PHIHONG — Annual Report 2018

Dec 22, 2018

Phihong Technology Co., Ltd.

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

勤業眾信聯合會計師事務所 11073 台北市信義區松仁路 100 號 20 樓

Deloitte & Touche 20F, Taipei Nan Shan Plaza No. 100, Songren Rd., Xinyi Dist., Taipei 11073, Taiwan Tel : + 886 (2) 2725 - 9988 Fax: + 886 (2) 4051 - 6888 www.deloitte.com.tw

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholders Phihong Technology Co., Ltd.

Opinion

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

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

Basis for Opinion

We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with The Norm of Professional Ethics for Certified Public Accountant of the Republic of China, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the year ended December 31, 2018. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

• 1 -

Key audit matter for the Company’s financial statements for the year ended December 31, 2018 is stated as follows:

The Authenticity of the Timing of Recognizing Revenue derived from the Warehouses

Description of the key audit matter:

For the year ended December 31, 2018, the Company’s revenue derived from the warehouses managed by the third party. The status of inventory management and delivery to clients rely on reports provided by the warehouses’ depositories. The Company recognizes revenue when client claims the inventory, and the ownership of the products transfers to the client. Due to the complexity of determining the timing of the transfer of risks and compensation, the recognition of revenue derived from the third-party warehouses is identified as a key audit matter. Refer to Note 4 to the accompanying financial statements for the related disclosures.

Our audit procedures in respect of the key audit matter include the following:

We carried out compliance tests to understand the Company’s process for the recognition of revenue derived from the warehouse managed by the third party and the design and implementation of its controls over the process. We sample tested transactions, reviewed the records of correspondence and reviewed significant subsequent sales returns and allowances of designated revenue derived from the warehouse managed by the third party to determine whether the timing of the transfer of the risks matched the timing of revenue recognition.

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

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

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

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

Auditors’ Responsibilities for the Audit of the Financial Statements

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

• 2 -

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

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

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

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

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

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.

• 3 -

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements for the year ended December 31, 2018 and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partners on the audit resulting in this independent auditors’ report are Ker-Chang Wu and Yi-Min Huang.

Deloitte & Touche Taipei, Taiwan Republic of China March 15, 2019

Notice to Readers

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

For the convenience of readers, the independent auditors’ report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent auditors’ report and financial statements shall prevail.

• 4 -

PHIHONG TECHNOLOGY CO., LTD.

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

ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 4 and 6) Trade receivables (Notes 4 and 9) Trade receivables from related parties (Notes 4 and 24) Other receivables Other receivables from related parties (Note 24) Inventories (Notes 4 and 10) Other financial assets - current (Notes 4 and 6) Other current assets Total current assets NON-CURRENT ASSETS Financial assets at fair value through other comprehensive income - non-current (Notes 3, 4 and 7) Financial assets measured at cost - non-current (Notes 3, 4 and 8) Investments accounted for using equity method (Notes 4 and 11) Property, plant and equipment (Notes 4 and 12) Intangible assets (Notes 4 and 13) Deferred tax assets (Notes 4 and 20) Other financial assets - non-current (Notes 4, 6 and 25) Other non-current assets Total non-current assets TOTAL LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term borrowings (Note 14) Trade payables Trade payables to related parties (Note 24) Other payables (Notes 16 and 24) Current tax liabilities (Notes 4 and 20) Current portion of long-term borrowings (Note 14) Other current liabilities Total current liabilities NON-CURRENT LIABILITIES Bonds payable (Note 15) Long-term borrowings (Note 14) Deferred tax liabilities (Notes 4 and 20) Net defined benefit liability - non-current (Notes 4 and 17) Total non-current liabilities Total liabilities EQUITY (Notes 4 and 18) Ordinary shares Capital surplus Retained earnings Legal reserve Special reserve Accumulated deficits Total retained earnings Other equity Exchange differences on translating the financial statements of foreign operations Unrealized gain (loss) on financial assets at fair value through other comprehensive income (Note 3) Unrealized gain on available-for-sale financial assets Total other equity Total equity TOTAL		2018 Amount % $ 1,233,861 15 859,931 10 229,814 3 41,846 1 220,050 3 105,892 1 201,113 2 87,318 1 2,979,825 36 29,522 - - - 4,464,824 54 737,247 9 16,494 - 46,037 1 25,450 - 26,982 - 5,346,556 64 $ 8,326,381 100 $ - - 11,472 - 295 - 1,737,356 21 18,301 - 30,000 1 100,487 1 1,897,911 23 998,929 12 150,000 2 79,832 1 99,016 1 1,327,777 16 3,225,688 39 3,376,884 41 1,044,017 12 1,113,185 13 230,859 3 (304,379) (4) 1,039,665 12 (265,607) (3) (94,266) (1) - - (359,873) (4) 5,100,693 61 $ 8,326,381 100		2017
				Amount % $ 1,346,875 16 795,314 10 264,229 3 54,542 1 443,084 5 16,943 - - - 14,174 - 2,935,161 35 - - 28,536 - 4,595,119 55 750,749 9 18,654 - 46,465 1 25,450 - 11,230 - 5,476,203 65 $ 8,411,364 100 $ 100,000 1 9,061 - 509 - 1,496,394 18 39,964 - - - 76,772 1 1,722,700 20 998,453 12 130,000 2 79,832 1 95,614 1 1,303,899 16 3,026,599 36 3,376,884 40 1,044,017 12 1,113,185 13 230,859 3 (128,997) (1) 1,215,047 15 (256,008) (3) - - 4,825 - (251,183) (3) 5,384,765 64 $ 8,411,364 100

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

• 5 -

PHIHONG TECHNOLOGY CO., LTD.

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

OPERATING REVENUE (Notes 4 and 24) OPERATING COSTS (Notes 4, 10 and 24) GROSS PROFIT (UNREALIZED) REALIZED GAIN ON TRANSACTIONS WITH SUBSIDIARIES AND ASSOCIATES (Note 4) GROSS PROFIT AND REALIZED GAIN FROM SUBSIDIARIES AND ASSOCIATES OPERATING EXPENSES Sales and marketing expenses General and administration expenses Research and development expenses Excepted credit loss Total operating expenses INCOME FROM OPERATIONS NON-OPERATING INCOME AND EXPENSES Other income (Note 19) Other gains and losses (Note 19) Finance costs Share of loss of subsidiaries and associates (Notes 4 and 11) Total non-operating income and expenses (LOSS) PROFIT BEFORE INCOME TAX INCOME TAX EXPENSE (Notes 4 and 20) NET (LOSS) PROFIT FOR THE YEAR		2018 Amount % $ 8,146,643 100 7,483,831 92 662,812 8 (3,228) - 659,584 8 331,690 4 190,667 2 440,539 6 86 - 962,982 12 (303,398) (4) 110,550 2 20,969 - (17,949) - (55,567) (1) 58,003 1 (245,395) (3) (1,200) - (246,595) (3)		2017
				Amount % $ 8,283,571 100 7,183,090 87 1,100,481 13 12,076 - 1,112,557 13 217,826 3 194,652 2 429,446 5 - - 841,924 10 270,633 3 84,346 1 (96,880) (1) (31,272) (1) (189,931) (2) (233,737) (3) 36,896 - (30,240) - 6,656 - (Continued)

• 6 -

PHIHONG TECHNOLOGY CO., LTD.

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

OTHER COMPREHENSIVE INCOME (LOSS) Items that will not be reclassified subsequently to profit or loss: Remeasurement of defined benefit plans (Note 17) Unrealized gain on investments in equity instruments at fair value through other comprehensive income (Note 18) Share of the other comprehensive loss of associates accounted for using the equity method (Note 18) Income tax relating to items that will not be reclassified subsequently to profit or loss (Note 20) Items that may be reclassified subsequently to profit or loss: Exchange differences on translating the financial statements of foreign operations (Note 18) Share of the other comprehensive income (loss) of associates accounted for using the equity method (Note 18) Total other comprehensive loss, net TOTAL COMPREHENSIVE LOSS FOR THE YEAR (LOSS) EARNINGS PER SHARE (Note 21) Basic Diluted		2018 Amount % $ (3,861) - 2,674 - (28,230) (1) 772 - (9,599) - - - (38,244) (1) $ (284,839) (4) $ (0.73)		2017
				Amount % $ (8,266) - - - - - 1,405 - (164,565) (2) (52,625) (1) (224,051) (3) $ (217,395) (3) $ 0.02 $ 0.02
		$		$

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

(Concluded)

• 7 -

PHIHONG TECHNOLOGY CO., LTD.

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

BALANCE, JANUARY 1, 2017 Net profit for the year ended December 31, 2017 Other comprehensive loss for the year ended December 31, 2017, net of income tax Total comprehensive loss for the year ended December 31, 2017 Issuance of ordinary shares for cash (Note 18) Issuance of ordinary shares under employee share options (Note 18) BALANCE, DECEMBER 31, 2017 Effect of retrospective application and retrospective restatement (Note 3) BALANCE AT JANUARY 1, 2018 AS RESTATED Net loss for the year ended December 31, 2018 Other comprehensive income (loss) for the year ended December 31, 2018, net of income tax Total comprehensive income (loss) for the year ended December 31, 2018 Proceeds from capital reduction of financial assets at fair value through other comprehensive income (Note 18) BALANCE, DECEMBER 31, 2018	Ordinary Shares Capital Surplus $ 2,776,884 $ 1,026,456 - - - - - - 600,000 10,430 - 7,131 3,376,884 1,044,017 - - 3,376,884 1,044,017 - - - - - - - - $ 3,376,884 $ 1,044,017	Retained Earnings Legal Reserve Special Reserve Accumulated Deficits $ 1,113,185 $ 230,859 $ (128,792) - - 6,656 - - (6,861) - - (205) - - - - - - 1,113,185 230,859 (128,997) - - 74,302 1,113,185 230,859 (54,695) - - (246,595) - - (3,089) - - (249,684) - - - $ 1,113,185 $ 230,859 $ (304,379)	Other Equity Exchange Differences on Unrealized Gain (Loss) on Translating the Financial Statements of Unrealized Gain (Loss) on Available-for- Financial Assets at Fair Value Through Other Foreign Operations sale Financial Assets Comprehensive Income $ (91,443) $ 57,450 $ - - - - (164,565) (52,625) - (164,565) (52,625) - - - - - - - (256,008) 4,825 - - (4,825) (75,236) (256,008) - (75,236) - - - (9,599) - (25,556) (9,599) - (25,556) - - 6,526 $ (265,607) $ - $ (94,266)	Total Equity $ 4,984,599 6,656 (224,051) (217,395) 610,430 7,131 5,384,765 (5,759) 5,379,006 (246,595) (38,244) (284,839) 6,526 $ 5,100,693

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

• 8 -

PHIHONG TECHNOLOGY CO., LTD.

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

CASH FLOWS FROM OPERATING ACTIVITIES (Loss) income before income tax Adjustments for: Depreciation expense Amortization expense Excepted credit loss recognized Interest expense Interest income Dividend income Compensation costs of employee share options Share of loss of subsidiaries and associates Gain on disposal of property, plant and equipment Loss on disposal of intangible assets Gain on disposal of investment Gain on buy-back of bonds payable Unrealized (realized) gain on transactions with subsidiaries Net changes in operating assets and liabilities Trade receivables Trade receivables from related parties Other receivables Other receivables from related parties Inventories Other current assets Trade payables Trade payables to related parties Other payables Other current liabilities Net defined benefit liability Cash generated from operating activities Interest paid Interest received Income tax paid Net cash generated from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from capital reduction of financial assets at fair value through other comprehensive income Return of capital from investees of financial assets measured at cost Net cash outflow on acquisition of subsidiaries Return of capital from investments accounted for using equity method Payments for property, plant and equipment Proceeds from disposal of property, plant and equipment Payments for intangible assets Increase in refundable deposits	2018 $ (245,395) 75,832 16,897 86 17,949 (28,471) - - 55,567 - 240 (29) - 3,228 (64,703) 34,415 19,581 223,034 (88,949) (73,133) 2,411 (214) 240,279 23,715 (459) 211,881 (17,406) 21,586 (21,663) 194,398 301 - (62,052) 72,847 (57,375) - (14,432) (5,327)	2017 $ 36,896 77,439 18,801 - 31,272 (12,004) (1,957) 7,131 189,931 (13,215) 116 - (103) (12,076) 32,334 173,264 5,576 132,747 (2,149) 730 (7,669) (33,354) (288,697) (16,425) (605) 317,983 (15,614) 27,831 (30,232) 299,968 - 823 - 155,465 (27,512) 25,607 (13,532) (522) (Continued)

• 9 -

PHIHONG TECHNOLOGY CO., LTD.

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

Increase in other financial assets Decrease in other financial assets Increase in prepayments for equipment Dividends received Net cash (used in) generated from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from short-term borrowings Repayments of short-term borrowings Repayments of convertible bonds Proceeds from long-term borrowings Proceeds from issuance of ordinary shares Payments for transaction costs attribute to issuance of ordinary shares Net cash used in financing activities NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR	2018 $ (201,113) - (15,320) 25,059 (257,412) - (100,000) - 50,000 - - (50,000) (113,014) 1,346,875 $ 1,233,861	2017 $ - 583,292 (2,983) 36,103 756,741 100,000 - (1,171,839) 130,000 612,000 (1,570) (331,409) 725,300 621,575 $ 1,346,875

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

(Concluded)

• 10 -

PHIHONG TECHNOLOGY CO., LTD.

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

1. GENERAL INFORMATION

Phihong Technology Co., Ltd. (Phihong or the “Company”), which was formerly known as Phihong Enterprise Co., Ltd. was incorporated on December 12, 1972 under the laws of the Republic of China (ROC). Under a resolution approved in the stockholders’ meeting in June 2003, Phihong Enterprise Co., Ltd. changed its name to Phihong Technology Co., Ltd. Phihong primarily manufactures and sells AC/DC power adapters, charger bases, power supply modules, UPS (uninterruptible power supply) for computers, ballasts, etc.

In February 2000, Phihong was authorized to trade its stocks on the Taipei Exchange (TPEx) in Taiwan. In September 2001, Phihong’s stocks ceased to be traded on the TPEx, and Phihong later obtained the authorization to list its stocks on the Taiwan Stock Exchange.

The functional currency of Phihong is New Taiwan dollar.

2. APPROVAL OF FINANCIAL STATEMENTS

The financial statements were approved by the Company’s board of directors on March 15, 2019.

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

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

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

• IFRS 9 “Financial Instruments” and related amendments

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

Classification, measurement and impairment of financial assets

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

• 11 -

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

				Measurement Category	Measurement Category	Measurement Category	Measurement Category				**Carrying **	Amount
Financial Assets			IAS 39				IFRS		9		IAS 39	IFRS 9		Remark
Cash and cash equivalents	Loans and		receivables				Amortized cost				$ 1,346,875	$ 1,346,875
Equity securities	Available‑for‑sale						Fair value through other				28,536	27,148		1)
							comprehensive income
							(i.e. FVTOCI) - equity
							instruments
Trade receivables and	Loans and		receivables				Amortized cost				1,557,169	1,557,169		2)
other receivables
Refundable deposits	Loans and		receivables				Amortized cost				10,721	10,721		2)
Financial assets pledged	Loans and		receivables				Amortized cost				25,450	25,450		2)
as collateral or for
security
	IAS 39								IFRS 9		Retained	Other
	Carrying								Carrying		Earnings	Equity
	Amount as								Amount as		Effect on	Effect on
	of January		1,	Reclassifi-			Remeasure-		of January 1,		January 1,	January	1,
Financial Assets		2018		cations			ments		2018		2018	2018		Remark
FVTOCI - equity	$	-		$	28,536		$ (1,388	)	$ 27,148		$ 19,144	$ (20,532 )		1)
instruments
Add: Reclassification		28,536			(28,536 )		-			-	-		-	1)
from available-for-
sale (IAS 39)
	$	28,536		$		-	$ (1,388	)	$ 27,148		$ 19,144	$ (20,532)
		IAS 39						IFRS 9
		Carrying						Carrying			Retained	Other
		Amount			Adjustments			Amount as			Earnings	Equity
			as of		Arising from				of		Effect on	Effect on
		January 1,					Initial	January 1,		January 1,		January 1,
			2018		Application				2018		2018	2018		Remark
Investments accounted	for	$	15,400			$	(4,371)	$	11,029		$ 55,158	$ (59,259)		3)
using the equity method

• 1) The Company elected to designate all its investments in equity securities previously classified as available-for-sale under IAS 39 as at FVTOCI under IFRS 9, because these investments are not held for trading. As a result, the related other equity - unrealized gain (loss) on available-for-sale financial assets of $4,825 thousand was reclassified to other equity - unrealized gain (loss) on financial assets at FVTOCI.

Investments in unlisted shares previously measured at cost under IAS 39 have been designated as at FVTOCI under IFRS 9 and were remeasured at fair value. Consequently, a decrease of $1,388 thousand was recognized in both financial assets at FVTOCI and other equity - unrealized gain (loss) on financial assets at FVTOCI on January 1, 2018.

The Company recognized under IAS 39 impairment loss on certain investments in equity securities previously measured at cost and the loss was accumulated in retained earnings. Since those investments were designated as at FVTOCI under IFRS 9 and no impairment assessment is required, an adjustment was made that resulted in a decrease of $19,144 thousand in other equity - unrealized gain (loss) on financial assets at FVTOCI and an increase of $19,144 thousand in retained earnings on January 1, 2018.

• 12 -

• 2) Trade receivables, trade receivables from related parties, other receivables, refundable deposits and other financial assets that were previously classified as loans and receivables under IAS 39 were classified as measured at amortized cost with an assessment of expected credit losses under IFRS 9.

• 3) As a result of the retrospective application of IFRS 9 by associates, there was a decrease in investments accounted for using the equity method of $4,371 thousand, a decrease in other equity - unrealized gain (loss) on available-for-sale financial assets of $4,825 thousand, a decrease in other equity - unrealized gain (loss) on financial assets at FVTOCI of $54,704 thousand, and an increase in retained earnings of $55,158 thousand on January 1, 2018.

• b. Amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and IFRSs endorsed by the FSC for application starting from 2019

New, Amended or Revised Standards and Interpretations (the“New IFRSs”) Annual Improvements to IFRSs 2015-2017 Cycle 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”	Effective Date Announced by IASB (Note 1)
	January 1, 2019 January 1, 2019 (Note 2) January 1, 2019 January 1, 2019 (Note 3) January 1, 2019 January 1, 2019

• Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after their respective effective dates.

• Note 2: The FSC permits the election for early adoption of the amendments starting from January 1, 2018.

• Note 3: The Company shall apply these amendments to plan amendments, curtailments or settlements occurring on or after January 1, 2019.

• IFRS 16 “Leases”

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

Definition of a lease

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

The Company as lessee

Upon initial application of IFRS 16, the Company will recognize right-of-use assets, or investment properties if the right-of-use assets meet the definition of investment properties, and lease liabilities for all leases on the balance sheets except for those whose payments under low-value asset and short-term leases will be recognized as expenses on a straight-line basis. On the statements of comprehensive income, the Company will present the depreciation expense charged on right-of-use

• 13 -

assets separately from the interest expense accrued on lease liabilities; interest is computed using the effective interest method. On the statements of cash flows, cash payments for the principal portion of lease liabilities will be classified within financing activities; cash payments for the interest portion will be classified within operating activities. Currently, payments under operating lease contracts, including property interest qualified as investment properties, are recognized as expenses on a straight-line basis. Cash flows for operating leases are classified within operating activities on the statements of cash flows. Leased assets and finance lease payables are recognized for contracts classified as finance leases.

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

The Company expects to apply the following practical expedients:

• 1) The Company will apply a single discount rate to a portfolio of leases with reasonably similar characteristics to measure lease liabilities.

• 2) The Company will account for those leases for which the lease term ends on or before December 31, 2019 as short-term leases.

• 3) The Company will exclude initial direct costs from the measurement of right-of-use assets on January 1, 2019.

The Company as lessor

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

Anticipated impact on assets, liabilities and equity

	Carrying	Carrying	Adjustments	Adjustments	Adjusted
	Amount as of		Arising from		Carrying
	December	31,		Initial	Amount as of
	2018		Application		January 1, 2019
Right-of-use assets	$	-	$	4,823	$ 4,823
Total effect on assets	$	-	$	4,823	$ 4,823
Lease liabilities - current	$	-	$	3,195	$ 3,195
Lease liabilities - non-current		-		1,628	1,628
Total effect on liabilities	$	-	$	4,823	$ 4,823

Except for the above impacts, as of the date the financial statements were authorized for issue, the Company continues assessing other possible impacts that the application of the aforementioned amendments and the related amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers will have on the Company’s financial position and financial performance and will disclose these other impacts when the assessment is completed.

• 14 -

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

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

• Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after their respective effective dates.

• Note 2: The Company shall apply these amendments to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2020 and to asset acquisitions that occur on or after the beginning of that period.

• Note 3: The Company shall apply these amendments prospectively for annual reporting periods beginning on or after January 1, 2020.

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

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

• a. Statement of compliance

The financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers (the “Regulations”).

• b. Basis of preparation

The financial statements have been prepared on the historical cost basis except for financial instruments which are measured at fair value.

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

• 1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;

• 2) Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

• 3) Level 3 inputs are unobservable inputs for the asset or liability.

• 15 -

When preparing its parent company only financial statements, the Company used equity method to account for its investment in subsidiaries and associates. In order for the amounts of the net profit for the year, other comprehensive income for the year and total equity in the parent company only financial statements to be the same with the amounts attributable to the owners of the Company in its financial statements, adjustments arising from the differences in accounting treatment between parent company only basis and consolidated basis were made to investments accounted for by equity method, share of profit or loss of subsidiaries and associates, share of other comprehensive income of subsidiaries and associates and related equity items, as appropriate, in the parent company only financial statements.

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

Current assets include:

• 1) Assets held primarily for the purpose of trading;

• 2) Assets expected to be realized within twelve months after the reporting period; and

• 3) Cash and cash equivalents unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.

Current liabilities include:

• 1) Liabilities held primarily for the purpose of trading;

• 2) Liabilities due to be settled within twelve months after the reporting period, even if an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the reporting period and before the financial statements are authorized for issue; and

• 3) Liabilities for which the Company does not have an unconditional right to defer settlement for at least twelve months after the reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

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

• d. Foreign currencies

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

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

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

Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

• 16 -

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

e. Inventories

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

f. Investment in subsidiaries

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

Subsidiary is an entity that is controlled by the Company.

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

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

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

The Company assesses its investment for any impairment by comparing the carrying amount with the estimated recoverable amount as assessed based on the entire financial statements of the invested company. Impairment loss is recognized when the carrying amount exceeds the recoverable amount. If the recoverable amount of the investment subsequently increases, the Company recognizes the reversal of the impairment loss; the adjusted post-reversal carrying amount should not exceed the carrying amount that would have been recognized (net of amortization or depreciation) had no impairment loss been recognized in prior years.

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

• 17 -

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

• g. Investments in associates

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

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

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

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

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

When a group entity transacts with its associate, profits and losses resulting from the transactions with the associate is recognized in the Company’s financial statements only to the extent of interests in the associate of parties that are not related to the Company.

• h. Property, plant and equipment

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

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

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

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

• 18 -

i. Intangible assets

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

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

j. Impairment of tangible and intangible assets

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

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.

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

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

k. Financial instruments

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

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

1) Financial assets

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

• 19 -

• a) Measurement categories

2018

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

• i. Financial assets at amortized cost

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

• i) The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and

• ii) The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

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

Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset.

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

• ii. Investments in equity instruments at FVTOCI

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

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

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

2017

Financial assets are classified into the following categories: Financial assets at FVTPL, available-for-sale financial assets and loans and receivables.

• 20 -

• i. Available-for-sale financial assets

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

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

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

Available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity investments are measured at cost less any identified impairment loss at the end of each reporting period and presented in a separate line item as financial assets measured at cost. If, in a subsequent period, the fair value of the financial assets can be reliably measured, the financial assets are remeasured at fair value. The difference between the carrying amount and the fair value of the financial assets is recognized in other comprehensive income. Any impairment losses are recognized in profit and loss.

ii. Loans and receivables

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

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

• b) Impairment of financial assets

2018

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

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

• 21 -

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

The Company recognizes an impairment gain or loss in profit or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account.

2017

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

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

For a financial asset carried at amortized cost, the amount of the impairment loss recognized is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.

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

For financial assets that are measured at cost, the amount of the impairment loss is measured as the difference between such an asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

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

• c) Derecognition of financial assets

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

• 22 -

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

2) Equity instruments

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

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

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

3) Financial liabilities

All financial liabilities are measured at amortized cost using the effective interest method. The Company derecognizes financial liabilities when, and only when, the Company’s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognized and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss.

4) Convertible bonds

The component parts of compound instruments (convertible bonds) issued by the Company are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

On initial recognition, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible instruments. This amount is recorded as a liability on an amortized cost basis using the effective interest method until extinguished upon conversion or the instrument’s maturity date. Any embedded derivative liability is measured at fair value.

The conversion option classified as equity is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognized and included in equity, net of income tax effects, and is not subsequently remeasured. In addition, the conversion option classified as equity will remain in equity until the conversion option is exercised, in which case, the balance recognized in equity will be transferred to capital surplus - share premium. When the conversion option remains unexercised at maturity, the balance recognized in equity will be transferred to capital surplus - share premium.

• 23 -

Transaction costs that relate to the issue of the convertible notes are allocated to the liability and equity components in proportion to the allocation of the gross proceeds. Transaction costs relating to the equity component are recognized directly in equity. Transaction costs relating to the liability component are included in the carrying amount of the liability component.

• l. Provision

Provision is measured at the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Provision for the expected cost of warranty obligations is recognized at the date of sale of the relevant products at the best estimate by the management of the Company of the expenditure required to settle the Company’s obligations.

• m. Revenue recognition

2018

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

Revenue from sale of goods

Revenue from sale of goods comes from sales of power supply modules. Sales of power supply modules are recognized as revenue when the goods are delivered to the customer’s specific location because it is the time when the customer has full discretion over the manner of distribution and price to sell the goods, has the primary responsibility for sales to future customers, and bears the risks of obsolescence. Trade receivable is recognized concurrently.

2017

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

1) Sale of goods

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

• a) The Company has transferred to the buyer the significant risks and rewards of ownership of the goods;

• b) The Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

• c) The amount of revenue can be measured reliably;

• d) It is probable that the economic benefits associated with the transaction will flow to the Company; and

• e) The costs incurred or to be incurred in respect of the transaction can be measured reliably.

• 24 -

• 2) Dividend and interest income

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

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

• n. Leasing

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

• 1) The Company as lessor

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease.

• 2) The Company as lessee

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

o. Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

Other than as stated above, all other borrowing costs are recognized in profit or loss in the period in which they are incurred.

p. Employee benefits

• 1) Short-term employee benefits

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

2) Retirement benefits

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

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

• 25 -

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

q. Taxation

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

1) Current tax

According to the Income Tax Law, unappropriated earnings is provided for as income tax in the year the shareholders approve to retain earnings. Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.

2) Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences, unused loss carryforward, research and development expenditure to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.

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

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

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

3) Current tax and deferred tax for the year

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

• 26 -

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION

UNCERTAINTY

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

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

• a. Estimated impairment of financial assets - 2018

The provision for impairment of trade receivables is based on assumptions about risk of default and expected loss rates. The Company uses judgement in making these assumptions and in selecting the inputs to the impairment calculation, based on the Company’s historical experience, existing market conditions as well as forward looking estimates as of the end of each reporting period. For details of the key assumptions and inputs used, see Note 9. Where the actual future cash inflows are less than expected, a material impairment loss may arise.

• b. Estimated impairment of trade receivables - 2017

When there is objective evidence of impairment loss of receivables, the Company takes into consideration the estimation of the future cash flows of such assets. The amount of impairment loss is measured as the difference between such an asset’s carrying amount and the present value of its estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. Where the actual future cash flows are less than expected, a material impairment loss may arise.

6. CASH AND CASH EQUIVALENTS

Cash on hand Checking accounts and demand deposits Cash equivalent (investments with original maturities of less than 3 months) Time deposits		December 31	December 31
		2018 $ 931 1,171,350 61,580 $ 1,233,861	2017 $ 657 1,337,571 8,647 $ 1,346,875

As of December 31, 2018, the time deposits with original maturities more than three months in the amount of $201,113 thousand, respectively, had been reclassified to “other financial assets - current”.

As of December 31, 2018 and 2017, bank balance in the amount of $25,450 thousand had been pledged to secure short-term debts and reclassified to “other financial assets - non-current”. Refer to Note 25.

• 27 -

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

Demand deposits and time deposits	December 31
	2018 2017 0.001%-4.40% 0.001%-4.40%

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

		December 31,
		2018
Non-current
Investments	in equity instruments at FVTOCI
Domestic	unlisted ordinary shares	$ 29,522

These investments in equity instruments are not held for trading. Instead, they are held for medium to long-term strategic purposes. Accordingly, the management elected to designate these investments in equity instruments as at FVTOCI as they believe that recognizing short-term fluctuations in these investments’ fair value in profit or loss would not be consistent with the Company’s strategy of holding these investments for long-term purposes. These investments in equity instruments were classified as available-for-sale under IAS 39. Refer to Note 3 and Note 8 for information relating to their reclassification and comparative information for 2017.

8. FINANCIAL ASSETS MEASURED AT COST - NON-CURRENT - 2017

	December 31,
	2017
Non-current
Domestic unlisted ordinary shares	$ 28,536
Classified according to financial assets
Available-for-sale financial assets	$ 28,536

Management believed that the above unlisted equity investments held by the Company had fair values which cannot be reliably measured, because the range of reasonable fair value estimates was so significant. Therefore, they were measured at cost less impairment at the end of the reporting period.

• 28 -

9. TRADE RECEIVABLES

Trade receivables At amortized cost Gross carrying amount Less: Allowance for impairment loss		December 31	December 31
		2018 $ 860,830 (899) $ 859,931	2017 $ 796,127 (813) $ 795,314

Trade Receivable

In 2018

The average credit period of sales of goods was 60 to 90 days. No interest was charged on trade receivables. The Company adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Company’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the risk management committee annually.

The Company applies the simplified approach to providing for expected credit losses prescribed by IFRS 9, which permits the use of lifetime expected loss provision for all trade receivables.

The expected credit losses on trade receivables are estimated using a provision matrix by reference to past default experience of the debtor and an analysis of the debtor’s current financial position as well as the prospective conditions at the reporting date.

The Company writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery. For trade receivables that have been written off, the Company continues to engage in enforcement activity to attempt to recover the receivables due. Where recoveries are made, these are recognized in profit or loss.

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

December 31, 2018

Expected credit loss rate Gross carrying amount Loss allowance (Lifetime ECL) Amortized cost	Not Past Due Less than 60 Days 0.03% 0.34-2.75% $ 800,289 $ 58,558 (210) (362) $ 800,079 $ 58,196	61 to 90 Days 12.74% $ 739 (94) $ 645	91 to 120 Days 12.38% $ 530 (66) $ 464	Over 120 Days 23.36% $ 714 (167) $ 547	Total $ 860,830 (899) $ 859,931

• 29 -

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

	December 31,	December 31,
		2018
Balance at January 1, 2018 per IAS 39	$	813
Adjustment on initial application of IFRS 9		-
Balance at January 1, 2018 per IFRS 9		813
Add: Net remeasurement of loss allowance		86
Balance at December 31, 2018	$	899

The increase in loss allowance of $86 thousand resulted from origination of new trade receivables net of those settled of $64,703 thousand.

In 2017

The Company applied the same credit policy in 2018 and 2017. Allowance for impairment loss was recognized against trade receivables based on estimated irrecoverable amounts determined by reference to credit risk level of the counterparties and an analysis of their current financial position.

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

The aging of receivables was as follows:

December 31, 2017

					Overdue 61	Overdue 61
	Total		Overdue		Days and
	Receivables	Not Overdue	under 60 Days			Longer
Not overdue and not impaired	$ 771,303	$ 771,303	$	-	$	-
Not overdue but impaired	813	813		-		-
Overdue and not impaired	24,011	-		19,693		4,318
Overdue and impaired	-	-		-		-
	$ 796,127	$ 772,116	$	19,693	$	4,318

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

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

Individual Impairment Losses Companies Impairment Losses Balance at January 1, 2017 $ 813 $ - (Reversed) impairment losses recognized on receivables (813) 813 Balance at December 31, 2017 $ - $ 813	Total $ 813 - $ 813

The Company did not hold any collateral over these balances.

• 30 -

10. INVENTORIES

Raw materials Work-in-process Merchandise		December 31	December 31
		2018 $ 1,818 102 103,972 $ 105,892	2017 $ 1,042 137 15,764 $ 16,943

As of December 31, 2018 and 2017, allowance of inventory value decline was $10,624 thousand and $10,327 thousand, respectively.

For the years ended December 31, 2018 and 2017, the cost of inventories recognized as cost of goods sold was $7,483,831 thousand and $7,183,090 thousand, respectively. The cost of goods sold included inventory write-down of $297 thousand in 2018.

11. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

Investments in subsidiaries Investments in associates		December 31	December 31
		2018 $ 4,417,335 47,489 $ 4,464,824	2017 $ 4,542,054 53,065 $ 4,595,119

a. Investments in subsidiaries:

Phihong International Corp. Phitek International Co., Ltd. Ascent Alliance Ltd. Phihong USA Corp. Phihong Technology Japan Co., Ltd. Guan-Lai Investment Co., Ltd.		**December 31 **	**December 31 **
		2018 $ 3,166,809 (181,707) 190,997 974,201 136,140 130,895 $ 4,417,335	2017 $ 3,110,617 (92,257) 324,881 904,230 121,595 172,988 $ 4,542,054

At the end of the reporting period, the percentages of ownership and voting rights in subsidiaries held by the Company were as follows:

Phihong International Corp. Phitek International Co., Ltd. Ascent Alliance Ltd. Phihong USA Corp. Phihong Technology Japan Co., Ltd. Guan-Lai Investment Co., Ltd.	**December 31 **
	2018 2017 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

• 31 -

The Company provided financial guarantee for bank borrowings of Phihong International Corp. and Phihong USA Corp. As of December 31, 2018 and 2017, subsidiaries’ bank borrowings guaranteed by the Company were $9,237 thousand and $20,839 thousand, respectively. Refer to Note 24.

The investments accounted for by the equity method and the share of profit or loss and other comprehensive income of those investments for the years ended December 31, 2018 and 2017 were based on the subsidiaries’ financial statements audited by auditors for the same years.

b. Investments in associates:

Associates that are not individually material Aggregate information of associates that are not individually material		**December **	**31 **
		2018 $ 47,489	2017 $ 53,065

The Company’s share of: Net profit for the year Other comprehensive income (loss) Total comprehensive loss for the year	**For the Year Ended December 31 **	**For the Year Ended December 31 **	**For the Year Ended December 31 **
		2018 $ 12,246 - $ 12,246	2017 $ 16,892 (52,629) $ (35,737)

The associates that are not individually material, Hao-Xuan Venture Capital Co., Ltd, have been liquidated in January 2018, and recognized gain $29 thousand, which was presented under gain on disposal of investment.

Refer to Table 8 “Information on Investees” for the nature of activities, principal places of business and countries of incorporation of the associates.

12. PROPERTY, PLANT AND EQUIPMENT

Cost Balance at January 1, 2017 Additions Disposals Reclassified as investment property Balance at December 31, 2017	Freehold Land $ 197,586 - (12,384) - $ 185,202	Buildings $ 619,061 151 - 560 $ 619,772	Machinery and Equipment $ 159,684 2,833 (3,958) 1,013 $ 159,572	Other Equipment Property in Construction Total $ 338,084 $ - $ 1,314,415 25,280 - 28,264 (3,559) - (19,901) - - 1,573 $ 359,805 $ - $ 1,324,351 (Continued)

• 32 -

Accumulated depreciation Balance at January 1, 2017 Disposals Depreciation expense Balance at December 31, 2017 Carrying amounts at December 31, 2017 Cost Balance at January 1, 2018 Additions Disposals Reclassified as investment property Balance at December 31, 2018 Accumulated depreciation Balance at January 1, 2018 Disposals Depreciation expense Balance at December 31, 2018 Carrying amounts at December 31, 2018	Freehold Land $ - - - $ - $ 185,202 $ 185,202 - - - $ 185,202 $ - - - $ - $ 185,202	Buildings $ 162,038 - 21,151 $ 183,189 $ 436,583 $ 619,772 1,673 - 1,329 $ 622,774 $ 183,189 - 21,299 $ 204,488 $ 418,286	Machinery and Equipment $ 125,891 (3,950) 11,850 $ 133,791 $ 25,781 $ 159,572 9,829 (10,696) 4,339 $ 163,044 $ 133,791 (10,696) 10,436 $ 133,531 $ 29,513	Other Equipment Property in Construction Total $ 215,743 $ - $ 503,672 (3,559) - (7,509) 44,438 - 77,439 $ 256,622 $ - $ 573,602 $ 103,183 $ - $ 750,749 $ 359,805 $ - $ 1,324,351 45,160 1,329 57,991 (11,979) - (22,675) - (1,329) 4,339 $ 392,986 $ - $ 1,364,006 $ 256,622 $ - $ 573,602 (11,979) - (22,675) 44,097 - 75,832 $ 288,740 $ - $ 626,759 $ 104,246 $ - $ 737,247 (Concluded)

The above items of property, plant and equipment are depreciated on a straight-line basis over the following estimated useful life:

Buildings Main building 50 years Engineering system 10 years Machinery and equipment 3-10 years Other equipment 3-5 years

Refer to Note 25 for the carrying amount of property, plant and equipment that had been pledged by the Company to secure long-term borrowings.

• 33 -

13. OTHER INTANGIBLE ASSETS

	Computer
	Software
Cost
Balance at January 1, 2017	$ 80,330
Additions	13,532
Reclassified	1,129
Disposals	(1,553)
Balance at December 31, 2017	$ 93,438
Accumulated amortization
Balance at January 1, 2017	$ 57,420
Amortization expense	18,801
Disposals	(1,437)
Balance at December 31, 2017	$ 74,784
Carrying amount at December 31, 2017	$ 18,654
Cost
Balance at January 1, 2018	$ 93,438
Additions	14,432
Reclassified	545
Disposals	(19,215)
Balance at December 31, 2018	$ 89,200
Accumulated amortization
Balance at January 1, 2018	$ 74,784
Amortization expense	16,897
Disposals	(18,975)
Balance at December 31, 2018	$ 72,706
Carrying amount at December 31, 2018	$ 16,494

The above items of intangible assets are amortized on a straight-line basis over estimated useful life of 2 to 5 years.

• 34 -

14. BORROWINGS

Short-term Borrowings

Secured loan Bank borrowings Interest rate Long-term Borrowings Secured loan Medium-term loan Repayable from December 22, 2017 to December 22, 2019; interest rate was 1.20% on December 31, 2018 and 2017. Interest is paid monthly and principal is due on December 22, 2019. Repayable from December 14, 2018 to June 15, 2020; interest rate was 1.20% on December 31, 2018. Interest is paid monthly and principal is due on June 15, 2020. Repayable from December 10, 2018 to December 10, 2020; interest rate was 1.24% on December 31, 2018. Interest is paid monthly and principal is due on December 10, 2020. Repayable from December 27, 2017 to June 15, 2019; interest rate was 1.26% on December 31, 2017. Interest is paid monthly and principal is due on June 15, 2019. Principal was fully repaid in June 2018. Less: Long-term loans payable - current portion		**December 31 **	**December 31 **
		2018 2017 $ - $ 100,000 1.14% December 31
		2018 $ 30,000 50,000 100,000 - 180,000 (30,000) $ 150,000	2017 $ 30,000 - - 100,000 130,000 - $ 130,000

For information on pledged properties and endorsements/guarantees, refer to Notes 24 and 25.

15. BONDS PAYABLE

Unsecured domestic convertible bonds Secured domestic bonds		**December 31 **	**December 31 **
		2018 $ - 998,929 $ 998,929	2017 $ - 998,453 $ 998,453

• 35 -

Unsecured Domestic Convertible Bonds

On June 4, 2014, the Company issued 15 thousand units of $100 thousand 0% NTD unsecured convertible bonds in Taiwan, with an aggregate principal of $1,500,000 thousand, and proceeds from the issue was $1,503,000 thousand.

The holder is entitled to convert each bond into ordinary shares of the Company at a conversion price of $20.4 per share. If the Company changes its capital or pays cash dividends, the conversion price will be adjusted by the formula set up in the prospectus. After March 6, 2017, the conversion price has been adjusted to $18.6 per share. Conversion may occur at any time between July 5, 2014 and May 25, 2017. If the bonds are not converted, they will be redeemed on June 4, 2017 at $100 thousand each.

The convertible bonds contain both liability and equity components. The equity component was presented in equity under the heading of capital surplus. The effective interest rate of the liability component was 1.7% per annum on initial recognition.

Proceeds from issue (less transaction costs $5,669 thousand) Equity component (less transaction costs allocated to the equity component of $272 thousand) Liability component at the date of issue Interest charged at an effective interest rate of 1.70% Conversion to common shares Liability component at December 31, 2014 Liability component at January 1, 2017 Interest charged at an effective interest rate of 1.70% Redemption of bonds payable Liability component at December 31, 2017

$ 1,497,331 (71,878) 1,425,453 13,944 (10,208) $ 1,429,189 $ 1,163,926 8,016 (1,171,942) $ -

The Company bought back 1,332 units of unsecured convertible bonds from the open market and recognized a gain on the buy-back of bonds payable of $103 thousand for the year ended December 31, 2017, which was presented under other gains and losses. Moreover, the Company redeemed all of the expired unsecured convertible bonds on June 4, 2017, and reclassified $56,175 thousand of “capital surplus - convertible bonds” to “capital surplus - treasury share transactions”, respectively; refer to Note 18.

Secured Domestic Bonds

On April 1, 2016, the Company issued 100 units of $10,000 thousand, 0.95% secured bonds in Taiwan, with an aggregate principal of $1,000,000 thousand.

For information on pledged properties and endorsements/guarantees, refer to Notes 24 and 25.

• 36 -

16. OTHER PAYABLES

Payables for salaries and bonuses Payables for annual leave Payables for materials and procurements Other payables to related parties (Note 24) Others		December 31	December 31
		2018 $ 95,446 19,918 1,315,603 54,028 252,361 $ 1,737,356	2017 $ 94,210 17,132 1,097,525 50,038 237,489 $ 1,496,394

17. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

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

b. Defined benefit plans

The defined benefit plan adopted by the Company in accordance with the Labor Standards Law is operated by the government of the ROC. Pension benefits are calculated on the basis of the length of service and average monthly salaries of the 6 months before retirement. The Company contributes amounts equal to 2% of total monthly salaries and wages to a pension fund administered by the pension fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan in the committee’s name. Before the end of each year, the Company assesses the balance in the pension fund. If the amount of the balance in the pension fund is inadequate to pay retirement benefits for employees who conform to retirement requirements in the next year, the Company is required to fund the difference in one appropriation that should be made before the end of March of the next year. The pension fund is managed by the Bureau of Labor Funds, Ministry of Labor (“the Bureau”); the Company has no right to influence the investment policy and strategy.

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

Present value of defined benefit obligation Fair value of plan assets Net defined benefit liability		December 31	December 31
		2018 $ 137,254 (38,238) $ 99,016	2017 $ 137,526 (41,912) $ 95,614

• 37 -

Movements in net defined benefit liability (asset) were as follows:

	Present Value
	of the Defined		Net Defined
	Benefit	Fair Value of		Benefit
	Obligation	the Plan Assets	Liability (Asset)
Balance at January 1, 2017	$ 132,907	$ (44,954)	$	87,953
Service cost
Current service cost	338	-		338
Net interest expense (income)	1,827	(634)		1,193
Recognized in profit or loss	2,165	(634)		1,531
Remeasurement
Return on plan assets (excluding amounts
included in net interest)	-	215		215
Actuarial (gain) loss - changes in
demographic assumptions	2,207	-		2,207
Actuarial (gain) loss - changes in financial
assumptions	2,051	-		2,051
Actuarial (gain) loss - experience
adjustments	3,793	-		3,793
Recognized in other comprehensive income	8,051	215		8,266
Contributions from the employer	-	(2,136)		(2,136)
Benefits paid	(5,597)	5,597		-
Balance at December 31, 2017	$ 137,526	$ (41,912)	$	95,614
Balance at January 1, 2018	$ 137,526	$ (41,912)	$	95,614
Service cost
Current service cost	383	-		383
Net interest expense (income)	1,719	(538)		1,181
Recognized in profit or loss	2,102	(538)		1,564
Remeasurement
Return on plan assets (excluding amounts
included in net interest)	-	(1,139)		(1,139)
Actuarial (gain) loss - changes in
demographic assumptions	7,736	-		7,736
Actuarial (gain) loss - changes in financial
assumptions	1,896	-		1,896
Actuarial (gain) loss - experience
adjustments	(4,632)	-		(4,632)
Recognized in other comprehensive income	5,000	(1,139)		3,861
Contributions from the employer	-	(2,023)		(2,023)
Benefits paid	(7,374)	7,374		-
Balance at December 31, 2018	$ 137,254	$ (38,238)	$	99,016

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

• 1) Investment risk: The plan assets are invested in domestic and foreign equity and debt securities, bank deposits, etc. The investment is conducted at the discretion of the Bureau or under the mandated management. However, in accordance with relevant regulations, the return generated by plan assets should not be below the interest rate for a 2-year time deposit with local banks.

• 38 -

• 2) Interest risk: A decrease in interest rate will increase the present value of the defined benefit obligation; however, this will be partially offset by an increase in the return on the plan’s debt investments.

• 3) Salary risk: The present value of the defined benefit obligation is calculated by reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the present value of the defined benefit obligation.

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

Discount rate(s) Expected rate(s) of salary increase	December 31
	2018 2017 1.125% 1.250% 3.500% 3.500%

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

Discount rate(s) 0.25% increase 0.25% decrease Expected rate(s) of salary increase 0.25% increase 0.25% decrease		December	31
		2018 $ (4,039) $ 4,210 $ 4,047 $ (3,905)	2017 $ (4,121) $ 4,297 $ 4,134 $ (3,987)

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

The expected contributions to the plan for the next year The average duration of the defined benefit obligation		December	31
		2018 $ 2,016 12 years	2017 $ 2,160 12.3 years

18. EQUITY

Share Capital

Number of shares authorized (in thousands) Shares authorized Number of shares issued and fully paid (in thousands) Shares issued		December 31	December 31
		2018 600,000 $ 6,000,000 337,688 $ 3,376,884	2017 600,000 $ 6,000,000 337,688 $ 3,376,884

• 39 -

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

On November 10, 2016, Phihong’s board of directors resolved to issue 60,000 thousand ordinary shares, with a par value of NT$10. On January 6, 2017, Phihong’s board of directors resolved to issue 60,000 thousand ordinary shares for a consideration of NT$10.2 per share, and increased the issued and fully paid share capital to $3,376,884 thousand. The Company used the Black-Scholes model to evaluate the compensation costs of the options granted to employees on January 6, 2017 and increased the capital surplus by $7,131 thousand. The January 6, 2017 issue of ordinary shares was approved by the FSC on December 15, 2016, and the board of directors set the subscription base date as at January 21, 2017.

Capital Surplus

May be used to offset a deficit, distributed as cash dividends, or transferred to share capital Issuance of ordinary shares Conversion of bonds Treasury share transactions Interest payable on bond conversion May be used to offset a deficit only Treasury share transactions		**December 31 **	**December 31 **
		2018 $ 244,117 667,058 48,234 13,243 71,365 $ 1,044,017	2017 $ 244,117 667,058 48,234 13,243 71,365 $ 1,044,017

The capital surplus arising from shares issued in excess of par (including share premium from issuance of common shares, conversion of bonds and treasury share transactions) and donations may be used to offset a deficit; in addition, when the Company has no deficit, such capital surplus may be distributed as cash dividends or transferred to share capital (limited to a certain percentage of the Company’s capital surplus and once a year).

Retained Earnings and Dividend Policy

Under the dividend policy as set forth in the amended Articles, where the Company made profit in a fiscal year, the profit shall be first utilized for paying taxes, offsetting losses of previous years, setting aside as legal reserve of 10% of the remaining profit, setting aside or reversing a special reserve in accordance with the laws and regulations, and then any remaining profit together with any undistributed retained earnings shall be used by the Company’s board of directors as the basis for proposing a distribution plan, which should be resolved in the shareholders’ meeting for the distribution of dividends and bonuses to shareholders. For the policies on the distribution of employees’ compensation and remuneration of directors and supervisors after the amendment, refer to “Employees’ compensation and remuneration of directors and supervisors” in Note 19-e.

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

Items referred to under Rule No. 1010012865, Rule No. 1010047490 and Rule No. 1030006415 issued by the FSC and in the directive titled “Questions and Answers for Special Reserves Appropriated Following Adoption of IFRSs” should be appropriated to or reversed from a special reserve by the Company.

• 40 -

Special Reserves

On the first-time adoption of IFRSs, the Company transferred to retained earnings unrealized revaluation increment and cumulative translation differences in the amounts of $10,968 thousand and $250,296 thousand, respectively. The increase in retained earnings that resulted from all IFRSs adjustments was smaller than the total revaluation and translation differences; therefore, the Company appropriated to the special reserve the amount of $230,859 thousand, the increase in retained earnings that resulted from all IFRSs adjustments on transitions to IFRSs.

Other Equity Items

a. Exchange differences on translating the financial statements of foreign operations

Balance at January 1 Exchange differences arising on translating the financial statements of foreign operations Balance at December 31	For the Year Ended	For the Year Ended	December 31
		2018 $ (256,008) (9,599) $ (265,607)	2017 $ (91,443) (164,565) $ (256,008)

b. Unrealized gain (loss) on available for-sale financial assets

	**For the Year **	**For the Year **	Ended December 31	Ended December 31
		2018		2017
Balance at January 1	$	4,825	$	57,450
Adjustment on initial application of IFRS 9		(4,825)		-
Share of unrealized gain (loss) on revaluation of
available-for-sale financial assets of associates accounted for
using the equity method		-		(52,625)
Balance at December 31	$	-	$	4,825
Unrealized gain (loss) on financial assets at FVTOCI
			For the Year
				Ended
			December 31,
				2018
Balance at January 1 per IAS 39			$	-
Adjustment on initial application of IFRS 9				(75,236)
Balance at January 1 per IFRS 9				(75,236)
Recognized for the year
Unrealized gain (loss) - equity instruments				2,674
Share from associates accounted for using the equity method				(28,230)
Reclassification adjustment
Proceeds from capital reduction of financial assets at fair value	through other
comprehensive income				6,526
Balance at December 31			$	(94,266)

c. Unrealized gain (loss) on financial assets at FVTOCI

• 41 -

19. NET PROFIT (LOSS) FROM CONTINUING OPERATIONS

a. Other income

Interest income Dividend income Others Other gains and losses Gain on disposal of property, plant and equipment Loss on disposal of intangible assets Net foreign exchange losses Gain on disposal of investments Gain on buy-back of bonds payable Others Depreciation and amortization Property, plant and equipment Computer software An analysis of depreciation by function Operating costs Operating expenses An analysis of amortization by function Operating costs Operating expenses	**For the Year Ended **	**For the Year Ended **	**December 31 **
	2018 $ 28,471 - 82,079 $ 110,550 **For the Year Ended **		2017 $ 12,004 1,957 70,385 $ 84,346 **December 31 **
	2018 $ - (240) 21,407 29 - (227) $ 20,969 For the Year Ended		2017 $ 13,215 (116) (110,044) - 103 (38) $ (96,880) December 31
		2018 $ 75,832 16,897 $ 92,729 $ 2,326 73,506 $ 75,832 $ - 16,897 $ 16,897	2017 $ 77,439 18,801 $ 96,240 $ 2,441 74,998 $ 77,439 $ 9 18,792 $ 18,801

b. Other gains and losses

c. Depreciation and amortization

• 42 -

d. Employee benefits expense

Short-term employee benefits Post-employment benefits (Note 17) Defined contribution plans Defined benefit plans An analysis of employee benefits expense by function Operating costs Operating expenses	For the Year Ended	For the Year Ended	December 31
		2018 $ 480,305 20,398 1,564 $ 502,267 $ 38,544 463,723 $ 502,267	2017 $ 478,374 19,961 1,531 $ 499,866 $ 37,612 462,254 $ 499,866

		2018			2017
	Operating Costs	Operating Expenses	Total	Operating Costs	Operating Expenses	Total
Personnel expenses
Salaries	$31,572	$385,255	$416,827	$31,425	$389,190	$420,615
Labor insurance and health insurance	2,873	32,921	35,794	2,701	32,631	35,332
Pension cost	1,737	20,225	21,962	1,610	19,882	21,492
Remuneration to directors	-	340	340	-	282	282
Others	2,362	24,982	27,344	1,876	20,269	22,145
Total	$38,544	$463,723	$502,267	$37,612	$462,254	$499,866

As of December 31, 2018 and 2017, the Company had 472 and 469 employees respectively.

The number of directors who have not served as employees on both 9 directors, the calculation basis is consistent with employee benefits expense.

• e. Employees’ compensation and remuneration to directors and supervisors

The Company accrued employees’ compensation and remuneration of directors and supervisors at the rates no less than 10% and no higher than 2%, respectively, of net profit before income tax, employees’ compensation, and remuneration of directors and supervisors. For the years ended December 31, 2018 and 2017, because of accumulated deficits and operation loss, the Company did not estimate the bonus to employees and the remuneration to directors and supervisors.

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

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

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

• 43 -

• f. Gain or loss on foreign currency exchange

Foreign exchange gains Foreign exchange losses	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 25,515 (4,108) $ 21,407	2017 $ 47,106 (157,150) $ (110,044)

20. INCOME TAXES RELATING TO CONTINUING OPERATIONS

• a. Income tax recognized in profit or loss

The major components of tax expense were as follows:

Current tax In respect of the current period Deferred tax In respect of the current period Adjustments to deferred tax attributable to change in tax rates and laws Total income tax expense recognized in profit or loss	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ - 9,400 (8,200) 1,200 $ 1,200	2017 $ 24,600 5,640 - 5,640 $ 30,240

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

(Loss) profit before tax Income tax expense calculated at statutory rate Unrecognized loss carryforwards Current income tax expense Deferred income tax assets (liabilities) Temporary difference Effect of tax rate changes Income tax expense recognized in profit or loss	**For the Year Ended **	**For the Year Ended **	December 31
		2018 $ (245,395) $ (23,039) 23,039 - 9,400 (8,200) $ 1,200	2017 $ 36,896 $ 24,600 - 24,600 5,640 - $ 30,240

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

• 44 -

b. Income tax recognized in other comprehensive income

Deferred tax In respect of the current year: Actuarial gains and losses on defined benefit plan Total income tax recognized in other comprehensive income	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 772 $ 772	2017 $ 1,405 $ 1,405

c. Current tax liabilities

Current tax liabilities Income tax payable	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 18,301	2017 $ 39,964

d. Deferred tax assets and liabilities

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

For the year ended December 31, 2018

Deferred tax assets Temporary differences Allowance for inventory value decline loss Allowance for doubtful accounts Unrealized gross profit Deferred pension costs Others Deferred tax liabilities Temporary differences Unrealized gain on financial instruments	Opening Balance Tax Rate Adjustments Recognized in Profit or Loss Recognized in Other Comprehen- sive Income $ 1,760 $ 310 $ 50 $ - 9,930 1,760 (9,920) - 8,230 1,450 650 - 10,470 1,850 90 - 16,075 2,830 (270) 772 $ 46,465 $ 8,200 $ (9,400) $ 772 $ 79,832 $ - $ - $ -	Closing Balance $ 2,120 1,770 10,330 12,410 19,407
		$ 46,037
		$ 79,832

• 45 -

For the year ended December 31, 2017

Deferred tax assets Temporary differences Allowance for inventory value decline loss Allowance for doubtful accounts Unrealized gross profit Deferred pension costs Others Deferred tax liabilities Temporary differences Unrealized gain on financial instruments	Opening Balance Recognized in Profit or Loss Recognized in Other Comprehen- sive Income $ 3,120 $ (1,360) $ - 9,930 - - 10,280 (2,050) - 10,370 100 - 17,000 (2,330) 1,405 $ 50,700 $ (5,640) $ 1,405 $ 79,832 $ - $ -	Closing Balance $ 1,760 9,930 8,230 10,470 16,075 $ 46,465 $ 79,832

• e. Deductible temporary differences, unused loss carryforwards and unused investment credits for which no deferred tax assets have been recognized in the balance sheets

Loss carryforwards	For the Year Ended	For the Year Ended	December 31
		2018 $ 115,196	2017 $ -

• f. Income tax assessments

The Company’s income tax returns through 2016, except 2015, have been assessed by the tax authorities.

21. (LOSS) EARNINGS PER SHARE

Unit: NT$ Per Share

Basic (loss) earnings per share Diluted earnings per share	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ (0.73)	2017 $ 0.02 $ 0.02

• 46 -

The (loss) earnings and weighted average number of ordinary shares outstanding in the computation of (loss) earnings per share were as follows:

Net (Loss) Profit for the Period

(Loss) earnings used in the computation of basic (loss) earnings per share Earnings used in the computation of diluted earnings per share Ordinary Shares Outstanding Weighted average number of ordinary shares used in the computation of basic earnings per share Weighted average number of ordinary shares used in the computation of diluted earnings per share	For the Year Ended	For the Year Ended	December 31
	2018 $ (246,595) For the Year Ended		2017 $ 6,656 $ 6,656 December 31
		2018 337,688	2017 326,675 326,675

22. CAPITAL MANAGEMENT

The Company manages its capital to ensure that the Company will be able to continue as a going concern while maximizing the return to stakeholders through the optimization of the debt and equity balance. The Company’s overall strategy remains unchanged.

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

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

23. FINANCIAL INSTRUMENTS

• a. Fair value of financial instruments that are measured at fair value on a recurring basis

• Fair value hierarchy

December 31, 2018

Financial assets at FVTOCI Investment in equity instruments at FVTOCI Unlisted shares	Level 1 $ -	Level 2 $ -	Level 3 $ 29,522	Total $ 29,522

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

• 47 -

b. Categories of financial instruments

Financial assets Loans and receivables (1) Available-for-sale financial assets (2) Financial assets at amortized cost (3) Financial assets at FVTOCI Equity instruments Financial liabilities Financial liabilities at amortized cost (4)	December 31
	2018 2017 $ - $ 2,940,214 - 28,536 2,828,112 - 29,522 - 2,928,052 2,734,417

• 1) The balances included loans and receivables measured at amortized cost, which comprise cash and cash equivalents, trade receivables, trade receivables from related parties, other receivables, other receivables from related parties, other financial assets and refundable deposits.

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

• 3) The balances include financial assets measured at amortized cost, which comprise cash and cash equivalents, trade receivables, other receivables, other receivables from related parties, other financial assets and refundable deposits.

• 4) The balances included financial liabilities measured at amortized cost, which comprise short-term borrowings, trade payables, trade payables to related parties, other payables, bonds payable, long-term borrowings and guarantee deposits received.

c. Financial risk management objectives and policies

The Company’s major financial instruments included cash and cash equivalents, trade receivables, trade receivables from related parties, other receivables, other receivables from related parties, refundable deposits, trade payables, trade payables to related parties, other payables, long-term borrowings, short-term borrowings and bonds payable. The Company’s Corporate Treasury function provides services to the business, coordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Company through internal risk reports which analyze exposures by degree and magnitude of risks. These risks include market risk, credit risk and liquidity risk.

1) Market risk

The Company’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates (see (a) below) and interest rates (see (b) below).

a) Foreign currency risk

The Company had foreign currency sales and purchases, which exposed the Company to foreign currency risk. The Company believed that its foreign currency assets and liabilities were not significantly exposed to foreign currency risk; thus, after assessing its balance of foreign currency assets and liabilities, it did not hedge the risk and did not adopt hedge accounting.

The carrying amounts of the Company’s foreign currency denominated monetary assets and monetary liabilities at the end of the reporting period are set out in Note 28.

• 48 -

Sensitivity analysis

The Company was mainly exposed to the USD and CNY.

The following table details the Company’s sensitivity to a 1% increase and decrease in New Taiwan dollars (the functional currency) against the relevant foreign currencies. The sensitivity analysis is for a 1% change in foreign currency rates and included only outstanding foreign currency denominated monetary items at the end of the reporting period. A positive number below indicates a decrease in pre-tax profit when New Taiwan dollars strengthen by 1% against the relevant currency. For a 1% weakening of New Taiwan dollars against the relevant currency, there would be an equal and opposite impact on pre-tax profit and the balances below would be negative.

Profit or loss Profit or loss	USD Impact
	**For the Year Ended December 31 **
	2018 2017 $ 5,653 $ 9,243 CNY Impact
	For the Year Ended December 31
	2018 2017 $ 2,089 $ 292

• b) Interest rate risk

The Company was exposed to fair value interest rate risk and cash flow interest rate risk from short-term borrowings, long-term borrowings and bonds payable at both fixed and floating interest rates.

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

Fair value interest rate risk Financial liabilities Cash flow interest rate risk Financial liabilities	December 31
	2018 2017 $ 1,098,929 $ 1,098,453 80,000 130,000

• 2) Credit risk

Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting in financial loss to the Company. As at the end of the reporting period, the Company’s maximum exposure to credit risk, which would cause a financial loss to the Company due to the failure of the counterparty to discharge its obligation and due to the financial guarantees provided by the Company, could be equal to the total of the following:

• a) The carrying amount of the respective recognized financial assets as stated in the balance sheets; and

• b) The maximum amount the entity would have to pay if the financial guarantee is called upon, irrespective of the likelihood of the guarantee being exercised.

• 49 -

The Company adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Company’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the risk management specialists annually.

Trade receivables consisted of a large number of customers, spread across diverse industries and geographical areas. Ongoing credit evaluation is performed on the financial condition of customers in view of trade receivables and, where appropriate, credit guarantee insurance cover is purchased.

3) Liquidity risk

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

The Company relies on bank borrowings as a significant source of liquidity. As of December 31, 2018 and 2017, the Company had available unutilized short-term bank loan facilities set out in (b) below.

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

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

December 31, 2018

On Demand or Less Than 1 Year Non-derivative financial liabilities Non-interest bearing $ 1,749,123 Variable interest rate instrument 30,000 Fixed interest rate instrument - Financial guarantee contracts 9,237 $ 1,788,360	1 to 3 Years Over 3 Years $ - $ - 50,000 - 1,098,929 - - - $ 1,148,929 $ -	Total $ 1,749,123 80,000 1,098,929 9,237 $ 2,937,289

• 50 -

December 31, 2017

On Demand or Less Than 1 Year Non-derivative financial liabilities Non-interest bearing $ 1,505,964 Variable interest rate instrument - Fixed interest rate instrument 100,000 Financial guarantee contracts 11,908 $ 1,617,872 Financing facilities Unsecured bank facilities: Amount used Amount unused Secured bank facilities: Amount used Amount unused	1 to 3 Years Over 3 Years Total $ - $ - $ 1,505,964 130,000 - 130,000 - 998,453 1,098,453 8,931 - 20,839 $ 138,931 $ 998,453 $ 2,755,256 For the Year Ended December 31 2018 2017 $ - $ - 184,740 178,620 $ 184,740 $ 178,620 $ 180,000 $ 230,000 1,687,120 1,609,405 $ 1,867,120 $ 1,839,405	1 to 3 Years Over 3 Years Total $ - $ - $ 1,505,964 130,000 - 130,000 - 998,453 1,098,453 8,931 - 20,839 $ 138,931 $ 998,453 $ 2,755,256 For the Year Ended December 31 2018 2017 $ - $ - 184,740 178,620 $ 184,740 $ 178,620 $ 180,000 $ 230,000 1,687,120 1,609,405 $ 1,867,120 $ 1,839,405	1 to 3 Years Over 3 Years Total $ - $ - $ 1,505,964 130,000 - 130,000 - 998,453 1,098,453 8,931 - 20,839 $ 138,931 $ 998,453 $ 2,755,256 For the Year Ended December 31 2018 2017 $ - $ - 184,740 178,620 $ 184,740 $ 178,620 $ 180,000 $ 230,000 1,687,120 1,609,405 $ 1,867,120 $ 1,839,405	1 to 3 Years Over 3 Years Total $ - $ - $ 1,505,964 130,000 - 130,000 - 998,453 1,098,453 8,931 - 20,839 $ 138,931 $ 998,453 $ 2,755,256 For the Year Ended December 31 2018 2017 $ - $ - 184,740 178,620 $ 184,740 $ 178,620 $ 180,000 $ 230,000 1,687,120 1,609,405 $ 1,867,120 $ 1,839,405	Total $ 1,505,964 130,000 1,098,453 20,839 $ 2,755,256 December 31
			2018 $ - 184,740 $ 184,740 $ 180,000 1,687,120 $ 1,867,120	2017 $ - 178,620 $ 178,620 $ 230,000 1,609,405 $ 1,839,405

b) Financing facilities

24. RELATED-PARTY TRANSACTIONS

• a. Names and relationships of the related parties

Related Party Relationship with the Company Phihong USA Corp. (“PHA”) Subsidiary Phihong International Corp. (“PHI”) Subsidiary Phihong Technology Japan Co., Ltd. (“PHJ”) Subsidiary Phihong (Dongguan) Electronics Co., Ltd. (“PHC”) Subsidiary Dongguan Phitek Electronics Ltd. (“PHP”) Subsidiary Phihong Electronics (Suzhou) Co., Ltd. (“PHZ”) Subsidiary Jin-Sheng Hong (Jiangxi) Electronics Co., Ltd. (“PHE”) Subsidiary Dongguan Shuang-Ying Electronics Co., Ltd. (“PHSY”) Subsidiary Yanghong Trading (Shanghai) Co., Ltd. (“Yanghong”) Subsidiary Peter Lin The Company’s chairman Spring City Resort Co., Ltd. Other related parties Hua Jung Co., Ltd. Other related parties Hong Ding Educational Technology Co., Ltd. Other related parties Heng Hui Co., Ltd. Other related parties Yao Yu Design Co., Ltd. Other related parties Dongguan Song Xiang Metal Product Co., Ltd Other related parties

• 51 -

b. Trading transactions

Sales Subsidiaries PHA Others Other related parties	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 3,068,359 433,243 3,501,602 - $ 3,501,602	2017 $ 3,362,375 508,652 3,871,027 558 $ 3,871,585

The prices of the finished goods sold by the Company are negotiated in consideration of the product type, cost and market price, etc.

Purchase of goods Subsidiaries PHC Others	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 7,518,931 28,927 $ 7,547,858	2017 $ 7,180,789 15,624 $ 7,196,413

The prices of the finished goods purchased by the Company are negotiated in consideration of the product type, cost and market price, etc.

Receivables from related parties Subsidiaries PHA PHJ Others Other related parties Payables to related parties Other related parties Heng Hui Co., Ltd. Hua Jung Co., Ltd		December 31	December 31
		2018 $ 178,643 50,003 1,168 229,814 - $ 229,814 $ 243 52 $ 295	2017 $ 235,616 20,644 7,960 264,220 9 $ 264,229 $ 492 17 $ 509

• 52 -

Other receivable from related parties Subsidiaries PHC PHP PHA Others Other related parties		**December 31 **	**December 31 **
		2018 $ 83,378 110,599 25,435 638 220,050 - $ 220,050	2017 $ 242,242 179,596 12,227 9,016 443,081 3 $ 443,084

Other receivables were the Company’s temporary payments for materials procured on behalf of related parties.

Other payable to related parties Other related parties Heng Hui Co., Ltd. Others		December 31	December 31
		2018 $ 48,085 5,943 $ 54,028	2017 $ 44,097 5,941 $ 50,038

Other payables were the temporary payments for materials procurement made by related parties on behalf of the Company.

Endorsements and guarantees

Endorsements and guarantees provided by the Company

Subsidiaries PHI Amount endorsed Amount utilized PHA Amount endorsed Amount utilized		**December 31 **	**December 31 **
		2018 $ 36,948 $ 9,237 $ 153,950 $ -	2017 $ 35,724 $ 20,839 $ 148,850 $ -

• 53 -

c. Compensation of key management personnel

The types and amounts of the remuneration of directors and other members of key management personnel were as follows:

Short-term benefits Post-employment benefits Share-based payments	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 20,215 432 - $ 20,647	2017 $ 31,656 540 938 $ 33,134

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

d. Other transactions with related parties

The Company’s chairman has guaranteed the payments of the loans of the Company. As of December 31, 2018 and 2017, the amounts of the guarantees were $1,178,929 thousand and $1,228,453 thousand, respectively.

25. ASSETS PLEDGED AS COLLATERAL OR FOR SECURITY

The following assets were provided as collateral for bank borrowings and secured domestic bonds:

Pledge deposits Freehold land Buildings		**December 31 **	**December 31 **
		2018 $ 25,450 185,202 310,831 $ 521,483	2017 $ 25,450 185,202 319,281 $ 529,933

26. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS

The Company’s unrecognized commitments were as follows:

Acquisition of property, plant and equipment		**December 31 **	**December 31 **
		2018 $ 194,775	2017 $ -

27. SIGNIFICANT EVENTS AFTER REPORTING PERIOD

On November 9, 2018, the board of directors of the Company approved to establish a subsidiary in Vietnam. To meet the demand for funds, the Company will invest capital in stages following the investment process. The Company acquired the business license on February 16, 2019, and established a Vietnamese subsidiary, Phihong Vietnam Company Limited. The registered capital is US$10,000 thousand, and the Company’s shareholding ratio is 100%. As of March 15, 2019, the Company has invested $207,615 thousand (or US$6,728 thousand).

• 54 -

28. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

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

December 31, 2018

		Foreign
	Currencies			Carrying
	(In	Thousands)	Exchange Rate	Amount
Financial assets
Monetary items
USD	$	62,522	30.79000	$ 1,925,061
CNY		46,751	4.46918	208,941
Non-monetary items
Investments accounted for by the equity
method
USD		31,640	30.79000	974,201
JPY		491,551	0.27696	136,140
Financial liabilities
Monetary items
USD		44,343	30.79000	1,359,765
December 31, 2017
		Foreign
	Currencies			Carrying
	(In	Thousands)	Exchange Rate	Amount
Financial assets
Monetary items
USD	$	70,260	29.77000	$ 2,091,641
CNY		6,417	4.55115	29,203
Non-monetary items
Investments accounted for by the equity
method
USD		142,676	29.77000	4,247,471
JPY		462,338	0.26300	121,595
Financial liabilities
Monetary items
USD		39,301	29.77000	1,167,341

Note: Exchange rate represents the amount of New Taiwan dollars for which one foreign currency could be exchanged.

• 55 -

29. SEPARATELY DISCLOSED ITEMS

• a. Information about significant transactions and investees:

• 1) Financing provided to others. (Table 1)

• 2) Endorsements/guarantees provided. (Table 2)

• 3) Marketable securities held (excluding investment in subsidiaries, associates and joint ventures). (Table 3)

• 4) Marketable securities acquired and disposed of at costs or prices of at least NT$300 million or 20% of the paid-in capital. (Table 4)

• 5) Acquisition of individual real estate at costs of at least NT$300 million or 20% of the paid-in

  • capital. (None)

• 6) Disposal of individual real estate at prices of at least NT$300 million or 20% of the paid-in capital. (Table 5)

• 7) Total purchases from or sales to related parties amounting to at least NT$100 million or 20% of the paid-in capital. (Table 6)

• 8) Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in capital. (Table 7)

• 9) Trading in derivative instruments. (None)

• 10) Information on investees. (Table 8)

• b. Information on investments in mainland China

• 1) Information on any investee company in mainland China, showing the name, principal business activities, paid-in capital, method of investment, inward and outward remittance of funds, ownership percentage, net income of investees, investment income or loss, carrying amount of the investment at the end of the period, repatriations of investment income, and limit on the amount of investment in the mainland China area. (Table 9)

• 2) Any of the following significant transactions with investee companies in mainland China, either directly or indirectly through a third party, and their prices, payment terms, and unrealized gains or losses: (Table 10)

  • a) The amount and percentage of purchases and the balance and percentage of the related payables at the end of the period.

  • b) The amount and percentage of sales and the balance and percentage of the related receivables at the end of the period.

  • c) The amount of property transactions and the amount of the resultant gains or losses.

  • d) The balance of negotiable instrument endorsements or guarantees or pledges of collateral at the end of the period and the purposes.

  • e) The highest balance, the end of period balance, the interest rate range, and total current period interest with respect to financing of funds.

• 56 -

• f) Other transactions that have a material effect on the profit or loss for the period or on the financial position, such as the rendering or receiving of services.

30. SEGMENT INFORMATION

The Company provided the operating segments disclosure in the consolidated financial statements for the year ended December 31, 2018.

• 57 -

TABLE 1

PHIHONG TECHNOLOGY CO., LTD. AND SUBSIDIARIES

FINANCING PROVIDED TO OTHERS FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

No. (Note 1)	Lender	Borrower	Financial Statement Account	Related Party	Highest Balance for the Period	Ending Balance	Actual Borrowing Amount	Interest Rate	Nature of Financing (Note 2)	Business Transaction Amount	Reasons for Short-term Financing	Allowance for Impairment Loss	Co	**llateral **	Financing Limit for Each Borrower (Notes 3 and 4)	Aggregate Financing Limit (Notes 3 and 4)	Note
													Item	Value
1	Phihong (Dongguan) Electronics Co., Ltd.	Dongguan Phitek Electronics Co., Ltd.	Other receivables from related parties	Yes	$ 1,027,911 (CNY 230,000,000 )	$ 446,918 (CNY 100,000,000 )	$ -	4.35%	b	$ -	Capital movement	$ -	-	$ -	$ 1,652,005	$ 1,652,005
2	Phihong International Corp.	Phihong (Dongguan) Electronics Co., Ltd.	Other receivables from related parties	Yes	36,948 (US$ 1,200,000 )	36,948 (US$ 1,200,000 )	9,237	5.00%	b	-	Capital movement	-	-	-	3,197,805	3,197,805
3	Phihong Electronics (Suzhou) Co., Ltd.	Dongguan Phitek Electronics Co., Ltd. Phihong (Dongguan) Electronics Co., Ltd.	Other receivables from related parties Other receivables from related parties	Yes Yes	1,139,642 (CNY 255,000,000 ) 312,843 (CNY 70,000,000 )	759,761 (CNY 170,000,000 ) 312,843 (CNY 70,000,000 )	759,761 -	4.35% 4.35%	b b	- -	Capital movement Capital movement	- -	- -	- -	1,581,764 1,581,764	1,581,764 1,581,764

• Note 1: The parent company and its subsidiaries are coded as follows:

• a. The parent company is coded “0”.

• b. The subsidiaries are coded consecutively beginning from “1” in the order presented in the table above.

• Note 2: Reasons for financing are as follows:

• a. Business relationship.

• b. The need for short-term financing.

Note 3: According to the Company’s policy, the aggregated financing amount provided to others shall not exceed 40% of its net worth, which is based on the latest audited or reviewed parent-company-only financial statements. The maximum amount permitted to a single borrower is listed based on the types of financing reasons as follow:

• a. Business relationship: Each of the financing amounts shall not exceed the higher amount of the total purchases from or sales to a borrower in the most recent year or in the current year.

• b. The need for short-term financing: Each of the financing amounts shall not exceed 20% of the Company’s net worth, which is based on the latest audited or reviewed parent-company-only financial statements.

Note 4: The aggregate financing amount between subsidiaries shall not exceed the net worth of the lending subsidiary’s latest financial statements, according to the subsidiary’s procedures for the management of loans to others.

• 58 -

TABLE 2

PHIHONG TECHNOLOGY CO., LTD. AND SUBSIDIARIES

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

No. (Note 1)	Endorser/Guarantor	Endorsee/Guarantee	Endorsee/Guarantee	Limit on Endorsement/ Guarantee Given on Behalf of Each Party (Notes 2 and 3)	Maximum Amount Endorsed/ Guaranteed During the Period	Outstanding Endorsement/ Guarantee at the End of the Period	Actual Borrowing Amount	Amount Endorsed/ Guaranteed by Collateral	Ratio of Accumulated Endorsement/ Guarantee to Net Equity in Latest Financial Statements (%)	Aggregate Endorsement/ Guarantee Limit (Notes 2 and 3)	Endorsement/ Guarantee Given by Parent on Behalf of Subsidiaries	Endorsement/ Guarantee Given by Subsidiaries on Behalf of Parent	Endorsement/ Guarantee Given on Behalf of Companies in Mainland China	Note
		Name	Relationship
0	Phihong Technology Co., Ltd.	Phihong International Corp. Phihong USA Corp.	Subsidiary of the Company Subsidiary of the Company	$ 1,530,208 1,530,208	$ 36,948 (US$ 1,200,000) 153,950 (US$ 5,000,000)	$ 36,948 (US$ 1,200,000) 153,950 (US$ 5,000,000)	$ 9,237 -	$ - -	0.73 3.02	$ 2,550,347 2,550,347	Y Y	N N	N N
1	Phihong (Dongguan) Electronics Co., Ltd.	Dongguan Phitek Electronics Co., Ltd.	Sister company	1,652,005	223,459 (CNY50,000,000)	223,459 (CNY50,000,000)	-	-	13.53	1,652,005	N	N	Y

• Note 1: The parent company and its subsidiaries are coded as follows:

• a. The parent company is coded “0”.

• b. The subsidiaries are coded consecutively beginning from “1” in the order presented in the table above.

• Note 2: According to the Company’s procedures for the Management of Endorsements and Guarantees, the aggregate amount of endorsements/guarantees provided by the Company shall not exceed 50% of its net worth. Meanwhile, the amount of endorsements/guarantees provided by the Company for any single entity shall not exceed 30% of the Company’s net worth. The net worth is based on the Company’s latest parent-company-only financial statements.

• Note 3: According to the Company’s subsidiary to subsidiary procedures for the Management of Endorsements and Guarantees, the aggregate amount of endorsements/guarantees between subsidiaries shall not exceed the endorser/guarantor’s net worth, which is based on the latest financial statements.

Note 4: On May 6, 2016, the board of directors approved that the Company’s endorsements/guarantees amount to its subsidiary Phihong International Corp. is US$1.2 million.

Note 5: On August 11, 2017, the board of directors approved that the Company’s endorsements/guarantees amount to its subsidiary Phihong USA Corp. is US$5 million.

Note 6: On August 30, 2018, the board of directors approved that Phihong (Dongguan) Electronics Co., Ltd.’s endorsements/guarantees amount to Dongguan Phitek Electronics Co., Ltd. is CNY50 million.

• 59 -

TABLE 3

PHIHONG TECHNOLOGY CO., LTD. AND SUBSIDIARIES

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

Holding Company Name	Type and Name of Marketable Securities	Relationship with the Holding Company	Financial Statement Account		December 31, 2018	December 31, 2018		Note
				Number of Shares	Carrying Amount	Percentage of Ownership (%)	Fair Value
Phihong Technology Co., Ltd. Guang-Lai Investment Co., Ltd. Phihong (Dongguan) Electronics Co., Ltd. Phihong Electronics (Suzhou) Co., Ltd.	Ordinary shares Pao- Dian Venture Capital Co., Ltd. Zhong-Xuan Venture Capital Co., Ltd. Ordinary shares Yong-Li Investment Co., Ltd. Taiwan Cultural & Creativity No. 1 Co., Ltd. Fund Agricultural Bank of China Ben-Li-Feng Financial Products Fund Shanghai Pudong Development Bank Principal and Income Protected Financial Products	None None None None None None	Financial assets at FVTOCI - non-current Financial assets at FVTOCI - non-current Financial assets at FVTOCI - non-current Financial assets at FVTOCI - non-current Financial assets at FVTPL - current Financial assets at FVTPL - current	270,565 2,500,000 403,226 3,000,000 15,000,000 52,900,000	$ 3,163 26,359 - 7,798 67,516 236,420	10.49 8.62 8.06 10.83 - -	$ 3,163 26,359 - 7,798 67,516 236,420

Note 1: The marketable securities stated here is related to shares debentures and beneficiary certificates and the derivative products caused by those of “IFRS 9 Financial Instruments”.

Note 2: For information on the investments in subsidiaries and associates, refer to Tables 8 and 9.

• 60 -

TABLE 4

PHIHONG TECHNOLOGY CO., LTD. AND SUBSIDIARIES

MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$300 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Company Name	Type and Name of Marketable Securities(Note 1)	Financial Statement Account	Counterparty (Note 2)	Relationship (Note 2)	Beginning Balance	Beginning Balance	Acquisition (Note 3)	Acquisition (Note 3)		Disposal (Note 3)	Disposal (Note 3)		**Ending **	Balance
					Number of Shares	Amount	Number of Shares	Amount	Number of Shares	Amount	Carrying Amount	Gain (Loss) on **Disposal **	Number of Shares	Amount
Phihong (Dongguan) Electronics Co., Ltd. Dongguan Phitek Electronics Co., Ltd. Phihong Electronics (Suzhou) Co., Ltd.	CR Yuanta Fund Agricultural Bank of China Ben-Li-Feng Financial Products CR Yuanta Fund Agricultural Bank of China Ben-Li-Feng Financial Products CR Yuanta Fund Shanghai Pudong Development Bank Principal and Income Protected Financial Products	Financial assets at FVTPL - current Financial assets at FVTPL - current Financial assets at FVTPL - current Financial assets at FVTPL - current Financial assets at FVTPL - current Financial assets at FVTPL - current	Noah Upright (Shanghai) Fund Investment Agricultural Bank of China Noah Upright (Shanghai) Fund Investment Agricultural Bank of China Noah Upright (Shanghai) Fund Investment Shanghai Pudong Development Bank	None None None None None None	- - - - - -	$ - - - - - -	68,000,000 205,000,000 85,500,000 472,000,000 114,500,000 92,550,000	$ 315,976 (CNY 68,000,000 ) 917,483 (CNY205,107,029 ) 395,960 (CNY 85,500,000 ) 2,121,194 (CNY472,000,000 ) 450,781 (CNY114,500,000 ) 414,447 (CNY 92,550,000 )	68,000,000 190,000,000 85,500,000 472,000,000 114,500,000 39,650,000	$ 317,394 (CNY 68,312,296 ) 852,643 (CNY190,601,115 ) 396,326 (CNY 85,579,478 ) 2,125,103 (CNY472,874,484 ) 452,218 (CNY114,811,103 ) 179,265 (CNY 39,926,826 )	$ 315,976 (CNY 68,000,000 ) 849,967 (CNY190,000,000 ) 395,960 (CNY 85,500,000 ) 2,121,194 (CNY472,000,000 ) 450,781 (CNY114,500,000 ) 178,027 (CNY 39,650,000 )	$ 1,418 (CNY 312,296 ) 2,676 (CNY 601,115 ) 366 (CNY 79,478 ) 3,909 (CNY 874,484 ) 1,437 (CNY 311,103 ) 1,238 (CNY 276,826 )	- 15,000,000 - - - 52,900,000	$ - 67,516 (CNY 15,107,029 ) - - - 236,420 (CNY 52,900,000 )

Note 1: The marketable securities stated here include shares, debentures and beneficiary certificates and the derivative products caused by those.

Note 2: Investors whose marketable securities accounted for using the equity method are required to be disclosed.

Note 3: The marketable securities acquired and disposed of shall be calculated separately at market value in order to determine whether the amount reaches $300 million or 20% of the paid-in capital.

Note 4: The paid-in capital amount is the paid-in capital of the parent company. If the issued share has no face value or the face value is not NT$10 per share, in regard to the 20% of the paid-in capital transaction rule, then the marketable securities acquired and disposed of shall be calculated separately at market value in order to determine whether the amount reaches 10% of the equity attributable to owners of the Company.

• 61 -

TABLE 5

PHIHONG TECHNOLOGY CO., LTD. AND SUBSIDIARIES

DISPOSAL OF INDIVIDUAL REAL ESTATE AT PRICES OF AT LEAST $300 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Seller	Property	Event Date	Original Acquisition Date	Carrying Amount	Transaction Amount	Collection	Gain (Loss) on Disposal	Counterparty	Relationship	Purpose of Disposal	Price Reference	Other Terms
Phihong Electronics (Suzhou) Co., Ltd.	Plant and land use right in Suzhou	December 1, 2017 (Note 1)	May 2007	$ 945,421 (CNY 211,427,020)	$ 1,045,788 (CNY 234,000,000)	Full collection	$ 68,394 (Note 2)	Suzhou Gaoxin District Fengqiao Industrial Co., Ltd.	Non-related party	Disposal of idle assets	Professional certification report and market price	-

Note 1: The contract date.

Note 2: Deduction of estimated relevant expenses and after-tax costs.

• 62 -

TABLE 6

PHIHONG TECHNOLOGY CO., LTD. AND SUBSIDIARIES

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

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

Buyer	Related Party	Relationship		Transaction	Transaction	Details	Abnormal Transaction	Abnormal Transaction	Notes/Accounts Receivable (Payable)	Notes/Accounts Receivable (Payable)	Note
			Purchase/ Sale	Amount	% to Total	Payment Terms	Unit Price	Payment Terms	Ending Balance	% to Total
Phihong Technology Co., Ltd. Phihong USA Corp. Phihong Technology Japan Co., Ltd. Phihong (Dongguan) Electronics Co., Ltd.	Phihong USA Corp. Phihong Technology Japan Co., Ltd. Phihong (Dongguan) Electronics Co., Ltd. Phihong Technology Co., Ltd. Phihong Technology Co., Ltd. Phihong Technology Co., Ltd.	Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Parent entity Parent entity Parent entity	Sale Sale Purchase Purchase Purchase Sale	$ (3,068,359) (412,675) 7,518,931 3,068,359 412,675 (7,518,931)	(37.66) (5.07) 99.62 100.00 88.54 (98.26)	No significant difference No significant difference No significant difference No significant difference No significant difference No significant difference	- - - - - -	- - - - - -	$ 178,643 50,003 - (178,643) (50,003) -	16.39 4.59 - (84.08) (99.03) -

• 63 -

TABLE 7

PHIHONG TECHNOLOGY CO., LTD. AND SUBSIDIARIES

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

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

Company Name	Related Party	Relationship	Financial Statement Account and Ending Balance	Turnover Rate		Overdue	Amount Received in Subsequent Period	Allowance for Impairment Loss
					Amount	Actions Taken
Phihong Technology Co., Ltd. Phihong Electronics (Suzhou) Co., Ltd.	Phihong USA Corp. Dongguan Phitek Electronics Co., Ltd. Dongguan Phitek Electronics Co., Ltd.	Subsidiary of the Company Subsidiary of the Company Sister Company	Trade receivables of $178,643 Other receivables of $110,599 Other receivables of $782,649	14.81 - -	$ - - -	- - -	$ 178,637 65,803 507,953	$ - - -

• 64 -

TABLE 8

PHIHONG TECHNOLOGY CO., LTD. AND SUBSIDIARIES

INFORMATION ON INVESTEES FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Investor Company	Investee Company	Location	Main Businesses and Products	Original Investment Amount	Original Investment Amount	As of December 31, 2018	As of December 31, 2018	As of December 31, 2018	Net Income (Loss) of the Investee	Share of Profit (Loss)	Note
				December 31, 2018	December 31, 2017	Shares	%	Carrying Amount
Phihong Technology Co Ltd Phihong International Corp. Guang-Lai Investment Co., Ltd.	Phihong International Corp. Phihong USA Corp. Phitek International Co., Ltd. Ascent Alliance Ltd. Guang-Lai Investment Co., Ltd. Hao-Xuan Venture Capital Co., Ltd. H&P Venture Capital Co., Ltd. Phihong Technology Japan Co., Ltd. N-Lighten Technologies, Inc. Spring City Resort Co., Ltd. Han-Yu Venture Capital Co., Ltd. N-Lighten Technologies, Inc.	British Virgin Islands California, USA British Virgin Islands British Virgin Islands Taiwan Taiwan Taiwan Japan California, USA Taiwan Taiwan California, USA	Makes investments Sells various power supplies Makes investments Makes investments Makes investments Makes investments Makes investments Sells power components Makes investments Hotel and restaurant Makes investments Makes investments	$ 3,448,270 207,203 314,956 352,043 139,758 - 31,707 191,738 (JPY 550,000,000) 409,851 190,000 100,000 206,084	$ 3,386,218 207,203 314,956 424,619 139,758 18,253 31,707 191,738 (JPY 550,000,000) 409,851 190,000 100,000 206,084	111,061,351 3,100,000 10,200,000 12,012,600 13,975,828 - 3,170,682 7,000 110,834,223 2,837,343 10,000,000 37,498,870	100.00 100.00 100.00 100.00 100.00 - 32.26 100.00 58.45 25.33 22.22 19.78	$ 3,166,809 974,201 (181,707) 190,997 130,895 - 47,489 136,140 (25,752) 21,232 81,791 (8,715)	$ 48,610 36,905 (94,807) (59,413) (8,250) - 29,751 10,090 (88) (21,916) (16,351) (88)	$ 47,506 36,905 (95,523) (58,542) (8,250) - 12,246 10,090 (51) (5,208) (3,030) (17)	Hao Xuan Venture Capital Co., Ltd. was put into liquidation in January 2018 Phihong International Corp. and Guang-Lai Investment Co., Ltd. holds 78.23% Phihong International Corp. and Guang-Lai Investment Co., Ltd. holds 78.23%

Note: Information on investees in mainland China, refer to Table 9.

• 65 -

TABLE 9

PHIHONG TECHNOLOGY CO., LTD. AND SUBSIDIARIES

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

Investee Company	Main Businesses and Products	Paid-in Capital	Method of Investment	Accumulated Outward Remittance for Investment from Taiwan as of January 1, 2018	Remittance of Funds	Remittance of Funds	Accumulated Outward Remittance for Investment from Taiwan as of December 31, 2018	Net Income (Loss) of the Investee	% Ownership of Direct or Indirect Investment	Investment Gain (Loss) (Note 4)	Carrying Amount as of December 31, 2018	Accumulated Repatriation of Investment Income as of December 31, 2018	Note
					Outward	Inward
Phihong (Dongguan) Electronics Co., Ltd. Phitek (Tianjin) Electronics Co., Ltd. Phihong Electronics (Suzhou) Co., Ltd. Yanghong Trade (Shanghai) Co., Ltd. Dongguan Phitek Electronics Co., Ltd. Dongguan Shuang-Ying Electronics Co., Ltd. Jin-Sheng-Hong (Jiangxi) Electronics Co., Ltd. N-Lighten (Shanghai) Trading Inc.	Manufactures and sells various power supplies Manufactures and sells various power supplies Manufactures and sells various power supplies Sells various lighting and power supplies Manufactures and sells various power supplies Manufactures and sells electronic materials Manufactures and sells electronic materials Develops, manufactures and sells various equipment and monitors	$ 1,813,724 (HK$ 451,600,000) - 1,343,033 (US$ 40,600,000) 26,291 (US$ 880,000) 362,042 (US$ 11,500,000) 39,678 (HK$ 9,000,000) 360,124 (US$ 11,500,000) -	Indirect investment in mainland China through PHI Indirect investment in mainland China through PHI Indirect investment in mainland China through PHI Indirect investment in mainland China through PHI Indirect investment in mainland China through PHK Indirect investment in mainland China through PHQ Indirect investment in mainland China through PHQ Indirect investment in mainland China through N-Lighten	$ 1,677,679 (HK$ 419,000,000) 25,327 (US$ 255,127) 1,343,033 (US$ 40,600,000) 63,934 (US$ 2,140,000) 315,258 (US$ 10,000,000) 39,678 (HK$ 9,000,000) 360,124 (US$ 11,500,000) 387,406 (US$ 12,366,400)	$ - - - - - - - -	$ - - - - - - - -	$ 1,677,679 (HK$ 419,000,000) 25,327 (US$ 255,127) 1,343,033 (US$ 40,600,000) 63,934 (US$ 2,140,000) 315,258 (US$ 10,000,000) 39,678 (HK$ 9,000,000) 360,124 (US$ 11,500,000) 387,406 (US$ 12,366,400)	$ (8,430) - 143,978 (8,518) (94,898) 13,928 (65,240) -	100.00 - 100.00 100.00 100.00 100.00 100.00 -	$ (8,430) - 143,978 (8,518) (94,898) 13,928 (65,240) -	$ 1,652,005 - 1,581,764 3,790 (184,962) 70,473 118,618 -	$ - - - - - - - -	Note 1 Note 2 Note 3

Note 1: Phitek (Tianjin) Electronics Co., Ltd. was put into liquidation on March 24, 2017.

Note 2: Phihong Electronics (Suzhou) Co., Ltd. merged with Phihong Electronics (Shanghai) Co., Ltd., with Phihong Electronics (Suzhou) Co. as the surviving entity. The merger took effect on January 23, 2007. The surviving company was officially renamed as Phihong Electronics (Suzhou) Co., Shanghai Branch on February 27, 2007. Hence, the initial investment of US$3 million in Phihong Electronics (Shanghai) Co., Ltd. was merged into Phihong Electronics (Suzhou) Co.

Note 3: N-Lighten (Shanghai) Trading Inc. was put into liquidation on June 18, 2015.

Note 4: The amount was recognized based on audited financial statements.

Note 5: The foreign currencies in this table are converted into New Taiwan dollars using exchange rates of the investment date, except for income and expense items which are translated at the average exchange rates for the period.

(Continued)

• 66 -

Accumulated Outward Remittance for Investment in Mainland China as of December 31, 2018	Investment Amount Authorized by Investment Commission, MOEA	Upper Limit on the Amount of Investment Stipulated by Investment Commission, MOEA
$4,212,439	$4,967,615	Note

Note: In accordance with the provisions of the “Regulations Governing Permission for Investment or Technical Cooperation in the Mainland Area” passed on June 26, 2018, the Company has acquired the Business Operation Headquarter Certificate issued by the Industrial Development Bureau of the Ministry of Economic Affairs, which exempts the Company from the limitation of the amount of investment in mainland China.

(Concluded)

• 67 -

TABLE 10

PHIHONG TECHNOLOGY CO., LTD. AND SUBSIDIARIES

SIGNIFICANT TRANSACTIONS WITH INVESTEE COMPANIES IN MAINLAND CHINA, EITHER DIRECTLY OR INDIRECTLY THROUGH A THIRD PARTY, AND THEIR PRICES, PAYMENT TERMS, AND UNREALIZED GAINS OR LOSSES

FOR THE YEAR ENDED DECEMBER 31, 2018

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

Investee Company	Transaction Type	Purchase/Sale	Purchase/Sale	Price	Transaction Details	Transaction Details	Notes/Accounts Receivable (Payable)	Notes/Accounts Receivable (Payable)	Unrealized (Gain) Loss	Note
		Amount	%		Payment Term	Comparison with Normal **Transaction **	Ending Balance	%
Phihong (Dongguan) Electronics Co., Ltd.	Purchase	$ 7,518,931	99.62	No significant difference	No significant difference	-	$ -	-	$ -

• 68 -