PHIHONG — Audit Report / Information 2016

Nov 29, 2016

Phihong Technology Co., Ltd. and Subsidiaries

Consolidated Financial Statements for the Years Ended December 31, 2016 and 2015 and Independent Auditors’ Report

INDEPENDENT AUDITORS’ REPORT

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

Opinion

We have audited the accompanying consolidated financial statements of Phihong Technology Co., Ltd. (the “Company”) and its subsidiaries (the “Group”), which comprise the consolidated balance sheets as of December 31, 2016 and 2015, and the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2016 and 2015, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China.

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 Consolidated Financial Statements section of our report. We are independent of the Group 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 consolidated financial statements for the year ended December 31, 2016. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

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Key audit matters for the Group’s consolidated financial statements for the year ended December 31, 2016 are stated as follows:

Impairment of Property, Plant and Equipment and Intangible Assets

Description of the key audit matter:

As the end of December 31, 2016, carrying value of property, plant and equipment and intangible assets were $3,760,898 thousand, representing 32% of total assets. At the end of each reporting period, the Group reviews the carrying amount of property, plant and equipment and intangible assets, to determine whether there are any indication that the assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the assets is estimated in order to determine the extent of the impairment loss. Assessment of recoverable amount is subject to a number of assumptions and estimations; thus, it is defined as a key audit matter. Please refer to Notes 4, 14 and 16 for related disclosures.

Our audit procedures in respect of the key audit matter:

We carried out compliance tests to understand the Group’s process for impairment assessment and the design and implementation of its controls over the process. Moreover, we performed audit procedures as follows:

1. We obtained the Group’s valuation report of assets impairment.

2. We evaluated the rationality of management judgements on the existence of the indication of impairment and the assumptions of the assessment.

Recognition of Revenue from Sales of Power Supply Products

Description of the key audit matter:

The Group’s revenues are mainly contributed from sales of power supply products. For the year ended December 31, 2016, the revenue from sales of power supply products was $10,862,627 thousand, representing 96% of total revenues. Since the Group sold power supply products to clients in China, Americas and Europe, the complexity is increased in determining the timing of the transfer of the risks and rewards of ownership of the power supply products to the clients and whether the revenues are recorded appropriately. Due to the complexity, the recognition of revenue from sales of power supply products is defined as a key audit matter. Please refer to Notes 4 and 33 for related disclosures.

Our audit procedures in respect of the key audit matter:

We carried out compliance tests to understand the Group’s process for recognition of revenue from sales of power supply products and the design and implementation of its controls over the process. Moreover, we performed audit procedures as follows:

1. We performed substantive analytical procedures on the revenue from sales of power supply products.

2. We tested sample transactions of revenue from sales of power supply products to determine whether the timing of transfer of the risks and rewards of ownership of the power supply products matched the timing of revenue recognition.

Other Matter

We have also audited the parent company only financial statements of Phihong Technology Co., Ltd. as of and for the years ended December 31, 2016 and 2015 on which we have issued an unmodified opinion.

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

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

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

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

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

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

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

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

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

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

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

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

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

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

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements for the year ended December 31, 2016 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 Yi-Min Huang and Ker-Chang Wu.

Deloitte & Touche Taipei, Taiwan Republic of China

March 16, 2017

Notice to Readers

The accompanying consolidated financial statements are intended only to present the consolidated 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 consolidated financial statements are those generally applied in the Republic of China.

For the convenience of readers, the independent auditors’ report and the accompanying consolidated 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 consolidated financial statements shall prevail.

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PHIHONG TECHNOLOGY CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars)

ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 4 and 6) Financial assets at fair value through profit or loss - current (Notes 4 and 7) Trade receivables (Notes 4 and 9) Other receivables Inventories (Notes 4 and 10) Prepayment for lease (Notes 4 and 17) Non-current assets held for sale (Notes 4 and 11) Other financial assets - current (Note 6) Other current assets Total current assets NON-CURRENT ASSETS Financial assets measured at cost - non-current (Notes 4 and 8) Investments accounted for using equity method (Notes 4 and 13) Property, plant and equipment (Notes 4 and 14) Investment properties (Notes 4 and 15) Intangible assets (Notes 4 and 16) Deferred tax assets (Notes 4 and 24) Long-term prepayments for lease (Notes 4 and 17) Other non-current assets Other financial assets - non-current (Note 6) Total non-current assets TOTAL LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term borrowings (Note 18) Trade payables Trade payables to related parties (Note 28) Other payables (Note 20) Current tax liabilities (Notes 4 and 24) Current portion of long-term borrowings (Notes 18 and 19) Other current liabilities Total current liabilities NON-CURRENT LIABILITIES Bonds payable (Notes 4 and 19) Long-term borrowings (Note 18) Deferred tax liabilities (Notes 4 and 24) Accrued pension liabilities (Notes 4 and 21) Other non-current liabilities Total non-current liabilities Total liabilities EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY (Notes 4 and 22) Common stock Capital surplus Retained earnings Legal reserve Special reserve Unappropriated earnings (accumulated deficits) Total retained earnings Other equity Exchange differences on translating foreign operations Unrealized (loss) gain on available-for-sale financial assets Total other equity Total equity attributable to owners of the Company NON-CONTROLLING INTEREST Total equity TOTAL		2016 Amount % $ 1,312,763 11 406,411 4 2,663,732 23 93,657 1 1,503,403 13 3,530 - 11,471 - 586,543 5 123,668 1 6,705,178 58 44,759 1 262,337 2 3,728,732 32 581,307 5 32,166 - 50,700 1 133,247 1 39,201 - 25,450 - 4,897,899 42 $ 11,603,077 100 $ 96,840 1 2,960,386 25 71,883 1 858,568 7 75,269 1 1,176,838 10 193,291 2 5,433,075 47 997,977 8 22,596 - 79,832 1 87,953 1 7,061 - 1,195,419 10 6,628,494 57 2,776,884 24 1,026,456 9 1,113,185 9 230,859 2 (128,792) (1) 1,215,252 10 (91,443) (1) 57,450 1 (33,993) - 4,984,599 43 (10,016) - 4,974,583 43 $ 11,603,077 100		2015
				Amount % $ 1,489,934 13 147,522 1 2,262,853 20 57,530 1 1,555,586 14 3,987 - - - 375,723 3 130,636 1 6,023,771 53 69,615 1 278,503 3 4,121,639 36 668,178 6 40,538 - 45,976 - 153,778 1 45,591 - - - 5,423,818 47 $ 11,447,589 100 $ 98,580 1 2,405,829 21 61,232 - 852,660 7 72,036 1 76,288 1 88,534 1 3,655,159 32 1,266,468 11 702,576 6 79,832 1 83,016 1 4,048 - 2,135,940 19 5,791,099 51 2,776,884 24 1,026,456 9 1,113,185 10 230,859 2 177,165 1 1,521,209 13 294,758 3 47,351 - 342,109 3 5,666,658 49 (10,168) - 5,656,490 49 $ 11,447,589 100

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

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PHIHONG TECHNOLOGY CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars, Except Loss Per Share)

OPERATING REVENUES (Notes 4, 28 and 34) OPERATING COSTS (Notes 4, 10 and 28) GROSS PROFIT OPERATING EXPENSES Sales and marketing expenses General and administration expenses Research and development expenses Total operating expenses LOSS FROM OPERATIONS NONOPERATING INCOME (EXPENSES) Other income (Note 23) Other gains and losses (Notes 8, 19 and 23) Finance costs Share of the profit of associates (Notes 4 and 13) Total nonoperating income LOSS BEFORE INCOME TAX INCOME TAX EXPENSE (Notes 4 and 24) NET LOSS FOR THE YEAR OTHER COMPREHENSIVE INCOME (LOSS) Items that will not be reclassified subsequently to profit or loss: Remeasurement of defined benefit plans (Note 21) Income tax relating to items that will not be reclassified subsequently to profit or loss (Note 24)		2016 Amount % $ 11,352,243 100 9,984,005 88 1,368,238 12 762,736 7 440,348 4 473,677 4 1,676,761 15 (308,523) (3) 155,666 2 (79,730) (1) (34,360) - 4,980 - 46,556 1 (261,967) (2) (39,360) (1) (301,327) (3) (5,612) - 954 -		2015
				Amount % $ 11,123,315 100 10,112,614 91 1,010,701 9 650,203 6 509,904 4 468,364 4 1,628,471 14 (617,770) (5) 159,126 1 35,589 - (31,714) - (9,988) - 153,013 1 (464,757) (4) (47,047) - (511,804) (4) (7,092) - 1,206 - (Continued)

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PHIHONG TECHNOLOGY CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars, Except Loss Per Share)

Items that may be reclassified subsequently to profit or loss: Exchange differences on translating foreign operations (Note 22) Share of the other comprehensive income of associates accounted for using the equity method (Note 22) Total other comprehensive (loss) income TOTAL COMPREHENSIVE LOSS FOR THE YEAR NET LOSS ATTRIBUTABLE TO: Owners of the Company Non-controlling interests TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO: Owners of the Company Non-controlling interests LOSS PER SHARE (Note 25) Basic		2016 Amount % $ (386,021) (3) 10,099 - (380,580) (3) $ (681,907) (6) $ (301,299) (3) (28) - $ (301,327) (3) $ (682,059) (6) 152 - $ (681,907) (6) $ (1.09)		2015
				Amount % $ (48,480) (1) 84,550 1 30,184 - $ (481,620) (4) $ (508,566) (5) (3,238) - $ (511,804) (5) $ (481,114) (4) (506) - $ (481,620) (4) $ (1.83)
		$		$
		$		$
		$		$
		$		$
		$		$

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

(Concluded)

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PHIHONG TECHNOLOGY CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars)

BALANCE, JANUARY 1, 2015 Appropriation of the 2014 net income (Note 22) Legal reserve Cash dividend Net loss for the year ended December 31, 2015 Other comprehensive income (loss) for the year ended December 31, 2015, net of income tax Total comprehensive income (loss) for the year ended December 31, 2015 BALANCE, DECEMBER 31, 2015 Net loss for the year ended December 31, 2016 Other comprehensive income (loss) for the year ended December 31, 2016, net of income tax Total comprehensive income (loss) for the year ended December 31, 2016 BALANCE, DECEMBER 31, 2016		Equity Attributable to Owners of the Company	Equity Attributable to Owners of the Company	Non-controlling Total Interests $ 6,280,834 $ (9,662) - - (133,062) - (508,566) (3,238) 27,452 2,732 (481,114) (506) 5,666,658 (10,168) (301,299) (28) (380,760) 180 (682,059) 152 $ 4,984,599 $ (10,016)	Total Equity $ 6,271,172 - (133,062) (511,804) 30,184 (481,620) 5,656,490 (301,327) (380,580) (681,907) $ 4,974,583
	Common Stock Capital Surplus $ 2,776,884 $ 1,026,456 - - - - - - - - - - 2,776,884 1,026,456 - - - - - - $ 2,776,884 $ 1,026,456	Retained Earnings Unappropriated Earnings (Accumulated Legal Reserve Special Reserve Deficits) $ 1,098,401 $ 230,859 $ 839,463 14,784 - (14,784) - - (133,062) - - (508,566) - - (5,886) - - (514,452) 1,113,185 230,859 177,165 - - (301,299) - - (4,658) - - (305,957) $ 1,113,185 $ 230,859 $ (128,792)	Other Equity Exchange Unrealized Differences on Gain (Loss) on Translating Available- Foreign for-sale Operations Financial Assets $ 345,970 $ (37,199) - - - - - - (51,212) 84,550 (51,212) 84,550 294,758 47,351 - - (386,201) 10,099 (386,201) 10,099 $ (91,443) $ 57,450

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

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PHIHONG TECHNOLOGY CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM OPERATING ACTIVITIES Loss before income tax Adjustments for: (Reversal of impairment loss) impairment loss recognized on trade receivables Depreciation expense Amortization expense Net gain on fair value change of financial assets and financial liabilities designated as at fair value through profit or loss Finance costs Interest income Dividend revenue Share of (profit) loss of associates Gain on disposal of property, plant and equipment Loss (gain) on disposal of intangible assets Gain on disposal of investment Gain on buy-back of bonds payable Amortization of prepayments for lease Net changes in operating assets and liabilities Trade receivables Other receivables Inventories Other current assets Trade payables Trade payables to related parties Other payables Other current liabilities Reserve for retirement plan Cash generated from (used in) operating activities Interest paid Interest received Income tax paid Net cash generated from (used in) operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of financial assets at fair value through profit or loss Proceeds from sale of financial assets at fair value through profit or loss Purchase of financial assets measured at cost Proceeds from sale of financial assets measured at cost Payments for property, plant and equipment Proceeds from disposal of property, plant and equipment Payments for intangible assets Proceeds from disposal of intangible assets	2016 $ (261,967) (2,028) 367,435 17,301 (2,307) 34,360 (32,541) (16,932) (4,980) (5,650) 523 (30,845) (1,752) 3,786 (398,851) (23,420) 52,183 6,968 554,557 10,651 5,237 104,757 (675) 375,810 (13,232) 19,824 (39,897) 342,505 (250,239) - (25,000) 60,252 (231,530) 37,588 (10,523) 121	2015 $ (464,757) 1,003 386,509 16,421 (4,689) 31,714 (23,364) (5,542) 9,988 (37) (78) (14,474) (11,245) 3,963 (289,027) 50,226 80,722 21,775 159,624 (38,285) (205,021) (3,701) (114) (298,389) (6,895) 21,461 (72,249) (356,072) - 58,106 - - (735,591) 20,604 (11,587) 88 (Continued)

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PHIHONG TECHNOLOGY CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars)

Decrease in refundable deposits Purchase of other financial assets Increase in prepayments for equipment Dividend received Return of capital from investments accounted for using equity method Return of capital from investees of financial assets measured at cost Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from short-term borrowings Cash dividends paid to shareholders Proceeds from issue of convertible bonds Repayments of convertible bonds Proceeds from long-term borrowings Repayments of long-term borrowings Increase in guarantee deposits received Decrease in guarantee deposits received Payments for transaction costs attributable to issue of bonds payable Net cash generated from financing activities EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE OF CASH HELD IN FOREIGN CURRENCIES NET DECREASE 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	2016 $ 17,074 (236,270) (17,573) 21,490 26,687 14,106 (593,817) - - 1,000,000 (121,401) - (743,356) 3,013 - (2,380) 135,876 (61,735) (177,171) 1,489,934 $ 1,312,763	2015 $ 10,969 (375,723) - 15,325 89,670 23,126 (905,013) 98,580 (133,062) - (175,192) 778,864 - - (655) - 568,535 29,650 (662,900) 2,152,834 $ 1,489,934

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

(Concluded)

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PHIHONG TECHNOLOGY CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (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 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 over-the-counter (OTC) securities exchange in Taiwan. In September 2001, Phihong’s stocks ceased to be OTC traded and Phihong later obtained authorization to have its stocks listed on the Taiwan Stock Exchange.

The consolidated financial statements are presented in the Company’s functional currency, New Taiwan dollar.

2. APPROVAL OF FINANCIAL STATEMENTS

The consolidated financial statements were approved by the Company’s board of directors on March 16, 2017.

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

• a. 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) endorsed by the FSC for application starting from 2017.

Rule No. 1050050021 and Rule No. 1050026834 issued by the FSC stipulated that starting January 1, 2017, the Group should apply the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRS, IAS, IFRIC and SIC (collectively, the “IFRSs”) issued by the IASB and endorsed by the FSC for application starting from 2017.

New, Amended or Revised Standards and Interpretations (“New IFRSs”) Annual Improvements to IFRSs 2010-2012 Cycle Annual Improvements to IFRSs 2011-2013 Cycle Annual Improvements to IFRSs 2012-2014 Cycle Amendments to IFRS 10, IFRS 12 and IAS 28 “Investment Entities: Applying the Consolidation Exception” Amendment to IFRS 11 “Accounting for Acquisitions of Interests in Joint Operations” IFRS 14 “Regulatory Deferral Accounts” Amendment to IAS 1 “Disclosure Initiative”

Effective Date Announced by IASB (Note 1)

July 1, 2014 (Note 2) July 1, 2014 January 1, 2016 (Note 3) January 1, 2016 January 1, 2016 January 1, 2016 January 1, 2016 (Continued)

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New, Amended or Revised Standards and Interpretations (“New IFRSs”) Amendments to IAS 16 and IAS 38 “Clarification of Acceptable Methods of Depreciation and Amortization” Amendments to IAS 16 and IAS 41 “Agriculture: Bearer Plants” Amendment to IAS 19 “Defined Benefit Plans: Employee Contributions” Amendment to IAS 36 “Impairment of Assets: Recoverable Amount Disclosures for Non-financial Assets” Amendment to IAS 39 “Novation of Derivatives and Continuation of Hedge Accounting” IFRIC 21 “Levies”

Effective Date Announced by IASB (Note 1)

January 1, 2016 January 1, 2016 July 1, 2014 January 1, 2014 January 1, 2014 January 1, 2014 (Concluded)

• 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 amendment to IFRS 2 applies to share-based payment transactions with grant date on or after July 1, 2014; the amendment to IFRS 3 applies to business combinations with acquisition date on or after July 1, 2014; the amendment to IFRS 13 is effective immediately; the remaining amendments are effective for annual periods beginning on or after July 1, 2014.

• Note 3: The amendment to IFRS 5 is applied prospectively to changes in a method of disposal that occur in annual periods beginning on or after January 1, 2016; the remaining amendments are effective for annual periods beginning on or after January 1, 2016.

The initial application in 2017 of the above IFRSs and related amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers would not have any material impact on the Group’s accounting policies, except for the following:

• 1) Amendment to IFRS 5 “Non-Current Assets Held for Sale and Discontinued Operations”

IFRS 5 was amended by the Annual Improvements to IFRSs: 2012-2014 Cycle to clarify that reclassification between non-current assets (or disposal group) “held for sale” and non-current assets “held for distribution to owners” does not constitute a change to a plan of sale or distribution. Therefore, previous accounting treatment is not reversed. The amendment also explains that assets that no longer meet the criteria for “held for distribution to owners” and do not meet the criteria for “held for sale” should be treated in the same way as assets that cease to be classified as held for sale. The amendment will be applied prospectively to transactions that occur on or after January 1, 2017.

• 2) Amendment to IFRS 8 “Operating Segments”

IFRS 8 was amended by the Annual Improvements to IFRSs: 2010-2012 Cycle to require disclosure of the judgments made by management in applying the aggregation criteria to operating segments, including a description of the operating segments aggregated and the economic indicators assessed in determining whether the operating segments have “similar economic characteristics”. The amendment also clarifies that a reconciliation of the total of the reportable segments’ assets to the entity’s assets should only be provided if the segments’ assets are regularly provided to the chief operating decision-maker. The judgements made in applying aggregation criteria should be disclosed retrospectively upon initial application of the amendment in 2017.

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• 3) Amendments to IFRS 13 “Fair Value Measurement”

The basis for conclusions of IFRS 13 was amended by the Annual Improvements to IFRSs: 2010-2012 Cycle to clarify that when the amendment becomes effective in 2017, the short-term receivables and payables with no stated interest rate will be measured at their invoice amounts without discounting, if the effect of not discounting is immaterial. Otherwise, the material effect of discounting will be adjusted retrospectively.

IFRS 13 was also amended by the Annual Improvements to IFRSs: 2011-2013 Cycle to clarify that the scope in IFRS 13 of the portfolio exception for measuring the fair value of a group of financial assets and financial liabilities on a net basis includes all contracts that are within the scope of, and accounted for in accordance with, IAS 39 or IFRS 9, even if those contracts do not meet the definitions of financial assets or financial liabilities within IAS 32.

• 4) Amendment to IAS 19 “Employee Benefits”

IAS 19 was amended by the Annual Improvements to IFRSs: 2012 - 2014 Cycle to clarify that the depth of the market for high quality corporate bonds used to estimate discount rate for post-employment benefits should be assessed by the market of the corporate bonds denominated in the same currency as the benefits to be paid, i.e. assessed at currency level (instead of country or regional level).

• 5) Amendment to IAS 24 “Related Party Disclosures”

IAS 24 was amended by the Annual Improvements to IFRSs: 2010-2012 Cycle to clarify that a management entity providing key management personnel services to the Group is a related party of the Group. Consequently, the Group is required to disclose as related party transactions the amounts incurred for the service paid or payable to the management entity for the provision of key management personnel services. However, disclosure of the components of such compensation is not required.

• 6) Amendment to IAS 36 “Impairment of Assets”

The amendment “Disclosures for Non-financial Assets” clarifies that the recoverable amount of an asset or a cash-generating unit is disclosed only when an impairment loss on the asset has been recognized or reversed during the period.

• 7) Amendment to IAS 40 “Investment Property”

IAS 40 was amended by the Annual Improvements to IFRSs: 2011-2013 Cycle to clarify that IAS 40 and IFRS 3 are not mutually exclusive and application of both standards may be required to determine whether the investment property acquired is acquisition of an asset or a business combination. The amendment will be applied prospectively to acquisitions of investment property on or after January 1, 2017.

• 8) Amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers

The amendments include additions of several accounting items and requirements for disclosures of impairment of non-financial assets as a consequence of the IFRSs endorsed by the FSC for application starting from 2017. In addition, as a result of the post implementation review of IFRSs in Taiwan, the amendments also include emphasis on certain recognition and measurement considerations and additional requirements for disclosures of related party transactions and goodwill.

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The amendments stipulate that other companies or institutions of which the chairman of the board of directors or president serves as the chairman of the board of directors or the president, or is the spouse or second immediate family of the chairman of the board of directors or president of the Group are deemed to have a substantive related party relationship, unless it can be demonstrated that no control, joint control, or significant influence exists. Furthermore, the amendments require the disclosure of the names of the related parties and the relationship with whom the Group has significant transaction. If the transaction or balance with a specific related party is 10% or more of the Group’s respective total transaction or balance, such transaction should be separately disclosed by the name of each related party.

The amendments also require additional disclosure if there is a significant difference between the actual operation after business combination and the expected benefit on acquisition date.

The disclosures of related party transactions and impairment of goodwill will be enhanced when the above amendments are retrospectively applied in 2017.

Except for the above impacts, as of the date the consolidated financial statements were authorized for issue, the Group continues assessing other possible impacts that 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 Group’s financial position and financial performance, and will disclose these other impacts when the assessment is completed.

• b. New IFRSs in issue but not yet endorsed by the FSC

The Group has not applied the following IFRSs issued by the IASB but not yet endorsed by the FSC.

The FSC announced that IFRS 9 and IFRS 15 will take effect starting January 1, 2018. As of the date the consolidated financial statements were authorized for issue, the FSC has not announced the effective dates of other new IFRSs.

New IFRSs Annual Improvements to IFRSs 2014-2016 Cycle Amendment to IFRS 2 “Classification and Measurement of Share-based Payment Transactions” IFRS 9 “Financial Instruments” Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date of IFRS 9 and Transition Disclosures” Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture” IFRS 15 “Revenue from Contracts with Customers” Amendments to IFRS 15 “Clarifications to IFRS 15 Revenue from Contracts with Customers” IFRS 16 “Leases” Amendment to IAS 7 “Disclosure Initiative” Amendments to IAS 12 “Recognition of Deferred Tax Assets for Unrealized Losses” Amendments to IAS 40 “Transfers of Investment Property” IFRIC 22 “Foreign Currency Transactions and Advance Consideration”

Effective Date Announced by IASB (Note 1)

Note 2 January 1, 2018 January 1, 2018 January 1, 2018 To be determined by IASB January 1, 2018 January 1, 2018 January 1, 2019 January 1, 2017 January 1, 2017 January 1, 2018 January 1, 2018

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

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• Note 2: The amendment to IFRS 12 is retrospectively applied for annual periods beginning on or after January 1, 2017; the amendment to IAS 28 is retrospectively applied for annual periods beginning on or after January 1, 2018.

The initial application of the above New IFRSs, whenever applied, would not have any material impact on the Group’s accounting policies, except for the following:

• 1) IFRS 9 “Financial Instruments”

Recognition and measurement of financial assets

With regards to financial assets, all recognized financial assets that are within the scope of IAS 39 “Financial Instruments: Recognition and Measurement” are subsequently measured at amortized cost or fair value. Under IFRS 9, the requirement for the classification of financial assets is stated below.

For the Group’s debt instruments that have contractual cash flows that are solely payments of principal and interest on the principal amount outstanding, their classification and measurement are as follows:

• a) For debt instruments, if they are held within a business model whose objective is to collect the contractual cash flows, the financial assets are measured at amortized cost and are assessed for impairment continuously with impairment loss, if any, recognized in profit or loss. Interest revenue is recognized in profit or loss by using the effective interest method;

• b) For debt instruments, if they are held within a business model whose objective is achieved by both the collecting of contractual cash flows and the selling of financial assets, the financial assets are measured at fair value through other comprehensive income (FVTOCI) and are assessed for impairment. Interest revenue is recognized in profit or loss by using the effective interest method, and other gain or loss shall be recognized in other comprehensive income, except for impairment gains or losses and foreign exchange gains and losses. When the debt instruments are derecognized or reclassified, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss.

Except for the above, all other financial assets are measured at fair value through profit or loss. However, the Group may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognized in profit or loss. No subsequent impairment assessment is required, and the cumulative gain or loss previously recognized in other comprehensive income cannot be reclassified from equity to profit or loss.

Impairment of financial assets

IFRS 9 requires impairment loss on financial assets to be recognized by using the “Expected Credit Losses Model”. The credit loss allowance is required for financial assets measured at amortized cost, financial assets mandatorily measured at FVTOCI, lease receivables, contract assets arising from IFRS 15 “Revenue from Contracts with Customers”, certain written loan commitments and financial guarantee contracts. A loss allowance for the 12-month expected credit losses is required for a financial asset if its credit risk has not increased significantly since initial recognition. A loss allowance for full lifetime expected credit losses is required for a financial asset if its credit risk has increased significantly since initial recognition and is not low. However, a loss allowance for full lifetime expected credit losses is required for trade receivables that do not constitute a financing transaction.

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For purchased or originated credit-impaired financial assets, the Group takes into account the expected credit losses on initial recognition in calculating the credit-adjusted effective interest rate. Subsequently, any changes in expected losses are recognized as a loss allowance with a corresponding gain or loss recognized in profit or loss.

Transition

Financial instruments that have been derecognized prior to the effective date of IFRS 9 cannot be reversed to apply IFRS 9 when it becomes effective. Under IFRS 9, the requirements for classification, measurement and impairment of financial assets are applied retrospectively with the difference between the previous carrying amount and the carrying amount at the date of initial application recognized in the current period and restatement of prior periods is not required.

• 2) IFRS 15 “Revenue from Contracts with Customers” and related amendment

IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers, and will supersede IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number of revenue-related interpretations from January 1, 2018.

When applying IFRS 15, an entity shall recognize revenue by applying the following steps:

• Identify the contract with the customer;

• Identify the performance obligations in the contract;

• Determine the transaction price;

• Allocate the transaction price to the performance obligations in the contract; and

• Recognize revenue when the entity satisfies a performance obligation.

When IFRS 15 and related amendment are effective, an entity may elect to apply this Standard either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this Standard recognized at the date of initial application.

• 3) Amendment to IAS 12 “Recognition of Deferred Tax Assets for Unrealized Losses”

The amendment clarifies that the difference between the carrying amount of the debt instrument measured at fair value and its tax base gives rise to a temporary difference, even though there are unrealized losses on that asset, irrespective of whether the Group expects to recover the carrying amount of the debt instrument by sale or by holding it and collecting contractual cash flows.

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

• 4) Amendments to IAS 40 “Transfers of Investment Property”

The amendments clarify that the Group should transfer to, or from, investment property when, and only when, the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. In isolation, a change in management’s intentions for the use of a property does not provide evidence of a change in use. The amendments also clarify that the evidence of the change in use is not limited to those illustrated in IAS 40.

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The Group may elect to apply the amendments prospectively and reclassify the property as required to reflect the conditions that exist at the date of initial application. The Group is also required to disclose the reclassified amounts and such amounts should be included in the reconciliation of the carrying amount of investment property. Alternatively, the Group may elect to apply the amendments retrospectively if, and only if, that is possible without the use of hindsight.

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

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

The Group shall apply IFRIC 22 either retrospectively or prospectively to all assets, expenses and income in the scope of the Interpretation initially recognized on or after (a) the beginning of the reporting period in which the entity first applies IFRIC 22, or (b) the beginning of a prior reporting period presented as comparative information in the financial statements of the reporting period in which the entity first applies IFRIC 22.

Except for the above impact, as of the date the consolidated financial statements were authorized for issue, the Group is continuously assessing the possible impact that the application of other standards and interpretations will have on the Group’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 consolidated financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and IFRSs as endorsed and issued into effect by the FSC.

• b. Basis of preparation

The consolidated 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.

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

Current assets include:

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

• 2) Assets expected to be realized within 12 months after the reporting period; and

• 3) Cash and cash equivalents unless the asset is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period.

Current liabilities include:

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

• 2) Liabilities due to be settled within 12 months after the reporting period, even if an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the reporting period and before the consolidated financial statements are authorized for issue; and

• 3) Liabilities for which the Group does not have an unconditional right to defer settlement for at least 12 months after the reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

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

• d. Basis of consolidation

• Principles for preparing consolidated financial statements

The consolidated financial statements incorporate the financial statements of the Company and the entities controlled by the Company (i.e. its subsidiaries).

Income and expenses of subsidiaries acquired or disposed of during the period are included in the consolidated statement of profit or loss and other comprehensive income from the effective date of acquisition up to the effective date of disposal, as appropriate.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Company.

All intra-group transactions, balances, income and expenses are eliminated in full upon consolidation. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

See Note 12 for the detailed information of subsidiaries (including the percentage of ownership and main business).

• e. Foreign currencies

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

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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 on 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 case, the exchange differences are also recognized directly in other comprehensive income.

Non-monetary items that are measured at historical cost in a foreign currency are not retranslated.

For the purpose of presenting consolidated financial statements, the functional currencies of the Company and the Group entities (including subsidiaries, associates, joint ventures and branches in other countries that use currency different from the 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 (attributed to the owners of the Company and non-controlling interests as appropriate).

f. Inventories

Inventories consist of raw materials, supplies, finished goods and work-in-process and are stated at the lower of cost or net realizable value. Inventory write-downs are made by item, except where it may be appropriate to group similar or related items. 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.

g. Investments in associates

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

The Group 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 Group’s share of the profit or loss and other comprehensive income of the associate. The Group also recognizes the changes in the Group’s share of the equity of associates.

When the Group’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 by the equity method and long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognizing its share of further losses. Additional losses and liabilities are recognized only to the extent that the Group 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 deducted from 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 Group’s financial statements only to the extent of interests in the associate of parties that are not related to the Group.

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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 on 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.

• i. Investment properties

Investment properties are properties held to earn rentals and/or for capital appreciation. Investment properties also include land held for a currently undetermined future use.

Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are measured at cost less accumulated depreciation and accumulated impairment loss. Depreciation is recognized using the straight-line method.

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

• j. 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.

• k. Impairment of tangible and intangible assets

At the end of each reporting period, the Group 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 Group 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.

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The recoverable amount is the higher of fair value less costs to sell or 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.

l. Non-current assets held for sale

Non-current assets are classified as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the non-current asset is available for immediate sale in its present condition. To meet the criteria for the sale being highly probable, the appropriate level of management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within 1 year from the date of classification.

Non-current assets classified as held for sale are measured at the lower of their previous carrying amount and fair value less cost to sell. Recognition of depreciation of those assets will cease.

• m. Financial instruments

Financial assets and financial liabilities are recognized when a group entity 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 fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

1) Financial assets

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

• a) Measurement category

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

• i. Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. Fair value is determined in the manner described in Note 27.

• ii. Available-for-sale financial assets

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

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

Dividends on available-for-sale equity instruments are recognized in profit or loss when the Group’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 are presented in a separate line item as financial assets carried 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 carrying amount and fair value is recognized in other comprehensive income on financial assets. Any impairment losses are recognized in profit and loss.

iii. Loans and receivables

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

Cash equivalents include time deposits and repurchase agreements collateralized by bonds 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

Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence, as a result of one or more events that occurred after the initial recognition of the financial asset, 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 Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, as well as observable changes in national or local economic conditions that correlate with a default on receivables.

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

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For financial assets measured 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 carried at cost, the amount of the impairment loss is measured as the difference between the 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 the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is 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 Group 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.

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.

2) Equity instruments

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

Equity instruments issued by the Group 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 Group derecognizes financial liabilities when, and only when, the Group’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 Group 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.

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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.

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.

• n. 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 Group of the expenditure required to settle the Group’s obligations.

• o. Revenue recognition

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.

• 1) Sale of goods

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

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

• b) The Group 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 Group; and

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

• 2) Dividend and interest income

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

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Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Group 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.

p. Leasing

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

1) The Group as lessor

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

2) The Group as lessee

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

q. 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.

• r. Employee benefits

• 1) Short-term employee benefits

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

Net defined benefit liability (asset) represents the actual deficit (surplus) in the Group’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.

• s. Taxation

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

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1) Current tax

According to the Income Tax Law, an additional tax at 10% of unappropriated earnings is provided for as income tax in the year the shareholders approve to retain the earnings. Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.

2) Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences, unused loss 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 Group 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 Group 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. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group’s accounting policies, management is required to make judgments, estimates 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 to be 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.

• 26 -

a. Estimated impairment of trade receivable

When there is objective evidence of impairment loss, the Group takes into consideration the estimation of future cash flows. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of 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.

b. Write-down of inventory

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

c. Impairment and useful lives of property, plant and equipment

The Group reviews the estimated useful lives of property, plant and equipment at each balance sheet date. The impairment of equipment is based on the recoverable amounts of the assets, which is the higher of their fair value less costs of disposal and their value in use. Any changes in the market prices or future cash flows will affect the recoverable amounts of those assets and may lead to recognition of additional impairment losses or reversal of impairment losses.

6. CASH AND CASH EQUIVALENTS

Cash on hand Checking accounts and demand deposits Cash equivalent (investments with original maturities less than 3 months) Time deposits Repurchase agreements collateralized by bonds		**December 31 **	**December 31 **
		2016 $ 1,965 1,248,121 62,677 - $ 1,312,763	2015 $ 2,840 1,232,781 154,470 99,843 $ 1,489,934

As of December 31, 2016 and 2015, the time deposits with original maturities more than three months in the amount of $586,543 thousand and $375,723 thousand, respectively, had been reclassified to “other financial assets - current”.

As of December 31, 2016, 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”. Please refer to Note 29.

The market rate intervals of cash in bank, time deposits and repurchase agreements collateralized by bonds at the end of the reporting period were as follows:

Demand deposits and time deposits Repurchase agreements collateralized by bonds	**December 31 **
	2016 2015 0.001%-0.89% 0.001-4.28% - 0.42%

• 27 -

7. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

Financial assets at FVTPL-current Non-derivatives financial instruments Mutual funds		**December 31 **	**December 31 **
		2016 $ 406,411	2015 $ 147,522

8. FINANCIAL ASSETS MEASURED AT COST

Non-current Domestic unlisted ordinary shares Classified according to financial assets measurement categories Available-for-sale financial assets		December	31
		2016 $ 44,759 $ 44,759	2015 $ 69,615 $ 69,615

Management believed that the above unlisted equity investments held by the Group have fair value that 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.

The Group disposed of certain financial assets measured at cost with carrying amounts of $49,079 thousand in 2016, and recognized a disposal gain of $11,173 thousand.

9. TRADE RECEIVABLES

Trade receivables Less: Allowance for doubtful accounts		December 31	December 31
		2016 $ 2,666,243 (2,511) $ 2,663,732	2015 $ 2,268,643 (5,790) $ 2,262,853

The average credit period for sales of goods was 60 to 90 days. In determining the recoverability of trade receivable, the Group considered any change in the credit quality of the trade receivable since the date credit was initially granted to the end of the reporting period. Allowance for doubtful accounts 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 Group 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 Group did not hold any collateral or other credit enhancements for these balances.

• 28 -

The aging of receivables was as follows:

December 31, 2016

Not overdue and not impaired Not overdue but impaired Overdue and not impaired Overdue and impaired	Total Receivables Not Overdue Overdue under 60 Days $ 2,631,066 $ 2,631,066 $ - 1,533 1,533 - 32,666 - 24,363 978 - - $ 2,666,243 $ 2,632,599 $ 24,363	Overdue 61 Days and Longer $ - - 8,303 978 $ 9,281

December 31, 2015

Not overdue and not impaired Not overdue but impaired Overdue and not impaired Overdue and impaired	Total Receivables Not Overdue Overdue under 60 Days $ 2,200,256 $ 2,200,256 $ - 2,584 2,584 - 62,597 - 52,738 3,206 - - $ 2,268,643 $ 2,202,840 $ 52,738	Overdue 61 Days and Longer $ - - 9,859 3,206 $ 13,065

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:

Individually Assessed for Impairment Collectively Assessed for Impairment Balance at January 1, 2015 $ 4,632 $ 6,914 Impairment losses recognized on receivables 450 553 Amounts written off during the year as uncollectible (4,269) (2,699) Foreign exchange translation gains and losses - 209 Balance at December 31, 2015 $ 813 $ 4,977 Balance at January 1, 2016 $ 813 $ 4,977 Impairment losses reversed - (2,028) Amounts written off during the year as uncollectible - (1,236) Foreign exchange translation gains and losses - (15) Balance at December 31, 2016 $ 813 $ 1,698

Total $ 11,546 1,003 (6,968) 209 $ 5,790 $ 5,790 (2,028) (1,236) (15) $ 2,511

As of December 31, 2016 and 2015, trade receivables of PHA in the amount of $958,729 thousand and $720,559 thousand, respectively, had been pledged to secure short-term borrowings. Please refer to Note 29.

• 29 -

10. INVENTORIES

Raw materials Work-in-process Finished goods Merchandise		December 31	December 31
		2016 $ 529,103 259,978 321,876 392,446 $ 1,503,403	2015 $ 441,925 171,782 389,406 552,473 $ 1,555,586

As of December 31, 2016 and 2015, allowance of inventory value decline was $320,101 thousand and $342,781 thousand, respectively.

For the years ended December 31, 2016 and 2015, the cost of inventories recognized as cost of goods sold was $9,984,005 thousand and $10,112,614 thousand, respectively. The cost of goods sold included inventory write-downs of $14,794 thousand and $12,576 thousand, respectively.

11. NON-CURRENT ASSETS HELD FOR SALE

PHSY’s buildings and long-term prepayments for lease		December	31
		2016 $ 11,471	2015 $ -

The Company planned to dispose of all of the PHSY’s buildings and long-term prepayments for lease and planned to complete the procedures for the disposal in 12 months. Therefore, the assets were reclassified to non-current assets held for sale and presented separately in the consolidated balance sheets. The proceeds of the disposal are expected to exceed the net carrying amount of related net assets. Accordingly, no impairment was recognized in reclassifying the assets to assets held for sale.

The buildings and long-term prepayments for lease reclassified as non-current assets held for sale were as follows:

	December 31,
	2016
Buildings	$ 35,617
Less: Accumulated depreciation and impairment	(28,461)
	7,156
Long-term prepayments for lease	4,315
	$ 11,471

• 30 -

12. SUBSIDIARIES

Investor Investee Nature of Activities Phihong Phihong International Corp. (“PHI”) Makes investments Phitek International Co., Ltd. (“PHK”) Makes investments Ascent Alliance Ltd. (“PHQ”) Makes investments Phihong USA Corp. (“PHA”) Sells various power supplies American Ballast Corp. (“PHAB”) Sells various ballasts Phihong Technology Japan Co., Ltd. (“PHJ”) Sells power components Guang-Lai Investment Co., Ltd. (“Guang-Lai”) Makes investments Phihong International Corp. Phihong (Dongguan) Electronics Co., Ltd. Manufactures and sells various power supplies Phitek (Tianjin) Electronics Co., Ltd. Manufactures and sells various power supplies Phihong Electronics (Suzhou) Co., Ltd. Manufactures and sells various power supplies and ballasts Value Dynamic Investment Ltd. (“PHVD”) Makes investments N-Lighten Technologies, Inc. (“N-Lighten”) Makes investments Yanghong Trade (Shanghai) Co., Ltd. Sells various lighting and Power supplies Value Dynamic Investment Ltd. Yanghong Trade (Shanghai) Co., Ltd. Sells various lighting and Power supplies Phitek International Co., Ltd. Dongguan Phitek Electronics Co., Ltd. Manufactures and sells various power supplies Ascent Alliance Ltd. Dongguan Shuang-Ying Electronics Co., Ltd. Manufactures and sells electronic materials Jin-Sheng-Hong (Jiangxi) Electronics Co., Ltd. Manufactures and sells electronic materials Guang-Lai Investment Co., Ltd. N-Lighten Makes investments

Percentage of Ownership December 31 2016 2015 Notes 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 - 100.00 a 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 - 100.00 b 58.45 58.45 100.00 - c - 100.00 c 100.00 100.00 100.00 100.00 100.00 100.00 19.78 19.78

Note a: The Company was put into liquidation in June 2016.

Note b: The Company was put into liquidation in March 2016.

Note c: Yanghong Trade (Shanghai) Co., Ltd. transferred its shares to PHI in March 2016.

13. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

Investments in associates:

Material associate Hao-Xuan Venture Capital Co., Ltd. H&P Venture Capital Co., Ltd. Han-Yu Venture Capital Co., Ltd. Spring City Resort Co., Ltd.		**December 31 **	**December 31 **
		2016 $ 358 121,888 110,797 29,294 $ 262,337	2015 $ 16,132 123,057 108,025 31,289 $ 278,503

• 31 -

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

Hao-Xuan Venture Capital Co., Ltd. H&P Venture Capital Co., Ltd. Han-Yu Venture Capital Co., Ltd. Spring City Resort Co., Ltd. Phihong PWM Brasil Ltda. First International Computer Do Brasil Ltda.	**December 31 **
	2016 2015 24.67% 24.67% 32.26% 32.26% 22.22% 22.22% 25.33% 25.33% 60.00% 60.00% 33.85% 33.85%

Phihong’s investments in Brazil included 60% ownership interest in Phihong PWM Brasil Ltda. and 33.85% ownership interest in First International Computer Do Brasil Ltda. Additionally, Phihong PWM Brasil Ltda. also holds 21.15% ownership interest in First International Computer Do Brasil Ltda. The other 40% ownership interest in Phihong PWM Brasil Ltda. is held by the local management team. According to the cooperation mode between the Group and the local management team and under Brazilian local laws, the Group has no controlling power over Phihong PWM Brasil Ltda. Because the recoverability of the investments in Phihong PWM Brasil Ltda. and First International Computer Do Brasil Ltda. is low, the Group reduced the carrying value of both investments to zero.

All the associates are accounted for using the equity method.

Summarized financial information in respect of each of the Group’s material associates is set out below. The summarized financial information below represents amounts shown in the associates’ financial statements prepared in accordance with IFRSs adjusted by the Group for equity accounting purposes.

Hao-Xuan Venture Capital Co., Ltd.

Current assets Non-current assets Current liabilities Non-current liabilities Equity Proportion of the Group’s ownership Equity attributable to the Group Carrying amount Operating revenue Net profit (loss) for the year Other comprehensive income Total comprehensive income (loss) for the year Dividends received from Hao-Xuan Venture Capital Co., Ltd.		**December **	**31 **
	2016 2015 $ 1,543 $ 5,558 - 59,948 (90) (103) - - $ 1,453 $ 65,403 24.67% 24.67% $ 358 $ 16,132 $ 358 $ 16,132 For the Year Ended December 31
		2016 $ 31,033 $ (29,222) - $ (29,222) $ -	2015 $ 59,988 $ (62,808) 69,453 $ 6,645 $ 2,334

• 32 -

H&P Venture Capital Co., Ltd.

Current assets Non-current assets Current liabilities Non-current liabilities Equity Proportion of the Group’s ownership Equity attributable to the Group Carrying amount Operating revenue Net profit for the year Other comprehensive income Total comprehensive income for the year Dividends received from H&P Venture Capital Co., Ltd.		**December 31 **	**December 31 **
	2016 $ 331,325 55,778 (9,250) - $ 377,853 32.26% $ 121,888 $ 121,888 **For the Year Ended **		2015 $ 17,345 364,282 (151) - $ 381,476 32.26% $ 123,057 $ 123,057 **December 31 **
		2016 $ 168,185 $ 35,468 25,132 $ 60,600 $ 2,172	2015 $ 114,762 $ 17,328 203,702 $ 221,030 $ -

Han-Yu Venture Capital Co., Ltd.

Current assets Non-current assets Current liabilities Non-current liabilities Equity Proportion of the Group’s ownership Equity attributable to the Group Carrying amount Operating revenue Net profit for the year Other comprehensive income Total comprehensive income for the year Dividends received from Han-Yu Venture Capital Co., Ltd.		December 31	December 31
	2016 $ 175,557 400,506 (77,476) - $ 498,587 22.22% $ 110,797 $ 110,797 **For the Year Ended **		2015 $ 104,910 401,041 (19,840) - $ 486,111 22.22% $ 108,025 $ 108,025 **December 31 **
		2016 $ 197,674 $ 15,992 8,964 $ 24,956 $ 2,385	2015 $ 864,241 $ 13,672 7,689 $ 21,361 $ 7,448

• 33 -

Spring City Resort Co., Ltd.

Current assets Non-current assets Current liabilities Non-current liabilities Equity Proportion of the Group’s ownership Equity attributable to the Group Carrying amount Operating revenue Net (loss) for the year Other comprehensive income Total comprehensive (loss) for the year		December 31	December 31
	2016 $ 111,693 454,246 (132,088) (318,217) $ 115,634 25.33% $ 29,294 $ 29,294 **For the Year Ended **		2015 $ 94,124 465,203 (187,598) (248,219) $ 123,510 25.33% $ 31,289 $ 31,289 **December 31 **
		2016 $ 224,307 $ (8,526) - $ (8,526)	2015 $ 234,832 $ (2,946) - $ (2,946)

Except that Hao-Xuan’s financial statements for 2016 have not been audited, the investments accounted for by the equity method and the share of profit or loss and other comprehensive income of those investments were calculated based on the financial statements that have been audited. Management believes there will be no material impact on the equity method accounting or the calculation of the share of profit or loss and other comprehensive income if Hao-Xuan’s financial statements for 2016 were audited.

14. PROPERTY, PLANT AND EQUIPMENT

Cost Balance at January 1, 2015 Additions Disposals Effect of foreign currency exchange differences Reclassified to Investment properties Balance at December 31, 2015	Freehold Land $ 273,316 - - 2,342 - $ 275,658	Buildings $ 2,646,765 11,906 (9,672) (48,428) (840,250) $ 1,760,321	Machinery and Equipment $ 2,790,361 79,625 (186,569) (55,113) 1,085 $ 2,629,389	Other Equipment Construction in Progress Total $ 641,978 $ 1,501,003 $ 7,853,423 90,133 559,157 740,821 (76,829) - (273,070) (8,511) (25,705) (135,415) 25,877 (230,322) (1,043,610) $ 672,648 $ 1,804,133 $ 7,142,149 (Continued)

• 34 -

Accumulated depreciation and impairment Balance at January 1, 2015 Disposals Depreciation expense Effect of foreign currency exchange differences Reclassified to Investment properties Balance at December 31, 2015 Carrying amounts at December 31, 2015 Cost Balance at January 1, 2016 Additions Disposals Effect of foreign currency exchange differences Others Balance at December 31, 2016 Accumulated depreciation and impairment Balance at January 1, 2016 Disposals Depreciation expense Effect of foreign currency exchange differences Others Balance at December 31, 2016 Carrying amounts at December 31, 2016	Freehold Land $ - - - - - $ - $ 275,658 $ 275,658 - (9,850) (739) - $ 265,069 $ - - - - - $ - $ 265,069	Buildings $ 1,058,335 (6,089) 73,257 (19,716) (363,847) $ 741,940 $ 1,018,381 $ 1,760,321 22,092 (16,988) (110,077) 535,886 $ 2,191,234 $ 741,940 (4,716) 74,006 (48,035) (28,856) $ 734,339 $ 1,456,895	Machinery and Equipment $ 1,787,751 (170,777) 231,954 (32,980) (343) $ 1,815,605 $ 813,784 $ 2,629,389 42,979 (93,234) (183,464) 7,768 $ 2,403,438 $ 1,815,605 (84,726) 187,377 (123,774) - $ 1,794,482 $ 608,956	Other Equipment Construction in Progress Total $ 477,787 $ - $ 3,323,873 (75,637) - (252,503) 67,519 - 372,730 (7,047) - (59,743) 343 - (363,847) $ 462,965 $ - $ 3,020,510 $ 209,683 $ 1,804,133 $ 4,121,639 $ 672,648 $ 1,804,133 $ 7,142,149 49,593 117,638 232,302 (59,878) - (179,950) (28,772) (128,930) (451,982) 9,833 (582,709) (29,222) $ 643,424 $ 1,210,132 $ 6,713,297 $ 462,965 $ - $ 3,020,510 (58,570) - (148,012) 73,049 - 334,432 (21,700) - (193,509) - - (28,856) $ 455,744 $ - $ 2,984,565 $ 187,680 $ 1,210,132 $ 3,728,732 (Concluded)

In 2015, some of the Group’s property, plant and equipment for production of goods or provision of services were leased to earn rental income and reclassified to investment properties; please refer to Note 15.

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

Please refer to Note 29 for the carrying amount of property, plant and equipment that had been pledged by the Group to secure long-term borrowings.

• 35 -

15. INVESTMENT PROPERTIES

Investment Properties Measured at Cost

Total

Cost Balance at January 1, 2015 Reclassified from property, plant and equipment Effect of foreign currency exchange differences Balance at December 31, 2015 Accumulated depreciation and impairment Balance at January 1, 2015 Reclassified from property, plant and equipment Depreciation expense Effect of foreign currency exchange differences Balance at December 31, 2015 Carrying amount at December 31, 2015 Cost Balance at January 1, 2016 Effect of foreign currency exchange differences Balance at December 31, 2016 Accumulated depreciation and impairment Balance at January 1, 2016 Depreciation expense Effect of foreign currency exchange differences Balance at December 31, 2016 Carrying amount at December 31, 2016

$ - 1,043,610 4,059 $ 1,047,669 $ - 363,847 13,779 1,865 $ 379,491 $ 668,178 $ 1,047,669 (86,643) $ 961,026 $ 379,491 33,003 (32,775) $ 379,719 $ 581,307

The investment properties are depreciated using the straight-line method over their estimated useful life as	The investment properties are depreciated using the straight-line method over their estimated useful life as
follows:
Main buildings	30 years
Others	10 years

• 36 -

The determination of fair value was performed by the management of the Group by using the valuation model that market participants would use in determining the fair value, and the fair value was measured by using Level 3 inputs. The valuation was arrived at by reference to market evidence of transaction prices for similar properties. The valuation results was as follows:

Fair value

December 31, 2016 $ 804,665

16. OTHER INTANGIBLE ASSETS

Cost Balance at January 1, 2015 Additions Disposals Effect of foreign currency exchange differences Balance at December 31, 2015 Accumulated amortization and impairment Balance at January 1, 2015 Amortization expense Disposals Effect of foreign currency exchange differences Balance at December 31, 2015 Carrying amount at December 31, 2015 Cost Balance at January 1, 2016 Additions Disposals Effect of foreign currency exchange differences Balance at December 31, 2016 Accumulated amortization and impairment Balance at January 1, 2016 Amortization expense Disposals Effect of foreign currency exchange differences Balance at December 31, 2016 Carrying amount at December 31, 2016

Computer Software $ 101,752 11,587 (2,854) (492) $ 109,993 $ 55,949 16,421 (2,844) (71) $ 69,455 $ 40,538 $ 109,993 10,523 (6,577) (2,576) $ 111,363 $ 69,455 17,301 (5,933) (1,626) $ 79,197 $ 32,166

• 37 -

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

17. PREPAYMENTS FOR LEASE

Current Noncurrent		December 31	December 31
		2016 $ 3,530 133,247 $ 136,777	2015 $ 3,987 153,778 $ 157,765

Prepayments for lease are prepaid land use rights for land located in mainland China.

18. BORROWINGS

Short-term borrowings

Secured loan Bank borrowings Interest rate Long-term borrowings Unsecured loan Medium-term loan Repayable from July 19, 2016 to July 19, 2019; interest rate was 3.89456% on December 31, 2016. Principal is repaid quarterly beginning October 19, 2016. Repayable from August 4, 2015 to May 15, 2017; interest rate was 1.2019% on December 31, 2015. Interest is paid monthly and principal is due on May 15, 2017. Principal was fully repaid in April 2016. Repayable from August 27, 2015 to February 23, 2017; interest rate was 1.2019% on December 31, 2015. Interest is paid monthly and principal is due on February 23, 2017. Principal was fully repaid in March 2016. Repayable from December 29, 2015 to December 29, 2017; interest rate was 1.60% on December 31, 2015. Interest is paid monthly and principal is due on December 29, 2017. Principal was fully repaid in February 2016.		**December **	**31 **
		2016 $ 96,840 3.125% **December **	2015 $ 98,580 2.75% **31 **
	2016 2015 $ 35,508 $ - - 100,000 - 50,000 - 100,000 (Continued)

• 38 -

Repayable from September 7, 2015 to March 7, 2018; interest rate was 1.23% on December 31, 2015. Interest is paid monthly and principal is due on March 7, 2018. Principal was fully repaid in March 2016. Repayable from December 23, 2015 to December 23, 2018; interest rate was 3.7744% on December 31, 2015. Principal was fully repaid in December 2016. Secured loan Medium-term loan Repayable from July 2, 2015 to July 2, 2017; interest rate was 1.12% on December 31, 2015. Interest is paid monthly and principal is due on July 2, 2017. Principal was fully repaid in March 2016. Repayable from August 27, 2015 to August 27, 2017; interest rate was 1.12% on December 31, 2015. Interest is due monthly and principal is due on August 27, 2017. Principal was fully repaid in March 2016. Less: Long-term loans payable - current portion		**December 31 **	**December 31 **
		2016 $ - - - - 35,508 (12,912) $ 22,596	2015 $ 300,000 78,864 50,000 100,000 778,864 (76,288) $ 702,576 (Concluded)

For information on pledged properties and endorsements/guarantees, please refer to Notes 28 and 29.

19. BONDS PAYABLE

Unsecured domestic convertible bonds Secured domestic bonds Less: Current portion		**December 31 **	**December 31 **
		2016 $ 1,163,926 997,977 (1,163,926) $ 997,977	2015 $ 1,266,468 - - $ 1,266,468

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 August 5, 2015, the conversion price has been adjusted to $19 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.

• 39 -

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, 2015 Interest charged at an effective interest rate of 1.70% Redemption of bonds payable Liability component at December 31, 2015 Liability component at January 1, 2016 Interest charged at an effective interest rate of 1.70% Redemption of bonds payable Liability component at December 31, 2016

$ 1,497,331 (71,878) 1,425,453 13,944 (10,208) $ 1,429,189 $ 1,429,189 23,716 (186,437) $ 1,266,468 $ 1,266,468 20,611 (123,153) $ 1,163,926

The Company bought back unsecured convertible bonds from open market and recognized gain on buy-back of bonds payable of $1,752 thousand and $11,245 thousand for the years ended December 31, 2016 and 2015, respectively, which were presented under other gains and losses, and reclassified $5,999 thousand and $9,191 thousand “capital surplus - convertible bonds” to “capital surplus - treasury share transactions”, respectively; please refer to Notes 22 and 23.

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, please refer to Notes 28 and 29.

20. OTHER PAYABLES

Payable for purchase of equipment Payable for salaries and bonus Payable for annual leave Others		**December 31 **	**December 31 **
		2016 $ 34,704 262,378 41,971 519,515 $ 858,568	2015 $ 33,932 262,815 40,857 515,056 $ 852,660

• 40 -

21. 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. Pension benefits are calculated on the basis of the length of service and average monthly salaries of the six 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 consolidated balance sheets in respect of the Group’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 **
		2016 $ 132,907 (44,954) $ 87,953	2015 $ 127,869 (44,853) $ 83,016

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, 2015	$ 124,183	$ (48,145)	$	76,038
Service cost
Current service cost	751	-		751
Net interest expense (income)	2,328	(924)		1,404
Recognized in profit or loss	3,079	(924)		2,155
				(Continued)

• 41 -

	Present Value	Present Value
	of the Defined				Net Defined
		Benefit	Fair Value of			Benefit
	Obligation		the Plan Assets		Liability (Asset)
Remeasurement
Return on plan assets (excluding amounts
included in net interest)	$	-	$	(319)	$	(319)
Actuarial (gain) loss - changes in
demographic assumptions		3,836		-		3,836
Actuarial (gain) loss - changes in financial
assumptions		3,809		-		3,809
Actuarial (gain) loss - experience
adjustments		(234)		-		(234)
Recognized in other comprehensive income		7,411		(319)		7,092
Contributions from the employer		-		(2,269)		(2,269)
Benefits paid		(6,804)		6,804		-
Balance at December 31, 2015	$	127,869	$	(44,853)	$	83,016
Balance at January 1, 2016	$	127,869	$	(44,853)	$	83,016
Service cost
Current service cost		310		-		310
Net interest expense (income)		2,078		(747)		1,331
Recognized in profit or loss		2,388		(747)		1,641
Remeasurement
Return on plan assets (excluding amounts
included in net interest)		-		429		429
Actuarial (gain) loss - changes in
demographic assumptions		3,713		-		3,713
Actuarial (gain) loss - changes in financial
assumptions		3,952		-		3,952
Actuarial (gain) loss - experience
adjustments		(2,482)		-		(2,482)
Recognized in other comprehensive income		5,183		429		5,612
Contributions from the employer		-		(2,316)		(2,316)
Benefits paid		(2,533)		2,533		-
Balance at December 31, 2016	$	132,907	$	(44,954)	$	87,953
						(Concluded)

Through the defined benefit plans under the Labor Standards Law, the Group 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.

• 42 -

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

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

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

Discount rate(s) Expected rate(s) of salary increase	**December 31 **
	2016 2015 1.375% 1.625% 3.5% 3.5%

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 **
		2016 $ (4,045) $ 4,219 $ 4,065 $ (3,920)	2015 $ (3,911) $ 4,079 $ 3,938 $ (3,797)

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

The expected contributions to the plan for the next year The average duration of the defined benefit obligation		**December **	**31 **
		2016 $ 2,280 12.5 years	2015 $ 2,274 12.6 years

22. 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 **
		2016 600,000 $ 6,000,000 277,688 $ 2,776,884	2015 600,000 $ 6,000,000 277,688 $ 2,776,884

• 43 -

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

On June 19, 2014, Phihong Technology Co., Ltd.’s board of stockholders resolved to issue 5,000 thousand restricted shares, with a par value of NT$10, or total of $50,000 thousand. Each share’s exercise price is NT$0. Except for restrictions against the transfer of shares, the rights and obligations of these common stocks (including allotment, dividend, shareholders’ voting right, and capital injection right, etc.) before the employees fulfill the vesting conditions, are the same with other outstanding common stocks. As of December 31, 2015, the rights to issue restricted shares expired.

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 May not be used for any purpose Equity component of convertible bonds		December 31	December 31
		2016 $ 226,556 667,058 48,234 13,243 15,190 56,175 $ 1,026,456	2015 $ 226,556 667,058 48,234 13,243 9,191 62,174 $ 1,026,456

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).

The capital surplus from long-term investments, employee share options and share warrants may not be used for any purpose.

Retained Earnings and Dividend Policy

In accordance with the amendments to the Company Act in May 2015, the recipients of dividends and bonuses are limited to shareholders and do not include employees. The shareholders held their regular meeting on June 8, 2016 and, in that meeting, had resolved amendments to the Company’s Articles of Incorporation (the “Articles”), particularly the amendment to the policy on dividend distribution and the addition of the policy on distribution of employees’ compensation.

• 44 -

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 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 distribution of dividends and bonus to shareholders. For the policies on distribution of employees’ compensation and remuneration of directors and supervisors before and after amendment, please refer to d. employee benefits expense in Note 23.

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 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.

Except for non-ROC resident stockholders, all stockholders receiving the dividends are allowed a tax credit equal to their proportionate share of the income tax paid by the Company.

The appropriations of earnings for 2015 and 2014 approved in stockholders’ meetings on June 8, 2016 and June 11, 2015, respectively, were as follows:

Legal reserve Cash dividends	Appropriation of Earnings For Year 2015 For Year 2014 $ - $ 14,784 - 133,062	Dividends Per Share (NT$)
		For Year 2015 For Year 2014 $ - $ - - 0.48

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. Foreign currency translation reserve

Balance at January 1 Exchange differences arising on translating foreign operations Balance at December 31	**For the Year Ended **	**For the Year Ended **	December 31
		2016 $ 294,758 (386,201) $ (91,443)	2015 $ 345,970 (51,212) $ 294,758

• 45 -

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

Balance at January 1 Share of unrealized gain on revaluation of available-for-sale financial assets of associates accounted for using the equity method Balance at December 31 Non-controlling Interest Balance at January 1 Attributable to non-controlling interests: Share of loss for the period Exchange difference arising on translation of foreign entities Balance at December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
	2016 2015 $ 47,351 $ (37,199) 10,099 84,550 $ 57,450 $ 47,351 For the Year Ended December 31
		2016 $ (10,168) (28) 180 $ (10,016)	2015 $ (9,662) (3,238) 2,732 $ (10,168)

23. NET PROFIT FROM CONTINUING OPERATIONS

• a. Other income

Interest revenue Dividend revenue Others b. Other gains and losses	**For the Year Ended **	**For the Year Ended **	**December 31 **
		2016 $ 32,541 16,932 106,193 $ 155,666	2015 $ 23,364 5,542 130,220 $ 159,126

Gain on disposal of property, plant and equipment (Loss) gain on disposal of intangible assets Exchange (loss) gain, net Gain on buy-back of bonds payable Gain on disposal of investment Net gain on fair value of financial assets designated as at fair value through profit or loss Others	**For the Year Ended December 31 **	**For the Year Ended December 31 **	**For the Year Ended December 31 **
		2016 $ 5,650 (523) (88,091) 1,752 30,845 2,307 (31,670) $ (79,730)	2015 $ 37 78 35,327 11,245 14,474 4,689 (30,261) $ 35,589

• 46 -

c. Depreciation and amortization

Property, plant and equipment Investment properties Computer software An analysis of depreciation by function Operating costs Operating expenses Non-operating expenses An analysis of amortization by function Operating costs Operating expenses d. Employee benefits expense Post-employment benefits (Note 21) Defined contribution plans Defined benefit plans Short-term employee benefits An analysis of employee benefits expense by function Operating costs Operating expenses	**For the Year Ended **	**For the Year Ended **	**For the Year Ended **	**December 31 **
	2016 $ 334,432 33,003 17,301 $ 384,736 $ 184,020 150,412 33,003 $ 367,435 $ 2,503 14,798 $ 17,301 **For the Year Ended **			2015 $ 372,730 13,779 16,421 $ 402,930 $ 229,027 143,703 13,779 $ 386,509 $ 2,747 13,674 $ 16,421 **December 31 **
		2016 $ 21,002 1,641 22,643 2,334,931 $ 2,357,574 $ 1,526,690 830,884 $ 2,357,574	2015 $ 20,514 2,155 22,669 2,529,780 $ 2,552,449 $ 1,726,395 826,054 $ 2,552,449

1) In compliance with the Company Act as amended in May 2015 and the amended Articles of Incorporation of the Company approved by the shareholders in their meeting in June 2016, 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. The Company did not estimate the bonus to employees and the remuneration to directors and supervisors because it did not have net profit before income tax in 2016 and 2015.

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

• 47 -

Information on the employees’ compensation and remuneration of directors and supervisors resolved by the Company’s board of directors in 2017 and 2016 is available at the Market Observation Post System website of the Taiwan Stock Exchange.

• 2) Bonus to employees and remuneration of directors and supervisors for 2014

The bonuses to employees and remuneration to directors and supervisors for 2014 which have been approved in the shareholders’ meeting on June 11, 2015 were as follows:

Bonus to employees Remuneration of directors and supervisors	For the Year Ended December 31, 2014
	Cash Dividends Stock Dividends $ 23,951 $ - 2,661 -

There was no difference between the amounts of the bonus to employees and the remuneration of directors and supervisors approved in the shareholders’ meeting on June 11, 2015 and the amounts recognized in the consolidated financial statements for the year ended December 31, 2014.

Information on the bonus to employees and remuneration of directors and supervisors resolved by the shareholders in their meeting in 2015 is available at the Market Observation Post System website of the Taiwan Stock Exchange.

• e. Gain or loss on foreign currency exchange

Foreign exchange gains Foreign exchange losses	**For the Year Ended **	**For the Year Ended **	**December 31 **
		2016 $ 40,422 (128,513) $ (88,091)	2015 $ 240,682 (205,355) $ 35,327

24. 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 In respect of prior periods Deferred tax In respect of the current period Total income tax expense recognized in the current period	**For the Year Ended December 31 **	**For the Year Ended December 31 **	**For the Year Ended December 31 **
		2016 $ 43,127 3 43,130 (3,770) $ 39,360	2015 $ 58,972 (10,766) 48,206 (1,159) $ 47,047

• 48 -

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

Income tax expense calculated at statutory rate Income tax on unappropriated earnings Current income tax expense Deferred income tax assets (liabilities) Temporary difference Adjustments to prior year’s income tax expense 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
		2016 $ 43,127 - 43,127 (3,770) 3 $ 39,360	2015 $ 58,972 - 58,972 (1,159) (10,766) $ 47,047

The applicable tax rate used above is the corporate tax rate of 17% payable by the Group in the ROC, while the applicable tax rate used by subsidiaries in China is 25%. Tax rates used by other group entities operating in other jurisdictions are based on the tax laws in those jurisdictions.

• 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
		2016 $ 954 $ 954	2015 $ 1,206 $ 1,206

• 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 **
		2016 $ 75,269	2015 $ 72,036

• d. Deferred tax assets and liabilities

The Group has offset certain deferred tax assets with deferred tax liabilities which met the offset criteria.

• 49 -

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

For the year ended December 31, 2016

					Recognized in	Recognized in	Recognized in
						Other
	Opening		Recognized in		Comprehensive
	Balance		Profit or Loss		Income			Closing Balance
Deferred tax assets
Temporary differences
Allowance for inventory value
decline loss	$	9,070	$	(5,950)	$		-	$ 3,120
Allowance for doubtful accounts		10,460		(530)			-	9,930
Unrealized gross profit		5,520		4,760			-	10,280
Deferred pension costs		10,260		110			-	10,370
Others		10,666		5,380		954		17,000
	$	45,976	$	3,770	$	954		$ 50,700
Deferred tax liabilities
Temporary differences
Unrealized gain on financial
instruments	$	79,832	$	-	$		-	$ 79,832
For the year ended December 31,	2015
					Recognized in
						Other
	Opening		Recognized in		Comprehensive
	Balance		Profit or Loss		Income			Closing Balance
Deferred tax assets
Temporary differences
Allowance for inventory value
decline loss	$	9,070	$	-	$		-	$ 9,070
Allowance for doubtful accounts		10,460		-			-	10,460
Unrealized gross profit		6,610		(1,090)			-	5,520
Deferred pension costs		10,240		20			-	10,260
Others		7,231		2,229		1,206		10,666
	$	43,611	$	1,159	$	1,206		$ 45,976
Deferred tax liabilities
Temporary differences
Unrealized gain on financial
instruments	$	79,832	$	-	$		-	$ 79,832

• 50 -

e. Integrated income tax

Unappropriated earnings (deficit) Generated before January 1, 1998 Generated on and after January 1, 1998 Shareholder-imputed credits account Creditable ratio for distribution of earnings	**For the Year Ended **	**December 31 **
	2016 $ - (128,791) $ (128,791) $ 205,956 For the Year Ended	2015 $ - 177,165 $ 177,165 $ 189,835 December 31
	2016 (Expected) 2015 (Actual) - -

• f. Income tax assessments

The Company’s tax returns through 2013 have been assessed by the tax authorities.

25. LOSSES PER SHARE

		Number of
	Income After	Common
	Tax (Attributed	Shares	(Loss)
	to Owners of	Outstanding	Earnings Per
	the Company)	(In Thousands)	Share (NT$)
For the year ended December 31, 2016
Basic loss per share
Net loss	$ (301,299)	277,688	$ (1.09)
For the year ended December 31, 2015
Basic loss per share
Net loss	$ (508,566)	277,688	$ (1.83)

26. CAPITAL MANAGEMENT

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

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

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

• 51 -

27. FINANCIAL INSTRUMENTS

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

• Fair value hierarchy

December 31, 2016 Financial assets at FVTPL December 31, 2015 Financial assets at FVTPL	Level 1 $ 406,411 Level 1 $ 147,522	Level 2 $ - Level 2 $ -	Level 3 $ - Level 3 $ -	Total $ 406,411
				Total $ 147,522

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

• b. Categories of financial instruments

Financial assets Financial assets at FVTPL Loans and receivables (1) Available-for-sale financial assets (2) Financial liabilities Amortized cost (3)	**December 31 **
	2016 2015 $ 406,411 $ 147,522 4,682,145 4,186,040 44,759 69,615 6,185,088 5,463,633

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

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

• 3) 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 and long-term borrowings.

• c. Financial risk management objectives and policies

The Group’s major financial instruments included cash and cash equivalents, trade receivables, other receivables, other financial assets, short-term borrowings, trade payable, trade payable - related parties, other payables, bonds payable and long-term borrowings. The Group’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 Group through internal risk reports which analyze exposures by degree and magnitude of risks. These risks include market risk, credit risk and liquidity risk.

• 52 -

1) Market risk

The Group’s operating 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

Several subsidiaries of the Company had foreign currency sales and purchases, which exposed the Group to foreign currency risk. The Group 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 Group’s foreign currency denominated monetary assets and monetary liabilities (including those eliminated on consolidation) and of the derivatives exposed to foreign currency risk at the end of the reporting period are set out in Note 32.

Sensitivity analysis

The Group was mainly exposed to the currency USD and currency CNY.

The following table details the Group’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	Currency USD Impact
	**For the Year Ended December 31 **
	2016 2015 $ 580 $ 4,121 Currency CNY Impact
	For the Year Ended December 31
	2016 2015 $ 6,253 $ 5,307

b) Interest rate risk

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

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

Cash flow interest rate risk Financial liabilities	**December 31 **
	2016 2015 $ 132,348 $ 877,444

• 53 -

2) Credit risk

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Group. As at the end of the reporting period, the Group’s maximum exposure to credit risk approximates the carrying amount of the respective recognized financial assets as stated in the consolidated balance sheets.

The Group 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 Group’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.

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 Group manages liquidity risk by monitoring and maintaining a level of cash and cash equivalents deemed adequate to finance the Group’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 Group relies on bank borrowings as a significant source of liquidity. As of December 31, 2016 and 2015, the Group had available unutilized short-term bank loan facilities set out in (b) below.

• a) Liquidity and interest risk tables

The following tables detail the Group’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods:

December 31, 2016

Non-derivative financial liabilities Non-interest bearing Variable interest rate instrument Fixed interest rate instrument	On Demand or Less than 1 Year $ 5,054,763 109,752 - $ 5,164,515	1 to 3 Years Over 3 Years $ - $ - 22,596 - - 997,977 $ 22,596 $ 997,977	Total $ 5,054,763 132,348 997,977 $ 6,185,088

• 54 -

December 31, 2015

On Demand or Less than 1 Year Non-derivative financial liabilities Non-interest bearing $ 3,319,721 Variable interest rate instrument 174,868 Fixed interest rate instrument - $ 3,494,589 Financing facilities Unused bank financing facilities	1 to 3 Years Over 3 Years Total $ 1,266,468 $ - $ 4,586,189 702,576 - 877,444 - - - $ 1,969,044 $ - $ 5,463,633 December 31 2016 2015 $ 1,961,160 $ 2,362,380	1 to 3 Years Over 3 Years Total $ 1,266,468 $ - $ 4,586,189 702,576 - 877,444 - - - $ 1,969,044 $ - $ 5,463,633 December 31 2016 2015 $ 1,961,160 $ 2,362,380	1 to 3 Years Over 3 Years Total $ 1,266,468 $ - $ 4,586,189 702,576 - 877,444 - - - $ 1,969,044 $ - $ 5,463,633 December 31 2016 2015 $ 1,961,160 $ 2,362,380	1 to 3 Years Over 3 Years Total $ 1,266,468 $ - $ 4,586,189 702,576 - 877,444 - - - $ 1,969,044 $ - $ 5,463,633 December 31 2016 2015 $ 1,961,160 $ 2,362,380	Total $ 4,586,189 877,444 - $ 5,463,633 **31 **
			2016 $ 1,961,160	2015 $ 2,362,380

b) Financing facilities

28. RELATED-PARTY TRANSACTIONS

• a. The Group’s related parties and relationship

Related Party Relationship with the Group Spring City Resort Other related parties Xu Sheng Technology Co., Ltd. Other related parties Shine Tech Ltd. Other related parties Red Sun Metal Industry Co., Ltd. Other related parties Heng Hui Co., Ltd. Other related parties Dongguan Song Xiang Metal Products Co., Ltd. Other related parties Hua Jung Co., Ltd. Other related parties Hong Ding Educational Technology Co., Ltd. Other related parties Zero Distance Corporation Other related parties Yao Yu Design Co., Ltd. Other related parties Peter Lin Phihong’s chairman

Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties were disclosed below:

• b. Trading transactions

For the Year Ended December 31 2016 2015 Sales Other related parties $ - $ 658

• 55 -

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

Purchase of goods Other related parties	For the Year Ended	For the Year Ended	December 31
		2016 $ 130,047	2015 $ 209,069

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

Payables to related parties Other related parties		December 31	December 31
		2016 $ 71,883	2015 $ 61,232

• 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	**For the Year Ended **	**For the Year Ended **	**December 31 **
		2016 $ 35,695 1,288 $ 36,983	2015 $ 37,343 432 $ 37,775

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 Group. As of December 31, 2016 and 2015, the amounts of the guarantees were $1,033,485 thousand and $628,864 thousand, respectively.

29. ASSETS PLEDGED AS COLLATERAL OR FOR SECURITY

The following assets were provided as collateral for bank borrowings:

Pledge deposits Freehold land Buildings Trade receivable		December 31	December 31
		2016 $ 25,450 197,586 327,798 958,729 $ 1,509,563	2015 $ - 197,586 336,316 720,559 $ 1,254,461

• 56 -

30. SIGNIFICANT EVENTS AFTER REPORTING PERIOD

On November 10, 2016, the Company’s board of directors resolved to issue 60,000 thousand ordinary shares with a par value of NT$10, for consideration of NT$10.2 per share, and increase the issued and fully paid share capital to $3,376,884 thousand. On December 15, 2016, this transaction was approved by the FSC, and the board of directors determined the subscription base date to be January 21, 2017.

31. CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS

The Group’s unrecognized commitments were as follows:

Acquisition of property, plant and equipment		December 31	December 31
		2016 $ 33,350	2015 $ 117,193

32. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

The Groups’ 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, 2016

		Foreign		Carrying
	Currencies		Exchange Rate	Amount
Financial assets
Monetary items
USD	$	45,587	32.2800	$ 1,471,550
JPY		12,374	0.27619	3,417
HKD		4,122	4.16096	17,152
CNY		134,623	4.64480	625,296
Financial liabilities
Monetary items
USD		43,791	32.28000	1,413,579
JPY		6,108	0.27619	1,687
HKD		5,361	4.64480	22,306

• 57 -

December 31, 2015

		Foreign		Carrying
	Currencies		Exchange Rate	Amount
Financial assets
Monetary items
USD	$	50,496	32.86000	$ 1,659,307
JPY		50,649	0.27263	13,809
HKD		1,558	4.23987	6,607
CNY		104,803	5.06356	530,674
Financial liabilities
Monetary items
USD		37,956	32.86000	1,247,246
JPY		6,040	0.27263	1,647
HKD		5,095	4.23987	21,602

33. SEGMENT INFORMATION

The Group’s power supply products segment is the only one reportable segment. The power supply products segment mainly engages in the manufacturing and selling of AC/DC power adapters, charger bases, and power supply modules for computers. The Group’s other operating segments did not exceed the quantitative threshold so they are not disclosed as reportable segments. These segments mainly engage in manufacturing and selling of lighting supply and developing, manufacturing and selling monitors.

The Group adopted operating profits as the measurement threshold. There was no material inconsistency between the accounting policies of the operating segment and the accounting policies described in Note 4.

The Group’s operating segment information was as follows:

• a. Segment revenues and results

The following was an analysis of the Group’s revenue and results from continuing operations by reportable segment.

For the year ended December 31, 2016 Revenues from external customers Segment losses Other income Other gains and losses Financial costs Investment income recognized under equity method, net Loss before income tax	Power Supply $ 10,862,627 $ (255,551)	Others $ 489,616 $ (52,972)	Total $ 11,352,243 $ (308,523) 155,666 (79,730) (34,360) 4,980 $ (261,967) (Continued)

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For the year ended December 31, 2015 Revenues from external customers Segment revenues (losses) Other income Other gains and losses Financial costs Investment income recognized under equity method, net Loss before income tax	Power Supply $ 10,519,373 $ (467,967)	Others $ 603,942 $ (149,803)	Total $ 11,123,315 $ (617,770) 159,126 35,589 (31,714) (9,988) $ (464,757) (Concluded)

b. Segment assets and liabilities

Power supply segment assets Other assets Total assets Power supply segment liabilities Other liabilities Total liabilities		December 31	December 31
		2016 $ 11,039,114 563,963 $ 11,603,077 $ 6,487,952 140,542 $ 6,628,494	2015 $ 10,646,792 800,797 $ 11,447,589 $ 5,637,512 153,587 $ 5,791,099

c. Revenue from major products and services

The following is an analysis of the Group’s revenue from continuing operations from its major products and services.

Power supply Other assets	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2016 $ 10,862,627 489,616 $ 11,352,243	2015 $ 10,519,373 603,942 $ 11,123,315

d. Geographical information

The Group operates in three principal geographical areas - Asia, Americas and Europe.

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The Group’s revenue from continuing operations from external customers by location of operations and information about its non-current assets by location of assets are detailed below.

Asia USA Europe Others	Revenue from External Customers For the Year Ended December 31 2016 2015 $ 7,325,215 $ 6,153,931 1,983,980 2,184,071 2,005,663 2,770,626 37,385 14,687 $ 11,352,243 $ 11,123,315	Revenue from External Customers For the Year Ended December 31 2016 2015 $ 7,325,215 $ 6,153,931 1,983,980 2,184,071 2,005,663 2,770,626 37,385 14,687 $ 11,352,243 $ 11,123,315		Non-current Assets	Non-current Assets
				**December 31 **
		2016 $ 7,325,215 1,983,980 2,005,663 37,385 $ 11,352,243		2016 $ 4,384,475 130,178 - - $ 4,514,653	2015 $ 4,892,440 137,284 - - $ 5,029,724

• e. Information about major customers

Included in revenues from direct sales of $11,352,243 thousand and $11,123,315 thousand in 2016 and 2015 respectively, are revenues of approximately $4,460,848 thousand and $4,501,678 thousand which represent sales to the Group’s main customers.

Single customers that contributed 10% or more to the Group’s total revenue were as follows:

Customer A Customer B Customer C	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2016 $ 1,902,341 1,701,419 857,088 $ 4,460,848	2015 $ 995,721 1,490,477 2,015,480 $ 4,501,678

No other single customers contributed 10% or more to the Group’s total revenue for both 2016 and 2015.

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