasures: There were no major employer‐employee conflicts in the most recent year and up to the date the annual report was printed.

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( Ⅵ ) Material Contracts

Important contracts that remained effective as of the date the annual report was printed and expired in the most recent

year on supply and distribution, technical collaboration, engineering projects, long‐term loans and that are sufficient to

impact shareholders’ equities:

Nature of contract	Contracting Party	Term of Agreement	Main contents	Restrictions
Large authorization contract	Microsoft Corporation	From Aug.1, 2018 till termination by either party	GLOBAL PARTNER AGREEMENT Windows, Office, Apps & DSB software licensing	Non‐negotiable

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Ⅵ . Financial Information

( Ⅰ ) Five‐Year Financial Summary

1. Condensed Balance Sheet

• (1) Condensed Balances Sheet (Consolidated)

		Unit: NT$thousands	Unit: NT$thousands	Unit: NT$thousands	Unit: NT$thousands	Unit: NT$thousands	Unit: NT$thousands
Year Item		Financial Summary for The Last Five Years(Note1)					As of March 31,2019 (Note2)
		2018	2017	2016	2015	2014
Current assets		49,356,897	43,185,288	44,556,225	40,285,522	39,750,040	49,448,511
Property,plant and equipment(Note3)		4,738,544	5,087,802	5,092,392	5,432,454	5,848,330	4,743,551
Intangible assets		‐	‐	‐	‐	‐	‐
Other assets		1,078,732	880,299	819,167	812,893	826,444	1,382,033
Total assets		55,174,173	49,153,389	50,467,784	46,530,869	46,424,814	55,574,095
Current liabilities	Before distribution	24,765,061	20,920,657	23,193,111	20,542,332	21,550,152	23,547,898
	After distribution	(Note4)	24,722,509	26,994,964	23,499,328	24,084,721	(Note4)
Non‐current liabilities		463,251	429,462	384,175	246,520	342,126	645,322
Total liabilities	Before distribution	25,228,312	21,350,119	23,577,286	20,788,852	21,892,278	24,193,220
	After distribution	(Note4)	25,151,971	27,379,139	23,745,848	24,426,847	(Note4)
Equity attributable to shareholders of theparent		29,945,861	27,803,270	26,890,498	25,742,017	24,532,536	31,380,875
Share capital		8,448,562	8,448,562	8,448,562	8,448,562	8,448,562	8,448,562
Capital surplus	Before distribution	1,226,049	1,225,615	2,070,471	2,920,142	2,920,142	1,226,049
	After distribution	(Note4)	1,225,615	1,225,615	2,075,286	2,920,142	(Note4)
Retained earnings	Before distribution	20,777,216	18,550,908	16,601,625	13,843,360	12,692,518	22,083,626
	After distribution	(Note4)	14,749,056	13,644,628	11,731,220	10,157,949	(Note4)
Other equityinterest		(505,966)	(421,815)	(230,160)	529,953	471,314	(377,362)
Treasuryshares		‐	‐	‐	‐	‐	0
Non‐controllinginterests		‐	‐	‐	‐	‐	0
Total equity	Before distribution	29,945,861	27,803,270	26,890,498	25,742,017	24,532,536	31,380,875
	After distribution	(Note4)	24,001,418	23,088,645	22,785,021	21,997,967	(Note4)

Note1: The above financial information for each year was audited by CPA.

Note2: 2019Q1 financial report was reviewed by CPA.

Note3: MSI did not carry out asset revaluation from 2014 to 2019Q1.

Note4: Subject to the approval of annual shareholders’ meeting 2019.

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(2) Condensed Balance Sheet (Separate)

Unit: NT$ thousands

Item Year	Item Year	Financial Summary for The Last Five Years(Note1)	Financial Summary for The Last Five Years(Note1)	Financial Summary for The Last Five Years(Note1)	Financial Summary for The Last Five Years(Note1)	Financial Summary for The Last Five Years(Note1)
		2018	2017	2016	2015	2014
Current assets		47,717,145	41,279,986	42,260,743	38,064,588	37,135,495
Property,plant and equipment(Note2)		2,363,138	2,373,408	2,399,128	2,420,844	2,432,630
Intangible assets		‐	‐	‐	‐	‐
Other assets		7,497,489	7,685,025	8,724,428	9,084,023	8,733,147
Total assets		57,577,772	51,338,419	53,384,299	49,569,455	48,301,272
Current liabilities	Before distribution	27,296,657	23,228,722	26,262,842	23,643,667	23,594,700
	After distribution	(Note3)	27,030,574	30,064,695	26,600,663	26,129,269
Non‐current liabilities		335,254	306,427	230,959	183,771	174,036
Total liabilities	Before distribution	27,631,911	23,535,149	26,493,801	23,827,438	23,768,736
	After distribution	(Note3)	27,337,001	30,295,654	26,784,434	26,303,305
Equityattributable to shareholders of theparent		29,945,861	27,803,270	26,890,498	25,742,017	24,532,536
Share capital		8,448,562	8,448,562	8,448,562	8,448,562	8,448,562
Capital surplus	Before distribution	1,226,049	1,225,615	2,070,471	2,920,142	2,920,142
	After distribution	(Note3)	1,225,615	1,225,615	2,075,286	2,920,142
Retained earnings	Before distribution	20,777,216	18,550,908	16,601,625	13,843,360	12,692,518
	After distribution	(Note3)	14,749,056	13,644,628	11,731,220	10,157,949
Other equityinterest		(505,966)	(421,815)	(230,160)	529,953	471,314
Treasuryshares		‐	‐	‐	‐	‐
Non‐controllinginterests		‐	‐	‐	‐	‐
Total equity	Before distribution	29,945,861	27,803,270	26,890,498	25,742,017	24,532,536
	After distribution	(Note3)	24,001,418	23,088,645	22,785,021	21,997,967

Note1 ： The above financial information for each year was audited by CPA. Note2 ： MSI did not carry out asset revaluation from 2014 to 2018.

Note3 ： Subject to the approval of annual shareholders’ meeting 2019.

2. Condensed Statement of Comprehensive Income

(1) Condensed Statement of Comprehensive Income (Consolidated)

Unit: NT$ thousands

Year Item	Financial Summary for The Last Five Years(Note1)	Financial Summary for The Last Five Years(Note1)	Financial Summary for The Last Five Years(Note1)	Financial Summary for The Last Five Years(Note1)	Financial Summary for The Last Five Years(Note1)	As of March 31,2019(Note2)
	2018	2017	2016	2015	2014
Sales revenue	118,527,273	106,419,905	102,190,503	85,294,794	84,901,773	29,487,921
Net operatingmargin	16,129,686	15,031,293	14,951,670	12,841,134	11,514,440	3,776,000
Operating profit	6,691,950	5,613,660	5,518,939	4,055,808	3,593,349	1,392,994
Non‐opera�ngincome and expenses	459,184	364,892	303,233	211,235	(16,179)	154,439
Proft before income tax	7,151,134	5,978,552	5,822,172	4,267,043	3,577,170	1,547,433
Income (Losses) from continuing operations for theyear	6,041,129	4,937,422	4,887,942	3,706,456	3,013,861	1,306,410
Losses from discontinued operations	‐	‐	‐	‐	‐	‐
Profit for theyear	6,041,129	4,937,422	4,887,942	3,706,456	3,013,861	1,306,410
Other comprehensive income for the year (Net of income tax)	(97,120)	(222,797)	(777,650)	37,594	270,801	128,604
Total comprehensive income for theyear	5,944,009	4,714,625	4,110,292	3,744,050	3,284,662	1,435,014
Profit attributable to shareholders of the parent	6,041,129	4,937,422	4,887,942	3,706,456	3,013,861	1,306,410
Profit attributalbe to non‐controllinginterests	‐	‐	‐	‐	‐	‐
Total comprehensive income attributable to shareholders of theparent	5,944,009	4,714,625	4,110,292	3,744,050	3,284,662	1,435,014
Total comprehensive income attributable to non‐controllinginterests	‐	‐	‐	‐	‐	‐
Earningsper share(NT$)	7.15	5.84	5.79	4.39	3.57	1.55

Note1: The above financial information for each year was audited by CPA. Note2: 2019Q1 financial report was reviewed by CPA.

Note3: MSI did not capitalize its annual interest expense from 2014 to 2019Q1.

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(2) Condensed Statement of Comprehensive Income (Separate alone)

Unit: NT$ thousands

	Unit: NT$thousands	Unit: NT$thousands	Unit: NT$thousands	Unit: NT$thousands	Unit: NT$thousands
Year Item	Financial Summaryfor The Last Five Years(Note1)
	2018	2017	2016	2015	2014
Sales revenue	116,988,422	105,404,563	100,749,878	84,096,460	83,596,670
Net operatingmargin	14,232,111	13,374,882	13,342,413	11,324,106	10,083,017
Operating profit	6,340,116	5,302,969	5,191,871	3,809,214	3,285,667
Non‐operatingincome and expenses	689,118	549,147	542,204	397,125	167,991
Profit before income tax	7,029,234	5,852,116	5,734,075	4,206,339	3,453,658
Income (Losses) from continuting operations for theyear	6,041,129	4,937,422	4,887,942	3,706,456	3,013,861
Losses from discontinued operations	‐	‐	‐	‐	‐
Profit for theyear	6,041,129	4,937,422	4,887,942	3,706,456	3,013,861
Other comprehensive income for the year (Net of income tax)	(97,120)	(222,797)	(777,650)	37,594	270,801
Total Comprehensive income for theyear	5,944,009	4,714,625	4,110,292	3,744,050	3,284,662
Profit attributable to shareholders of theparent	6,041,129	4,937,422	4,887,942	3,706,456	3,013,861
Profit attributalbe to non‐controllinginterests	‐	‐	‐	‐	‐
Total comprehensive income attributable to shareholders of theparent	5,944,009	4,714,625	4,110,292	3,744,050	3,284,662
Total comprehensive income attributable to non‐ controllinginterests	‐	‐	‐	‐	‐
Earningsper share(NT$)	7.15	5.84	5.79	4.39	3.57

Note1: The above financial information for each year was audited by CPA. Note2: MSI did not capitalize its annual interest expense from 2014 to 2018.

3. Auditors’ Opinions from 2013 to 2018

Auditing Year	Accounting Firm	CPAs	Audit Opinion
2014	PricewaterhouseCoopers	Chou, Hsiao‐Tzu Yeh,Tsui‐Miao	Modified unqualified
2015	PricewaterhouseCoopers	Chou, Hsiao‐Tzu Yeh,Tsui‐Miao	Modified unqualified
2016	PricewaterhouseCoopers	Chou, Hsiao‐Tzu Lai,Chung‐Hsi	Unqualified opinion withother matters paragraphs
2017	PricewaterhouseCoopers	Liang, Hua‐Ling Lai,Chung‐Hsi	Unqualified opinion withother matters paragraphs
2018	PricewaterhouseCoopers	Liang, Hua‐Ling Lai,Chung‐Hsi	Unqualified opinion withother matters paragraphs

Note: Due to its internal personal changes, PricewaterhouseCoopers updated the audit partners for MSI in 2016 & 2017.

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( Ⅱ ) Five‐Year Financial Analysis

1. Financial Analysis for Consolidated Report

Financial Analysis for Consolidated Report

Item	Year	Financial Analysis in thepast Five Years(Note1)	Financial Analysis in thepast Five Years(Note1)	Financial Analysis in thepast Five Years(Note1)	Financial Analysis in thepast Five Years(Note1)	Financial Analysis in thepast Five Years(Note1)	As of March 31,2019 (Note2)
		2018	2017	2016	2015	2014
Financial structure %	Ratio of liabilities to assets	45.72	43.44	46.72	44.68	47.16	43.53
	Ratio of long‐term capital to property, plant and equipment	641.74	554.91	535.60	478.39	425.33	675.15
Solvency %	Current ratio	199.30	206.42	192.11	196.11	184.45	209.99
	Quick ratio	104.68	122.23	115.93	117.36	106.33	112.31
	Times interest earned	49,733.08	178,404.56	226,291.61	26,101.12	7,685.82	19,047.39
Operating performance	Accounts receivable turnover(times)	7.59	7.24	7.66	6.82	6.84	7.04
	Average collection period	48	50	48	54	53	52
	Inventory turnover (times)	5.19	5.45	5.42	4.64	5.31	4.58
	Accountspayable turnover(times)	6.61	5.36	5.10	4.63	5.05	6.45
	Average days in sales	70	67	67	79	69	80
	Property, plant and equipment turnover(times)	24.12	20.91	19.42	15.12	14.85	24.88
	Total assets turnover (times)	2.27	2.14	2.11	1.84	1.93	2.13
Profitability	Ratio of return on total assets (%)	11.60	9.92	10.08	8.00	6.93	9.48
	Ratio of return on equity (%)	20.92	18.05	18.57	14.74	12.70	17.04
	Ratio of Profit before tax to paid‐in capital(%)	84.64	70.76	68.91	50.51	42.34	73.26
	Profit ratio (%)	5.10	4.64	4.78	4.35	3.55	4.43
	Earnings per share (NT$)	7.15	5.84	5.79	4.39	3.57	1.55
Cash flow	Cash flow ratio (%)	0.34	11.68	21.72	27.88	5.16	11.55
	Cash flow adequacy ratio (%)	49.76	83.34	94.93	‐	‐	56.82
	Cash reinvestment ratio (%)	(10.00)	(3.80)	5.97	9.23	(1.74)	7.04
Leverage	Operating leverage	1.64	1.73	1.76	2.05	1.98	1.73
	Financial leverage	1.00	1.00	1.00	1.00	1.01	1.01

Note1: The above financial information for each year was audited by CPA. Note2: 2019Q1 financial report was reviewed by CPA.

Analysis of financial ratio differences over 20% for the last two years:

Times interest earned	The interest expense in currentperiod increased,causingtimes interest earned to decrease.
Accounts payable turnover	Cost of goods sold in current period increased while accounts payable decreased, causing the increase in accounts payable turnover.
Earningsper share(NT$)	Profit before income tax for theyear increased,causingearningsper share to increase.
Cash flow ratio	The net cash flow from operating activities this year decreased while current libilities increased, causing the decrease in cash flow ratio.
Cash flow adequacy ratio	The net cash flow from operating activities this year decreased while the inventory amount increased, causing the decrease in cash flow adequacyratio.
Cash reinvestment ratio	The net cash flow from operating activities this year decreased while the working capital increased, causing the decrease in cash reinvestment ratio.

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2.Financial Analysis for separate report

Financial Analysis for Stand Alone Report

Item	Year		~~Financial Analysis in the past Five~~ Years(Note)
			2018	2017	2016	2015	2014
Financial structure %	Ratio of liabilities to assets		47.99	45.84	49.63	48.07	49.21
	Ratio of long‐term capital to property, plant and equipment		1,281.39	1,184.36	1,130.47	1,070.94	1,015.63
Solvency %	Current ratio		174.81	177.71	160.91	160.99	157.39
	Quick ratio		89.52	102.11	94.49	94.28	87.25
	Times interest earned		77,951.74	796,306.26	731,487.12	35,981.08	64,945.25
Operating performance	Accounts receivable turnover (times)		7.32	7.03	7.31	6.46	6.57
	Average collection period		50	52	50	57	56
	Inventory turnover (times)		5.20	5.49	5.48	4.72	5.35
	Accounts payable turnover (times)		6.73	5.40	5.15	4.78	5.28
	Average days in sales		70	66	67	77	68
	Property, plant and equipment turnover (times)		49.40	44.17	41.81	34.65	34.45
	Total assets turnover (times)		2.15	2.01	1.96	1.72	1.84
Profitability	Ratio of return on total assets(%)		11.11	9.43	9.50	7.59	6.65
	Ratio of return on equity (%)		20.92	18.05	18.57	14.74	12.70
	Ratio of Profit before tax to paid‐in capital (%)		83.20	69.27	67.87	49.79	40.88
	Profit ratio (%)		5.16	4.68	4.85	4.41	3.61
	Earnings per share (NT$)		7.15	5.84	5.79	4.39	3.57
Cash flow	Cash flow ratio (%)		(3.62)	4.05	15.42	25.57	(0.57)
	Cash flow adequacy ratio (%)		37.15	69.60	84.70	‐	‐
	Cash reinvestment ratio (%)		(15.44)	(9.91)	3.93	13.12	(7.14)
Leverage	Operating leverage		1.54	1.62	1.65	1.90	1.83
	Financial leverage		1.00	1.00	1.00	1.00	1.00

Note: The above financial information for each year was audited by CPA.

Analysis of financial ratio differences over 20% for the last two years:

Times interest earned	The interest expense in currentperiod increased,causingtimes interest earned to decrease.
Accounts payable turnover	Cost of goods sold in current period increased while accounts payable decreased, causing the increase in accountspayable turnover.
Ratio of Profit before tax to paid‐in capital	Profit before income tax for the year increased, causing the increase in ratio of profit before tax to paid‐in capital.
Earningsper share(NT$)	Profit before income tax for theyear increased,causingearningsper share to increase.
Cash flow ratio	The net cash flow from operating activities this year decreased while current libilities increased, causingthe decrease in cash flow ratio.
Cash flow adequacy ratio	The net cash flow from operating activities this year decreased while the inventory amount increased,causingthe decrease in cash flow adequacyratio.
Cash reinvestment ratio	The net cash flow from operating activities this year decreased while the working capital increased, causingthe decrease in cash reinvestment ratio.

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Glossary:

1. Financial structure

(1) Ratio of liabilities to assets = Total liabilities / Total assets

(2) Ratio of long‐term capital to property, plant, and equipment = (Total equity +Non‐current liabilities) / Net property, plant, and equipment

2. Solvency

(1) Current ratio = Current assets / Current liabilities

(2) Quick ratio = (Current assets‐ Inventory‐Prepaid expenses) / Current liabilities

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

3. Operating ability

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

(2) Average collection period = 365 / Accounts receivable turnover

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

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

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

(6) Property, plant, and equipment turnover = Net sales / Average net property, plant, and equipment

(7) Total assets turnover = Net sales / Average total assets

4. Profitability

(1) Ratio of return on total assets= [Net income (loss) + Interest expense x (1 ‐ tax rate)] / Average total assets

(2) Ratio of return on Equity = Net income (loss) / Average total equity

(3) Profit ratio = Net income (loss) / Net sales

(4) Earnings per share = (Profit attributable to shareholders of the parent – preferred stock dividend) / Weighted average stock shares issued

5. Cash flow

(1) Cash flow ratio = Net cash flow from operating activity / Current liabilities

(2) Net cash flow adequacy ratio = Net cash flow from operating activity in the past five years / (Capital expenditure + Inventory increase + Cash dividend) in the past five years

(3) Cash reinvestment ratio = (Net cash flow from operating activity ‐ Cash dividend) / (Gross property, plant, and equipment + Long‐term investment + Other non‐current assets + working capital)

6. Leverage

(1) Operating leverage = (Net Sales revenue – Variable operating cost and expense) / Operating profit

(2) Financial leverage = Operating profit / (Operating profit ‐ interest expense)

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( Ⅲ ) Audit Committee's Review Report of 2018.

Audit Committee's Review Report

The Board of Directors has prepared the Company's 2018 Business Report, Financial Statements, and proposal for allocation of earnings. The CPA firm of PWC was retained to audit MSI's Financial Statements and has issued an audit report relating to the Financial Statements. The Business Report, Financial Statements, and earnings allocation proposal have been reviewed and determined to be correct and accurate by the Audit Committee members of Micro‐Star International Co., Ltd. According to relevant requirements of the Securities and Exchange Act and the Company Law, we hereby submit this report.

Micro‐Star International Co., Ltd.

Chairman of the Audit Committee: Mr. Wang,Sung‐Chou

April 30, 2019

• ( Ⅳ )Financial statements in the most recent years : Please refer to page 94 ～ 161

( Ⅴ ) Corporation‐only financial report audited and attested by a CPA from the most recent year: Please refer to page 162 ～ 219

• (Ⅵ)State the financial position of the Company if any insolvency occurs in the Company or affiliates in the most recent year until the date this report is printed：None

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Ⅶ . Review of Financial Conditions, Financial Performance, and Risk Management

( Ⅰ ) Analysis of Financial Status

Comparison and Analysis of Financial Status

Unit: NT$ thousands

Year Item	2018	2017	Difference	Difference
			Amount	%
Current Assets	49,356,897	43,185,288	6,171,609	14.29%
Property, plant, and equipment	4,738,544	5,087,802	(349,258)	(6.86%)
Intangible assets	‐	‐	‐	‐
Other Assets	1,078,732	880,299	198,433	22.54%
Total Assets	55,174,173	49,153,389	6,020,784	12.25%
Current Liabilities	24,765,061	20,920,657	3,844,404	18.38%
Non‐current liabilities	463,251	429,462	33,789	7.87%
Total Liabilities	25,228,312	21,350,119	3,878,193	18.16%
Equity attributable to shareholders of the parent	29,945,861	27,803,270	2,142,591	7.71%
Share capital	8,448,562	8,448,562	0	0.00%
Capital surplus	1,226,049	1,225,615	434	0.04%
Retained Earnings	20,777,216	18,550,908	2,226,308	12.00%
Other equity interest	(505,966)	(421,815)	(84,151)	19.95%
Treasury shares	‐	‐	‐	‐
Non‐controlling interests	‐	‐	‐	‐
Total Equity	29,945,861	27,803,270	2,142,591	7.71%

(1) Analysis of significant changes in assets, liabilities and equity for the last two years: Other assets: The increase was mainly due to increase in deferred income tax assets.

(2) Future plans for the major impact on financial position ： The above deviations were caused by general business operations, having no major impact on MSI’s financial position.

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( Ⅱ ) Analysis of Financial Performance

Comparison and Analysis of Financial Performance

Unit: NT$ thousands

				Unit: NT$thousands
Year Item	2018	2017	Amount	%
Sales revenue	118,527,273	106,419,905	12,107,368	11.38%
Net operating margin	16,129,686	15,031,293	1,098,393	7.31%
Operating profit	6,691,950	5,613,660	1,078,290	19.21%
Non‐operating income and expenses	459,184	364,892	94,292	25.84%
Profit before income tax	7,151,134	5,978,552	1,172,582	19.61%
Income (Losses) from continuting operations	6,041,129	4,937,422	1,103,707	22.35%
Losses from discontinued operations	‐	‐	‐	‐
Profit for the year	6,041,129	4,937,422	1,103,707	22.35%
Other comprehensive income for the year (Net of income tax)	(97,120)	(222,797)	125,677	56.41%
Total comprehensive income for the year	5,944,009	4,714,625	1,229,384	26.08%
Profit attributable to sharholders of the parent	6,041,129	4,937,422	1,103,707	22.35%
Profit attributable to non‐controlling interests	‐	‐	‐	0.00%
Total comprehensive income attributable to shareholders of the parent	5,944,009	4,714,625	1,229,384	26.08%
Total comprehensive income attributable to Non‐controlling interests	‐	‐	‐	0.00%
Earnings per share	7.15	5.84	1.31	22.43%

1. Analysis of significant changes in sales revenue, operating profit, and profit before income tax for the last 2 years:

2. Non‐operating income and expenses: The increase was mainly due to increase in other income. Profit for the year: The increase was mainly due to increases in net operating margin and other income. Other comprehensive income for the year: The increase was mainly due to decrease of currency exchange differences from foreign currency financial statements.

Earnings per share: The increase was mainly due to increases in net operating margin and other income.

• 2.Sales volume forecast and related information:

Motherboards and graphic cards shipment forecast in 2019 is twenty million pieces.

• 3.Possible impact on financial performance and future plans:

Financial ratios in current period are better than the year before, having no disadvantage on future financial performance.

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( Ⅲ )Analysis of Cash Flow

)Analysis of Cash Flow	)Analysis of Cash Flow	)Analysis of Cash Flow	)Analysis of Cash Flow	)Analysis of Cash Flow	)Analysis of Cash Flow
Unit：NT$ thousands
Beginning cash balance (A)	Net cash flow from operating activities (B)	Cash inflow(outflow) (C)	Cash surplus (deficit) (A)+(B)+(C)	Remedial measures for the expected insufficient cash
				Investment plan	Financing plan
10,028,064	84,616	(1,297,000)	8,815,680	‐	‐

1. Analysis of Cash flow change:

(1) Operating activities: cash inflow 84,616

(2) Investing activities: cash outflow 452,589

(3) Financing activities: cash outflow 768,943

• (4) Exchange rate changes: cash outflow 75,468

• Remedial actions for liquidity shortfall: Not Applicable.

Year Item	2018	2017	Variance
Cash flow ratio	0.34%	11.68%	(97.09%)
Cash flow adequacy ratio	49.76%	83.34%	(40.29%)
Cash reinvestment ratio	(10.00%)	(3.80%)	(163.16%)
Analysis of financial ratio change: The net cash flow from operating activities this year decreased due to inventory increased, causing the decrease in cash flow ratio.

1. Cash flow analysis for the coming year:

Unit ： NT$ thousands

				Unit：NT$ thousands	Unit：NT$ thousands
Beginning cash balance	Estimated net cash flow from operating activities	Estimated cash inflow(outflow)	Estimated Cash surplus (deficit)	Remedial measures for the expected insufficient cash
				Investment plan	Financing plan
8,815,680	6,500,000	(5,500,000)	9,815,680	‐	‐
(1) Analysis of cash flow change in current period: A. Operating activities: Cash inflow this year is expected to be due to profit and working capital changes. B.Investing and financing activities：Cash outflow this year is expected to be due tothe issuance of cash dividend and equipments replacement. (2)Remedial actions for liquidityshortfall: Not Applicable.

( Ⅳ ) Recent years major capital expenditures and impact on financial and business: None.

( Ⅴ )Reinvestment in recent years:

• 1.The company's reinvestment policy for the most recent fiscal year:

The re‐investment policy of the Company is meant mainly to explore overseas markets and provide

in‐depth services in major countries so that the revenue and worldwide market shares can be increased.

• 2.The main reasons for the profits/losses generated thereby, the plan for improving re‐investment

profitability: Income from reinvested businesses of the Company in 2018 totaled NT$416,401 thousand

• mainly due to stable global economy, increased consumer demand, growths in sales of overseas subsidiaries, and increased profits.

• 3.Investment plans for the coming year: Currently, no significant investment plans will be processed this year.

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• ( Ⅵ )Risk analysis and evaluation in recent years and up to the date of the annual report printed

• 1.The impact of interest rate, exchange rate, and inflation on the Company’s income and expense and the responsive measures:

  • (1) Interest rate

The changing interest rate can impact the Company in two parts. As far as assets are concerned, income for the Company from cash and cash equivalents increases or decreases as the interest rate changes. For liabilities, expenditure on interest charged for short‐term loans also increases or decreases as the interest rate changes. The impacts on the assets and liabilities from the changing interest rate as described above can be counterbalancing. If it is expected that the interest rate will significantly change, the Company can reduce its impact on the Company’s profits and losses by adjusting durations of deposits and borrowings or through interest rate swap.

• (2) Exchange rate

Sales of the Company are mainly export‐oriented. Among them, more than 80% are priced in USD. Among the materials purchased, also more than 90% are paid in USD. The natural hedging ratio is high. Plus the current exchange rate hedging that is adopted to reduce risks associated with the changing exchange rate, the impacts of changing exchange rate on the Company are not too huge. The Company will continue to reduce the impacts that the changing exchange rate has on profits and losses by undertaking hedging transactions.

• (3) Inflation

Generally speaking, inflation affects the purchasing power and willingness of consumers and reduces the demand for consumer products; it will have a negative influence on the overall revenue and profits and losses of the Company. Impacts of inflation, however, are comprehensive; that is, not only individual companies are affected. In other words, the government financial departments shall stipulate related measures with macroeconomics in mind. Nevertheless, the Company will devoted to bringing down its production cost in order to keep its revenue by introducing products at a price that can better inspire consumers to buy and to accordingly reduce the negative impacts that inflation has on the Company's profits and losses.

• 2.Conducting high‐risk and high‐leverage investment, granting loans to others, endorsement & guarantee and directives policy, root cause of profit and loss, and the responsive measures: The Company’s policy is not to undertake high‐risk, high‐leverage investments and not to lend funds to others or serve as endorser or guarantor. In terms of its policy on derivatives, it only engages itself in hedging transactions. The exchange rate hedging transactions the Company undertook in the most recent year accordingly reduced the impacts of the changing exchange rate on the Company’s profits and losses. In the future, such undertaking will keep going in order to reduce the impacts that the volatility in exchange rate on the Company's profitability.

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3.R&D plans and budgeted R&D expense：

Products development planned in 2019

(1)Products development

A. Motherboards

	Development of the next generation of Intel®gaming and content creation motherboards.
	Development of the AMD®500 Series gaming and content creation motherboards for the 3rdgeneration
	Ryzen™ processors.
	Development of the better performance and better reliability motherboard for more cores processor.
	Development of better components and latest technology for motherboard.
	Development of better thermal solution and coating for the heatsink on motherboard
	Development of new RGB effect and materials for better gamer experience
	Development of more different function of add‐on card
	Improvement of applications which provide better performance and experience.
B.	Professional Graphics Card
	Development of graphics card and thermal modules with better performance and lower energy
	consumption.
	Development of overclocking graphics card with the latest technology and components.
	Development of fans with better heat dissipation and lower noise.
	Development of graphics card with improved RGB lighting effects and functions.
	Continuous improvement and integration of graphics card applications.
	Development of graphics card with “Real‐Time Ray Tracing” and “AI deep learning” technologies.
C.	Servers
	Development of the new generation Server & Workstation for Intel® Whitley & Tatlow platform
	Development of the new generation Network application system for Intel® Whitley & Tanner Ridge platform
	Development of the new generation multi‐function IoT facial recognition gateway
	Development of the multi‐function IoT edge server and gateway
	Development of the new generation Telecom firewall (NGFW) 16U system
	Development of the high‐density Unified threat management (UTM) for Intel® Whitley platform
	Enhancement of the new generation Intrusion prevention system (IPS) for Intel® Mehlow platform
D. Desktop Computers
	Development of the gaming desktop series for the newest Intel® 400 platform.
	Innovating the Cubi mini computer series for the newest Intel® CML‐U series platform.
	Continuing the development of the All‐in‐One products for the Intel® platform.
	Continuing the development of the high‐end gaming desktop with the exclusive Silent Storm cooling design.
	Innovating flagship gaming desktop with the industry’s leading skills and technology.
	Continuing the development of desktop computers that caters to the need of the LAN Party gamers.
	Development of a technology that can deeply integrate gaming monitors with gaming desktops.
	Applying AI technology to gaming desktops.
	Innovating desktops that are suitable for professionals within the Multimedia and Content Creation industry.
E.	Industrial Computers
	Further upgrading R&D capabilities to provide broad temperature broad pressure water‐proof and dust‐proof
	solutions that can be used under extreme condition.
	In response to Industry 4.0, in‐depth cultivation of highly expandable robust fanless systems to make it
	smaller and further advances the cooling performance.
	Continued development of flexible Mini‐PCIe or PCI/PCIe interface cards for add‐on values and
	functionalities.
	Offering the option of expanding the number of independent displays from 3 to 6 or 9 and development of
	higher‐resolution imaging treatment to enhance the efficiency and to satisfy the needs of users on the
	high‐end market.
	Enhanced OCP/OVP and hardware design and protection mechanism in case of possible power issues during
	harsh operations.
	Compliance with regulations in different countries for safety of products to enhance the ESD design
	regulations.
	Support of the application of EU IEC‐60068‐2 international shock regulations for railways and transportation.

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==> picture [485 x 538] intentionally omitted <==

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

 Exchange and integration of IoT (Industrial Internet of Things) full‐function system with real‐time
point‐to‐point data to plan and operate global smart application management.
 Development of the Apollo Lake broad‐temperature small low power‐consumption CPU module product.
 Development of the broad temperature small IoT fan‐less embedded system supporting railway regulations.
 Development of a system that can support two sets of PoE and CAN Bus at the same time.
 Development of automobile embedded system supporting broad temperature and broad pressure
specifications.
 Development of “Email Alert for HIDAC Monitoring Events” function to enhance add‐on value.
F. Telematics and Automotive Electronics
 Developed FUNTORO ITS Solution through sensing technology connected to the on‐board equipment
processing AIOT and cloud‐based backend management, creating added value function to improve
transportation efficiency.
 Developed FUNTORO PID Solution to provide transportation information/traffic guide/advertising/public
policy announcement/cloud‐based backend management in various electronic digital signages. Through the
AIoT embedded platform, management control center can simultaneously manage the electronic digital
signages around the world.
 Developed the FUNTORO Railway PIDS Solution, which is based on transportation vehicles and integrated the
on‐board computer/CCTV/exterior display/interior display/in‐vehicle controller/public address
system/intercom system. The management control center can manage the status of the entire vehicle
anywhere and in real‐time.
 Developed specific field and in‐vehicle cloud‐based advertising solutions through cloud backend information
exchange and management, providing owners with a variety of innovative commercial advertising business
models.
G. Laptops
 Designed Gaming laptops with more immersive gaming experience
 Incorporated AI applications into notebooks
 Designed professional notebooks targeting at content creators, aimed to improve work efficiency
 Devoted efforts to develop professional workstations with more linkage to professional ISVs
H. Monitors
 Development of the high‐end curved gaming monitors with features such as wide screen size, 4K and WQHD
high resolution.
 Continuing the development of the gaming monitors that adhere to the standard of eSports tournaments.
 Continuing the development of gaming monitors that can show game‐related status and information on the
monitor panel
 Applying AI technology to gaming monitors.
 Innovating monitors that are suitable for professionals within the multimedia and content creation industry.
I. Case
 Development of gaming case with various RGB effect and materials.
 Development of content creation case with better thermal, airflow solution and anti‐noise.
(2) Progress of unaccomplished R&D plans: Product design and development stage.
----- End of picture text -----

• (3) Current progress of R&D projects yet to be completed: The overall progress is about 20% to 80% at present, depending on respective products involved.

• (4) Major factors that affect the future success of R&D ： A. Market factor B. Delayed key parts and components C. Shortage of parts and components.

• (5)R&D budget in 2019：NT$3.4 billion (6)Projection on mass production:2019～2020。

• 4.The impact of domestic and international policies and law change on the Company’s finance and the responsive measures：None

• 5.The impact of technology change and industrial change on the Company’s finance and the responsive measures：None

• 6.The impact of industrial image change on business risk management and the responsive measures：None

• 7.The expected effect, potential risk, and responsive measures of merger：None

• 8.The expected effect, potential risk. and responsive measures of plant expansion：None

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• 9.The risk relating to excessive concentration on procurement and customer：None

• 10.The impact of massive stock transfer or change by directors, supervisors, and shareholders with over 10% shareholding, the risk, and the responsive measures：None

• 11.The impact of right to operate change on the Company. The risk, and the responsive measures：None

• 12.Legal and non‐legal events：

• (1)As of the publication date of annual report, whether the directors, supervisors, President, and shareholders with shareholding ratio over ten percent of the Company are involved in any significant litigation, non‐litigation or administrative litigation cases, such cases have been sentenced or are currently pending, and the results there of have a significant impact on shareholders’ equity or securities price：None

• (2) Significant litigation, non‐litigation or administrative litigation cases of the Company in the most recent years and up to the date, such cases that have been sentenced or are currently pending, and the results thereof that have a significant impact on shareholders’ equity or securities price：None

• 13.Other significant risks and responsive measure：

• (1) Risk management policy: The Company’s policy towards risk management is to evaluate possible impacts of the various risk matters on the profits and losses of the Company and to stipulate respective response policies accordingly.

policies accordingly.
Risk assessment	Impacts onprofits and losses	Countermeasure
1. Financial risk	The Company has an optimal financial structure; its debt ratio is 46% and net worth reaches 29.9 billion. Financial risk is hence not high.	Continue with the optimal financial structure in order to reduce financial risk
(1) Market risk (including exchange rate and interest rate)	Major products of the Company are sold to Europe, Asia, and America; they are not overly focused on a specific single market. Therefore, market risk is not high.	Continue to diversify areas of distribution in order to reduce market risk
(2 ) Credit risk	The primary credit risk of the Company comes from accounts receivable from its customers. Insurance has been purchased for the accounts receivable as safety measure to reduce such risk. Therefore,credit risk is not high.	Continue to have accounts receivable covered by insurance as safety measure to reduce credit risk
(3) Liquidity risk	The current ratio of the Company is up to 199%; the liquidity risk is not high.	Continue with the optimal current ratio in order to reduce liquidity risk
(4)For the nature and extent of significant financial risks,refer to Pages140～146 , 206～216for details.
2. Legal risk ‐ domestic laws and regulations	The Labor Standards Act was revised on December 21, 2016. (One fixed day off and one flexible rest day)	With the implementation of the new system under the Labor Standards Act, companies follow the Labor Standards Act while calculating the service hours, days available for leave, and overtime for their employees and calculation of overtime for working on days off is added to the revised Act. In addition, service on days off is under strict control in order to meet regulatoryrequirements.
3. Evaluation of strategic and operational risks	The Company successfully extended its scope of business from core products, such as computer motherboards, display cards, and laptops to servers and automobile electronics, among other diversified fields. As far as operation is concerned, as the management complexity increases, daily response mechanisms need to be developed for the evaluation of strategic and	(1) Periodically review the growths in core sectors Set goals for growth, market share, and profitability that are higher than industrial averages (2) Set reasonable return on investment based on the careful evaluation in advance and the management plan for a new business and demand that profits and losses reach a balance within a givenperiod of time. Setphased

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	operational risks. In terms of management, the strategy is to extend core specialties and combine the many technologies researched and developed over the years and to keep track of demand on the market for the industry. The hope is to create another wave of growths for the Company and to bring about maximum benefits for the Company’s shareholders. In order for strategic goals to be precisely fulfilled, the Company operates by connecting the value chain through its business departments and the functional main part when it comes to organization and operation. Annual goals are set according to the competition in the industry facing product business departments and managerial meetings are called for periodically to discuss the strategy and operational efficacy in order to adopt immediate countermeasures that help bring down operational risk.	strategic goals reflective of the nature of the sector involved, such as obtaining purchase orders from prospective customers, timely mass production, and securing a certain market share on the strategic target market. (3) Related departments meet on a monthly basis to review the operational efficacy and examine and adjust the strategies on a quarterly basis; related organizational adjustment is made right away for unachievable ones in order to control risk. (4) Keep timely track of daily operations around the world through the real‐time information system, including shipment, stock, purchase order, operating fund, among others, and set the alert criteria. (5) Gather managers around the world periodically to discuss management strategies that concern where the Company will go next. High‐raking management is to adjust strategies taking into consideration resources available throughout the Company and the operational status. In light of the rapidly changing operating environment for the high‐tech industry, the Company proactively invests in information technology and the required talent internally and keeps track of changes in customers, products, and techniques externally. It will constantly review strategic and operational risks and adjust the Company resources in order to continue bringing about accomplishments andprofits.
4. Information security risk	The Company has completed the business continuous operation management exercise, covering topics such as natural disasters, biological hazards, supplier management, labor disputes and information system risks. Among them, for the information security management and control, the "information security incident notification and response management procedures" have been established. The cyber security inspection is also included in the audit of the annual audit plan and is evaluated by external experts. There is no significant impact at present.	In addition to improving the deficiencies assessed by external experts, the Company's specific measures to strengthen the security are as follows: (1) Control the contingency of the information system interruption event. (2) Ensure that preventive measures such as backup of information systems effectively. (3) Confirm whether external resources can be in place as scheduled.
5. Climate risks	The probability and severity of natural disasters (including drought, mites, snowstorms, high temperature/heat waves, typhoons/strong rainfall) brought about byextreme weathers	By including the issue of climate change in the risk management of sustainable business operations. MSI aims to implement climate change management mechanism through “mitigation” and

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	may affect the Company's production and operations. The risks may include production constraints, operations, equipment, and investment cost rise and inefficiency, etc.	“adaption” for reduction of the magnitude of impact of climate change on businesses. The Company also strengthens its resilience through the risk through adoption of the carbonation measures of feasibility assessment through the management mechanism of climate change in the two directions of “mitigation” and “adjustment”. The Company strengthens its resilience through appropriate regulatory measures with the specific mehods as follows: (1) Continue to pay attention to changes in relevant domestic and international regulations after the Paris Climate Agreement and evaluate the internal response of the company. (2) Regularly check and update the organization's carbon footprint to achieve the goal of organizing greenhouse gas reduction. (3) Evaluate feasible technologies and materials for product design and reduce energy loss of products. (4) Save water, improve the reuse rate of rainwater and wastewater, and establish emergency measures for water resources. (5) Reduce the risk of natural disasters through commercial insurance and production emergency procedures.

(2) Organizational structure of risk management

The Company has the “Continued Operational Management Procedure” in place to help reduce impacts and damages derived from emergency events facing the organization and to ensure normal operations of the Company for the sake of sustainable management.

The organization structure of the Company's risk management is promoted and operated by the President who coordinates and directs the risk management plan. The businesses and units responsible for management under the President are responsible for assessing the operational risks, production risks, environmental safety risks, information security risks, climate change risks, etc. and executes daily risk management. The Presidentreports to the board of directors at least once a year.

( Ⅶ )Other material events：None

85

Ⅷ.Special disclosures

( Ⅰ )Related party

1、Organizational structure of related party:

==> picture [244 x 21] intentionally omitted <==

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

MICRO STAR INTERNATIONAL CO., LTD.
2018 Consolidated financial statements of the related party
----- End of picture text -----

MICRO STAR INTERNATIONAL CO., LTD.

==> picture [679 x 343] intentionally omitted <==

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

100% 100% 100% 100% 100% 100%
MSI PACIFIC MSI MSI COMPUTER MSI COMPUTER MICRO‐STAR MSI COMPUTER
INTERNATIONAL COMPUTER(CAYMAN)CO.,LTD. CORP (AUSTRALIA) NETHERLANDS JAPAN CO., LTD.
HOLDING CO., LT D. PTY. LTD. HOLDING B.V.
99% 99% 99%
MSI ITALY MSI MYSTAR MSI LLC “MSI COMPUTER”. MSI COMPUTER TECHNOLOGIES MSI MSI POLSKA
S.R.L COMPUTER COMPUTER COMPUTER LIMITED COMPUTER SP. Z.O.O.
SARL B.V. (UK) LTD. COMPANY EUROPE B.V.
1% 1% 1%
MSI SHENZHEN LINKING MICRO-STAR MICRO MEGA STAR MEGA MHK MEGA MSI
(SHANGHAI) MEGA FUTURE CO., INTERNATIONAL ELECTRONICS INFORMATION INFORMATION TECHNOLOGY INTERNATIONAL COMPUTER KOREA
CO., LTD. INFORMATION LTD. (B.V.I.) HOLDING HOLDING CO., HOLDING CO., HOLDING CO., HOLDING CO., LTD. CO., LTD. CO., LTD.
CO., LTD.
CO., LTD. CO., LTD. LTD. LTD. LTD.
MSI COMPUTER MSI ELECTRONICS MSI (SHENZHEN) MSI TRADING RAIDEALS INC.
CO., LTD.
(SHENZHEN) CO., (KUNSHAN) CO., (SHENZHEN) CO.,
LTD. LTD. LTD.
----- End of picture text -----

86

2.Company profile of related party

(Unit: thousands)

				(Unit: thousands)
Name of corporation	Date of Establishment	Address	Capital	Major Business Scope
MICRO‐STAR INTERNATIONAL (B.V.I.)HOLDING CO.,LTD.	1998.02.04	TORTOLA,BRITISH VIRGIN ISLANDS	USD 47,521	Holding company
MSI COMPUTER CORP.	1998.03.25	CA,U.S.A.	USD 460	Sales and maintenance of computers and electronic components
MYSTAR COMPUTER B.V.	1998.05.28	EINDHOVEN,THE NETHERLANDS	EUR 2,027	Sales support of computers and electronic components
MSI COMPUTER (AUSTRALIA) PTY. LTD.	1998.07.31	NSW,AUSTRALIA	AUD 222	Sales and maintenance of computers and electronic components
MICRO‐STAR NETHERLANDS HOLDING B.V.	1998.12.21	EINDHOVEN,THE NETHERLANDS	EUR 1,102	Holding company
MSI COMPUTER JAPAN CO., LTD.	1999.01.21	TOKYO,JAPAN	JPY 20,000	Sales support and maintenance of computers and electronic components
MSI TECHNOLOGY GMBH	1999.03.01	FRANKFURT,GERMANY	‐	In November 2018, this subsidiary has completed the liquidationprocess.
MSI COMPUTER SARL	1993.10.01 (1999.6.30purchase)	BUSSY SAINT GEORGES,FRANCE	EUR 730	Sales support of computers and electronic components
MSICOMPUTER (SHENZHEN)CO., LTD.	2000.04.12	SHENZHEN,CHINA	USD 51,800	Sales and manufacture of computers and electronic components
MSI COMPUTER (CAYMAN) CO., LTD.	2001.02.13	GEORGE TOWN,CAYMAN ISLANDS	USD 3,040	Holding company
MSI COMPUTER (UK) LTD.	2000.10.12	STAINES,UK	EUR 1,130	Sales support of computers and electronic components
MSI ELECTRONICS (KUNSHAN) CO., LTD.	2001.12.18	KUNSHAN,CHINA	USD 51,000	Sales and manufacture of computers and electronic components
MSI COMPUTER EUROPE B.V.	2002.04.09	EINDHOVEN,THE NETHERLANDS	EUR 1,149	Logistic
STAR INFORMATION HOLDING CO., LTD.	2002.06.14	TORTOLA,BRITISH VIRGIN ISLANDS	USD 4,503	Holding company
MICRO ELECTRONICS HOLDING CO., LTD.	2002.06.14	TORTOLA,BRITISH VIRGIN ISLANDS	USD 33,315	Holding company
MSI PACIFIC INTERNATIONAL HOLDING CO., LTD.	2002.06.18	GEORGE TOWN,CAYMAN ISLANDS	USD 30,204	Holding company
MSI KOREA CO., LTD.	2002.12.27	SEOUL,KOREA	KRW800,000	Sales and maintenance of computers and electronic components
MEGA INFORMATION HOLDING CO.,LTD.	2003.09.19	TORTOLA,BRITISH VIRGIN ISLANDS	USD ‐	Holding company
SHENZHEN MEGA INFORMATION CO., LTD.	2003.11.19	SHENZHEN,CHINA	USD 700	Examines and maintenance of computers and electronic components
MSI POLSKA SP. Z O.O.	2006.04.24	WROCLAWSKIE,POLAND	EUR1,171	Sales and maintenance of computers and electronic components
MEGA TECHNOLOGY HOLDING CO., LTD.	2008.04.01	TORTOLA,BRITISH VIRGIN ISLANDS	USD3,050	Holding company
MSI TRADING (SHENZHEN) CO., LTD.	2008.04.01	SHENZHEN,CHINA	USD3,000	Sales and maintenance of computers and electronic components

87

MEGA COMPUTER CO., LTD.	2008.02.25	HONG KONG	HKD ‐	Sales support of computers and electronic components
LLC “MSI COMPUTER”	2009.10.09	MOSCOW,RUSSIA	EUR1,647	Sales support and maintenance of computers and electronic components
MSI COMPUTER TECHNOLOGIES LIMITED COMPANY	2010.11.04	ISTANBUL,TURKEY	EUR77	under liquidation
MSI ITALY S.R.L.	2010.11.12	MILANO,ITALY	EUR50	Sales support of computers and electronic components
MHK INTERNATIONAL CO., LTD.	2013.02.01	HONG KONG	HKD ‐	Sales support of computers and electronic components
MSI (SHENZHEN) CO., LTD.	2013.09.02	SHENZHEN,CHINA	USD1,000	Sales and maintenance of computers and electronic components
LINKING FUTURE CO., LTD.	2008.02.25	HONG KONG	HKD ‐	under deregistration
MSI (SHANGHAI) CO., LTD.	2017.12.12	SHANGHAI, CHINA	USD 1,000	Sales and maintenance of computers and electronic components
RAIDEALS INC.	2018.03.23	CA, U.S.A.	USD 50	Sales and maintenance of computers and electronic components

3.A controlling and hierarchical relationship according to Article 369.3 of Company Law：None

4.Business scope of MSI Group:

MICRO‐STAR NETHERLANDS HOLDING B.V. 、 MICRO‐STAR INTERNATIONAL （ B.V.I. ） HOLDING CO.,LTD. 、 MSI COMPUTER (CAYMAN) CO.,LTD. 、 STAR INFORMATION HOLDING CO., LTD. 、 MICRO ELECTRONICS HOLDING CO., LTD. 、 MSI PACIFIC INTERNATIONAL HOLDING CO., LTD. 、 MEGA INFORMATION HOLDING CO.,LTD. 、 MEGA TECHNOLOGY HOLDING CO., LTD. are holding and investment company. MSI headquarter and rest of affiliated companies are focused in IT industry. MSI Headquarter is focused on manufacturing and sales, MSI COMPUTER (SHENZHEN) CO., LTD. and MSI ELECTRONICS (KUNSHAN) CO., LTD. are MSI’s contract manufactor, SHENZHEN MEGA INFORMATION CO., LTD. is worldwide repair center, rest overseas companies are focus in sales and marketing, selling MSI own brand products.

88

5.Directors, Supervisors and Presidents of related party

5.Directors, Supervisors and Presidents of related party	5.Directors, Supervisors and Presidents of related party	5.Directors, Supervisors and Presidents of related party	5.Directors, Supervisors and Presidents of related party	5.Directors, Supervisors and Presidents of related party
Unit：shares
Name of corporation	Title	Name of representative	Shareholding
			Shares	%
MICRO STAR INTERNATIONAL (B.V.I.) HOLDING CO., LTD.	Director & President	MICRO STAR INTERNATIONAL CO., LTD. Representative：Yu,Hsien‐Neng	0 0	0% 0%
MSI COMPUTER CORP.	Director & President Director Director	MICRO STAR INTERNATIONAL CO.,LTD. Representative：Tung,Ti‐Chun Huang,Chin‐Ching Yu,Hsien‐Neng	575,458 0 0 0	100% 0% 0% 0%
MYSTAR COMPUTER B.V.	Director & President Director Director	MICRO STAR INTERNATIONAL CO.,LTD. Representative：Hung,Yu‐Sheng Huang,Chin‐Ching Wang,Ming‐Jung	0 0 0 0	0% 0% 0% 0%
MSI COMPUTER (AUSTRALIA) PTY. LTD.	Director & President Director Director	MICRO STAR INTERNATIONAL CO.,LTD. Representative：Huang,Chin‐Ching Lin,Wen‐Tung Chen,Yuan‐Kang	221,836 0 0 0	100% 0% 0% 0%
MICRO‐STAR NETHERLANDS HOLDING B.V.	Director & President	MICRO STAR INTERNATIONAL CO.,LTD. Representative：Hsu,Hsiang	424,000 0	100% 0%
MSI COMPUTER JAPAN CO., LTD.	Director & President Supervisor	MICRO STAR INTERNATIONAL CO.,LTD. Representative：Lin,Wen‐Tung Liu,Chu‐Hao	1,400 0 0	100% 0% 0%
MSI TECHNOLOGY GMBH	liquidated	‐	‐	‐
MSI COMPUTER SARL	Director & President Director Director	MICRO STAR INTERNATIONAL CO.,LTD. Representative：Hung,Yu‐Sheng Huang,Chin‐Ching Wang,Ming‐Jung	0 0 0 0	0% 0% 0% 0%
MSI COMPUTER (SHENZHEN) CO., LTD.	Executive Director & President Supervisor	MICRO STAR INTERNATIONAL CO.,LTD. Representative：Yu,Hsien‐Neng HUNG,PAO‐YU	0 0 0	0% 0% 0%
MSI COMPUTER (CAYMAN) CO., LTD.	Director & President	MICRO STAR INTERNATIONAL CO.,LTD. Representative：Huang,Chin‐Ching	50,000 0	100% 0%
MSI COMPUTER (UK) LTD.	Director & President Director Director	MICRO STAR INTERNATIONAL CO.,LTD. Representative：Hung,Yu‐Sheng Huang,Chin‐Ching Wang,Ming‐Jung	0 0 0 0	0% 0% 0% 0%
MSI ELECTRONICS (KUNSHAN) CO., LTD.	Executive Director & President Supervisor	MICRO STAR INTERNATIONAL CO.,LTD. Representative：Huang,Chin‐Ching Liu,Chu‐Hao	0 0 0	0% 0% 0%
MSI COMPUTER EUROPE B.V.	Director & President	MICRO STAR INTERNATIONAL CO.,LTD. Representative：Hung,Yu‐Sheng	0 0	0% 0%

89

STAR INFORMATION HOLDING CO., LTD.	Director	MICRO STAR INTERNATIONAL CO.,LTD. Representative：Hung,Pao‐Yu	0 0	0% 0%
MICRO ELECTRONICS HOLDING CO., LTD.	Director	MICRO STAR INTERNATIONAL CO.,LTD. Representative：Hung,Pao‐Yu	0 0	0% 0%
MSI PACIFIC INTERNATIONAL HOLDING CO., LTD.	Director	MICRO STAR INTERNATIONAL CO.,LTD. Representative：Hung, Pao‐Yu	30,204,118 0	100% 0%
MSI KOREA CO., LTD.	Director & President Supervisor	MICRO STAR INTERNATIONAL CO.,LTD. Representative：Kung,Fan‐Shu Liu,Chu‐Hao	0 0 0	0% 0% 0%
MEGA INFORMATION HOLDING CO.,LTD.	Director	MICRO STAR INTERNATIONAL CO.,LTD. Representative：Hung,Pao‐Yu	0 0	0% 0%
SHENZHEN MEGA INFORMATION CO., LTD.	Executive Director & President Supervisor	MICRO STAR INTERNATIONAL CO.,LTD. Representative：Yu,Hsien‐Neng Hung,Pao‐Yu	0 0 0	0% 0% 0%
MSI POLSKA SP. Z O.O.	Director & President	MICRO STAR INTERNATIONAL CO.,LTD. Representative：Yu,Hsien‐Neng	0 0	0% 0%
MEGA TECHNOLOGY HOLDING CO., LTD.	Director	MICRO STAR INTERNATIONAL CO.,LTD. Representative：Hung,Pao‐Yu	0 0	0% 0%
MSI TRADING (SHENZHEN) CO., LTD.	Executive Director Supervisor	MICRO STAR INTERNATIONAL CO.,LTD. Representative：Liu,Chu‐Hao Hung,Pao‐Yu	0 0 0	0% 0% 0%
MEGA COMPUTER CO., LTD.	Director	MICRO STAR INTERNATIONAL CO.,LTD. Representative：Hung,Pao‐Yu	0 0	0% 0%
LLC “MSI COMPUTER”	Director & President Director Director	MICRO STAR INTERNATIONAL CO.,LTD. Representative：Hung,Yu‐Sheng Huang,Chin‐Ching Wang,Ming‐Jung	0 0 0 0	0% 0% 0% 0%
MSI COMPUTER TECHNOLOGIES LIMITED COMPANY	liquidator	Cevat Binici	0	0%
MSI ITALY S.R.L.	Director & President Director Director	MICRO STAR INTERNATIONAL CO.,LTD. Representative：Hung,Yu‐Sheng Huang,Chin‐Ching Wang,Ming‐Jung	0 0 0 0	0% 0% 0% 0%
MHK INTERNATIONAL CO., LTD.	Director	MICRO STAR INTERNATIONAL CO.,LTD. Representative：Hung,Pao‐Yu	0 0	0% 0%
MSI (SHENZHEN) CO., LTD.	Executive Director Supervisor	MICRO STAR INTERNATIONAL CO.,LTD. Representative：Hung,Yu‐Sheng Hung, Pao‐Yu	0 0 0	0% 0% 0%
LINKING FUTURE CO., LTD.	Director	MICRO STAR INTERNATIONAL CO.,LTD. Representative：Hung,Pao‐Yu	0 0	0% 0%
MSI (SHANGHAI) CO., LTD.	Executive Director Supervisor	MICRO STAR INTERNATIONAL CO.,LTD. Representative：Hung,Yu‐Sheng Hung,Pao‐Yu	0 0 0	0% 0% 0%
RAIDEALS INC.	Director & President	MICRO STAR INTERNATIONAL CO.,LTD. Representative：Hung, Pao‐Yu	0 0	0% 0%

90

6.Business operation of the related party

				Expressed in thousands of NTD (Except as otherwise indicated)	Expressed in thousands of NTD (Except as otherwise indicated)	Expressed in thousands of NTD (Except as otherwise indicated)	Expressed in thousands of NTD (Except as otherwise indicated)	Expressed in thousands of NTD (Except as otherwise indicated)
Name of corporation	Capital (unit: thousands)	Total Assets	Total Liabilities	Net Worth	Revenue	Operating Income (Loss)	Net Income (Loss))	Earning(Loss) (Per Share NTD)
MICRO‐STAR INTERNATIONAL (B.V.I.) HOLDING CO., LTD.	USD47,521 (Rate 30.715)	3,777,677	21,061	3,756,616	0	(14,621)	252,772	0.17 (NOTE 2)
MSI COMPUTER CORP.	USD 460 (Rate 30.715)	7,937,746	7,902,184	35,562	16,741,218	6,638	(17,931)	(1.27) (NOTE 2)
MYSTAR COMPUTER B.V.	EUR 2,027 (NOTE 1) (Rate 35.20)	455,846	320,756	135,090	2,060,780	23,452	15,699	0.22 (NOTE 2)
MSI COMPUTER (AUSTRALIA) PTY.LTD.	AUD 222 (Rate 21.665)	8,311	1,785	6,526	23,501	618	(189)	(0.04) (NOTE 2)
MICRO‐STAR NETHERLANDS HOLDING B.V.	EUR 1,102 (NOTE 1) (Rate 35.20)	589,044	(7,808)	596,852	41,011	(4,647)	5,495	0.14 (NOTE 2)
MSI COMPUTER JAPAN CO., LTD.	JPY 20,000 (Rate 0.2782)	19,094	6,140	12,954	65,114	1,629	910	0.16 (NOTE 2
MSI TECHNOLOGY GMBH	EUR ‐ (NOTE 1) (Rate 35.20)	‐	‐	‐	0	(726)	(872)	‐ (NOTE 3)
MSI COMPUTER SARL	EUR 730 (NOTE 1) (Rate 35.20)	69,428	19,367	50,061	98,591	4,739	4,796	0.19 (NOTE2)
MSI COMPUTER (SHENZHEN) CO., LTD.	USD 51,800 (Rate 30.715)	5,161,507	1,567,002	3,594,505	3,054,219	218,523	252,687	0.16 (NOTE2)
MSI COMPUTER (CAYMAN) CO., LTD.	USD 3,040 (Rate 30.715)	145,747	18,616	127,131	10,128	(9,212)	(877)	(0.01) (NOTE2)
MSI COMPUTER (UK) LTD.	EUR1,130 (NOTE 1) (Rate 35.20)	15,328	2,822	12,506	32,508	1,548	1,618	0.04 (NOTE2)
MSI ELECTRONIC (KUNSHAN) CO., LTD.	USD 51,000 (Rate 30.715)	2,884,515	716,831	2,167,684	1,537,258	111,005	197,093	0.13 (NOTE2)
MSI COMPUTER EUROPE B.V.	EUR 1,149 (Rate 35.20)	138,330	94,654	43,676	205,349	6,098	4,880	0.12 (NOTE2)
STAR INFORMATION HOLDING CO., LTD.	USD4,503 (Rate 30.715)	35,870	0	35,870	0	(47)	3,204	0.02 (NOTE2)
MICRO ELECTRONICS HOLDING CO., LTD.	USD 33,315 (Rate 30.715)	2,389,380	115,335	2,274,045	0	(15,305)	198,217	0.19 (NOTE2)

91

MSI PACIFIC INTERNATIONAL HOLDING CO., LTD.	USD 30,204 (Rate 30.715)	11,227,519	4,907,473	6,320,046	4,288,312	(661)	412,993	0.45 (NOTE2)
MSI KOREA CO., LTD.	KRW 800,000 (Rate 0.0276)	454,969	179,965	275,004	3,715,782	40,761	35,890	1.63 (NOTE 2)
MEGA INFORMATION HOLDING CO., LTD.	USD ‐ (Rate 30.715)	0	0	0	0	0	1,063	‐ (NOTE 2)
SHENZHEN MEGA INFORMATION CO., LTD.	USD 700 (Rate 30.715)	29,587	7,448	22,139	47,048	1,677	1,062	0.05 (NOTE 2)
MSI POLSKA SP. Z O.O.	EUR1,171 (NOTE 1) (Rate 35.20)	46,956	14,218	32,738	162,718	3,727	2,322	0.06 (NOTE 2)
MEGA TECHNOLOGY HOLDING CO., LTD.	USD 3,050 (Rate30.715)	0	6,090	(6,090)	0	0	(1,831)	(0.02) (NOTE 2)
MSI TRADING (SHENZHEN) CO., LTD	USD 3,000 (Rate30.715)	4,890	12,479	(7,589)	0	(2,049)	(1,795)	(0.02) (NOTE 2)
MEGA COMPUTER CO., LTD.	HKD ‐ (Rate 3.921)	1,573,389	1,566,739	6,650	6,135,760	(1,133)	(575)	‐ (NOTE 2)
LLC “MSI COMPUTER”	EUR 1,647 (Rate 35.20)	35,552	4,546	31,006	72,522	2,685	2,680	0.05 (NOTE 2)
MSI COMPUTER TECHNOLOGIES LIMITED COMPANY	EUR 77 (Rate 35.20)	13	76	(63)	0	0	0	0 (NOTE 4)
MSI ITALY S.R.L.	EUR 50 (Rate 35.20)	12,365	10,814	1,551	37,522	1,970	971	0.55 (NOTE 2)
MHK INTERNATIONAL CO., LTD.	HKD ‐ (Rate 3.921)	53,156	39,769	13,387	130,870	6,697	6,297	‐ (NOTE 2)
MSI (SHENZHEN) Co., LTD.	USD 1,000 (Rate 30.715)	45,144	22,972	22,172	3,929,108	4,131	2,983	0.10 (NOTE2)
LINKING FUTURE CO., LTD.	HKD ‐ (Rate 3.921)	‐	‐	‐	‐	‐	‐	‐ (NOTE5)
MSI (SHANGHAI) Co., LTD.	USD 1,000 (Rate 30.715)	1,426,677	1,466,886	(40,209)	3,437,193	(70,469)	(68,625)	(2.23) (NOTE2)
RAIDEALS INC.	USD 50 (Rate 30.715)	2,875	1,375	1,500	7,943	(12)	(35)	(0.02) (NOTE2)

Note 1：Capital includes surplus.

Note 2：Earnings per share was calculated based on each NTD of capital instead of each share.

Note 3: In November 2018, MSI TECHNOLOGY GMBH has completed the liquidation process.

Note 4: MSI COMPUTER TECHNOLOGIES LIMITED COMPANY is under liquidation.

Note 5: LINKING FUTURE CO., LTD. is under deregistration.

92

• 7.Consolidated Financial Statements of the parent company and subsidiaries：Please refer to page 94 ～ 161

• 8.Related Party Report：Not Applicable

• Affiliated companies’ transaction on guarantee, endorsement, loans to others and derivatives: please refer to page 148 .

• ( Ⅱ )Subscription of marketable securities privately in the most recent years and up to the date of the report printed ： None

• ( Ⅲ )Status of MSI Common Shares Acquired, Disposed of, and Held by Subsidiaries: None

• ( Ⅳ )Other Necessary Supplement: None.

• ( Ⅴ )Occurrence of events defined in Securities Transaction Law Article 36.2.2 that has great impact on shareholders’ equity or security price in the most recent years and up to the date of the repost printed： None

93

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.

94

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

95

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

96

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) 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,

97

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 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

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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 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,

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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.

3.

4.

5.

6.

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.

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

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our 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.

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

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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

December 31, 2018 December 31, 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	Notes 6(17) 6(4)(20) 6(20) 6(7)(18) 6(2)(19) 6(22) 6(12) 6(22) 6(23)	YearendedDecember31	YearendedDecember31
		2018	2017
4000 Sales revenue 5000 Operating costs 5900 Net operating margin Operating expenses 6100 Selling expenses 6200 General and administrative expenses 6300 Research and development expenses 6450 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 attributable to owners	Equity attributable to owners	Equity attributable to owners	of the parent	of the parent	of the parent	of the parent	of the parent					Total equity
		Share capital - common stock			Capital surplus				Retained earnings						Financial statements translation differences of foreign operations
				Total capital surplus, additional paid-in capital $ 1,895,419 - - - - - ( 844,856 ) $ 1,050,563 $ 1,050,563 - - - - - - - $ 1,050,563	Treasury stock transactions $ 130,592 - - - - - - $ 130,592 $ 130,592 - - - - - - - $ 130,592	Capital surplus, Donated assets received $ - - - - - - - $ - $ - - - - - - - 434 $ 434	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				$ 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.

1. 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:

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

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

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(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:

from 2018 are as follows:
				Effective date by
				International Accounting
NewStandards,Interpretations		and Amendments		Standards Board
Amendments to IFRS 9, ‘Prepayment features with negative				January 1, 2019
compensation’
IFRS 16, ‘Leases’				January 1, 2019
Amendments to IAS 19, ‘Plan amendment,		curtailment or settlement’		January 1, 2019
Amendments to IAS 28, ‘Long-term	interests in associates and joint			January 1, 2019
ventures’
IFRIC 23, ‘Uncertainty over income	tax treatments’			January 1, 2019
Annual improvements to IFRSs 2015-2017		cycle		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 l e s s o r s , which is to classify their leases as either finance leases or operating leases and account for those t w o 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:

	Effective date by
	International Accounting
New Standards,Interpretations and Amendments	Standards Board
Amendment to IAS 1 and IAS 8, ‘Disclosure Initiative-Definition of	January 1, 2020
Material’

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	Effective date by
	International Accounting
NewStandards,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.

1. 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.

(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

110

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.

• 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.

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• 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 re-translated at the exchange rates prevailing at the balance sheet date. Exchange differences arising upon re-translation at the balance sheet date are recognised in profit or loss.

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

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

• B. Translation of foreign operations

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

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

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

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

  • (b) When the foreign operation partially disposed of or sold is 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

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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.

(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

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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.

• (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

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the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell or value in use. Except for goodwill, when the circumstances or reasons for recognizing impairment loss for an asset in prior years no longer exist or diminish, the impairment loss is reversed. The increased carrying amount due to reversal should not be more than what the depreciated or amortised historical cost would have been if the impairment had not been recognised.

• (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.

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

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     - 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 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

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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 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.

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• (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.

• (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.

• 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.

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

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	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 〃 〃			2018.11.19~2019.02.01 2018.11.29~2019.02.11 2018.12.20~2019.01.24

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December 31, 2017

	December	31,2017
Derivative Financial Assets	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).

(3)Accounts receivable

Accounts receivable
Notes receivable Accounts receivable Less: Allowance for doubtful accounts (	December 31,2018 35,183 $ 16,059,595 $ 19,406) ( 16,040,189 $	December 31,2017
		21 $
		15,125,954 $ 17,851)
		15,108,103 $

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

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$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 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) ($ December 31,2017	Book value
			7,210,674 $ 1,341,690 13,500,498
			22,052,862 $
	Cost 4,688,293 $ 702,826 11,269,390 16,660,509 $		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

market value decline in 2017. Prepayments
Office supplies Overpaid tax for offsetting the future tax payble Office supplies Prepayment for goods Others	December31,2018 780,088 $ 364,726 20,507 215,701 1,381,022 $	December31,2017
		676,566 $ 323,257 136,063 156,842
		1,292,728 $

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(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 At January 1, 2017 Cost Accumulated depreciation 2017 Balance at January 1 Additions Reclassifications Disposals Depreciation charge Net exchange differences ( Balance at December 31 At December 31, 2017 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 $ Land Buildings Machineries Others Total 1,467,204 $ 5,540,609 $ 4,620,658 $ 1,727,107 $ 13,355,578 $ - 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 $ 1,467,204 $ 2,434,987 $ 823,166 $ 367,035 $ 5,092,392 $ - 93,785 318,109 225,684 637,578 - 46,433) ( - 17,217) ( 63,650) ( - - 445) ( 3,807) ( 4,252) ( - 206,202) ( 211,813) ( 114,100) ( 532,115) ( 208) 17,345) ( 18,612) ( 5,986) ( 42,151) ( 1,466,996 $ 2,258,792 $ 910,405 $ 451,609 $ 5,087,802 $ 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 $

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

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(7) Investment property

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
			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:
		2018	2017
Rental income from the lease of the investment
property	$	97,487 $	82,274
Direct operating expenses arising from the
investment property	$	69,936 $	62,438
B. As of December 31, 2018 and 2017, the fair	value of the Group’s investments in property

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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

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

As of December 31, 2017, the Group did not have any short-term borrowings. (10) Other payables

) 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 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

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

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

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

129

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 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
		470,631 $ 2,764 5,177 478,572 - 5,335 23,774 29,109 - 5,194) ( 502,487 $ Present value of defined benefit obligations	267,874) ($ - 2,947) ( 270,821) ( 7,679) ( - - 7,679) ( 11,572) ( 5,194 284,878) ($ Fair value of plan assets	202,757 $ 2,764 2,230 207,751 7,679) ( 5,335 23,774 21,430 11,572) ( - 217,609 $ 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

130

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:

	2018			2017
Discount rate	1.00%			1.10%
Future salary increases	2.75%			2.75%
Assumptions regarding future mortality experience are set based			on actuarial advice in
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:
Discount rate		Future salaryincreases
Increase 0.25%	Decrease 0.25%	Increase 0.25%		Decrease 0.25%
December 31, 2018
Effect on present value of
defined benefit obligation 13,186) ($	13,699 $	$	12,176	($	11,802)
December 31, 2017
Effect on present value of
defined benefit obligation 12,806) ($	13,326 $	$	11,901	($	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

131

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 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:

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		2016	2016
			Dividends per
		Amount	share(dollar)
Cash dividends from capital surplus	$	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.

• (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.

133

• 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:

segment:	segment:	segment:	segment:	segment:
(18) Other income (19) Other gains and losses (20) Expenses by nature 2018 Computer and peripherals segment General administration and othersegments Total Total segment revenue 118,523,473 $ 3,800 $ 118,527,273 $ Timing of revenue recognition At a point in time 118,523,473 $ 3,800 $ 118,527,273 $ 2017 Computer and peripherals segment General administration and othersegments Total Total segment revenue 106,266,695 $ 153,210 $ 106,419,905 $ Timing of revenue recognition At a point in time 106,266,695 $ 153,210 $ 106,419,905 $ 2018 2017 Interest income 88,788 $ 69,944 $ Rental revenue 97,487 82,423 Others 469,458 233,908 Total 655,733 $ 386,275 $ 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) ($ 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 By function By nature 2018 2017						Computer and peripherals segment				General administration and othersegments 3,800 $ 3,800 $ General administration and othersegments 153,210 $ 153,210 $ 2018 88,788 $ 97,487 469,458 655,733 $ 2018 70,334 ($ 185,053) 46,913 ( 114,335) ( 182,141) ($				Total
						118,523,473 $ 118,523,473 $ Computer and peripherals segment								118,527,273 $
														118,527,273 $
														Total
														106,419,905 $
														106,419,905 $
								$
								$
								($					($
	By n	By function ature	2018								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:

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

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

135

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

B. Reconciliation between income tax expense and accounting profit

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

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

136

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 $		2018	2018	2018	2018
		Recognised in profit or loss				December 31
						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
						16,967) (
						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.

• 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

137

tax rate. (23) Earnings per share

	tax rate. (23) Earnings per share
7.	RELATED PARTY TRANSACTIONS (1) Names of related parties and relationship None. (2) Significant related party transactions Retroactively adjusted weighted-average outstanding ordinary Amount after tax shares(in thousands) Basic earnings per share Profit attributable to ordinary shareholders of the parent 6,041,129 $ 844,856 Diluted earnings per share Profit attributable to ordinary shareholders of the parent 6,041,129 $ 844,856 Assumed conversion of all dilutive potential ordinary shares Employee bonus - 7,926 Profit attributable to ordinary shareholders of the parent plus assumed conversion of all dilutive potential ordinary shares 6,041,129 $ 852,782 2018 Retroactively adjusted weighted-average outstanding ordinary Amount after tax shares(in thousands) Basic earnings per share Profit attributable to ordinary shareholders of the parent 4,937,422 $ 844,856 Diluted earnings per share Profit attributable to ordinary shareholders of the parent 4,937,422 $ 844,856 Assumed conversion of all dilutive potential ordinary shares Employee bonus - 7,363 Profit attributable to ordinary shareholders of the parent plus assumed conversion of all dilutive potential ordinary shares 4,937,422 $ 852,219 2017	2018
		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 2017	Earnings per share (in NT dollars)
			7.15 $
			7.08 $
			Earnings per share (in NT dollars)
			5.84 $
			5.79 $

None.

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(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:

Book value

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

1. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNISED

CONTRACT COMMITMENTS

(4)Contingencies ： None.

• (5)Commitments ： None.

10. SIGNIFICANT DISASTER LOSS

None.

1. 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.

139

(2) Financial instruments

A. Financial instruments by category

December 31, 2018 December 31, 2017

inancial instruments Financial instruments by category		December 31,2018		December 31,2017
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		98,400 $ 8,815,680 35,183 16,040,189 159,681 728,936 26,348 25,904,417 $ December 31,2018		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 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.

140

• 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

• 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

141

foreign exchange 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			2018	Effect on other comprehensive income
			Sensitivityanalysis
		Degree of variation	Effect on profit or loss (before tax)
		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	- $ - - - - - -

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.

142

• 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.

• 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.

143

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.

	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.	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.	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.	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 non-derivative 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: Derivative financial liabilities December 31, 2018 Less than 1 year Between 1 to 2years Between 2 to 3years 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 1,588 14,616 Other financial liabilities 21,665 110,576 437 December 31, 2017 Less than 1 year Between 1 to 2years Between 2 to 3years Accounts payable 16,032,335 $ - $ - $ Other payables 3,490,587 - - Long-term borrowings (including current portion) 1,538 1,538 1,538 Other financial liabilities 23,185 105,678 -				Over 3years
			- $ - - - 1,588 110,576 Between 1 to 2years	- $ - - - 14,616 437 Between 2 to 3years	- $ - - - - 94,225 Over 3years
	Derivative financial liabilities 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

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

144

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 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 84,068 $ - - 84,068 $ - $ Level 1 - $ - - $ - $	Level 2 - $ 6,376 7,956 14,332 $ 5,555 $ Level 2 350 $ 20,566 20,916 $ 24,448 $	Level3 - $ - - - $ - $ Level 3 - $ - - $ - $	Total
				84,068 $ 6,376 7,956
				98,400 $
				5,555 $
				Total
				350 $ 20,566
				20,916 $
				24,448 $

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

145

  - (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 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

146

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 Up to 75 days		December 31,2017
		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 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.

147

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 paid-in 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.

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

a

a n d s a l e o f o t h e r products and in charge of general d m i n i s t r a t i o n department expenses.

There is no material change in the basis for grouping of entities and division of

148

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

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
For the year ended December 31, 2017 Computer and General administration peripherals segment and other segments Total segment revenue 118,523,473 $ 3,800 $ Operating income (loss) 6,991,151 $ 299,201) ($ Other non-operating revenue Profit before tax Computer and General administration peripherals segment and other segments Total segment revenue 106,266,695 $ 153,210 $ Operating income (loss) 5,880,613 $ 266,953) ($ Other non-operating revenue Profit before tax	Total
	118,527,273 $
	6,691,950 $
	459,184
	7,151,134 $
	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.

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:

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

149

(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

Expressed in thousands of NTD

Table 1

(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	-

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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

Expressed in thousands of NTD

Table 2

(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 partytransactions	Description and reasons of difference in transaction terms compared to third partytransactions	Accounts or notes receivable (payable)	Accounts or notes receivable (payable)	Footnot e
			Purchases/(Sales)	Amount (Note 3)	% of total purchase (sale)	Credit terms	Unit price	Credit terms	Balance (Note 3)	% of total accounts or notes receivable/(p ayable)
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.

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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.

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MICRO-STAR INTERNATIONAL CO., LTD. AND SUBSIDIARIES

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

Expressed in thousands of NTD

					Expressed in thousands of NTD	Expressed in thousands of NTD	Expressed in thousands of NTD
Table 4					(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%

154

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.

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MICRO-STAR INTERNATIONAL CO., LTD. AND SUBSIDIARIES

Information on investees (not including investees in Mainland China)

For the year ended December 31, 2018

Table 5

Expressed in thousands of NTD (Except as otherwise indicated)

Investor	Investee	Location	Main business activities	Initial investment amount	Initial investment amount	Shares held a	s at December 31, 2018	s 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 INTERNATION AL CO., LTD.	MSI (LA)	U.S.A	Sales and maintenance of computers,a nd electronic components	$ 258,468	$ 258,468	575,458	100.00	$ 35,562	$ (17,931)	$ (17,931)	Direct subsidiary
MICRO-STAR INTERNATION AL CO., LTD.	MSI (AUSTRALI A)	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 INTERNATION AL 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 INTERNATION AL 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 INTERNATION AL CO.,LTD.	MSI (HOLDING)	Netherlan ds	Holding company	45,724	154,166	424,000	100.00	596,852	5,495	5,495	Direct subsidiary
MICRO-STAR INTERNATION AL CO.,LTD.	MSI COMPUTER (CAYMAN)	Cayman Islands	Holding company	99,093	99,093	50,000	100.00	127,131	(877)	(877)	Direct subsidiary

156

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 ELECTRONI CS	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 INFORMATI ON	British Virgin Island	Holding company	144,721	144,721	4,502,601	100.00	35,870	3,204	-	Indirect subsidiary
MSI (PACIFIC)	MEGA TECHNOLO GY	British Virgin Island	Holding company	$ 92,819	$ 91,296	3,050,000	100.00	$ (6,090)	$ (1,831)	-	Indirect subsidiary
MSI (PACIFIC)	MEGA INFORMATI ON	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	Netherlan ds	Sales support of computers and electronic components	71,353	71,353	-	100.00	135,090	15,699	-	Indirect subsidiary

157

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

158

MSI (HOLDING)	MSI (EUROPE)	Netherlan ds	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
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.

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MICRO-STAR INTERNATIONAL CO., LTD. AND SUBSIDIARIES

Information on investments in Mainland China - Basic information

For the year ended December 31, 2018

Table 6	Table 6	Table 6	Table 6	Table 6	Table 6	Table 6			Expressed in thousands of NTD (Except as otherwise indicated)	Expressed in thousands of NTD (Except as otherwise indicated)	Expressed in thousands of NTD (Except as otherwise indicated)	Expressed in thousands of NTD (Except as otherwise indicated)	Expressed in thousands of NTD (Except as otherwise indicated)	Expressed in thousands of NTD (Except as otherwise indicated)	Expressed in thousands of NTD (Except as otherwise indicated)
Investee in Mainland China	Main business activities	Paid-in capital	Investme nt 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		Accumulated amount of remittance from Taiwan to Mainland China as of December 31, 2018	Net income of investee as of December 31, 2018	Ownershi p 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	Accumulat ed 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	$ ,726,857	Note 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
Company name MICRO-STAR INTERNATIONAL CO., LTD.		Accumulated amount of remittance from Taiwan to Mainland China as of December 31, 2018 $ 3,602,547			Investment a				Ceiling on investments in Mainland China imposed by the Investment Commission of MOEA $ 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.

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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

Expressed in thousands of NTD

Table 7

(Except as otherwise indicated)

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

Note: Processing overhead.

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MICRO-STAR INTERNATIONAL CO., LTD.

PARENT COMPANY ONLY 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.

162

REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE

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

Opinion

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

In our opinion, the accompanying parent company only financial statements present fairly, in all material respects, the parent company only financial position of the Company as at December 31, 2018 and 2017, and its parent company only financial performance and its parent company only cash flows for the years then ended in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”.

Basis for opinion

We conducted our audits in accordance with the “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants” and generally accepted auditing standards in the Republic of China (ROC GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Parent Company Only Financial Statements section of our report. We are independent of the Company in accordance with the Code of Professional Ethics for Certified Public Accountants in the Republic of China (the “Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. Based on our audits and the 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 judgment, were of most significance in our audit of the parent company only financial statements of the year ended December 31, 2018. These matters were addressed in the context of our audit of the parent company only financial statements as a whole and, in forming our opinion thereon, we do not provide a separate opinion on these matters. Key audit matters for Company’s parent company only 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(22) for accounting policies on revenue recognition. Other than international brands, the Company sells its products to customers in various countries. With the Company actively developing new products, sales revenue increases progressively every year, and the occurrence of sales

163

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 abovementioned 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 recognized.

Estimation of allowance for inventory valuation losses

Description

Please refer to Note 4(9), 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) for details of inventories. As of December 31, 2018, the balances of inventories and allowance for inventory valuation losses are NT$22,794,251 thousand and NT$627,200 thousand, respectively.

The Company 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 Company 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 ad at the balance sheet date are subject to management’s judgement and contain a high level of uncertainty and have material effects of 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 relating to the provision of allowance for inventory valuation losses and procedures based on our understanding of the Company’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 Company’ policies.

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

Other matter-Reference to audits of other independent accountants

164

We did not audit the financial statements of certain investments accounted for under the equity method that are included in the parent company only 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 investees (including investments accounted for under the equity method) amounted to NT$1,054,586 thousand and NT$1,128,075 thousand as at December 31, 2018 and 2017, constituting 1.83% and 2.20% of total assets, respectively. Comprehensive income of the abovementioned investees amounted to NT$28,776 thousand and NT$106,659 thousand, for the years ended December 31, 2018 and 2017, constituting 0.48% and 2.26% of total comprehensive income, respectively.

165

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

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

In preparing the parent company only financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance, including audit committee, are responsible for overseeing the Company’s financial reporting process.

Independent accountant's responsibilities for the audit of the parent company only financial statements

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

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

1. Identify and assess the risks of material misstatement of the parent company only financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal 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 Company'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 Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our

166

auditor’s report to the related disclosures in the parent company only financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.

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

2. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the parent company only financial statements. We are responsible for the direction, supervision and performance of the 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 parent company only financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Liang, Hua-Ling

Lai, Chung-Hsi

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

167

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

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

168

MICRO-STAR INTERNATIONAL CO., LTD. PARENT COMPANY ONLY BALANCE SHEETS DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

Assets	December31,2018 Notes AMOUNT % 6(1) $ 6,979,442 12 6(2) 14,332 - 6(3) 2,377 - 6(3) 10,736,410 19 7 5,881,877 10 91,329 - 7 - - 6(4) 22,167,051 39 1,115,391 2 728,936 1 47,717,145 83 6(5) 7,099,071 12 6(6) 2,363,138 4 6(19) 392,815 1 5,603 - 9,860,627 17 $ 57,577,772 100 (Continued)	December31,2017	December31,2017
		AMOUNT $ 8,220,379 20,916 21 9,860,662 5,465,125 75,344 6,488 16,416,662 1,145,554 68,835 41,279,986 7,380,758 2,373,408 300,381 3,886 10,058,433 $ 51,338,419	%
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 1180 Accounts receivable - related parties 1200 Other receivables 1210 Other receivables - related parties 130X Inventories 1410 Prepayments 1476 Other current financial assets 11XX Current Assets Non-current assets 1550 Investments accounted for under equity method 1600 Property, plant and equipment 1840 Deferred income tax assets 1900 Other non-current assets 15XX Non-current assets 1XXX Total assets			16 - - 19 11 - - 32 2 -
			80
			14 5 1 -
			20
			100

169

MICRO-STAR INTERNATIONAL CO., LTD. PARENT COMPANY ONLY BALANCE SHEETS DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

Liabilities andEquity

December31,2018 December31,2017 Notes AMOUNT % AMOUNT % 6(7) $ 3,000,000 5 $ - - 6(2) 5,555 - 24,448 - 200 - - - 14,658,805 25 15,864,494 31 6(8) 2,754,512 5 2,670,177 5 7 3,671,761 6 3,405,827 7 961,026 2 740,703 1 6(10) 514,601 1 454,744 1 1,702,658 3 - - 27,539 - 68,329 - 27,296,657 47 23,228,722 45 6(19) 1,755 - 16,252 - 6(9) 217,609 1 202,757 1 115,890 - 87,418 - 335,254 1 306,427 1 27,631,911 48 23,535,149 46 6(11) 8,448,562 15 8,448,562 16 6(12) 1,226,049 2 1,225,615 2 6(13) 4,378,464 7 3,884,722 8 421,815 1 389,482 1 15,976,937 28 14,276,704 28 ( 505,966 ) ( 1) ( 421,815) ( 1) 29,945,861 52 27,803,270 54 $ 57,577,772 100 $ 51,338,419 100

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 2220 Other payables - related parties 2230 Current income tax liabilities 2250 Provisions for liabilities - current 2365 Refund liabilities-current 2399 Other current liabilities, others 21XX Current Liabilities Non-current liabilities 2570 Deferred income tax liabilities 2640 Accrued pension liabilities 2670 Other non-current liabilities, others 25XX Non-current liabilities 2XXX Total Liabilities Equity Share capital 3110 Share capital - common stock Capital surplus 3200 Capital surplus Retained earnings 3310 Legal reserve 3320 Special reserve 3350 Unappropriated retained earnings Other equity interest 3400 Other equity interest 3XXX Total equity 3X2X Total liabilities and equity

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

170

MICRO-STAR INTERNATIONAL CO., LTD.

PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

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

Items	Notes 6(14) and 7 6(4)(17) and 7 6(17) and 7 6(15) 6(2)(16) 6(5) 6(19) 6(9) 6(19) 6(20)	YearendedDecember31	YearendedDecember31
		2018	2017
4000 Sales revenue 5000 Operating costs 5900 Net operating margin Operating expenses 6100 Selling expenses 6200 General and administrative expenses 6300 Research and development expenses 6450 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 7070 Share of profit of associates and joint ventures accounted for using equity method, net 7000 Total non-operating revenue and expenses 7900 Profit before income tax 7950 Income tax expense 8000 Profit for the year from continuing operations 8200 Profit for the year Other comprehensive income Other components of other comprehensive income that will not be reclassified to profit or loss 8311 Other comprehensive income, before tax, actuarial gains (losses) on defined benefit plans 8349 Income tax related to components of other comprehensive income that will not be reclassified to profit or loss 8310 Components of other comprehensive income that will not be reclassified to profit or loss Components of other comprehensive income that will be reclassified to profit or loss 8361 Other comprehensive income, before tax, exchange differences on translation 8360 Components of other comprehensive income that will be reclassified to profit or loss 8300 Other comprehensive loss for the year 8500 Total comprehensive income for the year Basic earnings per share 9750 Total basic earnings per share 9850 Total diluted earnings per share
		$

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

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

(Expressed in thousands of New Taiwan dollars)

2017 Balance at January 1, 2017 Profit for the year Other comprehensive loss for the year Total comprehensive income Appropriations of 2016 earnings (Note): 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 (Note) : Legal reserve Special reserve Cash dividends Due to donated assets received Balance at December 31, 2018	Notes	Share capital - common stock	Share capital - common stock		Capital	Capital	surplus	surplus				Retained earnings	Retained earnings	Retained earnings	Retained earnings	Financial statements translation differences of foreign operations		Total equity
				Total capital surplus, additional paid-in capital	Treasury stock transactions		Capital surplus, donated assets received		Employee stock warrants			Legal reserve	Special reserve		Unappropriated retained earnings
	6(13) 6(12) 6(13)		$ 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

Note: The directors' and supervisors' remuneration were $40,700 and $49,500, and employees' bonuses were $438,000 and $515,000 in 2016 and 2017, respectively, which had been deducted from net income for the year.

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

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

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax Adjustments Adjustments to reconcile profit (loss) Depreciation Amortization Expected credit gain Net (gains) losses on financial assets and liabilities at fair value through profit or loss Interest expense Interest income Share of profit of associates and joint ventures accounted for using equity method Gain 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 Notes receivable, net Accounts receivable Accounts receivable due from related parties Other receivables Other receivables - related parties Inventories Prepayments Other current financial assets Changes in operating liabilities Notes payable Accounts payable Other payables Other payables - related parties Provisions for liabilities - current Current refund liabilities Other current liabilities, others Net defined benefit liability Cash (outflow) inflow generated from operations Interest received Interest paid Income tax paid Net cash flows (used in) from operating activities

Years ended December 31 Notes 2018 2017 $ 7,029,234 $ 5,852,116 6(6)(17) 74,533 68,702 6(17) 23 28 6(3) ( 10,637 ) ( 21,857 ) ( 12,309 ) 65,788 9,029 735 6(15) ( 69,958 ) ( 58,650 ) ( 416,401 ) ( 383,462 ) 6(16) ( 300 ) ( 497 ) 6(16) - 345 28,275 34,708 ( 2,356 ) 8,242 831,502 ( 84,219 ) ( 416,752 ) ( 721,587 ) 122,582 75,586 6,488 100,511 ( 5,750,389 ) 83,682 30,163 ( 182,105 ) ( 660,101 ) ( 68,835 ) 200 - ( 1,205,689 ) ( 2,344,565 ) 84,377 ( 332,346 ) 265,934 ( 353,360 ) 59,857 144,006 6,045 - ( 40,790 ) ( 239,155 ) ( 6,578) ( 6,557) ( 44,018 ) 1,637,254 ( 68,609 ) 69,230 ( 8,637 ) ( 735 ) ( 866,252) ( 833,909) ( 987,516) 871,840

(Continued)

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- MICRO STAR INTERNATIONAL CO., LTD. PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Increase in refundable deposits Proceeds from capital reduction of investments accounted for using equity method Proceeds from disposal of investments accounted for using equity method Net cash flows from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Increase in short-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) ( $ 64,263 ) ( $ 44,802 ) 300 2,317 ( 1,740 ) ( 838 ) 6(5) 613,937 1,072,750 - 149,503 548,234 1,178,930 6(7) 3,000,000 - 28,472 46,941 6(13) ( 3,801,852 ) ( 2,956,997 ) 6(12) - ( 844,856 ) ( 773,380 ) ( 3,754,912 ) ( 28,275 ) ( 33,847 ) ( 1,240,937 ) ( 1,737,989 ) 6(1) 8,220,379 9,958,368 6(1) $ 6,979,442 $ 8,220,379

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

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MICRO-STAR INTERNATIONAL CO., LTD.

NOTES TO THE PARENT COMPANY ONLY 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 is 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.

1. THE DATE OF AUTHORISATION FOR ISSUANCE OF THE PARENT COMPANY

ONLY FINANCIAL STATEMENTS AND PROCEDURES FOR AUTHORISATION

• These parent company only financial statements were authorised for issuance by 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 the FSC effective from 2018 are as follows:

from 2018 are as follows:
New Standards,InterpretationsandAmendments	Effective date by International Accounting StandardsBoard
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’	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

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NewStandards,Interpretations and Amendments	Effective date by International Accounting Standards Board
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, 2017 January 1, 2018

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

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

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

from 2019 are as follows:
New Standards,InterpretationsandAmendments	Effective date by International Accounting StandardsBoard
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 Company’s financial condition and financial performance based on the Company’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 Company expects to recognise the lease contract of lessees in line with IFRS 16.The Company 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

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increased by $107,669 and $107,669, respectively.

(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:

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

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

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

• (1) Compliance statement

   - The parent company only financial statements of the Company have been prepared in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”.
  

• (2)Basis of preparation

• A. Except for the following items, the parent company only 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 International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the FSC (collectively referred herein as the “IFRSs”) requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the parent company only financial statements are disclosed in Note 5.

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• C. In adopting IFRS 9 and IFRS 15 effective January 1, 2018, the Company 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.

• (3)Foreign currency translation

   - The parent company only financial statements are presented in New Taiwan Dollars, which is the Company’s functional and presentation currency.
  

• A. Foreign currency transactions and balances

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

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

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

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

• B. Translation of foreign operations

  • (a) The operating results and financial position of all the group entities 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

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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 Company 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.

• (4)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 Company 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 Company classifies liabilities that do not meet the above criteria as non-current.

• (5)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.

• (6)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 Company measures the financial assets at fair value and recognises the

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

• (7)Accounts and notes receivable

• A. Accounts and notes receivable entitle the Company 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.

• (8)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 Company 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 Company recognises the impairment provision for lifetime ECLs.

• (9)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-progress comprises raw materials, direct labour, 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.

• (10) Investments accounted for using the equity method / Subsidiaries

• A. Subsidiaries are all entities (including structured entities) controlled by the Company. The Company controls an entity when the Company 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.

• B. Inter-company transactions, balances and unrealised gains or losses on transactions between the Company and its subsidiaries are eliminated. Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the policies adopted by the Company.

• C. The Company’s share of its subsidiaries’ post-acquisition profits or losses is recognised in profit or loss, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income. When the Company’s share of losses in a subsidiary equals or exceeds its interest in the subsidiary, the Company continues to recognise the losses in proportion to the ownership.

• D. Changes in a parent’s ownership interest in a subsidiary that do not result in the parent losing

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  - control of the subsidiary (transactions with non-controlling interests) are accounted for as equity transactions, i.e. transactions with owners in their capacity as owners. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity.

• E. When the Company loses control of a subsidiary, the Company 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 Company 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.

• F. Pursuant to the “Rules Governing the Preparation of Financial Statements by Securities Issuers,” profit (loss) of the current period and other comprehensive income in the parent company only financial statements shall equal to the amount attributable to owners of the parent in the consolidated financial statements. Owners’ equity in the parent company only financial statements shall equal to equity attributable to owners of the parent in the consolidated financial statements.

• (11) 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 Company 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

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and equipment are as follows:

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

• (12) 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.

• (13) Impairment of non-financial assets

  • The Company 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. When the circumstances or reasons for recognizing impairment loss for an asset in prior years no longer exist or diminish, the impairment loss is reversed. The increased carrying amount due to reversal should not be more than what the depreciated or amortised historical cost would have been if the impairment had not been recognised.

• (14) 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.

• (15) 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.

• (16) 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.

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

• (17) Provisions

   - Provisions (including warranties and contingent liabilities from business combinations, etc.) are recognised when the Company 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.
  

• (18) 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.

• 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 Company 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.

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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 Company’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 Company 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 Company calculates the number of shares based on the closing price at the previous day of the board meeting resolution.

• (19) Income tax

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

• B. The current income tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in accordance with applicable tax regulations. It establishes provisions where appropriate based on the amounts expected to be paid to the tax authorities. An additional 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 parent company only 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 Company 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

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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.

• (20) 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.

• (21) 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.

• (22) Revenue recognition

• A. Sales of goods

  • (a) The Company 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 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 the customer has accepted the products in accordance with the sales contract, or the Company 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

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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 Company does not adjust any of the transaction prices for the time value of money.

• (c) The Company’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 Company recognises the incremental costs of obtaining a contract as an expense when incurred although the Company expects to recover those costs.

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

The preparation of these parent company only financial statements requires management to make critical judgements in applying the Company’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 Company’s accounting policies None.

• (2)Critical accounting estimates and assumptions

• Evaluation of inventories

• As inventories are stated at the lower of cost and net realisable value, the Company must determine the net realisable value of inventories on balance sheet date using judgements and estimates. Due to the rapid technology innovation, the Company 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 $22,167,051.

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6. DETAILS OF SIGNIFICANT ACCOUNTS

(1) Cash and cash equivalents

TAILS OF SIGNIFICANT ACCOUNTS Cash and cash equivalents
Cash on hand and revolving funds Checking accounts and demand deposits Time deposits	December 31,2018 2,706 $ 5,468,732 1,508,004 6,979,442 $	December 31,2017
		2,491 $ 6,454,536 1,763,352
		8,220,379 $

	December 31,2018 December 31,2017 Cash on hand and revolving funds 2,706 $ 2,491 $ Checking accounts and demand deposits 5,468,732 6,454,536 Time deposits 1,508,004 1,763,352 6,979,442 $ 8,220,379 $
(2)	A. The Company 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. The Company has no cash and cash equivalents pledged to others. Financial assets and liabilities at fair value through profit or loss-current A. The Company recognised net gain (loss) of $103,483 and ($78,057) for the years ended December 31, 2018 and 2017, respectively. Asset items December31,2018 December31,2017 Financial assets mandatorily measured at fair value through profit or loss Derivatives – Forward exchange contract 6,376 $ 350 $ Derivatives – Foreign exchange swap 7,956 20,566 14,332 $ 20,916 $ Liabilityitems December31,2018 December31,2017 Financial liabilities held for trading Derivatives – Forward exchange contract 5,555 $ 2,448 $
	A. The Company recognised net gain (loss) of $103,483 and ($78,057) December 31, 2018 and 2017, respectively. Asset items December31,2018 Financial assets mandatorily measured at fair value through profit or loss Derivatives – Forward exchange contract 6,376 $ Derivatives – Foreign exchange swap 7,956 14,332 $ Liabilityitems December31,2018 Financial liabilities held for trading Derivatives – Forward exchange contract 5,555 $

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• B. The Company entered into contracts relating to derivative financial assets which were not accounted for under hedge accounting. The information is listed below:

• December 31, 2018

		December31,2018	31,2018
Derivative Financial Assets		Contractperiod EUR 6,000 2018.11.20～2019.01.08 GBP 3,500 2018.10.22～2019.02.01 AUD 4,200 2018.11.01～2019.02.01 USD 158,000 2018.11.15～2019.02.25 Contractperiod JPY 381,282 2018.11.19～2019.02.01 EUR 24,000 2018.11.29～2019.02.11 GBP 1,300 2018.12.20～2019.01.24 Notional Principal (In thousands) Contract Amount Contract Amount Notional Principal (In thousands) December31,2017	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
		JPY 224,100 RUB 57,575 GBP 1,100 USD 145,000 RUB 352,359 EUR 42,000 GBP 5,000 CAD 4,000 AUD 3,500 Contract Amount Notional Principal (In thousands) Contract Amount Notional Principal (In thousands)	Contractperiod
Forward exchange contracts 〃 〃 Foreign exchange swap DerivativeFinancial 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 Company 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 Company 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)Notes and accounts receivable

Notes receivable Accounts receivable Less: Loss allowance (	December31,2018 December31,2017 2,377 $ 21 $ 10,736,495 $ 9,871,384 $ 85) 10,722) ( 10,736,410 $ 9,860,662 $

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

Not past due 1 to 75 days 76 to 365 days Over 365 days	Accountsreceivable Notesreceivable 8,711,108 $ 2,377 $ 2,025,254 - 61 - 72 - 10,736,495 $ 2,377 $ December31,2018	December31,2017	December31,2017
	Accountsreceivable 8,711,108 $ 2,025,254 61 72 10,736,495 $	Accountsreceivable 8,165,970 $ 1,693,324 1,453 10,637 9,871,384 $	Notesreceivable
			21 $ - - -
			21 $

The above ageing analysis was based on past due date.

• B. Most of the Company’s accounts receivable have been insured, and the Company will be able to obtain insurance claims in case these accounts default.

• C. The Company does not hold any collateral as security.

• D. 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 Company’s notes and accounts receivable were $2,377 and $21, $10,736,410 and $9,860,662, respectively.

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

(4)Inventories

12(2). Inventories
Raw materials Work in progress Finished goods	December 31,2018
	Cost Allowance for valuation loss 7,536,411 $ 325,737) ($ 1,343,677 1,987) ( 13,914,163 299,476) ( 22,794,251 $ 627,200) ($	Book value
		7,210,674 $ 1,341,690 13,614,687
		22,167,051 $

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December 31, 2017

		December 31,2017
Raw materials Work in progress Finished goods	Cost 4,688,293 $ 702,826 11,315,365 16,706,484 $	Allowance for valuation loss 109,315) ($ 289) ( 180,218) ( 289,822) ($	Book value
			4,578,978 $ 702,537 11,135,147
			16,416,662 $

Raw materials 4,688,293 $ 109,315) ($ Work in progress 702,826 289) ( inished goods 11,315,365 180,218) ( 16,706,484 $ 289,822) ($	Raw materials 4,688,293 $ 109,315) ($ Work in progress 702,826 289) ( inished goods 11,315,365 180,218) ( 16,706,484 $ 289,822) ($	$ $	4,578,978 702,537 11,135,147 16,416,662
The cost of inventories recognised as expense for the year:
	2018		2017
Cost of inventories recognised as expense	102,756,311 $	$	92,029,681
Losses (gains) on decline or reversal in market value	337,378	(	3,524)
The Company 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)Investments accounted for using equity method

MSI PACIFIC INTERNATIONAL HOLDING CO., LTD. MICRO-STAR NETHERLANDS HOLDING B.V. MSI COMPUTER (CAYMAN) CO., LTD. MSI COMPUTER CORP. MSI COMPUTER JAPAN CO., LTD. MSI COMPUTER (AUSTRALIA) PTY. LTD.	December31,2018 6,320,046 $ 596,852 127,131 35,562 12,954 6,526 7,099,071 $	December31,2017
		6,490,907 $ 714,207 124,021 33,415 11,150 7,058
		7,380,758 $

• A. Details of the Company’s subsidiaries are provided in Note 4(3) of the Company’s consolidated financial statements as of and for the year ended December 31, 2018.

• B. For the years ended December 31, 2018 and 2017, investments accounted for using equity method are MSI COMPUTER CORP.、MICRO-STAR NETHERLANDS HOLDING B.V.、MSI 、 、

• COMPUTER (CAYMAN) CO., LTD. MSI KOREA CO., LTD. MEGA COMPUTER CO., LTD. and MHK INTERNATIONAL CO., LTD., such investments are recognised based on the investees’ financial statements audited by independent accountants and share of profit of subsidiaries accounted for using equity method was $28,776 and $106,659, respectively.

• C. To meet the Group’s operation plan and maintain the capital efficiency, the subsidiary of the Company, MSI PACIFIC INTERNATIONAL HOLDING CO., LTD., reduced its capital on May 3, 2018 and March 1, 2017 by USD 7,000 thousand and USD 35,000 thousand, respectively ； the subsidiary of the Company, MICRO-STAR NETHERLANDS HOLDING B.V., reduced its capital on September 24, 2018 by EUR 3,000 thousand.

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(6)Property, plant and equipment

At January 1, 2018 Cost Accumulated depreciation 2018 Balance at January 1 Additions Reclassified Depreciation charge Balance at December 31 At December 31, 2018 Cost Accumulated depreciation At January 1, 2017 Cost Accumulated depreciation 2017 Balance at January 1 Additions Disposals Depreciation charge Balance at December 31 At December 31, 2017 Cost Accumulated depreciation		Land 1,331,538 $ - ( 1,331,538 $ 1,331,538 $ - - - 1,331,538 $ 1,331,538 $ - ( 1,331,538 $ Land 1,331,538 $ - ( 1,331,538 $ 1,331,538 $ - - - 1,331,538 $ 1,331,538 $ - ( 1,331,538 $	Buildings and Other structures Machinery assets Total 1,428,338 $ 400,535 $ 286,827 $ 3,447,238 $ 525,708) 333,629) ( 214,493) ( 1,073,830) ( 902,630 $ 66,906 $ 72,334 $ 2,373,408 $ 902,630 $ 66,906 $ 72,334 $ 2,373,408 $ 11,696 18,976 33,591 64,263 5,757 - ( 5,757) - (28,614) (16,575) (29,344) 74,533) ( 891,469 $ 69,307 $ 70,824 $ 2,363,138 $ 1,445,791 $ 412,750 $ 300,924 $ 3,491,003 $ 554,322) 343,443) ( 230,100) ( 1,127,865) ( 891,469 $ 69,307 $ 70,824 $ 2,363,138 $ Buildings and Other structures Machinery assets Total 1,427,121 $ 406,672 $ 279,024 $ 3,444,355 $ 496,554) 329,825) ( 218,848) ( 1,045,227) ( 930,567 $ 76,847 $ 60,176 $ 2,399,128 $ 930,567 $ 76,847 $ 60,176 $ 2,399,128 $ 1,217 5,575 38,010 44,802 - ( 275) 1,545) ( 1,820) ( (29,154) (15,241) 24,307) ( 68,702) ( 902,630 $ 66,906 $ 72,334 $ 2,373,408 $ 1,428,338 $ 400,535 $ 286,827 $ 3,447,238 $ 525,708) 333,629) ( 214,493) ( 1,073,830) ( 902,630 $ 66,906 $ 72,334 $ 2,373,408 $

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(7)Short-term borrowings

Type of borrowings

December 31, 2018 Interest rate range Collateral

Bank borrowings Bank unsecured borrowings $ 3,000,000 0.94%～0.99% None

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

(8)Other payables

Accrued salary and bonus Employee compensation and directors' and supervisors' remuneration Accrued freight Advertising expense payable Accrued molding expense Other accrued expenses	December31,2018 912,204 $ 564,500 502,979 273,429 164,846 336,554 2,754,512 $	December31,2017
		942,381 $ 490,900 433,492 243,872 186,854 372,678
		2,670,177 $

(9)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 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 contributes 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 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 will make contributions for the deficit by next March.

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

Present value of defined benefit obligations Fair value of plan assets ( Net defined benefit liability	December31,2018 502,487 $ 284,878) ( 217,609 $	December31,2017 470,631 $ 267,874) 202,757 $

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(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 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
	(	470,631 $ 2,764 5,177 478,572 - 5,335 23,774 29,109 - 5,194) 502,487 $ Present value of defined benefit obligations	267,874) ($ - 2,947) ( 270,821) ( 7,679) ( - - 7,679) ( 11,572) ( 5,194 284,878) ($ Fair value of plan assets	202,757 $ 2,764 2,230 207,751 7,679) ( 5,335 23,774 21,430 11,572) ( - 217,609 $ 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 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

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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 has no right to participate in managing and operating that fund and hence the Company is 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	2017
		1.00% 2.75%	1.10% 2.75%

Assumptions regarding future mortality experience are set based on actuarial advice in 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	Future salaryincreases
	( (	Increase 0.25% Decrease 0.25% 13,186) $ 13,699 $ 12,806) $ 13,326 $	Increase 0.25% Decrease 0.25% 12,176 $ 11,802) ($ 11,901 $ 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 Company for the year ending December 31, 2018 amount to $11,579.

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• (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:

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 has 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 contributes 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 pension costs under defined contribution pension plans of the Company for the years ended December 31, 2018 and 2017, were $101,745 and $99,862, respectively.

(10) Provisions

Provisions
Warranty			2018			2017
At January 1		$	454,744		$	310,738
Additional provisions			694,401			727,368
Used during the period	(		634,589)	(		583,363)
Exchange differences			45			1
At December 31		$	514,601		$	454,744
Analysis of total provisions:
		December31,2018			December31,2017
Current		$	514,601		$	454,744

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

• (11) 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.

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(12) 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:

		2017	2017		2016	2016
			Dividends per			Dividends per
		Amount	share (dollar)		Amount	share	(dollar)
Cash dividends from capital surplus	$	-	- $	$	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.

(13) 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 Company 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

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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 dividends	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 493,742 $ 32,333 $ 3,801,852

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.

• F. For the information relating to employees’ compensation (bonuses) and directors’ and supervisors’ remuneration, please refer to Note 6(18).

• (14) Operating revenue

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

in the following major segment:	in the following major segment:	in the following major segment:	in the following major segment:	in the following major segment:
Other income Computer and General Administration 2018 peripherals segment and other segments Total segment revenue 116,984,622 $ 3,800 $ Timing of revenue recognition At a point in time 116,984,622 $ 3,800 $ Computer and General Administration 2017 peripherals segment and othersegments Total segment revenue 105,251,353 $ 153,210 $ Timing of revenue recognition At a point in time 105,251,353 $ 153,210 $ 2018 Interest income 69,958 $ $ Others 331,395 Total 401,353 $ $					Total
					116,988,422 $
					116,988,422 $
					Total
					105,404,563 $
					105,404,563 $
			2018 69,958 331,395 401,353		2017
		$		$	58,650 91,758
		$		$	150,408

• (15) Other income

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(16) Other gains and losses

Other gains and losses
			2018				2017
Gains (losses) on financial assets		$		103,483	($			78,057)
(liabilities) at fair value through profit
or loss
Net currency exchange (losses) gains	(			215,635)				80,041
Gains on disposal of property, plant and				300				497
equipment
Losses on disposal of investment				-	(			345)
Miscellaneous disbursement	(			7,755)				13,876
Total	($			119,607)		$		16,012

• (17) Expenses by nature

By function By nature	By function By nature	2018	2018	2018	2018	2018	2018	2017	2017	2017	2017	2017	2017
		Operatingcosts		OperatingExpense		Total		Operatingcosts		OperatingExpense		Total
Employee benefit expense		253,751 $		3,496,989 $		3,750,740 $		245,917 $		3,296,160 $		3,542,077 $
Depreciation charges on property, plant and equipment		7,408		67,125		74,533		7,274		61,428		68,702
Amortized charges		-		23		23		-		28		28
)	Employee benefit expense
By	By function nature		2018						2017
			Operating costs		Operating Expense		Total		Operating costs		Operating Expense		Total
Wages and salaries			227,078 $		3,077,748 $		3,304,826 $		222,482 $		2,901,211 $		3,123,693 $
Labour and health insurance fees			11,803		188,064		199,867		11,396		183,608		195,004
Pension costs			6,493		100,246		106,739		6,241		98,601		104,842
Directors’ remuneration			3,989		45,511		49,500		1,841		33,259		35,100
Otherpersonnel expenses			4,388		85,420		89,808		3,957		79,481		83,438
Total			253,751 $		3,496,989 $		3,750,740 $		245,917 $		3,296,160 $		3,542,077 $

(18) Employee benefit expense

• A. According to the Articles of Incorporation of the Company, a ratio of distributable net 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’ and supervisors’ remuneration was accrued at $49,500 and directors’ remuneration $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

198

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.

• (19) Income tax

• A. Income tax expense

  • (a) 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 charge in tax rate Income tax expense		2018		2017
		1,059,365 $ 169,730) ( 889,635 76,844 21,626 988,105 $		926,743 $ 24,552) ( 902,191 12,503 - 914,694 $

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

(c) The income tax charged/(credited) to equity during the period: None. Reconciliation between income tax expense and accounting profit 2018 2017 Remeasurement of defined benefit obligations 4,286 $ 6,378 $ Impact of charge in tax rate 4,175 - 8,461 $ 6,378 $ 2018 2017 Tax calculated based on profit before tax and statutory tax rate 1,405,847 $ 994,860 $ Effect from items disallowed by tax regulation 77,194) ( 7,970) ( Effect from investment tax credits 250,279) ( 190,105) ( Additional 10% tax on undistributed earnings 57,835 142,461 Prior year income tax overestimation 169,730) ( 24,552) ( Impact of charge in tax rate 21,626 - Income tax expense 988,105 $ 914,694 $		2017 6,378 - 6,378 2017
	$
	$
		914,694 $

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

• B. Reconciliation between income tax expense and accounting profit

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

Temporary differences: -Deferred tax assets: Unrealized losses on inventory valuation Unrealized gross profit Remeasurement of defined benefit obligations Adjustment to unused paid annual leave Unrealized exchange loss Unrealized losses on forward exchange contract Others Subtotal -Deferred tax liabilities: Unrealized exchange gain Unrealized gains on forward exchange contract Subtotal Total Temporary differences: -Deferred tax assets: Unrealised losses on inventory valuation Unrealized gross profit Remeasurement of defined benefit obligations Adjustment to unused paid annual leave Allowance for bad debts Unrealized losses on forward exchange contract Others Subtotal			2018	2018	2018
		January1	Recognised in profit or loss		Recognised in other comprehensive income		December 31
	49,270 $ 162,601 23,658 4,942 - 600 59,310 300,381 16,252) ( - 16,252) ( 284,129 $						125,440 $ 148,181 32,119 5,813 3,462 - 77,800 392,815 - 1,755) ( 1,755) ( 391,060 $
		January1			Recognised in other comprehensive income		December 31
		49,869 $ 194,038 17,280 4,942 1,959 - 40,854 308,942			- $ - 6,378 - - - - 6,378		49,270 $ 162,601 23,658 4,942 - 600 59,310 300,381

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2017

-Deferred tax liabilities: Unrealized exchange gain Unrealized gains on forward exchange contract Subtotal Total	January1 8,105) ($ 10,583) ( 18,688) ( 290,254 $	Recognised in profit or loss 8,147) ($ 10,583 2,436 12,503) ($	Recognised in other comprehensive income - $ - - 6,378 $	December 31
				16,252) ($ - 16,252) ( 284,129 $

• 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 unrecognized 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.

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

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(20) Earnings per share

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

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7. RELATED PARTY TRANSACTIONS

(1) Parent and ultimate controlling party

The Company’s shares are held by public, therefore there is no ultimate parent and controlling party.

(2)Names of related parties and relationship

ultimate parent and controlling party. Names of related parties and relationship
Names of relatedparties	Relationshipwith the Company
MSI COMPUTER (AUSTRALIA) PTY. LTD. [MSI (AUSTRALIA)] MSI COMPUTER CORP. [MSI (LA)] MSI COMPUTER JAPAN CO., LTD. [MSI (JAPAN)] MICRO-STAR NETHERLANDS HOLDING B.V. [MSI (HOLDING)] MSI PACIFIC INTERNATIONAL HOLDING CO., LTD. [MSI(PACIFIC)] MSI COMPUTER SARL [MSI (SARL)] MYSTAR COMPUTER B.V. [MYSTAR] MSI COMPUTER (UK) LTD. [MSI (UK)] MSI KOREA CO., LTD. [MSI (KOREA)] MSI POLSKA SP. Z O.O. [MSI (POLSKA)] MSI ITALY S.R.L. [MSI (ITALY)] MSI COMPUTER EUROPE B.V. [MSI (EUROPE)] LLC MSI COMPUTER [MSI (RUSSIA)] MHK INTERNATIONAL CO., LTD. [MSI (MHK)] MEGA COMPUTER CO., LTD. [MEGA COMPUTER]	Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Second-tier subsidiary Second-tier subsidiary Second-tier subsidiary Second-tier subsidiary Second-tier subsidiary Second-tier subsidiary Second-tier subsidiary Second-tier subsidiary Second-tier subsidiary Second-tier subsidiary

(3)Significant related party transactions

A. Sales revenue, net

A.Sales revenue, net
Sales of goods: MSI (LA) Subsidiaries Total	2018 15,843,711 $ 11,747,224 27,590,935 $	2017
		$ 14,708,898 10,299,276
		25,008,174 $

The sales price and payment terms to related parties were not significantly different from those sales to third parties.

B. Manufacturing expense - processing costs

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MSI (PACIFIC)	Year ended December 31,2018 4,066,892 $	Year ended December 31,2017
		3,712,930 $

The Company subcontracts manufacturing to a second-tier subsidiary through first-tier subsidiaries. The transaction model is that the Company provides raw materials, mutually agreed with the second-tier subsidiary to process the products based on quantities, amounts and lead time of orders. The accounts payable would be paid depending on the cash flow situation of the Company. The manner of carrying out the processing trade with the second-tier subsidiary is in accordance with (1998) Tai-Cai-Zheng (6) Letter No. 00747 of Securities and Futures Commission, Ministry of Finance, R.O.C.

C. Operating expenses - after-sales service and advertisement expense

Purchases of services: Subsidiaries	2018 1,752,337 $	2017
		1,423,103 $

The Company recognised the operating expenses monthly based on the number of services provided by subsidiaries and second-tier subsidiaries, with the same credit term available to third parties. (The above expenses incurred based on the services provided by the second-tier subsidiary are recognised monthly.)

D. Receivables from related parties

Accounts receivable MSI (LA) Subsidiaries Subtotal Other receivables Subsidiaries Total	December31,2018 $ 4,797,787 1,084,090 5,881,877 - 5,881,877 $	December31,2017
		$ 4,403,333 1,061,792
		5,465,125
		6,488
		$ 5,471,613

Accounts receivable mainly arises from sales, with the same credit term available to third parties. Other receivables are related to equipment purchases which the Company paid for on behalf of subsidiaries.

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E. Other payables

E.Other payables
MSI (PACIFIC) Subsidiaries Total	December31,2018 $ 3,508,869 162,892 3,671,761 $	December31,2017
		$ 3,280,384 125,443
		3,405,827 $

The abovementioned other payables mainly arises from processing costs and purchases of services, with the same credit term available to third parties.

(4)Key management compensation

2018 2017 Salaries and other short-term employee benefits $ 317,965 $ 285,838

1. PLEDGED ASSETS None.

2. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNISED

3. CONTRACT COMMITMENTS

4. (5)Contingencies ： None.

5. (6)Commitments ： None.

6. SIGNIFICANT DISASTER LOSS

   • None.

7. SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE

   • None.

8. OTHERS

9. (1) Capital management

When the Company managing the needs of future working capital, research and development expense and dividends payment based on the factors of its current industrial characteristics and the Company’s future development status to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders and maintain an optimal capital structure to increase share value on a long-term basis. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, issue new shares, buyback in cash or repurchasing back company shares.

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(2) Financial instrument

A. Financial instruments by category

(2)Financial instrument A. 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 loss Financial liabilities held for trading Financial liabilities at amortised cost Short-term borrowings Notes payable Accounts payable Other payables Guarantee deposits received	December31,2018 $ 14,332 6,979,442 2,377 16,618,287 91,329 728,936 5,592 24,440,295 $ 5,555 3,000,000 200 14,658,805 6,426,273 115,890 24,206,723 $	December31,2017 $ 20,916 8,220,379 21 15,325,787 81,832 68,835 3,852
		23,721,622 $ 24,448 - - 15,864,494 6,076,004 87,418
		22,052,364 $

B. Risk management policies

The Company’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 Company’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company’s financial position and financial performance.

• C. Significant financial risks and degrees of financial risks

• (a) Market risk

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Foreign exchange risk

• viii. The Company 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.

• ix. Management has set up a policy to require the Company’s subsidiaries to manage their foreign exchange risk against their functional currency.

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

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

• xii. The Company’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:

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(Foreign currency: functional currency) Financial assets Monetary items USD: NTD RMB:NTD EUR: NTD CAD:NTD GBP: NTD RUB: NTD KRQ:NTD AUD:NTD JPY:NTD Non-monetary items USD: NTD EUR: NTD Financial liabilities Monetary items USD: NTD RMB:NTD EUR: NTD		December 31,2018	December 31,2018
	Foreign Currency (In Thousands) 600,402 $ 681,497 50,820 16,264 8,128 585,694 7,668,444 7,743 460,616 211,061 16,956 528,120 759,944 11,505	Exchange rate 30.7150 4.4720 35.2000 22.5800 38.8800 0.4421 0.0276 21.6650 0.2782 30.7150 35.2000 30.7150 4.4720 35.2000	Book Value (NTD)
			18,441,362 $ 3,047,654 1,788,876 367,252 315,999 258,935 211,649 167,749 128,144 6,482,739 596,852 16,221,204 3,398,468 404,959

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(Foreign currency: functionalcurrency) Financial assets Monetary items USD: NTD RMB:NTD EUR: NTD KRQ:NTD GBP: NTD RUB: NTD AUD:NTD CAD:NTD Non-monetary items USD: NTD EUR: NTD Financial liabilities Monetary items USD: NTD RMB:NTD EUR: NTD		December31,2017	December31,2017
	Foreign Currency (In Thousands) 566,154 $ 551,948 46,138 14,046,188 5,697 416,282 5,313 5,169 223,399 20,079 554,619 546,487 3,597	Exchangerate 29.7600 4.5650 35.5700 0.0279 40.1100 0.5167 23.1850 23.7100 29.7600 35.5700 29.7600 4.5650 35.5700	Book Value (NTD)
			16,848,749 $ 2,519,643 1,641,140 392,182 228,503 215,093 123,162 122,555 6,648,343 714,207 16,505,473 2,494,714 127,938

xiii. The exchange (loss) gain arising from significant foreign exchange variation on the monetary items held by the Comapny for the years ended December 31, 2018 and 2017, amounted to （ $215,635 ） and $80,041, respectively.

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

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Financial assets Monetary items USD: NTD RMB:NTD EUR: NTD CAD:NTD GBP: NTD RUB: NTD KRW:NTD AUD:NTD JPY:NTD Financial liabilities Monetary items USD: NTD RMB:NTD EUR: NTD			Effect on profit or loss (beforetax) Effect on other comprehensive income 184,414 $ - $ 30,477 - 17,889 - 3,673 - 3,160 - 2,589 - 2,116 - 1,677 - 1,281 - 162,212 - 33,985 - 4,050 - 2018 Sensitivityanalysis	Effect on profit or loss (beforetax) Effect on other comprehensive income 184,414 $ - $ 30,477 - 17,889 - 3,673 - 3,160 - 2,589 - 2,116 - 1,677 - 1,281 - 162,212 - 33,985 - 4,050 - 2018 Sensitivityanalysis
		Degree of variation	Effect on profit or loss (beforetax)
		1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1%	184,414 $ 30,477 17,889 3,673 3,160 2,589 2,116 1,677 1,281 162,212 33,985 4,050	- $ - - - - - - - - - - -

210

Financial assets Monetary items USD: NTD RMB:NTD EUR: NTD KRW:NTD GBP: NTD RUB: NTD AUD:NTD CAD:NTD Financial liabilities Monetary items USD: NTD RMB:NTD EUR: NTD			Effect on profit or loss (beforetax) Effect on other comprehensive income 168,487 $ - $ 25,196 - 16,411 - 3,922 - 2,285 - 2,151 - 1,232 - 1,226 - 165,055 - 24,947 - 1,279 - 2017 Sensitivityanalysis	Effect on profit or loss (beforetax) Effect on other comprehensive income 168,487 $ - $ 25,196 - 16,411 - 3,922 - 2,285 - 2,151 - 1,232 - 1,226 - 165,055 - 24,947 - 1,279 - 2017 Sensitivityanalysis
		Degree of variation	Effect on profit or loss (beforetax)
		1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1%	168,487 $ 25,196 16,411 3,922 2,285 2,151 1,232 1,226 165,055 24,947 1,279	- $ - - - - - - - - - -

Interest rate risk

The Company 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 Company 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.

• (b) Credit risk

• i. 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. The main factor is that counterparties could not repay in full the accounts receivable cash flow based on the agreed terms.

211

• ii. 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 credit exposures to wholesale and retail customers, including outstanding receivables.

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

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

• vi. The Company used the forecastability to adjust historical and timely information to assess the default possibility of accounts receivable. The Company’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 Company applies the simplified approach to provide loss allowance for accounts receivable that have no significant impact. The Company had not recognized related impact for the year ended December 31, 2018.

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

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• (c) Liquidity risk

• iv. Cash flow forecasting is performed in the operating entities of the Company and aggregated by Company treasury. Company treasury monitors rolling forecasts of the Company’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 Company does not breach borrowing limits or covenants on any of its borrowing facilities.

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

Non-derivative financial liabilities:

December 31, 2018 Short-term borrowings Notes payable Accounts payable Other payables Other financial liabilities	Less than 1 year	Between 1 to 2years	Between 2 to 3years	Over 3years
	3,000,000 $ 200 14,658,805 6,426,273 21,665	- $ - - - -	- $ - - - -	- $ - - - 94,225

Non-derivative financial liabilities:

December 31, 2017 Accounts payable Other payables Other financial liabilities	Less than 1 year	Between 1 to2years	Between 2 to 3 years	Over3 years
	15,864,494 $ 6,076,004 23,185	- $ - -	- $ - -	- $ - 64,233

Derivative financial liabilities

As of December 31, 2018 and 2017, the derivative financial liabilities are foreign exchange contracts that mature within 1 year.

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     - vi. The Company 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 Company’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.

• 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:

214

December 31, 2018 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 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 1 - $ - - $ - $	Level 2 6,376 $ 7,956 14,332 $ 5,555 $ Level 2 350 $ 20,566 20,916 $ 24,448 $	Level3 - $ - - $ - $ Level3 - $ - - $ - $	Total 6,376 $ 7,956 14,332 $ 5,555 $ Total 350 $ 20,566 20,916 $ 24,448 $

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

• (a) 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 Company 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.

• (b) The valuation of derivative financial instruments is based on valuation

215

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 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

216

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:

December 31, 2017

Accounts receivable Up to 75 days $ 1,693,324

• 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 sales of goods for the year ended December 31, 2017 are set out below.

  • (a) The Company manufactures and sells motherboards, graphic cards, a

217

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 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.

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  - 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 paid-in 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, 2017: Please refer to Notes 6(2) and 12(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.

• OPERATING SEGMENT INFORMATION

  • Not applicable.

Detailed tables are attached from Page 151 to 161.

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Micro Star International Co., Ltd.

Chairman: Hsu, Hsiang

220