Primax - Annual Report 2016 | FinancialReports.eu

Stock Code:4915

(English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016 and 2015 (With Independent Auditors’ Report Thereon)

Address: No. 669, Ruey Kuang Road, Neihu, Taipei Telephone: (02)2798-9008

The auditors’ report and the accompanying consolidated financial statements are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of the English and Chinese language auditors’ report and consolidated financial statements, the Chinese version shall prevail.

		Contents	Page
1.	Cover Page		1
2.	Table of Contents		2
3.	Representation Letter		3
4.	Independent Auditors’ Report		4
5.	Consolidated Balance Sheets		5
6.	Consolidated Statements of Comprehensive Income		6
7.	Consolidated Statements of Changes in Equity		7
8.	Consolidated Statements of Cash Flows		8
9.	Notes to the Consolidated Financial Statements
	(1)	Company history	9
	(2)	Approval date and procedures of the consolidated financial statements	9
	(3)	New standards, amendments and interpretations adopted	9`～`13
	(4)	Summary of significant accounting policies	13`～`30
	(5)	Significant accounting assumptions and judgments, and major sources	30`～`31
		of estimation uncertainty
	(6)	Explanation of significant accounts	32`～`77
	(7)	Related-party transactions	77`～`78
	(8)	Pledged assets	79
	(9)	Commitments and contingencies	79`～`80
	(10)	Losses due to major disasters	80
	(11)	Subsequent events	80
	(12)	Other	80`～`81
	(13)	Other disclosures
		(a) Information on significant transactions	81`～`86
		(b) Information on investees	87
		(c) Information on investments in mainland China	88`～`89
	(14)	Segment information	89`～`91

Representation Letter

The entities that are required to be included in the combined financial statements of PRIMAX ELECTRONICS LTD. as of and for the year ended December 31, 2016 under the Criteria Governing the Preparation of Affiliation Reports, Consolidated Business Reports, and Consolidated Financial Statements of Affiliated Enterprises are the same as those included in the consolidated financial statements prepared in conformity with International Financial Reporting Standards No. 10 by the Financial Supervisory Commission, "Consolidated and Spearate Financial Statements." In addition, the information required to be disclosed in the combined financial statements is included in the consolidated financial statements. Consequently, PRIMAX ELECTRONICS LTD. and its Subsidiaries do not prepare a separate set of combined financial statments.

Company name: PRIMAX ELECTRONICS LTD. Chairman: LIANG LI SHENG Date: March 7, 2017

Independent Auditors’ Report

To the Board of Directors of PRIMAX ELECTRONICS LTD.:

Opinion

We have audited the consolidated financial statements of PRIMAX ELECTRONICS LTD. 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 ended December 31, 2016 and 2015, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, based on our audits and the report of other auditors (please refer to Other Matter paragraph), the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2016 and 2015, and its consolidated financial performance and its consolidated cash flows for the years ended December 31, 2016 and 2015 in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and with the International Financial Reporting Standards (“IFRSs”), International Accounting Standards (“IASs”), interpretation as well as related guidance endorsed by the Financial Supervisory Commission of the Republic of China.

Basis for Opinion

We conducted our audit in accordance with the “Regulations Governing Auditing and Certification of Financial Statements by Certified Public Accountants” and the 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 Certified Public Accountants Code of Professional Ethics in Republic of China (“the Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained, inclusive of the report from other auditors, is sufficient and appropriate to provide a basis of our opinion.

Other Matter

We did not audit the financial statements of certain subsidiaries. Those financial statements were audited by other auditors. Therefore, our opinion, insofar as it relates to those subsidiaries, is based solely on the reports of the other auditors. As of December 31, 2016 and 2015, the assets of these subsidiaries constitute 14% and 17%, respectively, of the consolidated total assets. For the years ended December 31, 2016 and 2015, the operating revenue of these subsidiaries constitute 14% and 13%, respectively, of the consolidated operating revenue.

PRIMAX ELECTRONICS LTD. has prepared its parent-company-only financial statements as of and for the years ended December 31, 2016 and 2015, on which we have issued an unmodified opinion with other matter paragraph.

4-1

Key Audit Matters

Key audit matters are those matters that, in our professional judgments, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In our professional judgments, key audit matters to be communicated in the independent auditors’ report are listed below:

1. Evaluation of inventories

Please refer to Note 4(h) “Inventories”, Note 5 “Significant accounting assumptions and judgments, and major sources of estimation uncertainty”, and Note 6(e) “Inventories” of the consolidated financial statements.

Description of key audit matter:

Inventories of the Group are measured at the lower of cost and net realizable value. Due to the fast high-tech revolution, as well as the advancement of production technologies that may lead dramatic change in customers’ demand, the net realizable value of inventories requires subjective judgments of the management, which is the major source of estimation uncertainty. Therefore, evaluation of inventories is one of the key audit matters for our audit.

How the matter was addressed in our audit:

Our principal audit procedures included: understanding the policies of evaluating the inventories of the Group; inspecting whether existing inventory policies are applied; examine the accuracy of the aging of inventories by sampling and analyse the changes of the aging of inventories; inspecting the reasonability for allowance provided on inventory valuation in the past and compare it to the current year to ensure that the measurements and assumptions are reasonable; sampling the inventories sold in the subsequent period to assess whether the allowance for inventories are reasonable.

In addition, the consolidated financial statements of certain subsidiaries were audited by other auditors, therefore, we issued audit instructions to their auditors as guidelines to communicate the above key audit matters with them and obtained the feedbacks required in the audit instructions.

2. Impairment assessment of intangible assets

－ Please refer to Note 4(n) “Impairment non-financial assets”, Note 5 “Significant accounting assumptions and judgments, and major sources of estimation uncertainty”, and Note 6(k) “Intangible assets” of the consolidated financial statements.

Description of key audit matter:

In 2014, the Company acquired Tymphany Worldwide Enterprises Ltd. through its subsidiary, Diamond (Cayman) Holdings Ltd., and recognized its goodwill, technologies and customer relations as intangible assets. Due to the rapid industrial transformation, the assessment of imapirment contains estimation uncertainty. Therefore, the assessment of impairment of intangible assets is one of the key audit matters for our audit.

4-2

How the matter was addressed in our audit:

The principal audit procedures on the assessment of impairment of intangible assets included: evaluating the identification of cash generating units and any indication of impairment relating to intangible assets made by the management; acquiring intangible evaluation reports from external expert engaged by the Group; appointing our internal expert to review the evaluation reports and assessing the reasonability of measurements, parameters, and assumptions; evaluating the operation outcomes and comparing them to the past forecasts; making sensitivity analysis for evaluation of impairment losses and evaluating the completeness of disclosure in the consolidated financial reports.

3. Disposal of subsidiaries

Please refer to Note 4(c) “Basis of consolidation”, Note 4(i) “Discontinued operations”, Note 6 (g) “Loss of control of subsidiaries”, and Note 12 (b) “Discontinued operations” of the consolidated financial statements.

Description of key audit matter:

The Company sold parts of its shares in its subsidiary, Global TEK Fabrication Co., Ltd, and lost control over the subsidiary on October 3, 2016. This is a non-recurring transaction to the Group, wherein the trading parties are its related parties. Therefore, the disposal of subsidiaries is one of the key audit matters for our audit.

How the matter was addressed in our audit:

The principal audit procedures on the disposal of its subsidiary included: assessing whether the transactions complying with the Regulations Governing the Acquisition and Disposal of Assets by Public Companies and the Regulation of Internal Control System of PRIMAX ELECTRONICS LTD.; reading the contracts to fully understand the trading parties involved, prices, and other agreements; inspecting the external materials of cash proceeds and amendment of shares register; obtaining the audit report from other auditors on the date the Group lost its control over the subsidiary to be the base to derecognize the assets and liabilities of the subsidiary and to present its operating results as discontinued operation in the consolidated statement of comprehensive income. Evaluating the completeness of the disclosure in the the consolidated financial reports.

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 Regulations Governing the Preparation of Financial Reports by Securities Issuers and IFRSs, IASs, interpretations as well as related guidance endorsed 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 are responsible for overseeing the Group’s financial reporting process.

4-3

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the 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 auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

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

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

4-4

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

The engagement partners on the audit resulting in this independent auditors’ report are YUNG-HUA HUANG and CHI-LUNG YU.

KPMG

Taipei, Taiwan (Republic of China) March 7, 2017

Notes to Readers

The accompanying consolidated financial statements are intended only to present the consolidated statement of financial position, financial performance and its cash flows in accordance with the 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 accepted and applied in the Republic of China.

(English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2016 and 2015

(Expressed in Thousands of New Taiwan Dollars)

Assets Current assets: 1100 Cash and cash equivalents (note 6(a)) 1110 Current financial assets at fair value through profit or loss (note 6(b)) 1170 Notes and accounts receivable, net (note 6(d)) 1180 Accounts receivable from related parties, net (notes 6(d) and 7) 1200 Other receivables, net (note 6(d)) 1310 Inventories (note 6(e)) 1470 Other current assets (note 8) Non-current assets: 1523 Available-for-sale financial assets`－`non-current (note 6(c)) 1600 Property, plant and equipment (notes 6(i) and 8) 1760 Investment property (note 6(j)) 1780 Intangible assets (note 6(k)) 1840 Deferred tax assets (note 6(p)) 1985 Long-term prepaid rents (note 8) 1990 Other non-current assets (note 8) Total assets	December 31, 2016 Amount % $ 6,359,916 17 141,317 - 13,603,873 37 102,841 - 495,392 2 6,670,547 18 425,668 1 27,799,554 75 887,801 2 4,717,422 13 35,677 - 2,673,670 7 570,205 2 264,014 1 173,706 - 9,322,495 25 $ 37,122,049 100	December 31, 2015 Amount % 7,623,380 18 88,717 - 14,424,622 35 54,995 - 462,242 1 7,350,609 18 408,596 1 30,413,161 73 584,430 1 6,284,023 15 258,709 1 3,322,191 8 390,414 1 306,125 1 172,680 - 11,318,572 27 41,731,733 100 Liabilities and Equity Current liabilities: 2100 Short-term borrowings (note 6(l)) 2170 Notes and accounts payable 2120 Current financial liabilities at fair value through profit or loss (note 6(b)) 2200 Other payables (note 7) 2201 Salary payable (note 6(r)) 2300 Other current liabilities 2320 Long-term borrowings, current portion (note 6(m)) Non-Current liabilities: 2540 Long-term borrowings (note 6(m)) 2630 Long-term deferred revenue (note 6(i)) 2600 Other non-current liabilities (notes 6(o) and (p)) Total liabilities Equity attributable to owners of parent: 3110 Ordinary shares (note 6(q)) 3140 Capital collected in advance (note 6(q)) 3200 Capital surplus (note 6(q)) 3310 Legal reserve (note 6(q)) 3320 Special reserve (note 6(q)) 3350 Unappropriated retained earnings (note 6(q)) 3400 Other equity interest 36XX Non-controlling interests(note 6(h)) Total equity Total liabilities and equity	December 31, 2016	December 31, 2016		December 31, 2015
			Amount	%		Amount % 1,350,569 3 18,723,930 45 60,105 - 3,891,786 9 1,227,107 3 279,120 1 622,347 2 26,154,964 63 1,055,140 2 1,084,133 3 520,911 1 2,660,184 6 28,815,148 69 4,411,877 11 15,174 - 777,368 2 611,322 1 97,300 - 3,951,934 10 565,406 1 2,486,204 6 12,916,585 31 41,731,733 100
			$ - 16,892,918 150,430 3,878,606 1,146,183 350,860 382,222 22,801,219 218,889 1,408,138 449,345 2,076,372 24,877,591 4,421,343 3,024 791,466 788,634 97,300 4,779,419 118,538 1,244,734 12,244,458 $ 37,122,049	- 46 - 10 3 1 1 61 1 4 1 6 67 12 - 2 2 - 13 - 4 33 100

See accompanying notes to consolidated financial statements.

(English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2016 and 2015

(Expressed in Thousands of New Taiwan Dollars , Except for Earnings Per Share)

4000 Operating revenue (notes 6(t) and 7) 5000 Operating costs (notes 6(e), (o), (q), (r), (u) and 12) Gross profit Operating expenses (notes 6(f), (o), (q), (r), (u) and 12): 6100 Selling expenses 6200 Administrative expenses 6300 Research and development expenses Total operating expenses Net operating income Non-operating income and expenses: 7010 Other income (note 6(v)) 7020 Other gains and losses (notes 6(c), (g) and (w)) 7070 Share of profit of subsidiaries accounted for using equity method 7050 Finance costs Total non-operating income and expenses Profit from continuing operations before tax 7950 Less: income tax expense (note 6(p)) Profit from continuing operations 8100 Profit from discontinued operations, net of tax (note 12(b)) Profit 8300 Other comprehensive income (loss): 8310 Items that may not be reclassified subsequently to profit or loss: 8311 Actuarial gains (losses) on defined benefit plans 8360 Items that may be reclassified subsequently to profit or loss: 8361 Exchange differences on translation of foreign operation’s financial statements 8362 Unrealised gains on available-for-sale financial assets (notes 6(c) and (x)) 8399 Income tax expense related to items that may be reclassified to profit or loss Components of other comprehensive income that will be reclassified to profit or loss 8300 Other comprehensive income after tax Comprehensive income Profit attributable to: 8610 Owners of parent 8620 Non-controlling interests Comprehensive income attributable to: 8710 Owners of parent 8720 Non-controlling interests Earnings per share (note 6(s)) 9710 Basic earnings per share (NT dollars) Profit from continuing operations Profit from discontinued operations Profit per share 9810 Diluted earnings per share (NT dollars) Profit from continuing operations Profit from discontinued operations Profit per share	2016	% 100 89 11 2 2 3 7 4 - - - - - 4 1 3 - 3 - - (1) - - (1) (1) 2 3 - 3 2 - 2 4.36 0.04 4.40 4.32 0.04 4.36	2015 (restated)
	Amount $ 64,329,462 57,062,275 7,267,187 1,555,372 1,134,095 2,204,249 4,893,716 2,373,471 149,924 331,952 - (90,895) 390,981 2,764,452 777,686 1,986,766 61,896 2,048,662 (1,340) (1,340) (656,445) 110,706 - (545,739) (547,079) $ 1,501,583 $ 1,934,070 114,592 $ 2,048,662 $ 1,432,480 69,103 $ 1,501,583 $ $ $ $		Amount % 63,538,187 100 56,794,922 89 6,743,265 11 1,445,224 2 1,147,541 2 2,043,632 3 4,636,397 7 2,106,868 4 173,459 - 280,153 - 3,772 - (146,350) - 311,034 - 2,417,902 4 631,009 1 1,786,893 3 30,042 - 1,816,935 3 (8,540) - (8,540) - (60,203) - 294,053 - - - 233,850 - 225,310 - 2,042,245 3 1,773,122 3 43,813 - 1,816,935 3 1,987,738 3 54,507 - 2,042,245 3 4.04 0.02
			4.06
			3.99 0.02
			4.01

See accompanying notes to consolidated financial statements.

(English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES

Consolidated Statements of Changes in Equity

For the years ended December 31, 2016 and 2015

(Expressed in Thousands of New Taiwan Dollars)

			Equity attributable to owners of parent	Equity attributable to owners of parent	Equity attributable to owners of parent	Equity attributable to owners of parent	Equity attributable to owners of parent					Non-controlling interests Total equity
Share capital		Capital surplus		Retained earnings			Exchange differences on translation of foreign operation’s financial statements	Unrealized gains (losses) on available- for-sale financial assets		Unearned employee compensation	Total equity attributable to owners of parent
Ordinary shares	Capital collected in advance		Legal reserve		Special reserve	Unappropriated retained earnings
$ 4,346,578 - - - - - 30,000 (2,800) - - - 38,099 - 4,411,877 - - - - - (3,850) - - - 13,316 - $ 4,421,343	38,903 - -	673,543 - -	456,853 - -		97,300 - -	3,132,488 1,773,122 (8,100) 1,765,022 (154,469) (791,107) - - - - - - - 3,951,934 1,934,070 (1,340) 1,932,730 (177,312) (927,933) - - - - - - 4,779,419	422,382 - (71,337) (71,337) - - - - - - - - - 351,045 - (610,956) (610,956) - - - - - - - - (259,911)		707 - 294,053	(18,241) - - - - - (121,693) 13,058 46,477 - - - - (80,399) - - - - - 10,200 43,182 - - - - (27,017)	9,150,513 1,773,122 214,616	1,158,234 10,308,747 43,813 1,816,935 10,694 225,310 54,507 2,042,245 - - - (791,107) - - - - - 46,477 653 4,740 - 32,673 - - 1,272,810 1,272,810 2,486,204 12,916,585 114,592 2,048,662 (45,489) (547,079) 69,103 1,501,583 - - - (927,933) - - - 43,182 1,079 3,596 - 19,097 - - (1,311,652) (1,311,652) 1,244,734 12,244,458
	-	-	-		-				294,053		1,987,738
			154,469 - - - - - - - -		- - - - - - - - -				- - - - - - - - -
			611,322 - -		97,300 - -				294,760 - 110,706
			-		-				110,706
			177,312 - - - - - - -		- - - - - - - -				- - - - - - - -
			788,634		97,300				405,466

See accompanying notes to consolidated financial statements.

(English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES

Consolidated Statements of Cash Flows

For the years ended December 31, 2016 and 2015

(Expressed in Thousands of New Taiwan Dollars)

Cash flows from (used in) operating activities:
Profit from continuing operations before tax
Profit from discontinued operations before tax
Profit before tax
Adjustments:
Adjustments to reconcile profit (loss):
Depreciation and amortization
Losses related to inventories
Provision (reversal of provision) for bad debt expense and sales returns and discounts
Gain on disposal of subsidiaries
Gain on disposal of available-for-sale financial assets
Impairment losses on property, plant and equipment
Interest expense
Interest income
Compensation cost of share-based payment
Other
Total adjustments to reconcile profit (loss)
Changes in operating assets and liabilities:
Financial assets at fair value through profit or loss－current
Notes and accounts receivable
Accounts receivable from related parties
Other receivable－current and non-current
Inventories
Other current assets
Deferred tax assets
Other operating assets
Changes in operating assets
Notes and accounts payable
Salary payable
Other payables
Other current liabilities
Other operating liabilities
Changes in operating liabilities
Total changes in operating assets and liabilities
Total adjustments
Cash inflow generated from operations
Interest received
Interest paid
Income taxes paid
Net cash flows from operating activities
Cash flows from (used in) investing activities:
Net cash flow from acquisition of subsidiaries
Proceeds from disposal of subsidiaries (minus subsidiaries' cash)
Acquisition of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Acquisition of unamortized expense
Proceeds from disposal of available-for-sale financial assets
Other investint activities
Net cash flows used in investing activities
Cash flows from (used in) financing activities:
Decrease in short-term borrowings
Decrease in long-term borrowings
Increase (decrease) in guarantee deposits
Increase in other payables to related parties
Cash dividends
Exercise of employee share options
Net cash flows used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period 2016
2015
$ 2,764,452
2,417,902
105,225
55,051
2,869,677
2,472,953
1,650,235
1,473,215
947,465
427,434
137,481
(409)
(248,006)
-
(140,969)
-
86,850
-
98,693
160,220
(126,400)
(161,713)
46,778
51,217
14,814
30,339
2,466,941
1,980,303
(53,611)
8,771
(1,165)
(3,355,531)
(47,846)
5,586
(117,856)
(80,280)
(691,918)
(2,536,143)
(185,378)
162,065
(223,244)
(222,248)
(6,288)
47,455
(1,327,306)
(5,970,325)
(1,271,222)
5,698,649
(80,924)
174,267
224,411
1,121,644
104,737
122,026
115,582
(1,732)
(907,416)
7,114,854
(2,234,722)
1,144,529
232,219
3,124,832
3,101,896
5,597,785
126,400
161,713
(98,448)
(160,105)
(846,899)
(577,042)
2,282,949
5,022,351
-
(39,041)
108,980
-
(1,107,108)
(1,964,248)
72,617
66,055
(50,813)
(50,646)
220,270
-
24,063
13,276
(731,991)
(1,974,604)
(974,439)
(1,100,639)
(759,456)
(261,402)
27,566
(46,069)
-
(61,350)
(927,933)
(791,107)
19,097
32,673
(2,615,165)
(2,227,894)
(199,257)
(10,496)
(1,263,464)
809,357
7,623,380
6,814,023
$
6,359,916
7,623,380

See accompanying notes to consolidated financial statements.

(English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2016 and 2015

(Expressed in Thousands of New Taiwan Dollars, Unless Otherwise Specified)

(1) Company history

PRIMAX ELECTRONICS LTD. (the “Company”), formerly known as Hong Chuan Investments Ltd., was incorporated on March 20, 2006, and registered under the Ministry of Economic Affairs, ROC. The Company changed its name to Hong Chuan Electronics Ltd. and Primax Electronics Ltd. in October 2007 and February 2008, respectively. The address of the Company’s registered office is No. 669, Ruey Kuang Road, Neihu, Taipei.

Primax Electronics Holdings, Ltd. (Primax Holdings, formerly known as Apple Holdings Ltd.) acquired all shares of the Company from YWAN PANG Management Limited on April 2, 2007. The investment was approved by the Investment Commission, Ministry of Economic Affairs. However, all shares of the Company were sold by Primax Holdings to its stockholders in October 2009.

Based on the resolution approved by the Company’s board of directors on November 5, 2007, the Company resolved to acquire and merge with Primax Electronics Ltd. (“Primax”, a listed company) on December 28, 2007. The Company is the surviving company, and Primax was dissolved upon completion of the merger.

The consolidated financial statements of the Company as at and for the year ended December 31, 2015, comprised the Company and subsidiaries (together referred to as “the Group”). The major business activities of the Group were the manufacture and sale of multi-function printers, scanners, digital camera modules, computer mice, keyboards, track pads, mobile phone accessories, consumer electronics products, shredders, amplifiers, speakers, audio systems and industrial automation parts. Please refer to note 14 for further information.

The Company’s common shares were registered with the Financial Supervisory Commission, ROC (“FSC”) on June 22, 2012, and listed on the Taiwan Stock Exchange (“TWSE”) on October 5, 2012.

(2) Approval date and procedures of the consolidated financial statements:

The consolidated financial statements were authorized for issuance by the board of directors on March 7, 2017.

(3) New standards, amendments and interpretations adopted

(a) Impact of the International Financial Reporting Standards (“IFRSs”) endorsed by the FSC but not yet in effect

According to Ruling No. 1050026834 issued on July 18, 2016, by the FSC, public entities are required to conform to the IFRSs which were issued by the International Accounting Standards Board (IASB) before January 1, 2016, and were endorsed by the FSC on January 1, 2017 in preparing their financial statements. The related new standards, interpretations and amendments are as follows:

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

	Effective date
New, Revised or Amended Standards and Interpretations	per IASB
Amendments to IFRS 10, IFRS 12 and IAS 28 "Investment Entities: Applying	January 1, 2016
the Consolidation Exception"
Amendments to IFRS 11 "Accounting for Acquisitions of Interests in Joint	January 1, 2016
Operations"
IFRS 14 "Regulatory Deferral Accounts"	January 1, 2016
Amendment to IAS 1 "Disclosure Initiative"	January 1, 2016
Amendments to IAS 16 and IAS 38 "Clarification of Acceptable Methods of	January 1, 2016
Depreciation and Amortization"
Amendments to IAS 16 and IAS 41 "Agriculture: Bearer Plants"	January 1, 2016
Amendments to IAS 19 "Defined Benefit Plans: Employee Contributions"	July 1, 2014
Amendment to IAS 27 "Equity Method in Separate Financial Statements"	January 1, 2016
Amendments to IAS 36 "Recoverable Amount Disclosures for Non-Financial	January 1, 2014
Assets"
Amendments to IAS 39 "Novation of Derivatives and Continuation of Hedge	January 1, 2014
Accounting"
Annual improvements cycles 2010-2012 and 2011-2013	July 1, 2014
Annual improvements cycle 2012-2014	January 1, 2016
IFRIC 21 "Levies"	January 1, 2014

The Group assessed that the initial application of the above IFRSs would not have any material impact on the consolidated financial statements.

(b) Newly released or amended standards and interpretations not yet endorsed by the FSC

A summary of the new standards and amendments issued by the IASB but not yet endorsed by the FSC. is listed below. As of the date the Group’s financial statements were issued, except for IFRS 9 and IFRS 15, which should be applied starting January 1, 2018, the FSC has yet to announce the effective dates of the other IFRSs.

	Effective date
New, Revised or Amended Standards and Interpretations	per IASB
IFRS 9 "Financial Instruments"	January 1, 2018
Amendments to IFRS 10 and IAS 28 "Sale or Contribution of Assets Between	Effective date to
an Investor and Its Associate or Joint Venture"	be determined by
	IASB
IFRS 15 "Revenue from Contracts with Customers"	January 1, 2018
IFRS 16 "Leases"	January 1, 2019
Amendment to IFRS 2 "Clarifications of Classification and Measurement of	January 1, 2018
Share-based Payment Transactions"

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

	Effective date
New, Revised or Amended Standards and Interpretations	per IASB
Amendment to IFRS 15 "Clarifications of IFRS 15"	January 1, 2018
Amendment to IAS 7 "Disclosure Initiative"	January 1, 2017
Amendment to IAS 12 "Recognition of Deferred Tax Assets for Unrealized	January 1, 2017
Losses"
Amendments to IFRS 4 "Insurance Contracts"	January 1, 2018
Annual Improvements to IFRSs 2014 - 2016 Cycle :
IFRS 12 "Disclosure of Interests in Other Entities"	January 1, 2017
IFRS 1 "First-time Adoption of International Financial Reporting Standards"	January 1, 2018
and IAS 28 "Investments in Associates and Joint Ventures"
IFRIC 22 "Foreign Currency Transactions and Advance Consideration"	January 1, 2018
IAS 40 "Transfers of Investment Property"	January 1, 2018

Those standards that possibly impact the Company’s financial statements are listed below:

Issuance / Release

Dates May 28, 2014 April 12, 2016	Standards or Interpretations Content of amendment IFRS 15 "Revenue from Contracts with Customers" IFRS 15 establishes a five-step model for recognizing revenue that applies to all contracts with customers, and will supersede IAS 18 "Revenue," IAS 11 "Construction Contracts," and a number of revenue-related interpretations.

Final amendments issued on April 12, 2016, clarify how to (i) identify performance obligations in a contract; (ii) determine whether a company is a principal or an agent; (iii) account for a license for intellectual property (IP); and (iv) apply transition requirements.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

Issuance / Release
Dates
November 19, 2013
July 24, 2014
January 13, 2016
January 29, 2016 Standards or Interpretations
Content of amendment
IFRS 9 "Financial Instruments"
The standard will replace IAS 39 "Financial
Instruments: Recognition and Measurement",
and the main amendments are as follows:
Classification and measurement: Financial
‧
assets are measured at amortized cost, fair
value through profit or loss, or fair value
through other comprehensive income,
based on both the entity’s business model
for managing the financial assets and the
financial assets’ contractual cash flow
characteristics. Financial liabilities are
measured at amortized cost or fair value
through profit or loss. Furthermore, there is
a requirement that "own credit risk"
adjustments be measured at fair value
through other comprehensive income.
Impairment:
The
expected
credit
loss
‧
model is used to evaluate impairment.
Hedge accounting: Hedge accounting is
‧
more closely aligned with risk management
activities, and hedge effectiveness is
measured based on the hedge ratio.
IFRS 16 "Leases"
The new standard of accounting for lease is
amended as follows:
For a contract that is, or contains, a lease,
‧
the lessee shall recognize a right-of-use
asset and a lease liability in the balance
sheet. In the statement of profit or loss and
other comprehensive income, a lessee shall
present interest expense on the lease
liability separately from the depreciation
charge for the right-of use asset during the
lease term.
A lessor classifies a lease as either a
‧
finance lease or an operating lease, and
therefore, the accounting remains similar
to IAS 17.
Amendments to IAS 7
"Disclosure Initiative"
The amendments will require entities to
provide disclosures that enable investors to
evaluate changes in liabilities arising from
financing activities, including changes arising
from cash flows and non-cash changes.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

Issuance / Release
Dates
2016.6.20
December 8, 2016 Standards or Interpretations
Content of amendment
Amendments to IFRS 2
"Clarifications of
Classification and
Measurement of Share based
Payment Transactions"
The amendments, which were developed
through the IFRS Interpretations Committee,
provide requirements on the accounting for:
the effects of vesting and non-vesting
‧
conditions on the measurement of cash-
settled share-based payments;
share-based payment transactions with a
‧
net settlement feature for withholding tax
obligations; and
a modification to the terms and conditions
‧
of a share-based payment that changes the
classification of the transaction from cash-
settled to equity-settled.
IFRIC 22 "Foreign Currency
Transactions and Advance
Consideration"
The IFRIC 22 clarifies the transaction date
used to determine the exchange rate. The
transaction date is the date on which the
Company initially recognizes the prepayment
or deferred income arising from the advance
consideration.

The Group is evaluating the impact on its financial position and financial performance of the initial adoption of the abovementioned standards or interpretations. The results thereof will be disclosed when the Group completes its evaluation.

(4) Summary of significant accounting policies:

The significant accounting policies presented in the consolidated financial statements are summarized below. Except for those specifically indicated, the following accounting policies were applied consistently throughout the periods presented in the consolidated financial statements.

(a) Statement of compliance

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

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(b) Basis of preparation

(i) Basis of measurement

Except for the following significant accounts, the consolidated financial statements have been prepared on a historical cost basis:

1) Derivative financial instruments at fair value through profit or loss are measured at fair value;
2) Available-for-sale financial assets are measured at fair value;
3) Liabilities for cash-settled share-based payment are measured at fair value; and
4) The defined benefit liabilities are recognized as plan assets less the present value of the defined benefit obligation.
(ii) Functional and presentation currency

The functional currency of each Group entity is determined based on the primary economic environment in which the entity operates. The consolidated financial statements are presented in New Taiwan dollars, which is the Company’s functional currency. All financial information presented in New Taiwan dollars has been rounded to the nearest thousand.

(c) Basis of consolidation
(i) Principles of preparation of the consolidated financial statements

The consolidated financial statements comprise the Company and its subsidiaries. The Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its control over the entity.

The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance.

Accounting policies of subsidiaries have been adjusted to ensure consistency with the policies adopted by the Group.

Changes in the Group’s ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. Any differences between the Group’s share of net assets before and after the change and any consideration received or paid are adjusted to equity attributable to stockholders of the Company.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

When the Group loses control of a subsidiary, it shall derecognize assets (including goodwill), liabilities and non-controlling interests of the former subsidiary at their carrying amounts at the date when control is lost; and shall remeasure the investment retained in the former subsidiary at its fair value at the date when control is lost. The gain or loss arising from derecognition is the difference between: (1) the total amounts of the fair value of the consideration received and any investment retained in the former subsidiary at its fair value at the date when control is lost; and (2) the total amounts of the assets (including goodwill), liabilities and non-controlling interests of the subsidiary at their carrying amounts at the date when control is lost. The Group shall account for all amounts previously recognized in other comprehensive income, in relation to that subsidiary, on the same basis as would be required if the Group had directly disposed of the related assets or liabilities.

(ii) List of subsidiaries in the consolidated financial statements

The details of the subsidiaries included in the consolidated financial statements are as follows:

Name of investor	Name of subsidiary	Principal activities Holding company Holding company Holding company Market development and customer service Market development and customer service Holding company Market development and customer service Manufacture and sale of sophisticated machinery components, automotive parts, industrial automation parts, communication parts and aerospace components Export and import trading Holding company Manufacture of sophisticated machinery components and automotive parts Holding company	Percentage of shareholding December 31, 2016 December 31, 2015 Description % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % - % 100.00 Primax Korea was closed and finished the liquidation process in March 2016 % 100.00 % 100.00 % 100.00 % 100.00 % - % 30.00 (notes 2 & 3) % 100.00 % 100.00 % 70.00 % 70.00 (note 1) % - % 100.00 (notes 2 & 3) % - % 100.00 (notes 2 & 3)
			December 31, 2016 % 100.00 % 100.00 % 100.00 % 100.00 % - % 100.00 % 100.00 % - % 100.00 % 70.00 % - % -
The Company The Company The Company The Company The Company The Company The Company The Company Primax Cayman Diamond Global TEK Global TEK	Primax Industries (Cayman Holding) Ltd. (Primax Cayman) Primax Technology (Cayman Holding) Ltd. (Primax Tech.) Destiny Technology Holding Co., Ltd. (Destiny BVI.) Primax Destiny Co., Ltd. (Destiny Japan) Primax Electronics Korea Co., Ltd. (Primax Korea) Diamond (Cayman) Holdings Ltd. (Diamond) Gratus Technology Corp. (Gratus Tech.) Global TEK Fabrication Co., Ltd. (Global TEK) Primax Industries (Hong Kong) Ltd. (Primax HK) Tymphany Worldwide Enterprises Ltd. (TWEL) Global TEK Co., Ltd. (GT) Global TEK Fabrication Co., Ltd. (Samoa) (GTF-S)

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

				Percentage of	Percentage of	Percentage of
				shareholding
Name of		Principal	December			December
investor	Name of subsidiary	activities	31,	2016		31, 2015		Description
Primax HK	Dongguan Primax Electronic &	Manufacture of	100.00		%	100.00	%
and Primax Tech.	Telecommunication Products Ltd.	multifunctional
	(PCH2)	peripherals, computer
		mice, mobile phone
		accessories, consumer
		electronics products,
		and shredders
Primax HK	Primax Electronics (KS) Corp., Ltd.	Manufacture of	100.00		%	100.00	%
	(PKS1)	computer, peripherals
		and keyboards
Primax HK	Primax Electronics (Chongqing) Corp.,	Manufacture of	100.00		%	100.00	%
	Ltd. (PCQ1)	computer peripherals
		and keyboards
Primax Tech.	Polaris Electronics Inc. (Polaris)	Sale of multi-function	100.00		%	100.00	%
		printers and computer
		peripheral devices
Destiny BVI.	Destiny Electronic Corp.	Research and	100.00		%	100.00	%
	(Destiny Beijing)	development of
		computer peripheral
		devices and software
TWEL	Tymphany HK Ltd. (TYM HK)	Sale of audio	100.00		%	100.00	%	(note 1)
		accessories, amplifiers
		and their components
TWEL	TYP Enterprises, Inc. (TYP)	Market development	100.00		%	100.00	%	(note 1)
		and customer service
		of amplifiers and their
		components
TYM HK	Premium Loudspeakers (Hui Zhou)	Manufacture, research	100.00		%	100.00	%	(note 1)
	Co., Ltd. (Premium Hui Zhou)	and development,
		design, and sale of
		audio accessories,
		amplifiers and their
		components
TYM HK	TYMPHANY LOGISITCS, INC.	Sale of audio	100.00		%	100.00	%	TYML was
	(TYML)	accessories, amplifiers						incorporated in May
		and their components						2015
TYM HK	Dongguan Tymphany Acoustic	Manufacture, research	100.00		%	100.00	%	Tymphany
	Technology Co., Ltd.	and development,						Dongguan was
	(Tymphany Dongguan)	design, and sale of						incorporated in
		audio accessories,						September 2015
		amplifiers and their
		components
Tymphann	Dong Guan Dong Cheng Tymphany	Research and	100.00		%	-	%	TYDC was
Dongguan	Acoustic Technology Co., Ltd.	development, design,						incorporated in
	(TYDC)	and sale of audio						October 2016
		accessories, amplifiers
		and their components
GT	GP Tech, Inc. (GP)	Sale of automotive	-		%	100.00	%	(notes 2 & 3)
		parts, industrial
		automation parts,
		communication parts
		and aerospace
		components
GTF-S	Global TEK Fabrication Co., Ltd. (HK)	Holding company	-		%	100.00	%	(notes 2 & 3)
	(GTF-HK)
GTF-S	Global TEK Co., Ltd. (Samoa) (GTS)	Holding company	-		%	100.00	%	(notes 2 & 3)

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

				Percentage of	Percentage of
				shareholding
Name of		Principal	December		December
investor	Name of subsidiary	activities	31,	2016	31, 2015		Description
GTF-HK	WUXI GLOBAL TEK FABRICATION	Manufacture of	-	%	100.00	%	(notes 2 & 3)
	CO., LTD. (WUXI GLOBAL TEK)	sophisticated
		machinery components
GTS	GLOBAL TEK (XI’ AN) CO., LTD.	Manufacture of	-	%	100.00	%	(notes 2 & 3)
	(GLOBAL TEK XI’ AN)	industrial automation
		parts, communication
		parts and aerospace
		components
GTS and WUXI	GLOBAL TEK CO. (WUXI), LTD.	Manufacture of	-	%	100.00	%	(notes 2 & 3)
GLOBAL TEK	(GLOBAL TEK WUXI)	sophisticated
		machinery components
		and automotive parts

Note 1: TWEL was incorporated in October 2013, acquiring all shares of TYM HK by issuing new ordinary shares. The Company acquired 70% of the shares of TWEL by cash through its subsidiary Diamond on January 10, 2014. Therefore, the Company indirectly acquired all shares of TWEL’s subsidiaries, and included them in the consolidated financial statements from the same date.
Note 2: The Company acquired 30% of the shares of Global TEK by cash on January 5, 2015. Therefore, the Company indirectly acquired all shares of Global TEK’s subsidiaries. The Company has control over its relevant activities by acquiring more than 50% of the board of directors’ voting rights based on the resolution of its interim meeting of shareholders held on February 13, 2015. The Company included all Global TEK’s subsidiaries in the consolidated financial statements from the same date. Before the Company has control, investments in subsidiaries are accounted for using the equity method.
Note 3: The Board resolved to dispose 20% of the shares of Global TEK on June 21 and September 21, 2016. The disposal transaction has been settled on October 3, 2016, and the Company lost control over Global TEK on the same date.

(d) Foreign currencies

(i) Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of the Group entities at the exchange rates at the dates of the transactions. Monetary items denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between the amortized cost in the functional currency at the beginning of the year adjusted for the effective interest and payments during the year, and the amortized cost in the foreign currency translated at the exchange rate at the end of the year.

Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured based on historical cost are translated using the exchange rate at the date of translation.

Foreign currency differences arising on retranslation are recognized in profit or loss except for the differences relating to available-for-sale equity investment which are recognized in other comprehensive income.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(ii) Foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to the Group’s functional currency at the exchange rates at the reporting date. The income and expenses of foreign operations, excluding foreign operations in hyperinflationary economies, are translated to the Group’s functional currency at the average rate. Foreign currency differences are recognized in other comprehensive income, and presented in the foreign currency translation reserve in equity.

When a foreign operation is disposed of such that control, significant influence, or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When the Group disposes of any part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interest. When the Group disposes of only part of its investment in an associate or joint venture including a foreign operation while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss.

(e) Classification of current and non-current assets and liabilities

An asset is classified as current under one of the following criteria, and all other assets are classified as non-current.

(i) It is expected to be realized, or intended to be sold or consumed, in the normal operating cycle;
(ii) It is held primarily for the purpose of trading;
(iii) It is expected to be realized within twelve months after the reporting period; or
(iv) The asset is cash or a cash equivalent unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.

A liability is classified as current under one of the following criteria, and all other liabilities are classified as non-current.

(i) It is expected to be settled in the normal operating cycle;
(ii) It is held primarily for the purpose of trading;
(iii) It is due to be settled within twelve months after the reporting period; or
(iv) It does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by issuing equity instruments do not affect its classification.
(f) Cash and cash equivalents

Cash and cash equivalents comprise cash, cash in bank, and short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

Time deposits with maturities within three months or less which meet the above definition and are held for the purpose of meeting short term cash commitments rather than for investment or other purposes should be recognized as cash equivalents.

(g) Financial instruments

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

(i) Financial assets

The Group classifies financial assets into the following categories: financial assets at fair value through profit or loss, available-for-sale financial assets, and loans and receivables.

1) Financial assets at fair value through profit or loss

A financial asset is classified in this category if it is classified as held for trading or is designated as such on initial recognition. Financial assets are classified as held for trading if they are acquired principally for the purpose of selling in the short term.

Financial assets in this category are measured at fair value at initial recognition. Attributable transaction costs are recognized in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein, which take into account any dividend and interest income, are recognized in profit or loss, and are included in non-operating income and expenses. A regular way purchase or sale of financial assets shall be recognized and derecognized as applicable using tradedate accounting.

2) Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are designated as available for sale or are not classified in any of the other categories of financial assets. Available-for-sale financial assets are recognized initially at fair value, plus any directly attributable transaction cost. Subsequent to initial recognition, they are measured at fair value, and changes therein, other than impairment losses and dividend income, are recognized in other comprehensive income and presented in the fair value reserve in equity. When an investment is derecognized, the gain or loss accumulated in equity is reclassified to profit or loss, and is included in other gains and losses under nonoperating income and expenses. A regular way purchase or sale of financial assets shall be recognized and derecognized, as applicable, using trade-date accounting.

Dividend income is recognized in profit or loss on the date that the Group’s right to receive payment is established, which in the case of quoted securities is normally the exdividend date. Such dividend income is included in other income under non-operating income and expenses.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

3) Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables comprise notes and accounts receivable and other receivables. Such assets are recognized initially at fair value, plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses other than insignificant interest on short-term receivables. A regular way purchase or sale of financial assets shall be recognized and derecognized as applicable using trade-date accounting.

4) Impairment of financial assets

Except for financial assets at fair value through profit or loss, financial assets are assessed for impairment at each reporting date. A financial asset is impaired if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset that can be estimated reliably.

Objective evidence that financial assets are impaired includes default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers or issuers, economic conditions that correlate with defaults, or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is considered objective evidence of impairment.

All individually significant receivables are assessed for specific impairment. Receivables that are not individually significant are collectively assessed for impairment by grouping together assets with similar risk characteristics. In assessing collective impairment, the Group uses historical trends of the probability of default, the timing of recoveries, and the amount of loss incurred adjusted for management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than those suggested by historical trends.

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate.

An impairment loss in respect of a financial asset is deducted from the carrying amount except for trade receivables, for which an impairment loss is reflected in an allowance account against the receivables. When it is determined a receivable is uncollectible, it is written off from the allowance account. Any subsequent recovery of a receivable written off is recorded in the allowance account. Changes in the amount of the allowance account are recognized in profit or loss.

Impairment losses on available-for-sale financial assets are recognized by reclassifying the losses accumulated in the fair value reserve in equity to profit or loss.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

If, in a subsequent period, the amount of the impairment loss of a financial asset measured at amortized cost decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the decrease in impairment loss is reversed through profit or loss to the extent that the carrying value of the asset does not exceed its amortized cost before impairment was recognized at the reversal date.

Impairment losses recognized on an available-for-sale equity security are not reversed through profit or loss. Any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognized in other comprehensive income, and accumulated in other equity.

Impairment losses and recoveries of accounts receivable are recognized in operating expense; impairment losses and recoveries of other financial assets are recognized in other gains and losses under non-operating income and expenses.

5) Derecognition of financial assets

Financial assets are derecognized when the contractual rights of the cash inflow from the asset are terminated, or when the Group transfers substantially all the risks and rewards of ownership of the financial assets.

On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of the consideration received or receivable and any cumulative gain or loss that had been recognized in other comprehensive income is recognized in profit or loss, and it is included in other gains and losses under non-operating income and expenses.

The Group separates the part that continues to be recognized and the part that is derecognized based on the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part derecognized and the sum of the consideration received for the part derecognized and any cumulative gain or loss allocated to it that had been recognized in other comprehensive income shall be recognized in profit or loss, and it is included in other gains and losses under nonoperating income and expenses. A cumulative gain or loss that had been recognized in other comprehensive income is allocated between the part that continues to be recognized and the part that is derecognized, based on the relative fair values of those parts.

(ii) Financial liabilities and equity instruments
1) Classification of debt or equity

Debt or equity instruments issued by the Group are classified as financial liabilities or equity in accordance with the substance of the contractual agreement.

An equity instrument is any contract that evidences residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued are recognized as the amount of consideration received, less the direct cost of issuing.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

2) Other financial liabilities

Financial liabilities not classified as held for trading or designated as at fair value through profit or loss, which comprise notes and accounts payable, salary payable, other payables, and loans and borrowings are measured at fair value, plus any directly attributable transaction cost at the time of initial recognition. Subsequent to initial recognition, they are measured at amortized cost calculated using the effective interest method. Interest expense not capitalized as capital cost is recognized in profit or loss, and is included in finance costs under non-operating income and expenses.

3) Derecognition of financial liabilities

The Group derecognizes a financial liability when its contractual obligation has been discharged or cancelled, or has expired. The difference between the carrying amount of a financial liability removed and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss, and is included in other gains and losses under non-operating income and expenses.

4) Offsetting of financial assets and liabilities

The Group presents financial assets and liabilities on a net basis when the Group has the legally enforceable right to offset and intends to settle such financial assets and liabilities on a net basis or to realize the assets and settle the liabilities simultaneously.

(iii) Derivative financial instruments

The Group holds derivative financial instruments to hedge its foreign currency exposure. Derivatives are recognized initially at fair value, and attributable transaction costs are recognized in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are recognized in profit or loss, and are included in other gains and losses under non-operating income and expenses. When the fair value of a derivative instrument is positive, it is classified as a financial asset, and when the fair value is negative, it is classified as a financial liability.

(h) Inventories

Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the weighted-average-costing method, and includes expenditure incurred in acquiring the inventories, production or conversion costs, and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity.

Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(i) Discontinued operations

A discontinued operation is a component, which is a single operating line or area, disposed or available for sale of the Group or a subsidiary acquired for resale. An operation will be classified as a discontinued operation upon disposal or when the operation meets the criteria to be classified as held for sale or held for distribution to owners, whichever comes first. When an operation is classified as a discontinued operation, the comparative statement of comprehensive income is represented as if the operation had been discontinued from the beginning of the comparative year.

(j) Investment property

Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, for use in the production or supply of goods or services, or for administrative purposes. Investment property is measured at cost on initial recognition and subsequently. Depreciation expense is calculated based on the depreciation method, useful life, and residual value which are the same as those adopted for property, plant and equipment. Cost includes expenditure that is directly attributable to the acquisition of the investment property.

When the use of an investment property changes such that it is reclassified as property, plant and equipment, its book value at the date of reclassification becomes its cost for subsequent accounting.

Any gain or loss on disposal of an investment property (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) is recognized in non-operating income and expenses and it is included in other gains and losses.

(k) Property, plant and equipment

(i) Recognition and measurement

Items of property, plant and equipment are measured at cost, less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributed to the acquisition of the asset. The cost of software is capitalized as part of the property, plant and equipment if the purchase of the software is necessary for the property, plant and equipment to be capable of operating.

Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately.

The gain or loss arising from the derecognition of an item of property, plant and equipment shall be determined as the difference between the net disposal proceeds and the carrying amount of the item, and it shall be recognized as other gains and losses under non-operating income and expense.

(ii) Reclassification to investment property

A property is reclassified to investment property at its carrying amount when the use of the property changes from owner-occupied investment use.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(iii) Subsequent cost

Subsequent expenditure is capitalized only when it is probable that the future economic benefits associated with the expenditure which can be reliably measured will flow to the Group. The carrying amount of those parts that are replaced is derecognized. Ongoing repairs and maintenance are expensed as incurred.

(iv) Depreciation

Depreciation is calculated on the cost of an asset less its residual value on a straight-line basis over the estimated useful lives of each component of an item of property, plant and equipment. Items of property, plant and equipment with the same useful life may be grouped in determining the depreciation charge. The remainder of the items may be depreciated separately. The depreciation charge shall be recognized in profit or loss.

Land has an unlimited useful life and therefore is not depreciated.

The estimated useful lives for the current and comparative years of significant items of property, plant and equipment are as follows:

1) Buildings, leasehold improvement, and additional equipment: 1 ~ 51 years
2) Machinery and equipment: 1 ~10 years
3) Office and other equipment: 1 ~5 years

Depreciation methods, useful lives, and residual values are reviewed at each reporting date. If expectations differ from the previous estimates, the change is accounted for as a change in accounting estimate.

(l) Lease
(i) Lessor

Lease income from an operating lease is recognized in income on a straight-line basis over the lease term.

(ii) Lessee

Payments made under an operating lease (excluding insurance and maintenance expenses) are recognized in profit or loss on a straight-line basis over the term of the lease.

Contingent rent is recognized as expense in the periods in which it is incurred.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(m) Intangible assets

(i) Goodwill

1) Recognition

Goodwill arising from a business combination is recognized as intangible assets.

Goodwill is measured as the aggregation of the consideration transferred (which generally is measured at fair value at the acquisition date) and the amount of any noncontrolling interest in the acquiree, net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed (generally at fair value).

2) Subsequent measurement

Goodwill is measured at cost less accumulated impairment losses.

(ii) Other intangible assets

Other intangible assets that are acquired by the Group are measured at cost, less accumulated amortization and any accumulated impairment losses.

(iii) Subsequent expenditure

Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognized in profit or loss as incurred.

(iv) Amortization

The amortizable amount is the cost of an asset less its residual value.

Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use. The estimated useful lives for the current and comparative periods are as follows:

1)	Customer relationships	10 years
2)	Technology	10 years
3)	Trademarks	10 years
4)	Patents	2.5~10 years
5)	Copyrights	15 years

The residual value, amortization period, and amortization method for an intangible asset with a finite useful life shall be reviewed at least annually at each fiscal year-end. Any change shall be accounted for as a change in accounting estimate.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(n) Impairment of non-financial assets

Non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. If it is not possible to determine the recoverable amount for the individual asset, then the Group will have to determine the recoverable amount for the asset’s cash-generating unit.

The recoverable amount for an individual asset or a cash-generating unit is the higher of its fair value, less costs to sell, or its value in use. If the recoverable amount of an individual asset or a cash-generating unit is less than its carrying amount, the carrying amount of the individual asset or cash-generating unit shall be reduced to its recoverable amount; and that reduction is accounted for as an impairment loss. An impairment loss shall be recognized immediately in profit or loss.

The Group assesses at the end of each reporting period whether there is any indication that an impairment loss recognized in prior periods for an asset may no longer exist or may have decreased. An impairment loss recognized in prior periods for an individual asset or a cash-generating unit shall be reversed if there has been a change in the estimates used to determine the recoverable amount since the last impairment loss was recognized. If this is the case, the carrying amount of the asset shall be increased to its recoverable amount but should not exceed the depreciated or amortized balance of the assets assuming no impairment loss was recognized in prior periods.

Notwithstanding whether indicators exist, recoverability of goodwill is tested at least annually.

For the purpose of impairment testing, goodwill acquired in a business combination shall be allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination. If the carrying amount of each of the cash-generating units exceeds the recoverable amount of the unit, impairment loss is recognized, and is allocated to reduce the carrying amount of each asset in the unit. Reversal of an impairment loss for goodwill is prohibited.

(o) Revenue

(i) Goods sold

Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of returns, trade discounts, and volume rebates. Revenue is recognized when persuasive evidence exists that the significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that a discount will be granted and the amount can be measured reliably, then the discount is recognized as a reduction of revenue as the sales are recognized.

The timing of the transfers of risks and rewards varies depending on the individual terms of the sales agreement. Transfer usually occurs when the goods is received at the customer’s warehouse.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(ii) Services

The Group provides services, such as model research, development, and design, to customers. Revenue from services rendered is recognized in profit or loss in proportion to the stage of completion of the transaction, agreed by both sides, at the reporting date.

(p) Deferred grant revenue

Deferred grant revenue with additional conditions shall be recognized if the Group fulfills the conditions and the grant revenue becomes receivable.

Deferred grant revenue shall be recognized in profit or loss on a systematic basis in the periods in which the expenses it is to compensate are recognized. Grant revenue with conditions to compensate for the acquisition cost of an asset shall be deferred and recognized in profit or loss on a systematic basis over the useful life of the asset.

If the deferred grant revenue is to compensate for the Group’s expenses that have been incurred or to supply immediate financial support to the Group and there is no related cost in the future, it shall be recognized in profit or loss when the grant revenue becomes receivable.

(q) Employee benefits

(i) Defined contribution plans

Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in profit or loss in the periods during which services are rendered by employees.

(ii) Defined benefit plans

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods, based on the discounted present value of the said defined benefit obligation. The fair value of any plan assets are deducted for purposes of determining the Group’s net defined benefit obligation. The discount rate used in calculating the present value is the market yield at the reporting date of government bonds that have maturity dates approximating the terms of the Group’s obligations and that are denominated in the same currency in which the benefits are expected to be paid.

The calculation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Group, the recognized asset is limited to the total of the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements that apply to any plan in the Group. An economic benefit is available to the Group if it is realizable during the life of the plan, or on settlement of the plan liabilities.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognized immediately in profit or loss.

Remeasurements of the net defined benefit liability (asset), which comprise (1) actuarial gains and losses, (2) the return on plan assets (excluding interest), and (3) the effect of the asset ceiling (if any, excluding interest), are recognized immediately in other comprehensive income and recognized in retained earnings in a subsequent period.

(iii) Short-term employee benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.

A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.

(r) Share-based payment

The grant-date fair value of share-based payment awards granted to employees is recognized as employee expenses, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount recognized as an expense is adjusted to reflect the number of awards whose related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date.

For share-based payment awards with non-vesting conditions, the grant-date fair value of the sharebased payment is measured to reflect such conditions, and there is no true-up for differences between the expected and the actual outcomes.

The fair value of the amount payable to employees in respect of share appreciation rights, which are settled in cash, is recognized as an expense with a corresponding increase in liabilities over the period that the employees become unconditionally entitled to payment. The liability is re-measured at each reporting date and settlement date. Any changes in the fair value of the liability are recognized as personnel expenses in profit or loss.

(s)

Income taxes

Income tax expenses include both current taxes and deferred taxes. Except for expenses related to business combinations or recognized directly in equity or other comprehensive income, all current and deferred taxes shall be recognized in profit or loss.

Current taxes include tax payables and tax deduction receivables on taxable gains (losses) for the year calculated using the statutory tax rate on the reporting date or the actual legislative tax rate, as well as tax adjustments related to prior years.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

Deferred taxes arise due to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases. Deferred taxes are recognized except for the following exceptions:

(i) Assets and liabilities that are initially recognized but are not related to a business combination and have no effect on profit or taxable gains (losses) at the time of the transaction.
(ii) Temporary differences arising from equity investments in subsidiaries or joint ventures where there is a high probability that such temporary differences will not reverse.
(iii) Initial recognition of goodwill.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, which are normally the tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax assets and liabilities may be offset against each other if the following criteria are met:

(i) The entity has the legal right to settle tax assets and liabilities on a net basis; and
(ii) The taxing of deferred tax assets and liabilities fulfills one of the scenarios below:
1) levied by the same taxing authority; or
2) levied by different taxing authorities, but where each such authority intends to settle tax assets and liabilities (where such amounts are significant) on a net basis every year of the period of expected asset realization or debt liquidation, or where the timing of asset realization and debt liquidation is matched.

A deferred tax asset should be recognized for the carry forward of unused tax losses, unused tax credits, and deductible temporary differences to the extent that it is probable that future taxable profit will be available against which the unused tax losses, unused tax credits, and deductible temporary differences can be utilized. Such unused tax losses, unused tax credits, and deductible temporary differences shall also be re-evaluated every year on the financial reporting date, and they shall be adjusted based on the probability that future taxable profit that will be available against which the unused tax losses, unused tax credits, and deductible temporary differences can be utilized.

(t) Business combination

Goodwill is measured as the aggregation of the consideration transferred (which generally is measured at fair value at the acquisition date) and the amount of any non-controlling interest in the acquiree, net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed (generally at fair value).

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, provisional amounts for the items for which the accounting is incomplete are reported in the Group’s financial statements. During the measurement period, the provisional amounts recognized are retrospectively adjusted at the acquisition date, or additional assets or liabilities are recognized to reflect the new information obtained about facts and circumstances that existed as of the acquisition date. The measurement period shall not exceed one year from the acquisition date.

All the transaction costs incurred for the business combination are recognized immediately as the Group’s expenses when incurred, except for the issuance of debt or equity instruments.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognized amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transactionby-transaction basis. Other types of non-controlling interests are measured at fair value or other basis endorsed by the FSC.

(u) Earnings per share

The Group discloses the basic and diluted earnings per share attributable to ordinary stockholders of the Company. Basic earnings per share is calculated as the profit attributable to the ordinary stockholders of the Company divided by the weighted-average number of ordinary shares outstanding. Diluted earnings per share is calculated as the profit attributable to ordinary stockholders of the Company divided by the weighted-average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares. Dilutive potential ordinary shares comprise employee stock options, employee remuneration, and restricted stock.

(v) Operating segments

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the Group). Operating results of the operating segment are regularly reviewed by the Group’s chief operating decision maker to make decisions about resources to be allocated to the segment and to assess its performance. Each operating segment consists of standalone financial information.

(5) Significant accounting assumptions and judgments, and major sources of estimation uncertainty:

The preparation of the consolidated financial statements in conformity with the Regulations and the IFRSs endorsed by the FSC requires management to make judgments, estimates and assumptions that affect the application of the accounting policies and the reported amount of assets, liabilities, income and expenses. Actual results may differ from these estimates.

The management continues to monitor the accounting assumptions, estimates and judgments. The management recognizes any changes in accounting estimates during the period and the impact of those changes in accounting estimates in the next period.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

There are no critical judgments made in applying the accounting policies that have significant effects on the amounts recognized in the consolidated financial statements.

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year is as follows:

(a) Valuation of inventories

As inventories are measured at the lower of cost or net realizable value, the Group estimates the amount due to inventories’ obsolescence and unmarketable items at the reporting date and then writes down the cost of inventories to net realizable value. The net realizable value of the inventory is mainly determined based on assumptions as to future demand within a specific time horizon. Due to the rapid industrial transformation, there may be significant changes in the net realizable value of inventories.

(b) Assessment of impairment of intangible assets (including goodwill)

The assessment of impairment of intangible assets required the Group to make subjective judgments on cash-generating units, allocate the intangible assets to relevant cash-generating units, and estimate the recoverable amount of relevant cash-generating units. Changes in economic conditions or changes in assessment caused by business strategies could result in significant impairment charges or reversal in future years.

The Group’s accounting policies include measuring financial and non-financial assets and liabilities at fair value through profit and loss. The Group has established an internal control framework with respect to the measurement of fair value and regularly reviews significant unobservable inputs and valuation adjustments. If third-party information, such as broker quotes or pricing services, is used to measure fair value, then the Group assessed the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRSs, including the level in the fair value hierarchy in which such valuations should be classified.

The Group strives to use market observable inputs when measuring assets and liabilities. Different levels of the fair value hierarchy to be used in determining the fair value of financial instruments are as follows:

Level 1: quoted prices (unadjusted) in active markets for identifiable assets or liabilities.
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (ie as prices) or indirectly (ie derived from prices).
Level 3: inputs for the assets or liability that are not based on observable market data.

For any transfer within the fair value hierarchy, the impact of the transfer is recognized on the reporting date. Please refer to Note 6(y) for assumptions used in measuring fair value.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(6) Explanation of significant accounts:

(a) Cash and cash equivalents

Cash on hand Checking accounts and demand deposits Time deposits	December 31, 2016 December 31, 2015 $ 2,946 4,097 1,761,981 2,939,622 4,594,989 4,679,661 $ 6,359,916 7,623,380

Please refer to note 6(y) for the currency risk and the interest rate risk of the Group’s cash and cash equivalents.

(b) Financial assets and liabilities at fair value through profit or loss
(i) Details of financial instruments were as follows:

Financial assets at fair value through profit or loss – current: Non-derivative financial assets: Mutual funds Derivative financial assets: Forward exchange contracts Foreign exchange swap contracts Financial liabilities at fair value through profit or loss – current: Derivative financial liabilities: Forward exchange contracts Foreign exchange swap contracts	December 31, 2016 December 31, 2015 $ - 969 $ 141,317 87,748 - - $ 141,317 87,748 $ (72,909) (60,105) (77,521) - $ (150,430) (60,105)

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(ii) The Group held the following derivative financial instruments not designated as hedging instruments presented as held-for-trading financial assets as of December 31, 2016 and 2015:

	December 31, 2016	Maturity date Predetermined rate January 5, 2017~ March 27, 2017 31.157~32.015 January 5, 2017~ March 27, 2017 31.765~32.290 January 5, 2017~ January 19, 2017 31.245~31.920 Maturity date Predetermined rate January 7, 2016~ February 26, 2016 32.754~32.892 January 7, 2016~ February 26, 2016 32.802~33.010 January 4, 2016~ January 19, 2016 6.4115~6.5934 January 19, 2016 6.6380 January 25, 2016 120.75~122.40
Derivative financial instruments	Nominal amount
Forward exchange contracts `－`buy USD / sell TWD Forward exchange contracts `－`buy TWD / sell USD Foreign exchange swap contracts `－`swap in TWD / swap out USD	USD 252,000 thousand USD 189,500 thousand USD 81,000 thousand December 31, 2015
Derivative financial instruments	Nominal amount
Forward exchange contracts `－`buy USD / sell TWD Forward exchange contracts `－`buy TWD / sell USD Forward exchange contracts `－`buy USD / sell CNY Forward exchange contracts `－`buy CNY / sell USD Forward exchange contracts `－`buy JPY / sell USD	USD 205,000 thousand USD 205,000 thousand USD 63,500 thousand USD 40,000 thousand USD 516 thousand

(iii) Please refer to note 6(y) for the liquidity risk of the Group’s financial instruments.

(iv) The Group did not provide any of the aforementioned financial assets at fair value through profit or loss – current as collateral.

Stocks listed in domestic markets Stocks unlisted in domestic markets Stocks unlisted in foreign markets	December 31, 2016 December 31, 2015 $ 586,404 551,600 287,517 16,297 13,880 16,533 $ 887,801 584,430

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(i) WK Technology Fund IV Ltd. refunded $1,600 and $1,280 to the Group due to capital reduction in July 2015 and April 2016, respectively.
(ii) WK Global Investment III Ltd. refunded $2,254 to the Group due to capital reduction in April 2016 。
(iii) Titan 1 Venture Capital Co., Ltd. and Neosonica Technologies Inc. were closed and finished the liquidation process in August and March 2015, respectively. The Group received $175 due to the liquidation and recorded it as other gains and losses.
(iv) The impairment loss was $939 for the year ended December 31, 2015 and was recognized as other gains and loss.
(v) The Group held 30% share of Global TEK’s shares and sold 20% shares of them at $50 per share on October 3, 2016. The Group reclassified the remaining amounted to $275,500 to －
available-for-sale financial assets non-current. Please refer to note 6(g) for further information about disposal of Global TEK’s shares.
(vi) In the second quarter of 2016, the Group sold 841 thousand shares of Nien Made Enterprise Co., Ltd. for $220,270. The gain on disposal which was recognized as other gains and losses, amounted to $140,969, deducting the cost of $79,301.
(vii) The unrealized gains were $110,706 and $294,053 for the years ended December 31, 2016 and 2015, respectively, and were recognized as unrealized gains on available-for-sale financial assets.
(viii) The Group did not provide any of the aforementioned available-for-sale financial assets as collateral.
(d) Notes and accounts receivable, and other receivables (including related parties)

Notes receivable Accounts receivable Accounts receivable – related parties Other receivables Less: allowance for doubtful accounts allowance for sales returns and discounts Total	December 31, 2016 December 31, 2015 $ 3,761 134,860 13,798,350 14,353,936 102,841 54,995 495,392 462,242 (99,936) (29,247) (98,302) (34,927) $ 14,202,106 14,941,859

(i) The Group did not provide any of the aforementioned notes and accounts receivable, and other receivables (including related parties) as collateral.
(ii) Please refer to note 6(y) for the movements in the allowance for doubtful accounts and the credit risk and currency risk for the years ended December 31, 2016 and 2015.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(iii) The Company entered into agreements with banks to sell its accounts receivable without recourse. According to the agreements, within the limit of its credit facilities, the Company does not need to guarantee the capability of its customers to pay for reasons other than commercial disputes when transferring its accounts receivable. The Company receives partial advances upon sales of accounts receivable and pays interest calculated based on the interest rates agreed for the period through the collection of the accounts receivable. The remaining amounts are received upon the collection of the accounts receivable, and are recorded as other receivables. In addition, the Company shall pay handling charges based on a fixed rate. As of December 31, 2016 and 2015, the details of transferred accounts receivable which conformed to the criteria for derecognition were as follows:

			December 31, 2016
Buyer Mega International Commercial Bank HSBC Bank Bank of Taiwan	Amount sold NT$ $ 374,057 592,397 449,051 $ 1,415,505	Credit facilities US$ (expressed in thousand) 20,000 64,400 26,000 110,400	Cash received in advance NT$ Interest rate Guarantee (promissory note) expressed in thousands 336,651 % 1.75 US$ 5,000 533,157 % 1.42 US$ 58,000 404,146 % 2.10 NT$ 772,200 1,273,954 December 31, 2015	Amount derecognized NT$ Amount not received NT$ 336,651 37,406 533,157 59,240 404,146 44,905 1,273,954 141,551
Buyer Mega International Commercial Bank HSBC Bank Bank of Taiwan		Credit facilities US$ (expressed in thousand) 25,000 64,400 26,000 115,400	Cash received in advance NT$ Interest rate Guarantee (promissory note) expressed in thousands - US$ 7,000 - US$ 58,000 - NT$ 725,400 -	Amount derecognized NT$ Amount not received NT$ - - - - - - - -

(iv) Please refer to note 9 for guarantee notes provided by the Company to sell its accounts receivable.

(e) Inventories

Raw materials Semi-finished goods and work in process Finished goods and merchandise	December 31, 2016 December 31, 2015 $ 1,618,227 1,465,472 1,485,837 1,488,325 3,566,483 4,396,812 $ 6,670,547 7,350,609

The Group did not provide any of the aforementioned inventories as collateral.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

For the years ended December 31, 2016 and 2015, the Group recognized the following items as cost of goods sold:

Losses on inventory valuation Unallocated manufacturing overhead resulting from the actual production being lower than the normal capacity Loss on disposal of inventories Gain on physical inventories	2016 2015 $ (792,757) (140,387) (135,888) (92,214) (19,737) (184,276) 7,126 1,033 $ (941,256) (415,844)

(f) Business combination
(i) Global TEK Group

Based on the resolution approved by the board of directors’ meeting held on October 15, 2014, the Company signed a share subscription agreement and a share purchase agreement with Global TEK and its primary stockholders, respectively, and acquired 30% of Global TEK’s shares.

Global TEK is a manufacturer of sophisticated machinery components. By obtaining control of Global TEK and its subsidiaries, the Company will integrate Global TEK’s experience in sophisticated machinery components with the Company’s own technology related to audio systems and camera modules to provide the ultimate vehicle digital system to consumers. The acquisition will allow the Group to take part in the vehicle component supply chain, driving the growth of its revenue and profit in the foreseeable future.

1) Consideration transferred

According to the share subscription agreement and share purchase agreement, the consideration transferred was $545,490 without contingent cost or other equity instruments. The settlement date was January 5, 2015.

2) Obtaining control

The Company holds only 30% of Global TEK’s shares. However, the Company has control power over its relevant activities by acquiring more than 50% of the board of directors’ voting rights based on the resolution of its interim meeting of stockholders held on February 13, 2015. The Company will include the Global TEK Group in the consolidated financial statements from the same date in accordance with IFRS 10.

3) According to IFRSs, the fair value of net assets acquired should be measured on the acquisition date. Therefore, the Company evaluated the fair value and useful lives of intangible assets at the time of acquisition. The Company engaged experts to evaluate its identifiable net assets. According to the result, identifiable intangible assets comprised customer relationships amounting to $109,000, technology amounting to $100,0000, and goodwill amounting to $340,999.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

4) Details of consideration transferred, assets acquired, and liabilities assumed at the date of acquisition were as follows:

Items		Amount
Cash	$	545,490
Fair value of non-controlling interest		1,272,810
Fair value	$	1,818,300
Items		Amount
Fair value of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents	$	506,449
Current financial assets at fair value through profit or loss		1,203
Notes and accounts receivable, net		615,534
Other receivables		11,703
Inventories		430,922
Other current assets		67,166
Property, plant and equipment		1,095,093
Deferred tax assets		13,475
Long-term prepaid rents		102,359
Other non-current assets		25,724
Short-term and long-term borrowings		(741,297)
Notes and accounts payable		(412,070)
Salary payable and other payables		(309,387)
Other current liabilities		(28,679)
Deferred tax liabilities		(103,855)
Other non-current liabilities		(6,039)
		1,268,301
Intangible assets recognized from purchase price allocation:
Customer relationships		109,000
Techniques		100,000
Goodwill		340,999
		549,999
	$	1,818,300

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

5) Intangible assets

a) Goodwill

Goodwill mainly came from the reputation, profitability, and value of employees which have been established by Global TEK and its subsidiaries in the automotive, instrument, aerospace and sophisticated machinery components market. There was no tax effect attributable to goodwill recognized from the acquisition.

b) Customer relationships

Customer relationships mainly came from continuous cooperation with clients for which the relationships are expected to be beneficial in the future.

c) Technology

Global TEK owned the manufacturing technology for the automotive parts, industrial automation parts, communication parts, aerospace components, medical equipment and sophisticated machinery components. The technology is expected to be beneficial in the future.

6) The cost of acquisition

The valuation fees and on-site examination expenses of $824 due to the acquisition transaction were recognized as administrative expenses in the statement of comprehensive income in the year ended December 31, 2015.

7) Simulated operating results

Operating results of Global TEK and its subsidiaries were merged into the Company’s consolidated comprehensive income statement since the date of obtaining control, contributing operating revenue of $2,051,106 and profit of $30,042. If the acquisition had occurred on January 1, 2015, the simulated operating revenue and profit would have been $65,746,063 and $1,825,736, respectively.

(g) Loss of control of subsidiaries

The Group held 30% shares of Global TEK’s shares and sold 20% of them at $50 per share on October 3, 2016. The total proceeds were received. The Group recorded the total gain of $248,004 under other gains or losses, including the amount of $83,219 from the remaining shares measured at fair value due to losing its control over Global TEK. The Group reclassified the carrying amounts of － the remaining shares to available-for-sale financial asset non-current.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

The carrying amount of assets and liabilities of Global TEK and its subsidiaries on September 30, 2016 were as follow:

2016 were as follow:
Cash and cash equivalents	$	450,518
Current financial assets at fair value through profit or loss		1,011
Notes and accounts receivable, net		684,433
Other receivables		84,738
Inventories		424,515
Other current assets		91,601
Property, plant and equipment		1,141,947
Intangible assets		509,072
Deferred tax assets`－`non-current		43,453
Long-term prepaid rents		97,068
Other non-current assets		13,474
Short-term borrowings		(693,050)
Notes and accounts payable		(559,790)
Other payables		(256,220)
Other current liabilities		(32,997)
Deferred tax liabilities`－`non-current		(119,909)
Other non-current liabilities		(6,075)
Book value of net assets	$	1,873,789

(h) Material non-controlling interests of subsidiaries

The Material non-controlling interests of subsidiaries were as follows:

Name of subsidiaries	Main operation place Business/Registered Country	Proportion of Ownership and Voting Rights Held by Non- controlling Interests December 31, 2016 December 31, 2015 % 30 % 30 % - % 70

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

The following information on the aforementioned subsidiaries have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers. Included in these information are the fair value adjustment made during the acquisition and relevant difference in accounting principles between the Group as at the acquisition date. Intra-group transactions were not eliminated in this information.

(i) TWEL and its subsidiaries:

Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Non-controlling interests
Operating revenue
Profit
Other comprehensive income
Comprehensive income
Profit attributable to non-controlling interests
Comprehensive income attributable to non-controlling
interests
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Effect of foreign currency exchange translation
Net increase (decrease) in cash and cash equivalents
Dividends paid to non-controlling interests

December 31,
2016
December 31,
2015
$ 4,510,885
4,380,696
3,377,729
3,126,982
(3,496,113)
(3,440,368)
(243,387)
(97,340)
$
4,149,114
3,969,970
$
1,244,734
1,190,991
2016
2015
$
8,902,027
6,683,250
$ 237,550
75,945
(62,004)
31,069
$
175,546
107,014
$
71,265
22,784
$
52,664
32,104
2016
2015
$ (572,724)
499,900
(221,015)
(129,569)
(607)
9,852
(22,145)
32,610
$
(816,491)
412,793
$
-
-

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(ii) Global TEK and its subsidiaries

December 31,
2016
December 31,
2015
$ -
$ 1,447,425
-
1,805,801
-
(994,338)
-
(408,586)
$
-
$
1,850,302
$
-
$
1,295,213
January to
September, 2016
February to
December, 2015
$
1,929,626
2,051,106
$ 61,896
30,042
(38,410)
1,961
$
23,486
32,003
$
43,327
21,029
$
16,439
22,403
January to
September, 2016
February to
December, 2015
$ 321,226
184,499
(161,102)
(194,508)
38,022
(211,459)
(26,190)
(6,419)
$
171,956
(227,887)
$
-
-

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(i) Property, plant and equipment

The cost, depreciation, and impairment loss of the property, plant and equipment of the Group for the years ended December 31, 2016 and 2015, were as follows:

Cost or deemed cost: Balance on January 1, 2016 Additions Disposals Reclassifications Disposal of subsidiaries Effect of movements in exchange rates Balance on December 31, 2016 Balance on January 1, 2015 Additions Disposals Acquisition from business combination Reclassifications Effect of movements in exchange rates Balance on December 31, 2015 Depreciation and impairments loss: Balance on January 1, 2016 Depreciation Impairment loss Disposals Reclassifications Disposal of subsidiaries Effect of movements in exchange rates Balance on December 31, 2016 Balance on January 1, 2015 Depreciation Disposals Reclassifications Effect of movements in exchange rates Balance on December 31, 2015 Carrying amounts: Balance on December 31, 2016 Balance on December 31, 2015 Balance on January 1, 2015	Land	Buildings, leasehold improvement, and additional equipment		Machinery and equipment 6,578,407 396,263 (696,426) 425,506 (461,910) (569,536) 5,672,304 4,741,057 740,599 (392,772) 328,301 1,218,445 (57,223) 6,578,407 3,718,475 1,126,355 74,584 (619,931) (249,717) (58,972) (358,412) 3,632,382 3,214,184 927,402 (306,801) (72,971) (43,339) 3,718,475 2,039,922 2,859,932 1,526,873	Office and other equipment	Construction in progress and testing equipment 503,242 988,516 (63) (977,213) (133,277) (33,527) 347,678 779,029 1,910,503 (263) 124,127 (2,293,135) (17,019) 503,242 - - 11,882 - - (11,882) - - - - - - - - 347,678 503,242 779,029	Government grants Total (12,731) 12,179,667 - 1,475,448 - (874,318) (4,813) (76,516) - (1,256,263) 1,258 (996,406) (16,286) 10,451,612 (12,911) 9,171,171 - 2,732,137 - (582,248) - 1,095,093 - (119,790) 180 (116,696) (12,731) 12,179,667 (9,579) 5,895,644 (4,622) 1,446,828 - 86,850 - (787,450) - (243,462) - (114,316) 964 (549,904) (13,237) 5,734,190 (6,724) 5,236,026 (2,929) 1,272,642 - (484,993) - (57,366) 74 (70,665) (9,579) 5,895,644 (3,049) 4,717,422 (3,152) 6,284,023 (6,187) 3,935,145
					680,211 41,155 (83,133) (12,851) (58,963) (55,962) 510,457 578,964 58,719 (42,442) 74,644 19,211 (8,885) 680,211 449,371 79,501 384 (76,609) (29,572) 3,579 (42,720) 383,934 384,695 97,889 (37,535) 10,459 (6,137) 449,371 126,523 230,840 194,269

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(i) The unamortized deferred revenue of equipment subsidy amounted to $1,310,945 and $1,018,732 for the years ended December 31, 2016 and 2015, respectively.
(ii) Please refer to note 8 for further information on property, plant and equipment provided as collateral.
(j) Investment property

Cost or deemed cost: Balance on January 1, 2016 Additions Reclassifications Balance on December 31, 2016 Balance on January 1, 2015 Additions Balance on December 31, 2015 Depreciation and impairment losses: Balance on January 1, 2016 Depreciation Reclassifications Balance on December 31, 2016 Balance on January 1, 2015 Depreciation Balance on December 31, 2015 Carrying amounts: Balance on December 31, 2016 Balance on December 31, 2015 Balance on January 1, 2015 Fair value: Balance on December 31, 2016 Balance on December 31, 2015 Balance on January 1, 2015	Land $ 162,012 - (111,822) $ 50,190 $ 162,012 - $ 162,012 $ 33,941 - - $ 33,941 $ 33,941 - $ 33,941 $ 16,249 $ 128,071 $ 128,071	Buildings and other equipment Total 172,167 334,179 - - (140,432) (252,254) 31,735 81,925 172,167 334,179 - - 172,167 334,179 41,529 75,470 3,560 3,560 (32,782) (32,782) 12,307 46,248 37,969 71,910 3,560 3,560 41,529 75,470 19,428 35,677 130,638 258,709 134,198 262,269 $ 84,490 $ 592,092 $ 561,338

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(i) The fair value of investment property is based on the quotation from third parties, which is categorized within Level 3.
(ii) Investment property comprises a number of commercial properties which are leased to third parties. Each of the leases contains an initial non-cancellable period between 1 and 2 years. Subsequent renewals are negotiated with the lessee, and no contingent rents are charged. Please refer to note 6(n) for further information.
(iii) The Group reclassified $219,472 as property, plant and equipment from investment property due to the change of the use of such property in 2016.
(iv) The Group did not provide any of the aforementioned investment property as collateral.
(k) Intangible assets

The cost and amortization of the intangible assets of the Group for the years ended December 31, 2016 and 2015, were as follows:

					Trademarks,	Trademarks,
			Customer		Patents	and
		Goodwill	Relationships	Technology	Copyrights		Total
Cost or deemed cost:
Balance at January 1, 2016	$	2,191,382	827,800	519,300	122,128		3,660,610
Acquisition		-	-	-		9	9
Disposal of subsidiary		(340,999)	(109,000)	(100,000)	-		(549,999)
Effect of movements in
exchange rates		-	-	-		(93)	(93)
Balance at December 31, 2016	$	1,850,383	718,800	419,300	122,044		3,110,527
Balance at January 1, 2015	$	1,850,383	718,800	419,300	122,079		3,110,562
Acquisition		-	-	-		17	17
Acquisition from business
combination		340,999	109,000	100,000	-		549,999
Effect of movements in
exchange rates		-	-	-		32	32
Balance at December 31, 2015	$	2,191,382	827,800	519,300	122,128		3,660,610

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

Goodwill Amortization and impairment loss: Balance at January 1, 2016 $ - Amortization - Disposal of subsidiary - Effect of movements in exchange rates - Balance at December 31, 2016 $ - Balance at January 1, 2015 $ - Amortization - Effect of movements in exchange rates - Balance at December 31, 2015 $ - Carrying amounts: Balance at December 31, 2016 $ 1,850,383 Balance at December 31, 2015 $ 2,191,382 Balance at January 1, 2015 $ 1,850,383	Goodwill	Customer Relationships 151,559 80,055 (17,713) - 213,901 70,141 81,418 - 151,559 504,899 676,241 648,659	Technology

(i) Intangible assets were transferred out due to the resolution to dispose parts of shares of Global TEK which were approved during the board of directors’ meeting in 2016. Please refer to note 6(g) for further detail.

(ii) For intangible assets obtained from having control over Global TEK and its subsidiaries on January 5, 2015, please refer to note 6(f) for further detail.

(iii) The Group did not provide any of the aforementioned intangible assets as collateral.

(l) Short-term borrowings

The details were as follows:

Unsecured bank loans Secured bank loans Short-term borrowings Unused credit lines Annual interest rates	December 31, 2016 December 31, 2015 $ - 1,130,518 - 220,051 $ - 1,350,569 $ 13,301,651 10,729,002 0.93%~1.27% 0.85%~5.89%

Please refer to note 8 for further information on assets provided as collateral.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(m) Long-term borrowings

December 31, 2016

Unsecured bank loans Less: current portion Total Unused credit lines Unsecured bank loans `〃` Secured bank loans `〃` Less: current portion Total Unused credit lines	Currency	Annual interest rate
	TWD
	Currency	Annual interest rate
	TWD USD TWD USD	0.95~2.78% 2.66% 1.73%~2.13% 3.2404%~3.3%

(i) Pursuant to the loan agreements with Industrial Bank of Taiwan, The Export-Import Bank of the ROC and CTBC Bank, the Company has to maintain the following financial ratios calculated based on the Company’s semi-annual audited (reviewed) consolidated financial statements. As of December 31, 2016, the Company had not violated the financial covenants. The financial covenants include (1) a current ratio of not less than 100%; (2) a financial debt ratio of not greater than 75%; (3) an interest coverage ratio of not less than 400%; and (4) stockholders’ equity of not less than $4,000,000. If the Company violates the financial covenants, the banks have the right to charge a default penalty or to require the Company to improve its financial ratios.
(ii) Please refer to note 9 for the details of the outstanding guarantee notes.
(iii) Please refer to note 8 for further information on assets provided as collateral.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(n) Operating lease

(i) Lessee

Non-cancellable operating lease rentals are payable as follows:

Less than one year Between one and five years More than five years	December 31, 2016 December 31, 2015 $ 234,469 251,403 327,873 508,595 12,989 7,203 $ 575,331 767,201

The Group leases a number of offices and warehouses and pieces of equipment under operating leases. The lease terms are between 1 and 15 years.

(ii) Lessor

The Group leases out its investment property under operating leases. Please refer to note 6(j) for further information. Non-cancellable operating leases are receivable as follows:

Less than one year	December 31, 2016 December 31, 2015 $ 1,060 1,060

(o) Employee benefits

(i) Defined benefit plans

Reconciliation of defined benefit obligation at present value and plan asset at fair value are as follows:

Present value of defined benefit obligations Fair value of plan assets Deficit in the plan Asset ceiling Net defined benefit liability	December 31, 2016 December 31, 2015 $ 160,593 180,297 96,865 113,587 63,728 66,710 - - $ 63,728 66,710

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

The Group makes defined benefit plan contributions to the pension fund account with Bank of Taiwan that provides pensions for employees upon retirement. The plans (covered by the Labor Standards Law) entitle a retired employee to receive retirement benefits based on years of service and average salary for the six months prior to retirement.

1) Composition of plan assets

The Group allocates pension funds in accordance with the Regulations for Revenues, Expenditures, Safeguard and Utilization of the Labor Retirement Fund, and such funds are managed by the Bureau of Labor Funds, Ministry of Labor. With regard to the utilization of the funds, minimum earnings shall be no less than the earnings attainable from two-year time deposits with interest rates offered by local banks.

The Group’s Bank of Taiwan labor pension reserve account balance amounted to $96,865 at the end of the reporting period. For information on the utilization of the labor pension fund assets, including the asset allocation and yield of the fund, please refer to the website of the Bureau of Labor Funds, Ministry of Labor.

2) Movements in present value of defined benefit obligations

The movements in present value of defined benefit obligations for the Group for the years ended December 31, 2016 and 2015, were as follows:

Defined benefit obligation at January 1 Business combinations Disposal of subsidiary Discontinued operations Benefits paid Current service costs and interest cost Remeasurement of net defined liabilities Defined benefit obligation at December 31	2016 2015 $ 180,297 162,598 - 18,522 (3,105) - (16,279) - (4,995) (15,239) 3,417 5,000 1,258 9,416 $ 160,593 180,297

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

3) Movements of defined benefit plan assets

The movements in the present value of the defined benefit plan assets for the Group for the years ended December 31, 2016 and 2015, were as follows:

Fair value of plan assets at January 1 Business combinations Disposal of subsidiary Remeasurement of net defined liabilities Contributions paid Interest income Benefits paid Fair value of plan assets at December 31	2016 2015 $ 113,587 104,919 - 15,299 (15,904) - (271) 748 3,506 5,432 942 2,428 (4,995) (15,239) $ 96,865 113,587

4) Expenses recognized in profit or loss

The expenses recognized in profit or loss for the Group for the years ended December 31, 2016 and 2015, were as follows:

Current service costs Net interest of net liabilities for defined benefit Expenses	2016 2015 $ 1,401 1,322 1,074 1,196 $ 2,475 2,518

5) Actuarial assumptions

The principal actuarial assumptions at the reporting date were as follows:

Discount rate Future salary increase rate	December 31, 2016 December 31, 2015 % 1.375 1.375%~1.750% % 3.250 2%~3.250%

The expected allocation payment to be made by the Group to the defined benefit plans for the one-year period after the reporting date was $3,336. The weighted-average duration of the defined benefit plans is 12 years.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

6) Sensitivity analysis

When computing the present value of the defined benefit obligations, the Group uses judgments and estimations to determine the actuarial assumptions, including discount rates and future salary changes, as of the financial statement date. Any changes in the actuarial assumptions may significantly impact the amount of the defined benefit obligations.

If the actuarial assumptions had changed, the impact on the present value of the defined benefit obligation shall be as follows:

December 31, 2016 Discount rate Future salary increase rate December 31, 2015 Discount rate Future salary increase rate	Influences of defined benefit obligations
	Increased 0.25% Decreased 0.25% $ (3,586) 3,708 $ 3,545 (3,447) $ (4,354) 4,513 $ 4,342 (4,213)

Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation by the amounts shown above. Many assumption changes may affect each other in practice. The method used in the sensitivity analysis is consistent with the calculation of pension liabilities in the balance sheets.

There were no changes in the method and assumptions used in the preparation of the sensitivity analysis for 2016 and 2015.

(ii) Defined contribution plans

The continuing operations allocate 6% of each employee’s monthly wages to the labor pension personal account at the Bureau of Labor Insurance in accordance with the provisions of the Labor Pension Act. Under these defined contribution plans, the Group contribute a fixed amount to the Bureau of Labor Insurance without additional legal or constructive obligation.

The Company’s foreign subsidiaries have defined contribution plans. These plans are funded in accordance with the regulations of their respective countries. Contributions to these plans are expensed as incurred without additional legal or constructive obligation.

The Group recognized pension costs under the defined contribution method amounting to $370,871 and $379,653 for the years ended December 31, 2016 and 2015, respectively, recorded as operating cost and operating expenses in the statement of comprehensive income.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(p) Income taxes from continuing operations

(i) The components of income tax expenses for the years ended December 31, 2016 and 2015, were as follows:

Current tax expense Deferred tax expense (benefit) Income tax expense	2016 2015 $ 970,336 823,113 (192,650) (192,104) $ 777,686 631,009

(ii) Reconciliation of income tax expenses and profit before tax for the years ended December 31, 2016 and 2015, were as follows:

Income tax calculated based on the Company’s domestic tax rate Overseas investment gains recognized under the equity method Non-taxable income Prior year’s income tax adjustment 10% surtax on unappropriated earnings Investment tax credits accrued Other Income tax expense	2016 2015 $ 606,212 710,249 (47,655) (105,331) (96,547) (104,317) 3,501 225 65,978 60,246 (41,196) (83,224) 287,393 153,161 $ 777,686 631,009

(iii) Deferred tax assets and liabilities
1) Unrecognized deferred tax liabilities

The Company is able to control the timing of the reversal of the temporary differences associated with subsidiaries’ earnings. Also, the management considered it probable that the temporary differences will not be reversed in the foreseeable future. Hence, such temporary differences were not recognized under deferred tax liabilities. Details were as follows:

		December 31,	December 31,
		2016	2015
Aggregate amount of temporary differences related
to investments in subsidiaries	$	422,133	475,399

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

2) Unrecognized deferred tax assets

Deferred tax assets have not been recognized in respect of the following items:

Deductible temporary differences Tax losses	December 31, 2016 December 31, 2015 $ 109,500 73,829 - 73,004 $ 109,500 146,833

The deductible temporary differences and losses cannot be realized, or there may not be sufficient taxable profit to utilize after the Group’s evaluation. Therefore, they were not recognized as deferred tax assets.

3) Recognized deferred tax assets and liabilities

Changes in the amount of deferred tax assets and liabilities for the years ended December 31, 2016 and 2015, were as follows:

Investment income recognized under the equity method (overseas) Unrealized foreign exchange gains Amortization of appraised value adjustment of intangible assets Deferred tax liabilities: Balance on January 1, 2016 $ 155,486 - 152,009 Disposal of subsidiary (43,432) - (63,309) Recognized in profit or loss 24,523 - (15,069) Balance on December 31, 2016 $ 136,577 - 73,631 Balance on January 1, 2015 89,222 3,500 94,596 Acquisition from business combination 23,824 - 73,246 Recognized in profit or loss 42,440 (3,500) (15,833) Recognized in other comprehensive income - - - Balance on December 31, 2015 $ 155,486 - 152,009	Investment income recognized under the equity method (overseas)	Unrealized foreign exchange gains	Unrealized foreign exchange gains	Amortization of appraised value adjustment of intangible assets	Amortization of appraised value adjustment of intangible assets		Others Total 9,566 317,061 (13,168) (119,909) 21,140 30,594 17,538 227,746 1,351 188,669 6,785 103,855 3,479 26,586 (2,049) (2,049) 9,566 317,061
			- - -		152,009 (63,309) (15,069) 73,631 94,596 73,246 (15,833) - 152,009
			-

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

Bad debt in excess of tax limit	Loss carryforward	Unfunded pension fund contribution	Unrealized sales returns and allowances	Loss on inventory valuation
$ 33,566 - (1,930) $ 31,636 $ 11,653 - 21,913 - $ 33,566	22,328 (8,300) (14,028) - 38,914 - (16,586) - 22,328	14,473 - (175) 14,298 14,875 463 (994) 129 14,473	44,241 - 13,374 57,615 29,977 - 14,264 - 44,241	9,446 (3,852 173,979
				179,573
				19,860 2,842 (13,256 -
				9,446

(iv) The Company income tax returns have been examined by the tax authority through the years up to 2013. However, the Company disagreed with the examination of the income tax return for 2008 and requested an administrative remedy. The tax effect of the administrative remedy has been recognized by the Company.
(v) Information related to the unappropriated earnings and tax deduction ratio is summarized below:

Unappropriated earnings in 1998 and after Balance of imputation credit account Creditable ratio for earnings distribution to ROC residents stockholders	December 31, 2016 December 31, 2015 $ 4,779,419 3,951,934 $ 508,028 420,838 2016 (estimated) 2015 (actual) 19.06 % 13.69 %

The above information was prepared in accordance with information letter No. 10204562810 issued by the Ministry of Finance, ROC, on October 17, 2013.

(q) Capital and other equity

As of December 31, 2016 and 2015, the nominal ordinary shares amounted to $5,000,000. Face value of each share is $10 (dollars), which means in total there were 500,000 thousand authorized ordinary shares, of which 442,134 and 441,188 thousand shares, respectively, were issued. All issued shares were paid up upon issuance.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

Reconciliation of shares outstanding for the years ended December 31, 2016 and 2015, was as follows:

(in thousands of shares) Balance on January 1 Exercise of employee stock options Issued for restricted stock Retirement of restricted stock Balance on December 31		Ordinary shares 2016 2015 441,188 434,658 1,331 3,810 - 3,000 (385) (280) 442,134 441,188

(i) Ordinary shares
1) The Company issued 1,331 thousand and 3,810 thousand new shares of ordinary shares for the exercise of employee stock options in 2016 and 2015, respectively. The related registration procedures were also completed.
2) Employee stock options exercised without registration procedures were recorded as capital collected in advance. The exercise price and units as of December 31, 2016 and 2015, were as follows:

Exercise price per share: $25.20 Exercise price per share: $11.42 Exercise price per share: $26.50	December 31, 2016
	Exercised shares (in thousands) Exercise price 120 $ 3,024 December 31, 2015

	Exercised shares (in thousands) Exercise price 235 $ 2,679 472 12,495 707 $ 15,174

(ii) Capital surplus

The balances of capital surplus as of December 31, 2016 and 2015, were as follows:

Additional paid-in capital Employee stock options Restricted employee stock options	December 31, 2016 December 31, 2015 $ 508,583 447,630 229,175 236,277 53,708 93,461 $ 791,466 777,368

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

According to the ROC Company Act, capital surplus can only be used to offset a deficit, and only the realized capital surplus can be used to increase the ordinary shares or be distributed as cash dividends. The aforementioned realized capital surplus includes capital surplus resulting from premium on issuance of capital stock and earnings from donated assets received. According to the Regulations Governing the Offering and Issuance of Securities by Securities Issuers, capital increases by transferring paid-in capital in excess of par value should not exceed 10% of the total ordinary shares outstanding.

(iii) Retained earnings

According to the articles of the Company, when allocating the earnings for each year, the Company shall first offset its losses in previous year and set aside a legal capital reserve at 10% of the earing left over, until the accumulated legal capital reserve has equaled the total capital of the Company; then set aside a special capital reserve in accordance with relevant laws, the balance of the earnings shall combined into an aggregate amount of undistributed earnings, which shall become the aggregate distributable earnings to be distributed by the directors’ distribution proposals proposed the resolution at the stockholders’ meeting.

The Company is at the growth stage and considers its future cash demand, long-term financial plans, benefits to stockholders, and balanced dividends. Earnings distribution is made by stock dividend and cash dividend. The cash dividend shall not be less than 10 percent of the total dividends and could be adjusted depending on the Company’s operating condition.

1) Legal reserve

In accordance with the Company Act, 10 percent of the net income after tax should be set aside as legal reserve, until it is equal to share capital. If the Company experiences profit for the year, the distribution of the statutory earnings reserve, either by new shares or by cash, shall be decided at the stockholders’ meeting, and the distribution amount is limited to the portion of legal reserve which exceeds 25 percent of the paid-in capital.

2) Special reserve

By choosing to apply exemptions granted under IFRS 1 “First-time Adoption of International Financial Reporting Standards” during the Company’s first-time adoption of the International Financial Reporting Standards endorsed by the FSC, retained earnings increased by $97,300 by recognizing the cumulative translation adjustments (gains) on the adoption date as deemed cost. In accordance with Ruling No. 1010012865 issued by the FSC on April 6, 2012, the increase in retained earnings due to the first-time adoption of IFRSs shall be reclassified as special reserve, and when the relevant asset is used, disposed of, or reclassified, this special reserve, shall be reversed as distributable earnings proportionately. The carrying amount of special reserve amounted to $97,300 on December 31, 2016.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

In accordance with the guidelines of the above Ruling, a portion of current-period earnings and undistributed prior-period earnings shall be reclassified as special earnings reserve during earnings distribution. The amount to be reclassified should be equal to the difference between the total net current-period reduction of special earnings reserve resulting from the first-time adoption of IFRSs and the carrying amount of other stockholders’ equity as stated above. Similarly, a portion of undistributed prior-period earnings shall be reclassified as special earnings reserve (which does not qualify for earnings distribution) to account for cumulative changes to other stockholders’ equity pertaining to prior periods due to the first-time adoption of IFRSs. Amounts of subsequent reversals pertaining to the net reduction of other stockholders’ equity shall qualify for additional distributions.

3) Earnings distribution

On June 20, 2016, and June 29, 2015, the stockholders’ meeting resolved the distribution of earnings for 2015 and 2014, respectively. The distribution was NT$2.1 and 1.8 (dollars) per share, which amounted to $927,933 thousand and $791,107 thousand, respectively.

(r) Share-based payment

(i) Employee stock options and share-based payment
1) On December 28, 2007, the Company merged with Primax and assumed the outstanding employee stock options of Primax. Based on the swap ratio approved by Primax Holdings’ board of directors, Primax Holdings issued 1,795,879 units of employee stock options in exchange for all of the employee stock options issued by Primax. According to the option plan, each unit could be converted into 1 common share of Primax Holdings. The primary terms and conditions of the employee stock options were as follows:
- a) Exercise period:

From the grant dates in May 2005, June and December 2006, and February and March 2007, the options are exercisable at the following rates two years after the grant date. The term of the employee stock options is 5 years. The employee stock options and any right thereof shall not be transferred, pledged, donated, or disposed of in any way, with the exception of inherited options.

	Period following the grant of options	Exercisable percentage (cumulative)
	2 years	50 %
	3 years	100 %
b)	Procedure for fulfilling obligation: Primax Holdings fulfills its obligation by
	issuing new ordinary shares.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

2) Based on the resolution approved in the board of directors’ meeting of Primax Holdings held on December 31, 2007, Primax Holdings declared an incentive plan to grant the right to some employees of the Company to participate in the subscription of the nonvoting ordinary shares of Primax Holdings. The transaction is a kind of equity-settled share-based payment agreement, and the equity instruments under this agreement were vested at the date of grant. Primax Holdings recognized the compensation cost by using the fair value method. The difference in value between the net value per share of Primax Holdings determined at the grant date and the exercise price per share was recognized as cost of long-term investment in the Company by Primax Holdings in 2007, and was recognized as compensation cost and capital surplus by the Company. Based on the resolution approved in the board of directors’ meeting of Primax Holdings held in April 2008, Primax Holdings amended the share-based payment agreement mentioned above, and consequently, the non-voting ordinary shares were replaced by options to purchase them. The amendment had no impact on the accompanying consolidated financial statements.
3) In addition, Primax Holdings declared an incentive plan to grant stock options to employees of the Company in January, May and November 2008 to participate in the subscription of the non-voting ordinary shares of Primax Holdings. Some of the options are vested at the grant date; the others are vested from two years to five years after the grant date. Primax Holdings recognized the compensation cost by using the fair value method as cost of long-term investment in the Company, and the Company correspondingly recognized it as compensation cost and capital surplus.
4) Based on the resolution approved in the board of directors’ meetings of Primax Holdings and the Company held in December 2008, the Company issued employee stock options in exchange for part of the unvested or unexercised employee stock options issued by Primax Holdings. Specifically, 2.94 units of employee stock options were issued by the Company in exchange for 1 unit of the employee stock options issued by Primax Holdings. Each unit of the Company’s options could be converted into 1 common share of the Company. The exercise price of Primax Holdings’ options is USD0.2 per unit; the exercise price of the Company’s options is NT$11.42 (dollars) per unit after the modification. Meanwhile, the Company granted a certain amount of retention bonus to employees at the modification date, and the Company shall pay the retention bonus when the Company’s stock options are exercised. The other terms and conditions of the employee stock options are not changed. According to the modification, the Company decreased the capital surplus by $118,089, and recognized a corresponding increase in retention bonus payable (recorded as accrued expense and other liabilities) on December 30, 2008. The incremental fair value of $55,308 resulting from the modification will be recognized as compensation cost over the remainder of the vesting period.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

5) In accordance with the revised employee stock option plan mentioned above, the Company issued 9,545,248 units of employee stock options in November 2009. Each unit could be converted into 1 ordinary share of the Company.
6) In September 2011, the Company’s board of directors resolved to issue employee stock options (Plan 3). The plan was approved by the SFB in October 2011, and the maximum number of options authorized to be granted was 5,000 units with each unit eligible to be converted into 1,000 ordinary shares of the Company when exercised. The options may be granted to qualified employees of the Company or any of its domestic or foreign subsidiaries in which the Company owns, directly or indirectly, more than fifty percent (50%) of the subsidiary’s voting rights. The Company actually issued 1,500 units and 3,500 units in November 2011 and October 2012, respectively, which were evaluated at fair value. In accordance with the employee stock option plan mentioned above, the Company recognized the investment and capital surplus amounting to $2,517 and $1,523 in 2016 and 2015, respectively.
7) As of December 31, 2016, outstanding employee stock options of the Company for equity-settled share-based payment were as follows:

Modification and grant date Exercise price Granted units (thousand) Service period (from the grant date of the original stock options) Vesting period (from the grant date of the original stock options)	Plan 1 (note 1) December 30, 2008/ November 12, 2009 11.42 30,828 5 years (May 23, 2005~ November 11, 2014) 2 ~ 3 years	Plan 2 (note 2) December 30, 2008/ November 12, 2009 11.42 7,224 6~8 years (January 2, 2008~November11, 2017) 3 ~ 5 years	Plan 3 (note 3)
			Issued in November 2011 Issued in October 2012 November 24, 2011 October 22, 2012 16.20 25.2 1,500 3,500 5 years (November 24, 2011~November 23, 2016) 5 years (October 22, 2012~ October 21, 2017) 2 ~ 3 years 2 ~ 3 years

Note 1: Stock options under Plan 1 included those granted by Primax in May 2005, June and December 2006, and February and March 2007; those granted by Primax Holdings in January, May and November 2008; and those granted by the Company in November 2009.

Note 2: Stock options under Plan 2 included those granted by Primax Holdings in January and May 2008, and those granted by the Company in November 2009.

Note 3: Stock options under Plan 3 included those granted by the Company in November 2011 and October 2012.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

The information on the outstanding employee stock options of Primax Holdings using the Black-Scholes option pricing model to measure the fair value at the grant date was as follows:

follows:
Period of stock options	Plan 1 Plan 2 0.20 0.20 2.37~5 6~8 0.91677~1 0.91677~0.92827 34.78%~44.59% 38.98%~48.44% - - 2.439%~2.665% 2.509%~2.538%
Exercise price of Primax Holdings’s stock options (USD) Expected time until expiration (years) Stock price per share of Primax Holding (USD) Expected volatility of stock price Expected cash dividend rate Risk-free interest rate

The Company applied the Black-Scholes option pricing model to measure the fair value of employee stock options granted in November 2009, 2011 and 2012. The information on share-based payment was as follows:

Period of stock options Exercise price of stock options (NT dollars) Expected time until expiration (years) Stock price per share (NT dollars) Expected volatility of stock price Expected cash dividend rate Risk-free interest rate	Plan 1 11.42 5 16.50 45.18% - 2.26%	Plan 2 11.42 8 16.50 45.18% - 2.26%	Plan 3
			Issued in November 2011 Issued in October 2012 18.2 28.25 5 5 26.02 28.25 29.12% 32.38%~34.61% 6% 3.77% 1.81% 1.425%

8) The incremental fair value resulting from the modification described in section (4) above amounted to $55,308 (including the accrued retention bonus of $261,721). The measurement basis of share-based payment as of December 30, 2008 (the modification date) was as follows:

Granted units of options	Plan 1 Before the modification After the modification Primax Holdings the Company 7,365 21,654	Plan 2
	Before the modification Primax Holdings 7,365	Before the modification After the modification Primax Holdings the Company 2,331 6,853

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

The information on the stock options using the Black-Scholes option pricing model to measure the incremental fair value at the modification date was as follows:

Exercise price Expected time until expiration (years) Stock price per share Expected volatility of stock price Expected dividend rate Risk-free interest rate	Plan 1 Before the modification After the modification USD0.20 NT$11.42 (dollars) 0.39~3.89 0.39~3.89 USD1.12 NT$11.42 (dollars) 33.56%~45.36% 33.56%~45.36% - - 1.005%~1.5% 1.005%~1.5%	Plan 2
	Before the modification	Before the modification After the modification USD0.20 NT$11.42 (dollars) 3.51~5.85 3.51~5.85 USD1.12 NT$11.42 (dollars) 39.30%~45.36% 39.30%~45.36% - - 1.5%~1.95% 1.5%~1.95%
	USD0.20 0.39~3.89 USD1.12 33.56%~45.36% - 1.005%~1.5%

9) The related information on compensatory employee stock option plans was as follows:

Outstanding at January 1 Granted during the year Forfeited during the year Exercised during the year Expired during the year Outstanding at December 31 Exercisable at December 31	2016 Weighted- average exercise price Stock options (in thousands) 24.66 1,728 - - 25.20 (25) 25.62 (746) - - 22.16 957 22.16 957	2015
	Weighted- average exercise price 24.66 - 25.20 25.62 - 22.16 22.16	Weighted- average exercise price Stock options (in thousands) 22.66 3,724 - - 25.66 (169 18.67 (1,750 27.70 (77 24.66 1,728 24.66 1,728

As of December 31, 2016 and 2015, the information on the employee stock option plans outstanding was as follows:

Employee stock option plan 1 Employee stock option plan 2 Employee stock option plan 3 -Issued in November 2011 Employee stock option plan 3 -Issued in October 2012 Outstanding at end of year Weighted-average expected time remaining until expiration (years)		December 31, 2016 December 31, 2015 - - 211 211 - - 746 1,517 957 1,728 0.82 1.82

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

10) TWEL issued employee stock options to its employees. As of December 31, 2016, the outstanding employee stock options of TWEL for equity-settled share-based payment were as follows:

Grant date Exercise price Granted units (thousand) Service period Vesting period	November 2014 July 2015 November 18, 2014 July 1, 2015 $15.74 $18.82 700 2,750 5 years 5 years 3 ~4 years 3 ~5 years

The information on the outstanding stock appreciation rights of TWEL using the BlackScholes option pricing model to measure the fair value was as follows:

Exercise price Expected time until expiration (years) Stock price per share Expected volatility of stock price Expected dividend rate Risk-free interest rate	December 2014 July 2015 $15.74 $18.82 4~4.5 4~5 $14.81 $18.23 29.49%~30.14% 30.06%~30.45% - - 1.09%~1.17% 0.96%~1.08%

The related information on the stock appreciation rights plan of TWEL was as follows:

Outstanding at January 1 Granted during the year Forfeited during the year Exercised during the year Expired during the year Outstanding at December 31 Exercisable at December 31	2016 Weighted- average exercise price Stock options (in thousands) 18.20 3,450 - - - - - - 16.50 (142) 18.27 3,308 - -	2015
	Weighted- average exercise price 18.20 - - - 16.50 18.27 -	Weighted- average exercise price Stock options (in thousands) 15.74 700 18.82 2,750 - - - - - - 18.20 3,450 - -

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(ii) Restricted stock

1) As of December 31, 2016, the outstanding restricted stock of the Company was as follows:

Grant date
Fair value on grant date (per share)
Exercise price
Granted units (thousand shares)
Vesting period

Plan 1 (note 1)
Plan 2 (note 1)
October 1, 2013
November 20,
2013
February 10, 2014
July 17, 2014
February 24, 2015
August 18, 2015
22.80
25.15
27.30
52.00
43.70
38.40
Free grants
Free grants
Free grants
Free grants
Free grants
Free grants
1,450
186
135
220
1,225
1,775
1~3 years
(notes 2 and 3)
1~2 years
(notes 3 and 4)
1~2 years
(notes 3 and 4)
1~2 years
(note 3)
1~3years
(note 2 and 3)
1~3 years
(note 2)

Note 1: Plan 1 –After the stockholders’ meeting on June 25, 2013, the Company decided to issue shares of restricted stock to those full-time employees who meet the Company’s requirements. The restricted stock has been registered with and approved by the Securities and Futures Bureau of the FSC. The board of directors’ meeting resolved to issue 1,450 thousand shares, 186 thousand shares, 135 thousand shares, and 220 thousand shares on August 13 and November 12, 2013, and January 22 and June 27, 2014, respectively.
Plan 2 –After the stockholders’ meeting on June 24, 2014, the Company decided to issue shares of restricted stock to those full-time employees who meet the Company’s requirements. The restricted stock has been registered with and approved by the Securities and Futures Bureau of the FSC. The board of directors’ meeting resolved to issue 1,225 thousand shares and 1,775 thousand shares on January 28 and August 13, 2015, respectively.
Note 2: If the employees continue to provide service to the Company and meet the prior year’s performance indicator, 30% of the restricted stock shall be vested in year 1 after the grant date, and the remaining 30% and 40% shall be vested in year 2 and year 3, respectively, after the grant date.
Note 3: If the employees continue to provide service to the Company and meet the prior year’s performance indicator, 50% of the restricted stock shall be vested in year 1 after the grant date, and the remaining 50% shall be vested in year 2 after the grant date.
Note 4: If the employees continue to provide service to the Company and meet the prior year’s performance indicator, the restricted stock shall be vested in year 1 after the grant date.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

The restricted stock is kept by a trust, which is appointed by the Company, before it is vested. These shares shall not be sold, pledged, transferred, gifted, or, by any other means, disposed of to third parties during the custody period. The voting rights of these shares are executed by the custodian, and the custodian will act based on law and regulations. If the shares remain unvested after the vesting period, the Company will cancel the unvested shares thereafter.

2) The related information on restricted stock of the Company for 2016 and 2015 was as follows:

(Thousand shares) Outstanding at January 1 Granted during the year Forfeited during the year Vesting during the year Expired during the year Outstanding at December 31		2016 2015 3,270 1,310 - 3,000 - - (1,214) (660) (285) (380) 1,771 3,270

(iii) Expenses and liabilities attributable to share-based payment for 2016 and 2015 were as follows:

Expenses attributable to employee stock options Restricted stock Total Salary payable: Current	2016 2015 $ 3,596 4,740 43,182 46,477 $ 46,778 51,217 $ 1,938 4,092

(s) Earnings per share
(i) Basic earnings per share

The calculation of basic earnings per share for the years ended December 31, 2016 and 2015, based on the profit attributable to owners of parent of the Company and the weighted-average number of ordinary shares outstanding was as follows:

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

Profit attributable to owners of parent Continuing operations Discontinued operations Total Weighted-average number of ordinary shares (thousand shares) Basic earnings per share (NT dollars) Continuing operations Discontinued operations Total	2016 2015
	$ 1,915,501 1,764,109 18,569 9,013 $ 1,934,070 1,773,122 439,169 436,372 $ 4.36 4.04 0.04 0.02 $ 4.40 4.06

Weighted-average number of ordinary shares (thousand shares)

Ordinary shares at January 1 Exercise of employee stock options Vesting of restricted stock Ordinary shares at December 31		2016 2015 437,818 433,348 760 2,818 591 206 439,169 436,372

(ii) Diluted earnings per share

The calculation of diluted earnings per share for the years ended December 31, 2016 and 2015, based on the profit attributable to owners of parent of the Company and the weighted-average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares was as follows:

Profit attributable to owners of parent Continuing operations Discontinued operations Total Weighted-average number of ordinary shares (diluted) (thousand shares) Diluted earnings per share Continuing operations Discontinued operations Total	2016 2015
	$ 1,915,501 1,764,109 18,569 9,013 $ 1,934,070 1,773,122 443,212 441,810 $ 4.32 3.99 0.04 0.02 $ 4.36 4.01

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

Weighted-average number of ordinary shares at December 31 (basic) Effect of employee stock options Effect of employee stock bonuses Effect of restricted stock Weighted-average number of ordinary shares at December 31 (diluted)		2016 2015 439,169 436,372 745 1,707 2,174 2,769 1,124 962 443,212 441,810

(t) Operating revenue

The details of operating revenue for the years ended December 31, 2016 and 2015, were as follows:

Goods sold Services rendered Continuing operations Discontinued operations Total	2016 2015 $ 62,973,145 61,593,884 1,356,317 1,944,303 64,329,462 63,538,187 1,926,626 2,051,106 $ 66,256,088 65,589,293

Please refer to note 12(b) for profit and loss, and cash flows from discontinued operations.

(u) Employee and directors’ and supervisors’ remuneration

In accordance with the Articles of incorporation, the Company should contribute 2 to 10 percent of the profit as employee remuneration and less than 2 percent as directors’ remuneration when there is profit for the year. However, if the Company has accumulated deficits, the profit should be reserved to offset the deficit. The recipients of shares and cash may include the employees of the Company’s affiliated companies who meet certain conditions.

Details of remuneration to employees and directors for the years ended December 31, 2016 and 2015, were as follows:

Employee remuneration Directors’ remuneration	2016 2015 $ 74,000 78,269 36,803 31,907 $ 110,803 110,176

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

The estimated amounts mentioned above are calculated based on the net profit before tax, excluding the remuneration to employees, directors and supervisors of each period, multiplied by the percentage of remuneration to employees, directors and supervisors as specified in the Company’s articles. These remunerations were expensed under operating costs or operating expenses during 2016 and 2015. Any differences between the estimated amounts in the financial statements and the actual amounts approved by the Board of Directors, if any, shall be accounted for as a change in accounting estimate and recognized in the distribution year.

The differences between the amounts approved in the directors’ meeting and those recognized in the financial statements for the distributions of earnings for 2015 were as follows:

Employee remunation Stock Cash Directors’ remuneration	2015 Actual earnings Distributed Accrued in the financial statement Difference $ - - - 78,500 78,269 (231) 32,000 31,907 (93)

The differences were accounted for as changes in accounting estimates and recognized as profit or loss in the year 2016. Information about the remuneration to employee and directors approved in the board of directors’ meetings can be accessed in the Market Observation Post System website.

(v) Other income

The other income from continuing operations for the years ended December 31, 2016 and 2015, were as follows:

Interest revenue of cash in banks Rent revenue Dividend income Other	2016 2015 $ 124,882 160,753 5,028 9,711 14,692 263 5,322 2,732 $ 149,924 173,459

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(w) Other gains and losses

The other gains and losses from continuing operations for the years ended December 31, 2016 and 2015, were as follows:

Net gains (losses) on financial assets/liabilities measured at
fair value through profit or loss
Foreign currency exchange gains, net
Impairment losses on available-for-sale financial assets
Impairment losses on property plant and equipment
Net losses on disposal of property, plant and equipment
Net gains on disposal and liquidation of available-for-sale
financial assets
Gains on disposal of subsidiaries
Compensation loss
Other

2016
2015
$ (9,111)
27,871
242,423
350,762
-
(939)
(22,677)
-
(19,100)
(29,678)
140,969
175
248,006
-
(200,263)
(75,322)
(48,295)
7,284
$
331,952
280,153

(x) Reclassification adjustments of components of other comprehensive income

The reclassification adjustment for other comprehensive income for the year ended December 31, 2016 and 2015, were as follows:

Unrealized gains and losses of available-for-sale financial assets, net of tax: Net change in fiar vaule Net change in fair value reclassified to profit or loss Net change in fair value recognized in other comprehensive	2016 2015 $ 251,675 294,053 (140,969) - $ 110,706 294,053

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(y) Financial instruments

(i) Credit risk

The aging analysis of notes, accounts, and other receivables (including related parties) that were past due but not impaired was as follows:

Past due 0-30 days Past due 31-90 days Past due 91-180 days Past due 181-360 days Past due over a year	December 31, 2016 December 31, 2015 $ 763,565 1,215,010 213,509 122,456 17,593 14,149 13,247 26,023 - - $ 1,007,914 1,377,638

The Group assesses the uncollectible amount of notes, accounts, and other receivables (including related parties) based on the aging analysis, the collection history, and the customers’ current financial status, and recognizes an allowance for doubtful debts accordingly. After the Group’s assessment, there is no significant change in the customers’ credit quality and the collectability of related receivables.

The movements in the allowance for the years ended December 31, 2016 and 2015, were as follows:

Balance on January 1, 2016 Impairment loss recognized Amounts written off Exchange differences on translation of foreign currency Disposal of subsidiaries Balance on December 31, 2016	Individually assessed impairment $ - - - - - $ -	Collectively assessed impairment Total 29,247 29,247 74,106 74,106 - - (605) (605) (2,812) (2,812) 99,936 99,936

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

Balance on January 1, 2015 Impairment loss recognized Acquirition from business combination Amounts written off Exchange differences on translation of foreign currency Balance on December 31, 2015	Individually assessed impairment $ - - - - - $ -	Collectively assessed impairment Total 26,034 26,034 4,194 4,194 469 469 (2,217) (2,217) 767 767 29,247 29,247

(ii) Liquidity risk

The following table shows the contractual maturities of financial liabilities:

December 31, 2016 Non-derivative financial liabilities: Notes and accounts payable Other payables Long-term borrowings Guarantee deposits Derivative financial liabilities: Outflow Inflow December 31, 2015 Non-derivative financial liabilities: Short-term borrowings Notes and accounts payable Other payables Long-term borrowings Guarantee deposits Derivative financial liabilities: Outflow Inflow	Carrying amount $ 16,892,918 2,713,494 601,111 143,237 150,430 - - $ 20,501,190 $ 1,350,569 18,723,930 2,737,288 1,677,487 118,641 60,105 - - $ 24,668,020	Contractual cash flows 16,892,918 2,713,494 609,653 143,237 - 2,766,941 (2,615,359) 20,510,884 1,350,569 18,723,930 2,737,288 1,735,887 118,641 - 1,217,415 (1,157,310) 24,726,420	Within 6 months 16,892,918 2,713,494 277,546 - - 2,766,941 (2,615,359) 20,035,540 1,350,569 18,723,930 2,737,288 338,378 - - 1,217,415 (1,157,310) 23,210,270	6~12 months - - 110,096 - - - - 110,096 - - - 332,881 - - - - 332,881	1~2 years - - 137,431 - - - - 137,431 - - - 641,587 - - - - 641,587	2~5 years Over 5 years - - - - 84,580 - - 143,237 - - - - - - 84,580 143,237 - - - - - - 326,777 96,264 - 118,641 - - - - - - 326,777 214,905

The Group does not expect that the cash flows included in the maturity analysis could occur significantly earlier or at significantly different amounts.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(iii) Currency risk

1) Exposure to foreign currency risk

The Group’s significant exposure to foreign currency risk was as follows:

F	D	ecember 31, 2016	D	ecember 31, 2015
	Foreign currency $ 385,629 101,376 428,216 366,735 94,552 377,974	Exchange rate 6.937 7.755 32.279 6.937 7.755 32.279	Foreign currency 472,140 403,487 430,293 434,501 395,385 397,940	Exchange rat TWD 6.4936 15,611,768 7.7510 13,341,701 33.066 14,228,077 6.4936 14,367,209 7.7510 13,073,812 33.066 13,158,292
F

2) Sensitivity analysis

The Group’s exposure to foreign currency risk arises from the translation of the foreign currency exchange gains and losses on cash and cash equivalents, notes and accounts receivable, other receivables, derivative financial instruments, loans and borrowings, notes and accounts payable, and other payables that are denominated in foreign currency.

A weakening (strengthening) of 5% of the TWD, CNY and HKD against the USD as of December 31, 2016 and 2015, would have increased or decreased the net profit after tax by $101,754 and $107,163, respectively. The analysis is performed on the same basis for both periods.

Since the Group has many kinds of functional currency, the information on foreign exchange gain (loss) on monetary items is disclosed by total amount. For years 2016 and 2015, foreign exchange gain (loss) (including realized and unrealized portions) amounted to 242,423 and 350,762, respectively.

(iv) Interest rate analysis

Please refer to note 6(z) for the interest rate exposure of financial assets and liabilities.

The following sensitivity analysis is based on the exposure to the interest rate risk of nonderivative financial instruments on the reporting date. Regarding assets and assets and liabilities with variable interest rates, the analysis is based on the assumption that the amounts of liabilities outstanding at the reporting date was outstanding throughout the year. The rate of change is expressed as the interest rate increases or decreases by 0.25% when reporting to management internally, which also represents the Group management’s assessment of the reasonably possible interest rate change.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

If the interest rate had increased or decreased by 0.25%, and assumed all other variables remain constant the net profit before tax would have increased or decreased by $8,287 and $3,427 for the years ended December 31, 2016 and 2015, respectively. This is mainly due to bank savings and borrowings with variable interest rates.

(v) Other price risk:

If the market price of the equity securities had changed on the reporting date, the influence on other comprehensive income are as follows (The analysis is performed on the same basis for both periods, and assumes all other variable remain constant):

Securities’ price on December 31 10% rise 10% fall	2016 2015 Other comprehensive income after tax Other comprehensive income after tax $ 58,640 55,160 $ (58,640) (55,160)

(vi) Fair value
1) Kinds of financial instruments and fair value

The carrying amount and fair value of the Group’s financial assets and liabilities, including the information on fair value hierarchy were as follows; however, for financial instruments not measured at fair value whose carrying amount is reasonably close to the fair value, and for equity investments that has no quoted prices in the active markets and whose fair value cannot be reliably measured, disclosure of fair value information is not required :

Financial assets at fair value through profit or loss – current Available-for-sale financial assets – non-current Loans and receivables Cash and cash equivalents Notes and accounts receivable (including related parties) Other receivables Refundable deposits Total		December 31, 2016	December 31, 2016	December 31, 2016
	Carrying amounts $ 141,317 $ 887,801 $ 6,359,916 13,706,714 495,392 44,429 $ 20,606,451		Fair Value
		Level 1 - 586,404	Level 2 - -	Level 3 Total 141,317 141,317 301,397 887,801

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

December 31, 2016

Financial liabilities at fair value through profit or loss – current Financial liabilities carried at amortized cost Borrowings Notes and accounts payable Other payables Salary payable Guarantee deposits Total	Carrying amounts $ 150,430 $ 601,111 16,892,918 3,878,606 1,146,183 143,237 $ 22,662,055		Fair Value	Fair Value
		Level 1 -	Level 2 -	Level 3 Total 150,430 150,430

Financial assets at fair value through profit or loss – current Available-for-sale financial assets – non-current Loans and receivables Cash and cash equivalents Notes and accounts receivable (including related parties) Other receivables Refundable deposits Total Financial liabilities at fair value through profit or loss – current Financial liabilities carried at amortized cost Borrowings Notes and accounts payable Other payables Salary payable Guarantee deposits Total		December 31, 2015	December 31, 2015	December 31, 2015
	Carrying amounts $ 88,717 $ 584,430 $ 7,623,380 14,479,617 462,242 63,463 $ 22,628,702 $ 60,105 $ 3,028,056 18,723,930 3,891,786 1,227,107 118,641 $ 26,989,520		Fair Value
		Level 1 969 551,600 -	Level 2 - - -	Level 3 Total 87,748 88,717 32,830 584,430 60,105 60,105

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

2) Fair value valuation techniques for financial instruments measured at fair value

If a financial instrument has a quoted price in an active market, the quoted price is used as fair value. The quoted price of a financial instrument obtained from major exchanges and over-the counter markets are the basis used to determine the fair value of a listed company’s stock and the quoted prices in an active market.

A financial instrument is regarded as being quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s-length basis. If these conditions can not be reached, then the market is non-active. In general, a market with low trading volume or high bid-ask spreads is an indication of a non-active market.

The Group uses the following methods in determining the fair value of its financial instruments without a quoted price in an active market:

a) The fair value of derivative instruments is based on quoted prices. When quoted prices are unavailable, the fair value is estimated on the basis of the contract’s spot exchange rate and swap point.
b) Available-for-sale financial assets – non-current are investments in domestic or foreign non-listed stock. The fair value is based on a valuation technique. For stocks in the emerging market, the estimated fair value is adjusted for the lack of liquidity. When prices listed in the emerging market are unavailable, the fair value is estimated on the basis of unadjusted prior trade prices.
3) Tranfers between Level 1 and 3

The fair value of shares of Nien Made Enterprise Co., Ltd. amounted to $586,404 and $551,600 as of December 31, 2016 and 2015, respectively. The shares of Nien Made Enterprise Co., Ltd. have been listed on the TWSE since December 2015 and have quoted prices. Thus, the fair value measurement transferred from Level 3 to Level 1 for the year ended December 31, 2015.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

4) Reconciliation of Level 3 fair values

Fair value through profit or loss Balance on January 1 $ 27,643 Recognized in profit or loss (9,113) Recognized in other comprehensive income - Transfer out of Level 3 - Acquisition / disposal (27,643) Balance on December 31 $ (9,113)			2016			Fair value through profit or loss		2015 Available for sale Total 292,916 308,611 (939) 26,704 294,053 294,053 (551,600) (551,600) (1,600) (17,295) 32,830 60,473
	Fair value through profit or loss		Available for sale		Total

5) Quantified information on significant unobservable inputs (Level 3) used in fair value measurement

The fair value measurements of the Group which are categorized within level 3 are classified as financial assets and liabilities at fair value through profit or loss – derivative financial instruments and available-for-sale financial assets – equity securities. The quantitative information about significant unobservable inputs was as follows:

Item Available-for-sale financial assets – equity securities not listed on emerging stock market Financial assets and liabilities at fair value through profit or loss	Valuation technique (note 1) (note 2)	Significant unobservable inputs Inter-relationships between significant unobservable inputs and fair value (note 1) (note 1) (note 2) (note 2)

note 1: The fair value is based on unadjusted prior trade prices, therefore there is no need to show the sensitivity analysis of unobservable inputs.
note 2: The fair value is based on the quotation of a third party, therefore there is no need to show the sensitivity analysis of unobservable inputs.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(z) Financial risk management

(i) Briefings

The Group is exposed to the following risks arising from financial instruments:

1) Credit risk
2) Liquidity risk
3) Market risk

This note presents information on exposure to each of the above risks and on the objectives, policies, and processes for measuring and managing risk. For detailed information, please refer to the related notes on each risk.

(ii) Structure of risk management

The Group’s risk management policies are established to identify and analyze the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Company’s board of directors oversees the management’s monitoring of the Group’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The board of directors is assisted in its oversight role by an internal auditor. The internal auditor undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the board of directors.

(iii) Credit risk

Credit risk is the risk of financial loss to the Group if a customer or a counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group’s cash and cash equivalents; notes, accounts, and other receivables; and derivative instruments.

1) Cash and cash equivalents

The Group had deposited $5,994,946 (including restricted deposits) in the DBS Bank and 9 other financial institutions, and $7,104,404 (including restricted deposits) in Postal Savings Bank of China and 8 other financial institutions, representing 16% and 17% of total assets, as of December 31, 2016 and 2015, respectively. The Group believes that there is no significant credit risk from the above-mentioned financial institutions.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

2) Notes and accounts receivable

Sales to individual customers constituting over 10% of total revenue for the years ended December 31, 2016 and 2015, totaled 15% and 21%, respectively. As of December 31, 2016 and 2015, 7% and 12%, respectively, of the ending balance of notes and accounts receivable were accounted for by those customers. In order to reduce credit risk, the Group assesses the financial status of the customers and the possibility of collection of receivables on a regular basis. The above-mentioned customers are profitable and have a good credit record, and the Group did not suffer any significant credit loss from those customers during the financial reporting period.

3) Derivative instruments

The Group entered into derivative instrument contracts with reputable and creditworthy financial institutions. The Group believes that the risk that these financial institutions may default on these contracts is relatively low and anticipates no significant credit loss.

(iv) Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it always has sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

The Group manages sufficient cash and cash equivalents so as to cope with its operations and mitigate the effects of fluctuations in cash flows. The Group had unused bank facilities of $13,301,651 and $10,957,088 as of December 31, 2016 and 2015, respectively.

(v) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates, and equity prices, will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

1) Currency risk

The Group is exposed to currency risk on sales, purchases, and borrowings that are denominated in a currency other than the respective functional currencies of the Group’s entities, primarily the TWD, USD, HKD, and CNY. These transactions are denominated in USD.

The Group uses forward exchange contracts and foreign exchange swap contracts to hedge its currency risk. The Group makes performance reports and reviews operating strategy regularly, and believes that there is no significant risk because the gains or losses from exchange rate fluctuation will mostly be offset by the hedged item.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

2) Interest rate risk

The Group’s main assets and liabilities with a floating-interest-rate basis are deposits and borrowings. The Group believes that cash flow risk arising from interest rate fluctuation is insignificant.

3) Other market price risk

The Group is exposed to equity price risk due to the investments in listed equity securities. Those equity securities are strategic investments and is not held for trading.

(aa) Capital management

The board’s policy is to maintain a strong capital base so as to maintain investor, creditor, and market confidence, and to sustain future development of the business. Capital consists of ordinary shares, capital surplus, retained earnings, other equity, and non-controlling interests.

The Group sets its objectives for managing capital to safeguard the capacity to continue to operate, to continue to provide a return to stockholders, to safeguard the interest of related parties, and to maintain an optimal capital structure to reduce the cost of capital.

The Group’s debt ratio as of December 31, 2016 and 2015, was 67% and 69%, respectively.

(7) Related-party transactions:

(a) Parent company and ultimate controlling company

The Company is the ultimate controlling party of the Group.

(b) Other related-party transactions
(i) Sales

The amounts of significant sales by the Group to related parties and the outstanding balances were as follows:

were as follows:
Other related parties	Sales 2016 2015 $ 238,563 153,394	Notes and accounts receivable December 31, 2016 December 31, 2015 102,841 54,995
	2016 $ 238,563

There were no significant differences in the selling prices and trading terms between the related parties and other customers.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(ii) Loans from related parties

The outstanding balance of loans to the Group from its related parties was as follows:


				Highest	Ending
				balance	balance
Key	management	personnel of Global TEK	$	125,344	63,994

－
(iii) Property transaction disposal of equity securities

Details of the Company’s disposal of the shares of its subsidiary to its related parties were as follows:

follows:
Relationship	Account		201	6		Trading quantities -	20	15
		Trading quantities 11,020 (thousand)	Trading targets shares	Proceeds from disposal (note) 549,347	Gains or losses from disposal		Trading target -	Proceeds from disposal Gains or losses from disposal - -
Other related parties	Investment using equity method				164,785

Note: Pricing was based on Global TEK’s financial statements audited by other auditors and the opinion for reasonable transation price issued by Sosian accounting firm.

The Company had received all the proceeds as of December 31, 2016.

(c) Key management personnel compensation

Short-term employee benefits Post-employment benefits Termination benefits Other long-term benefits Share-based payments	2016 2015 $ 183,825 174,528 1,129 1,233 - - - - 17,088 15,124 $ 202,042 190,885

Please refer to note (6)(r) for information related to share-based payments.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(8) Pledged assets:

As of December 31, 2016 and 2015, assets pledged as collateral were as follows:

Pledged assets Other current assets – restricted assets Other non-current assets – restricted assets Property, plant and equipment Long-term prepaid rent	Pledged to secure	December 31, 2016 December 31, 2015 $ - 4,502 $ 1,163 4,667 $ - 699,107 $ - 99,832
	Guarantee letters issued by bank Loan collateral and guarantee letters issued by bank Loan collateral Loan collateral

(9) Commitments and contingencies:

(a) The Group’s guarantee of purchasing materials and borrowings, please refer to note 13.
(b) The following are savings accounts provided by the Group to the bank in order for the bank to issue a guarantee letter to customs as guarantee deposits. Please refer to note 8.

Guarantee letters	December 31, 2016 December 31, 2015 $ 198,121 39,912

(c) Guarantee notes provided as part of agreements with banks to sell accounts receivables, to acquire long-term borrowings, and to purchase materials were as follows:

Sales of accounts receivable Long-term borrowings Purchase of material	December 31, 2016 December 31, 2015 $ 2,805,777 2,874,690 $ 2,160,000 2,598,906 $ - 39,732

(d) The aggregate unpaid amounts of contracts pertaining to the purchase of equipment were as follows:

Property, plant and equipment	December 31, 2016 December 31, 2015 $ 63,890 66,482

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(e) TWEL Group entered into patent license agreements with several companies in July 2015. According to the agreements, royalty to be paid in the future are as follows:

	December	31,	December 31,
	2016		2015
$	-		69,670

(f) The Group entered into lease agreements for its offices and warehouses. Please refer to note (6)(n) for future rent payables.

(10) Losses due to major disasters:None

(11) Subsequent events:None

(12) Other:

(a) Employee benefit, depreciation, and amortization expenses are summarized by function from continuing operations are below:

By function By item	2016	2016	2016	2015	2015	2015
	Operating cost	Operating expenses	Total	Operating cost	Operating expenses	Total
Employee benefits Salaries Labor and health insurance Pension Others Depreciation Amortization	3,829,623 105,984 272,241 46,599 1,264,078 19,708	2,572,977 107,713 101,105 151,697 110,004 162,226	6,402,600 213,697 373,346 198,296 1,374,082 181,934	4,217,912 111,028 284,197 77,354 1,056,396 13,264	2,434,943 98,844 97,974 146,764 119,772 157,646	6,652,855 209,872 382,171 224,118 1,176,168 170,910
Discontinued operations The Group sold parts of the shares of Global TEK on October 3, 2016. Since the segment of Global TEK and its subsidiaries was not a discontinued operation or classified as held for sale on December 31, 2015, the comparative statement of comprehensive income has been restated to show the discontinued operation separately from continuing operations. Profit and loss, and cash flows from discontinued operations are summarized as follows: 2016 2015 Operating revenue $ 1,926,626 2,051,106 Operating cost (1,457,401) (1,654,033) Gross profit 469,225 397,073 Operating expenses (277,699) (335,759) Net operating income 191,526 61,314 Non-operating income and expenses (86,301) (6,263) Profit before income taxes 105,225 55,051 Income tax expense (43,329) (25,009) Profit from discontinued operations $ 61,896 30,042

(b) Discontinued operations

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

Profit attributable to: Owners of Parent Non-controlling interests Cash flows from discontinued operations: Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Effect of foreign currency exchange translation Net increase (decrease) in cash and cash in equivalents	2016 2015 $ 18,569 9,013 43,327 21,029 $ 61,896 30,042 $ 321,226 184,499 (161,102) (194,508 38,022 (211,459 (26,190) (6,419 $ 171,956 (227,887

(13) Other disclosures:

(a) Information on significant transactions:

The following is the information on significant transactions required to be disclosed by the Regulations for the Group:

(i) Loans to other parties:

No.	Name of lender	Name of borrower	Account name	Highest balance of financing to other parties during the period	Ending balance	Actual usage amount during the period	Range of interest rates during the period	Purposes of fund financing for the borrower	Transaction amount for business between two parties	Reasons for short-term financing	Allowance for bad debt	Coll	ateral	Individual funding loan limits	Maximum limit of fund financing
												Item	Value
1 2 `〃` `〃`	PKSI Global TEK `〃` `〃`	The Company GLOBAL TEK WUXI GT GTS	Other accounts receivable Other accounts receivable Other accounts receivable Other accounts receivable	781,263 96,846 101,353 30,000	781,263 47,049 30,000 -	781,263 47,049 30,000 -	- 0%~2% 2.896% 2.000%	Necessary to loan to other parties `〃` `〃` `〃`	- - - -	Operating capital `〃` `〃` `〃`	- - - -		- - - -	920,598 217,391 217,391 217,391	920,598 434,782 434,782 434,782

Note 1: The Board of directors approved PKS1 to extend loan to any indiviual of the parent company or subsidiaries having 100% voting share, with the loan amount and the total amount not exceeding its net worth in the latest financial statements.

Note 2: The loan amount and the total loan amount for the Company shall not exceed 10% and 20%, respectively, of its net worth in the latest financial statements. The Company lost control over Global TEK group in October 2016. The information on Global TEK group was disclosed as of September 30, 2016.

Note 3: Related transactions have been eliminated during the preparation of the consolidated financial statements.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(ii) Guarantees and endorsements for other parties:

No.	Name of guarantor	Counter-party of guarantee and endorsement	Counter-party of guarantee and endorsement	Limitation on amount of guarantees and endorsements for a specific enterprise	Highest balance for guarantees and endorsements during the period	Balance of guarantees and endorsements as of reporting date	Actual usage amount during th period	e Property pledged for guarantees and endorsements (Amount)	Ratio of accumulated amounts of guarantees and endorsemen ts to net worth of the latest financial statements	Maximum amount for guarantees and endorsements	Parent company endorsements/ guarantees to third parties on behalf of subsidiary	Subsidiary endorsements/ guarantees to third parties on behalf of parent company	Endorsements/ guarantees to third parties on behalf of companies in Mainland China
		Name	Relationship with the Company
0 1 `〃` 2 3 `〃`	The Company PCH2 `〃` Global TEK GT `〃`	PCH2 PCQ1 PKS1 GT Global TEK Global TEK WUXI	The subsidiary of PHK1 and PTH2 The same parent company `〃` The same parent company The same parent company `〃`	3,299,917 1,336,851 1,336,851 217,391 50,761 50,761	390,432 235,200 100,800 30,000 50,000 50,400	338,930 193,674 96,837 - - 47,049	20,917 26,560 56,676 - - 27,445	- - - - - -	% 3.08 % 4.35 % 2.17 % - % - % 46.34	8,799,779 3,564,936 3,564,936 543,478 91,370 91,370	Y - - Y - -	- - - - Y -	Y Y Y - - Y

Note 1: The amount and the total amount of the guarantee to a company shall not exceed 30% and 80%, respectively, of its net worth in the latest financial statements. Note 2: The amount and the total amount of the guarantee to a company shall not exceed 30% and 80%, respectively, of PCH2’s net worth in the latest financial statements. Note 3: The amount and the total amount of the guarantee to a company shall not exceed 20% and 50%, respectively, of Global TEK’s net worth in the latest financial statements. The Company lost control over Global TEK group in October, 2016. The information for Global TEK group ended on September 30, 2016. Note 4: The amount and the total amount of the guarantee to a company shall not exceed 50% and 90%, respectively, of GT’s net worth in the latest financial statements. The Company lost control over Global TEK group in October 2016. The information on Global TEK group was disclosed as of September 30, 2016. Note 5: The above counter-parties of guarantee and endorsement are subsidiaries included in the consolidated financial statements.

(iii) Securities held as of December 31, 2016 (excluding investment in subsidiaries, associates and joint ventures):

Name of holder	Category and name of security	Relationship with company	Account title		Ending balance	Ending balance	Ending balance	Highest balance during the year	Highest balance during the year
				Shares/Units (thousands)	Carrying value	Percentage of ownership (%)	Fair value	Shares/Units (thousands)	Percentage of ownership (%)
The Company Primax Tech.	Shares: Green Rich Technology Co., Ltd. WK Technology Fund IV LTD. Changing Information Technology Inc. Formosoft International Inc. Syntronix Corp. Ricavision International Inc. Nien Made Enterprise Co., Ltd. Global TEK Shares: Echo. Bahn. WK Global Investment III Ltd.	- - - - - - - - - -	Available-for-sale financial asset- non-current `〃` `〃` `〃` `〃` `〃` `〃` `〃` Available-for-sale financial asset- non-current `〃`	359 512 179 53 6 917 1,764 5,510 400 630	4,000 3,820 2,802 646 749 - 586,404 275,500	3.59 0.38 1.66 0.76 0.02 2.04 0.60 10.00 11.90 1.32	4,000 3,820 2,802 646 749 - 586,404 275,500 - 13,880	1,680 640 179 53 6 917 2,605 16,530 400 700	3.59 0.38 1.72 1.07 0.02 2.04 1.00 30.00 11.90 1.32
					873,921
					- 13,880
					13,880

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(iv) Individual securities acquired or disposed of with accumulated amount exceeding the lower of NT$300 million or 20% of the Company’s issued capital:

Name of company	Category and name of security	Account name	Name of counter- party	Relationship with the company	Beginning Balance	Beginning Balance	Purchases	Purchases	Sales	Sales	Sales	Sales	Ending Balance	Ending Balance
					Shares (thousands)	Amount	Shares (thousands)	Amount	Shares (thousands)	Price	Cost	Gain (loss) on disposal	Shares (thousands)	Amount
The Company PCH2 PCH2 PCQ1 Premium Huizhou	Shares: Global TEK Financial instruments of floating income and capital guaranteed Money market fund of RMB Money market fund of RMB Money market fund of RMB	Available- for-sale financial assets Held-for- trading financial assets `〃` `〃` `〃`	Related parties Initial offerings `〃` `〃` `〃`	Other related parties None `〃` `〃` `〃`	16,530 - - - -	555,091 - - - -	- - - - -	- 7,308,498 667,960 559,312 534,061	11,020 - - - -	549,347 7,315,451 667,774 558,388 527,401	384,562 7,308,498 666,565 557,754 526,428	248,004 (note 1) 6,953 (note 1) (186) (note 1) (924) (note 1) (6,660) (note 1)	5,510 - - - -	275,500 - - - -

Note 1: Gains of disposal include valuation and exchange differences on translation.

(v) Acquisition of individual real estate with amount exceeding the lower of NT$300 million or 20% of the Company’s issued capital:None
(vi) Disposal of individual real estate with amount exceeding the lower of NT$300 million or 20% of the Company’s issued capital:None
(vii) Related-party transactions for purchases and sales with amounts exceeding the lower of NT$100 million or 20% of the Company’s issued capital:

Name of company	Related party	Nature of relationship		Transact	ion details	ion details	Transactions wit from	h terms different others	Notes/Accounts receivable (payable)	Notes/Accounts receivable (payable)	Note
			Purchase/ Sale	Amount	Percentage of total purchases/sales	Payment terms	Unit price	Payment terms	Ending balance	Percentage of total notes/accounts receivable (payable)
The Company `〃` `〃` `〃` `〃`	Primax Cayman Primax HK PCH2 PKS1 PCQ1	Subsidiary The subsidiary of Primax Cayman The subsidiary of Primax HK The subsidiary of Primax HK The subsidiary of Primax HK	Purchase Purchase Purchase Purchase Purchase	429,806 16,357,886 18,234,471 1,012,723 5,189,828	% 1 % 39 % 45 % 2 % 13	60 days `〃` `〃` `〃` `〃`	Price agreed by both side `〃` `〃` `〃` `〃`	The same as general purchasing `〃` `〃` `〃` `〃`	(49,873) - (6,971,192) (409,294) (1,922,281)	-% -% (69)% (4)% (19)%

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

Name of company	Related party	Nature of relationship	Transaction details	Transaction details	Transaction details	Transaction details	Transactions with terms different from others	Transactions with terms different from others	Notes/Accounts receivable (payable)	Notes/Accounts receivable (payable)	Note
			Purchase/ Sale	Amount	Percentage of total purchases/sales	Payment terms	Unit price	Payment terms	Ending balance	Percentage of total notes/accounts receivable (payable)
The Company `〃` `〃` Primax Cayman Primax HK `〃` PCH2 `〃` PKS1 PCQ1 Polaris TYM HK `〃` `〃` Premium Hui Zhou Tymphany Dongguan `〃` Global TEK GT Global TEK XI'AN Global TEK WUXI	Polaris TYM HK Tymphany Dongguan The Company The Company PCH2 Primax HK The Company The Company The Company The Company Premium Hui Zhou The Company Tymphany Dongguan TYM HK The Company TYM HK Global TEK XI'AN Global TEK WUXI Global TEK GT	The subsidiary of Primax Tech The subsidiary of TWEL The subsidiary of TYM HK Parent Parent Subsidiary Parent The parent of Primax Cayman The parent of Primax Cayman The parent of Primax Cayman The parent of Primax Tech Subsidiary The parent of Diamond Subsidiary Parent Parent Parent The subsidiary of GTS The subsidiary of GTS and WUXI Global TEK The parent of GTF-HK The subsidiary of Global TEK	(Sale) (Sale) (Sale) (Sale) (Sale) Purchase (Sale) (Sale) (Sale) (Sale) Purchase Purchase Purchase Purchase (Sale) Purchase (Sale) Purchase Purchase (Sale) (Sale)	(3,804,963) (400,149) (239,956) (429,806) (16,357,886) 16,272,682 (16,272,682) (18,234,471) (1,012,723) (5,189,828) 3,804,963 3,825,446 400,149 3,871,980 (3,825,446) 239,956 (3,871,980) 122,441 393,728 (122,441) (393,728)	% (8) % (1) % (1) % (100) % (100) % 100 % (36) % (40) % (100) % (88) % 99 % 49 % 5 % 48 % (94) % 6 % (100) % 32 % 63 % (71) % (37)	90 days 60 days `〃` `〃` `〃` 30 days `〃` 60 days `〃` `〃` 90 days 60 days `〃` `〃` `〃` `〃` `〃` `〃` 90 days `〃` `〃`	`〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃`	The same as general selling `〃` `〃` `〃` `〃` The same as general purchasing The same as general selling `〃` `〃` `〃` The same as general purchasing `〃` `〃` `〃` The same as general selling The same as general purchasing The same as general selling The same as general purchasing `〃` The same as general selling `〃`	226,050 165,384 - 49,873 - (305,434) 305,434 6,971,192 409,294 1,922,281 (226,050) (986,123) (165,384) (1,191,888) 986,123 - 1,191,888 (35,080) (236,385) 35,080 236,385	3% 2% -% 100% -% (100)% 3% 65% 34% 89% (24)% (40)% (7)% (49)% 98% -% 99% (27)% (42)% 58% 40%

Note 1: Accounts receivables over payment terms has been classified as other receivables-non-current.

Note 2: The Company has lost control over Global TEK in October 2016. The information on Global TEK group was disclosed as of September 30, 2016. Note 3: Related transactions have been eliminated during the preparation of the consolidated financial statements.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(viii) Receivables from related parties with amounts exceeding the lower of NT$100 million or 20% of the Company’s issued capital:

Name of company	Counter-party	Nature of relationship	Ending balance (note 2)	Turnover rate	Overdue	Overdue	Amounts received in subsequent period (note 1)	Allowance for bad debts
					Amount	Action taken
The Company `〃` PCH2 `〃` PKS1 PCQ1 Premium Hui Zhou Tymphany Dongguan Global TEK WUXI	Polaris TYM HK Primax HK The Company The Company The Company TYM HK TYM HK GT	The Subsidiary of Primax Tech The Subsidiary of TWEL Parent The Parent of Primax Cayman The Parent of Primax Cayman The Parent of Primax Cayman Parent Parent The Subsidiary of Global TEK	226,050 165,384 305,434 6,971,192 1,190,557 1,922,281 986,123 1,191,888 236,385	12.72 0.43 3.11 5.23 1.36 3.92 4.37 6.50 2.41	- - - - 781,263 - - - -	Reclassify to Long-term payable, and enhance the control of receivables	226,050 86,141 1,316 6,550,647 241,863 1,241,674 600,391 426,604 19,726	- - - - - - - - -

Note 1: Amounts collected as of March 7, 2017.

(ix) Trading in derivative instruments:Please refer to notes 6(b).
(x) Business relationships and significant intercompany transactions:

No	Name of company	Name of counter-party	Nature of relationship (Note 2)		Intercompany transactions, 2016	Intercompany transactions, 2016	Intercompany transactions, 2016
				Account name	Amount	Trading terms	Percentage of consolidated total operating revenues or total assets
0 `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃`	The Company `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃`	PCH2 `〃` Primax Cayman Primax HK PKS1 `〃` PCQ1 `〃` Polaris `〃`	The subsidiary of Primax HK `〃` Subsidiary The subsidiary of Primax Cayman The subsidiary of Primax HK `〃` `〃` `〃` The subsidiary of Primax Tech `〃`	Purchase Accounts Payable Purchase Purchase Purchase Accounts Payable Purchase Accounts Payable Sale Accounts Receivable	18,234,471 6,971,192 429,806 16,357,886 1,012,723 409,294 5,189,828 1,922,281 3,804,963 226,050	Price agreed by both side 60 days Price agreed by both side Price agreed by both side Price agreed by both side 60 days Price agreed by both side 60 days Price agreed by both side 90 days	% 28.35 % 18.78 % 0.67 % 25.43 % 1.57 % 1.10 % 8.07 % 5.18 % 5.91 % 0.61

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

No	Name of company	Name of counter-party	Nature of relationship (Note 2)		Intercompany transactions, 2016	Intercompany transactions, 2016	Intercompany transactions, 2016
				Account name	Amount	Trading terms	Percentage of consolidated total operating revenues or total assets
0 `〃` `〃` 1 `〃` 2 `〃` `〃` `〃` 3 4 `〃`	The Company `〃` `〃` Primax HK `〃` TYM HK `〃` `〃` `〃` Global TEK GT `〃`	TYM HK `〃` Tymphany Dongguan PCH2 `〃` Premium Hui Zhou `〃` Tymphany Dongguan `〃` Global XI’AN Global WUXI `〃`	The subsidiary of TWEL `〃` The subsidiary of TYM HK Subsidiary `〃` Subsidiary `〃` Subsidiary `〃` The subsidiary of GTS The subsidiary of GTS and WUXI Global TEK `〃`	Sale Accounts Receivable Sale Purchase Accounts Payable Purchase Accounts Payable Purchase Accounts Payable Purchase Purchase Accounts Payable	400,149 165,384 239,956 16,272,682 305,434 3,825,446 986,123 3,871,980 1,191,888 122,441 393,728 236,385	Price agreed by both side 60 days Price agreed by both side Price agreed by both side 30 days Price agreed by both side 60 days Price agreed by both side 60 days Price agreed by both side Price agreed by both side 90 days	% 0.62 % 0.45 % 0.37 % 25.30 % 0.82 % 5.95 % 2.66 % 6.02 % 3.21 % 0.19 % 0.61 % 0.64

Note 1: Disclosure of the amounts exceeding the lower of NT$100 million.

Note 2: Related transactions have been eliminated during the preparation of the consolidated financial statements. Note 3: The Company has lost control over Global TEK in October 2016. The information on Global TEK group was disclosed as of September 30, 2016.

(b) Information on investees:

The following is the information on investees for the year ended December 31, 2016 (excluding information on investees in Mainland China):

Name of investor	Name of investee	Location	Main businesses and products	Original i am	nvestment ount	Balance as of December 31, 2016	Balance as of December 31, 2016	Balance as of December 31, 2016	Highest bal the	ance during year	Net income (losses) of investee	Share of profits/losses of investee	Note
				December 31, 2016	December 31, 2015	Shares (thousands)	Percentage of ownership	Carrying value	Shares (thousands)	Percentage of ownership
The Company `〃` `〃` `〃` `〃` `〃`	Primax Cayman Primax Tech. Destiny BVI. Destiny Japan Primax Korea Diamond	Cayman Island Cayman Island Virgin Island Japan Korea Cayman Island	s Holding company s Holding company Holding company Market development and customer service Market development and customer service s Holding company	2,540,588 897,421 30,939 7,032 - 2,517,298	2,540,588 897,421 30,939 7,032 9,101 - 2,517,298	8,147,636 285,067 1,050 0.50 84,050	100.00 100.00 100.00 100.00 - 100.00	4,336,069 1,922,225 26,320 16,146 - 3,007,259	8,147,636 285,067 1,050 0.5 67 84,050	100.00 100.00 100.00 100.00 100.00 100.00	211,690 (24,669) (3,452) 242 - 144,863	251,896 11,354 (3,452) 242 - 145,891	(note 3)

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

Name of investor	Name of investee	Location	Main businesses and products	Original investment amount	Original investment amount	Balance as of December 31, 201	Balance as of December 31, 201	6	Highest balance during theyear	Highest balance during theyear	Net income (losses) of investee	Share of profits/losses of investee	Note
				December 31, 2016	December 31, 2015	Shares (thousands)	Percentage of ownership	Carrying value	Shares (thousands)	Percentage of ownership
The Company `〃`	Global TEK Gratus Tech. Total	Taiwan USA	Manufacture and sale of sophisticated machinery components, automotive parts, industrial automation parts, communication parts, and aerospace components Market development and customer service	- 9,330 6,002,608	545,490 - 9,330 6,557,199 -	300	- 100.00	- 9,875 9,317,894	16,530 300	30.00 100.00	79,912 75 408,661	18,569 75 424,575	(note 4)
Primax Cayman	Primax HK	Hong Kong	Sale of multi-function printers and computer peripheral devices	2,375,164	2,375,164	602,817	100.00	4,433,962	602,817	100.00	213,540	213,540
Primax Tech.	Polaris	USA	Sale of multi-function printers and computer peripheral devices	52,680	52,680	1,600	100.00	394,322	1,600	100.00	11,071	11,071
Diamond	TWEL	Cayman Islands	Holding company	2,515,800	2,515,800	38,501	70.00	2,904,380	38,501	70.00	349,720	166,285
TWEL `〃`	TYM HK TYP	Hong Kong USA	Holding company and sale of audio accessories, amplifiers and their components Market development and customer service of amplifiers and their components	76,280 (note 1) 15 (note 1)	76,280 (note 1) 15 (note 1)	144,395 0.50	100.00 100.00	1,540,112 4,876	144,395 0.5	100.00 100.00	337,425 2,692	337,425 2,692
TYM HK	TYML	USA	Sales of audio accessories, amplifiers and their components	6,628	6,628	200	100.00	(10,786)	200	100.00	3,436	4,674
Global TEK `〃`	GT GTF-S	Taiwan Samoan Islands	Manufacture of sophisticated machinery components and automotive parts Holding company	- -	166,000 (note 2) - 360,029 (note 2) -		- -	- -	16,000 12,500	100.00 100.00	(31,844) 116,707	(31,844) 116,543	(note 4) (note 4)
GT	GP	USA	Sale of automotive parts, industrial automation parts, communication parts and aerospace components	-	641 (note 2) -		-	-	20	100.00	(110)	(110)	(note 4)
GTF-S `〃`	GTS GTF-HK	Samoan Islands Hong Kong	Holding company Holding company	- -	330,650 (note 2) - 123,916 (note 2) -		- -	- -	9,200 26,200	100.00 100.00	94,849 22,001	94,849 22,001	(note 4) (note 4)

Note 1: The amount is the initial investment costs from the original stockholders prior to the acquisition of the Company through Diamond.

Note 2: The amount is the initial investment costs from the original stockholders prior to the acquisition of the Company through Global TEK. Note 3: The liquidation of Primax Korea was completed in March 2016.

Note 4: The Company has lost control over Global TEK in October 2016.

Note 5: Related transactions have been eliminated during the preparation of the consolidated financial statements.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(c) Information on investments in mainland China:

(i) The names of investees in Mainland China, the main businesses and products, and other information:

	information:
Name of investee	Main businesses and products	Total amount of paid-in capital	Method of investment	Accumulated outflow of investment from Taiwan as of January 1, 2016	Investment flows		Accumulated outflow of investment from Taiwan as of December 31, 2016	Net income (losses) of the investee	Percentage of ownership	Investment income (losses)	Book value	Accumu-lated remittance of earnings in current period
					Outflow	Inflow
PCH2 Destiny Bejing PKS1 PCQ1 Premiurn Hui Zhou Tymphany Dongguan TYDC WUXI Global TEK Global TEK XI'AN Global TEK WUXI	Manufacture of multifunctional peripherals, computer mice, mobile phone accessories, consumer electronics products, and shredders Research and development of computer peripheral devices and software Manufacture of computer, peripherals and keyboards Manufacture of computer, peripherals and keyboards Research and development, design, and sale of audio accessories, amplifiers and their components Research and development, design, and sale of audio accessories, amplifiers and their components `〃` Manufacture of sophisticated machinery components Manufacture of industrial automation parts, communication parts and aerospace components Manufacture of sophisticated machinery components and automotive parts	2,075,044 41,105 908,593 583,149 146,303 (note 3) 16,140 93,064 - - -	Indirect investment through Primax Cayman and Primax Tech. Indirect investment through Destiny BVI. Indirect investment through Primax Cayman Indirect investment through Primax Cayman Indirect investment through Diamond Indirect investment through Diamond `〃` Indirect investment through Global TEK Indirect investment through Global TEK Indirect investment through Global TEK	1,817,427 (note 2) 34,719 (note 2) 727,452 (note 2) 661,320 (note 2) 2,777,544 16,533 - 102,306 (note 4) 21,245 (note 4) 286,467 (note 4)	- - - - - - - - - -	- - - - - - - 102,306 21,245 286,467	1,773,902 (note 2) 33,893 (note 2) 710,138 (note 2) 645,580 (note 2) 2,711,436 16,140 - - - -	(103,572) (3,452) 69,114 246,273 125,942 35,972 - 24,478 7,238 124,651	100% 100% 100% 100% 70% 70% 70% 30% 30% 30%	(103,572) (3,452) 69,114 246,273 88,159 25,180 - 7,343 2,171 37,395	4,456,136 26,316 920,591 915,196 410,738 33,904 65,144 - - -	- - - - - - - - - -

Note 1: The above information on the exchange rate is as follows: HKD:TWD $4.1623; USD:TWD 32.279; CNY:TWD 4.6532.

Note 2: The difference between the accumulated out flow of investments and paid-in capital was derived from the currency exchange on translation, capital increase from retained earning and working capital.

Note 3: The amount is the initial investment costs from the original stockholders prior to the acquisition of the Company through Diamond.

Note 4: The amount is the initial investment costs from the original stockholders prior to the acquisition of the Company through Global TEK. Note 5: The Company has lost control over Global TEK in October 2016.

Note 6: Related transactions have been eliminated during the preparation of the consolidated financial statements.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(ii) Limitation on investment in Mainland China:

Name of Company	Accumulated Investment in Mainland China as of December 31, 2016	Investment Amounts Authorized by Investment Commission, MOEA	Upper Limit on Investment
The Company	5,980,672	6,797,921	None(Note)

Note: The Company has received the Certificate issued by the Industrial Development Bureau, Ministry of Economic Affairs, allowing it to start the operating of its headquarters.

The above investment income (losses) in mainland China, except for PCH 2, Destiny Beijing, PKS 1, and PCQ 1, which were based on financial statements audited by the Company’s auditors, others were based on the audited results of other auditors.

(iii) Significant transactions:

The significant inter-company transactions with the subsidiary in Mainland China, which were eliminated in the preparation of consolidated financial statements, are disclosed in “Information on significant transactions” and “Business relationships and significant intercompany transactions.”

(14) Segment information:

(a) General information

The Group’s reported segments are the divisions for computer peripherals and non-computer peripherals. The division for computer peripherals specializes in the manufacture and sale of computer mice, keyboards, track pads, etc. The division for non-computer peripherals specializes in the manufacture and sale of digital camera modules, mobile phone accessories, multi-function printers, scanners, shredders, amplifiers, speakers, audio systems, automotive parts, industrial automation parts, aerospace components, etc.

The Group’s reported segments consist of strategic business units which provide essentially different products and services. These units have to be separately managed as a result of the different technology and marketing strategies. Most of the business units were acquired, and the original management teams are still operating.

(b) Reportable segments’ profit or loss, segment assets, segment liabilities, and their measurement and reconciliation

Income tax and extraordinary profits and losses are not allocated to the Group’s reportable segments, and the amounts for the reported segments are identical with those in the report used by the chief operating decision maker.

The Group assessed the performance of the segments based on the segments’ income before income taxes (excluding extraordinary profit and loss), and the accounting policies of the operating segments are the same as those described in note 4. Sales and transfers between segments are deemed to be transactions with third parties and are measured by using the market price.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

For the years ended December 31, 2016 and 2015, the Group’s segment financial information was as follows:

		2016 Non-computer Peripherals Total 40,525,423 66,256,088 - - (1,926,626) (1,926,626) 38,598,797 64,329,462 1,328,378 2,869,677 (105,225) (105,225) 1,223,153 2,764,452 2015 (restated)
Computer Peripherals
$ 25,730,665 - - $ 25,730,665 $ 1,541,299 - $ 1,541,299 Computer Peripherals

	Computer Peripherals	Non-computer Peripherals Total 35,003,188 65,589,293 - - (2,051,106) (2,051,106) 32,952,082 63,538,187 781,076 2,472,953 (55,051) (55,051) 726,025 2,417,902
$ 30,586,105 - - $ 30,586,105 $ 1,691,877 - $ 1,691,877

In presenting information on the basis of geography, revenue is based on the geographical location of customers, and non-current assets are based on the geographical location of the assets. Details were as follows:

Geographic Information Revenues from external customers: China Americas Other Total	2016 2015 (restated) $ 35,009,994 38,259,055 14,221,870 11,216,040 15,097,598 14,063,092 $ 64,329,462 63,538,187

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

Non-current assets: China Taiwan Other Total	December 31, 2016 December 31, 2015 $ 4,701,807 5,825,906 371,047 1,624,591 2,722,283 2,806,056 $ 7,795,137 10,256,553

(d) Major customer information

The information on major customers that accounted for more than 10% of revenue in the consolidated statements of comprehensive income in 2016 and 2015 is as follows:

Company A	2016	2016		2015 Net sales Percentage of net sales 13,605,216 % 21
	Net sales	Percentage of net sales
	$ 9,524,714	% 15

AI assistant

Primax — Annual Report 2016

52436_rns_2016-11-10_d25dcae3-5a0a-4e00-804c-d4a0abfdcf57.pdf

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

Table of contents

Representation Letter

Independent Auditors’ Report

Opinion

Basis for Opinion

Other Matter

Key Audit Matters

1. Evaluation of inventories

Description of key audit matter:

How the matter was addressed in our audit:

2. Impairment assessment of intangible assets

Description of key audit matter:

3. Disposal of subsidiaries

Description of key audit matter:

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

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

KPMG

Notes to Readers

(English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2016 and 2015

(Expressed in Thousands of New Taiwan Dollars)

(English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2016 and 2015

(Expressed in Thousands of New Taiwan Dollars , Except for Earnings Per Share)

(English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES

Consolidated Statements of Changes in Equity

For the years ended December 31, 2016 and 2015

(English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES

Consolidated Statements of Cash Flows

For the years ended December 31, 2016 and 2015

(Expressed in Thousands of New Taiwan Dollars)

Notes to the Consolidated Financial Statements

For the years ended December 31, 2016 and 2015

(1) Company history

(2) Approval date and procedures of the consolidated financial statements:

(3) New standards, amendments and interpretations adopted

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

Issuance / Release

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(4) Summary of significant accounting policies:

(a) Statement of compliance

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(b) Basis of preparation

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(ii) List of subsidiaries in the consolidated financial statements

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(d) Foreign currencies

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(ii) Foreign operations

(e) Classification of current and non-current assets and liabilities

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(g) Financial instruments

(i) Financial assets

2) Available-for-sale financial assets

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

3) Loans and receivables

4) Impairment of financial assets

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

2) Other financial liabilities

3) Derecognition of financial liabilities

(h) Inventories

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(i) Discontinued operations

(j) Investment property

(k) Property, plant and equipment

(i) Recognition and measurement

(ii) Reclassification to investment property

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

(iii) Subsequent cost

Primax Annual Report 2016