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, 2017 and 2016 (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`～`14
	(4)	Summary of significant accounting policies	15`～`32
	(5)	Significant accounting assumptions and judgments, and major sources	32`～`33
		of estimation uncertainty
	(6)	Explanation of significant accounts	33`～`74
	(7)	Related-party transactions	75`～`76
	(8)	Pledged assets	76
	(9)	Commitments and contingencies	76`～`77
	(10)	Losses due to major disasters	77
	(11)	Subsequent events	77
	(12)	Other	78
	(13)	Other disclosures
		(a) Information on significant transactions	79`～`83
		(b) Information on investees	84
		(c) Information on investments in mainland China	85`～`86
	(14)	Segment information	86`～`87

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, 2017 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 Separate 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 statements.

Company name: PRIMAX ELECTRONICS LTD. Chairman: LIANG LI SHENG Date: March 13, 2018

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, 2017 and 2016, the consolidated statements of comprehensive income, changes in equity and cash flows for the years ended December 31, 2017 and 2016, 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, 2017 and 2016, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and 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, 2017 and 2016, the assets of these subsidiaries constitute 30% and 14%, respectively, of the consolidated total assets. For the years ended December 31, 2017 and 2016, the operating revenue of these subsidiaries constitute 34% and 14%, 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, 2017 and 2016, 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 analyze the changes of the aging of inventories; 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.

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, PRIMAX ELECTRONICS LTD. acquired Tymphany Worldwide Enterprises Ltd. through its subsidiary, Diamond (Cayman) Holdings Ltd., and recognized its goodwill, technologies and customer relationships as intangible assets. Due to the rapid industrial transformation, the assessment of impairment 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.

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.

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.

4-3

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

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

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

From the matters communicated with those charged with governance, we determine those matters 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 MEI-PIN WU and YUNG-HUA HUANG .

KPMG

Taipei, Taiwan (Republic of China) March 13, 2018

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, 2017 and 2016

(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 Non-current assets: 1523 Available-for-sale financial assets`－`non-current (notes 6(c) and (g)) 1600 Property, plant and equipment (note 6(i)) 1760 Investment property (note 6(j)) 1780 Intangible assets (note 6(k)) 1840 Deferred tax assets (note 6(p)) 1985 Long-term prepaid rents 1990 Other non-current assets (note 8) Total assets	December 31, 2017 Amount % $ 7,821,011 21 141,151 - 13,014,207 35 105,911 - 737,687 2 6,791,093 18 530,360 1 29,141,420 77 402,997 1 4,437,684 12 35,214 - 2,730,188 7 548,995 1 217,520 1 261,125 1 8,633,723 23 $ 37,775,143 100	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 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 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 (notes 6(q) and (r)) 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, 2017	December 31, 2017		December 31, 2016
			Amount	%		Amount % - - 16,892,918 46 150,430 - 3,878,606 10 1,146,183 3 350,860 1 382,222 1 22,801,219 61 218,889 1 1,408,138 4 449,345 1 2,076,372 6 24,877,591 67 4,421,343 12 3,024 - 791,466 2 788,634 2 97,300 - 4,779,419 13 118,538 - 1,244,734 4 12,244,458 33 37,122,049 100

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, 2017 and 2016

(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), (r), (u) and 12(a)) Gross profit Operating expenses (notes 6(f), (o), (r), (u) and 12(a)): 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) and 7) 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 (note 6(o)) 8349 Income tax expense related to items that may not be reclassified to profit or loss 8360 Items that may be reclassified subsequently to profit or loss: 8361 Exchange differences on translation of foreign operation’s financial statements 8362 Unrealized 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 may 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 (note 6(h)) Comprehensive income attributable to: 8710 Owners of parent 8720 Non-controlling interests (note 6(h)) 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	2017	% 100 88 12 2 2 4 8 4 - 1 - 1 5 1 4 - 4 - - - - (1) - (1) (1) 3 4 - 4 3 - 3 4.67 4.67 4.63 4.63	2016 Amount % 64,329,462 100 57,062,275 89 7,267,187 11 1,555,372 2 1,134,095 2 2,204,249 3 4,893,716 7 2,373,471 4 149,924 - 331,952 - (90,895) - 390,981 - 2,764,452 4 777,686 1 1,986,766 3 61,896 - 2,048,662 3 (1,340) - - - (1,340) - (656,445) (1) 110,706 - - - (545,739) (1) (547,079) (1) 1,501,583 2 1,934,070 3 114,592 - 2,048,662 3 1,432,480 2 69,103 - 1,501,583 2 4.36 0.04 4.40 4.32 0.04 4.36
	Amount $ 60,741,692 53,261,685 7,480,007 1,460,339 1,454,789 2,364,974 5,280,102 2,199,905 143,367 541,030 (36,722) 647,675 2,847,580 678,599 2,168,981 - 2,168,981 (5,909) - (5,909) (108,024) (331,977) - (440,001) (445,910) $ 1,723,071 $ 2,057,415 111,566 $ 2,168,981 $ 1,606,886 116,185 $ 1,723,071 $ - $ $ - $

See accompanying notes to consolidated financial statements.

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

Consolidated Statements of Changes in Equity

For the years ended December 31, 2017 and 2016

(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	Equity attributable to owners of parent	Equity attributable to owners of parent						Non- controlling interests Total equity
Share capital		Capital surplus	Retained earnings					Total		other equity interest				Total equity attributable to owners of parent
								Exchange differences on translation of foreign financial statements		Unrealized gains (losses) on available- for-sale financial assets		Unearned employee compensation
Ordinary shares	Advance receipts for share capital		Legal reserve		Special reserve	Unappropriated retained earnings
$ 4,411,877 - - - - - (3,850) - - - 13,316 - 4,421,343 - - - - - - 30,000 (940) - - - 6,480 - $ 4,456,883	15,174	777,368		611,322	97,300		3,951,934		351,045		294,760		(80,399) - - - - - 10,200 43,182 - - - - (27,017) - - - - - - (152,030) 3,821 79,420 - - - - (95,806)	10,430,381	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 12,244,458 111,566 2,168,981 4,619 (445,910) 116,185 1,723,071 - - - (1,111,886) - (217,774) - - - - - 79,420 2,604 13,676 - 15,892 - 1,938 233,007 233,007 1,596,530 12,981,802
	- -	- -		- -	- -						- 110,706
	-	-		-	-						110,706
				177,312 - - - - - - -	- - - - - - - -						- - - - - - - -
				788,634 - -	97,300 - -
				-	-
				193,407 - - - - - - - - -	- - - - - - - - - -
				982,041	97,300

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, 2017 and 2016

(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 from disposal of subsidiaries
Gain from disposal of available-for-sale financial assets
Impairment losses on property, plant and equipment
Interest expense
Interest income
Compensation cost of share-based payment
Loss from disposal of property, plant and equipment
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 (minus cash acquired)
Proceeds from disposal of subsidiaries (minus subsidiaries’ cash)
Changes in non-controlling interests
Acquisition of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Acquisition of unamortized expense
Acquisition of available-for-sale financial assets
Proceeds from disposal of available-for-sale financial assets
Dividends received
Other investing activities
Net cash flows used in investing activities
Cash flows from (used in) financing activities:
Increase (decrease) in short-term borrowings
Decrease in long-term borrowings
Increase in guarantee deposits
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 year
Cash and cash equivalents at end of year 2017
2016
$ 2,847,580
2,764,452
-
105,225
2,847,580
2,869,677
1,513,201
1,650,235
67,188
947,465
(10,392)
137,481
-
(248,006)
(330,887)
(140,969)
-
86,850
32,707
98,693
(110,012)
(126,400)
93,096
46,778
77,548
14,814
1,332,449
2,466,941
166
(53,611)
1,002,173
(1,165)
(3,070)
(47,846)
(259,689)
(132,548)
224,508
(691,918)
60
(185,378)
-
(223,244)
1,131
(6,288)
965,279
(1,341,998)
(856,204)
(1,271,222)
(39,092)
(80,924)
220,175
224,411
9,942
104,737
(412,083)
115,582
(1,077,262)
(907,416)
(111,983)
(2,249,414)
1,220,466
217,527
4,068,046
3,087,204
110,012
126,400
(32,639)
(98,448)
(733,254)
(846,899)
3,412,165
2,268,257
(646,638)
-
-
108,980
25,366
-
(1,226,326)
(1,107,108)
24,358
72,617
(89,783)
(50,813)
(21,045)
-
497,186
220,270
23,325
14,692
(38,837)
24,063
(1,452,394)
(717,299)
995,638
(974,439)
(382,223)
(759,456)
30,930
27,566
(1,111,886)
(927,933)
15,892
19,097
(451,649)
(2,615,165)
(47,027)
(199,257)
1,461,095
(1,263,464)
6,359,916
7,623,380
$
7,821,011
6,359,916

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, 2017 and 2016

(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, 2017, 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 13, 2018.

(3) New standards, amendments and interpretations adopted:

(a) The impact of the International Financial Reporting Standards (“IFRSs”) endorsed by the Financial Supervisory Commission, ROC. (“FSC”) which have already been adopted.

The following new standards, interpretations and amendments have been endorsed by the FSC and are effective for annual periods beginning on or after January 1, 2017:

	Effective date per
New, Revised or Amended Standards and Interpretations	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”

(Continued)

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

	Effective date per
New, Revised or Amended Standards and Interpretations	IASB
IFRS 14 “Regulatory Deferral Accounts”	January 1, 2016
Amendment to IAS 1“Presentation of Financial Statements-Disclosure	January 1, 2016
Initiative”
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 “Impairment of Non-Financial assets- Recoverable	January 1, 2014
Amount Disclosures for Non Financial Assets”
Amendments to IAS 39 “Financial Instruments-Novation of Derivatives and	January 1, 2014
Continuation of Hedge Accounting”
Annual Improvements to IFRSs 2010-2012 Cycle and 2011-2013 Cycle	July 1, 2014
Annual Improvements to IFRSs 2012-2014 Cycle	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) The impact of IFRS endorsed by FSC but not yet effective

The following new standards, interpretations and amendments have been endorsed by the FSC and are effective for annual periods beginning on or after January 1, 2018 in accordance with Ruling No. 1060025773 issued by the FSC on July 14, 2017. In addition, based on the announcement issued by the FSC on December 12, 2017, the Group can, and therefore, elected to early adopt the amendments to IFRS 9 “Prepayment features with negative compensation”:

	Effective date
New, Revised or Amended Standards and Interpretations	per IASB
Amendment to IFRS 2 “Classification and Measurement of Share-based	January 1, 2018
Payment Transactions”
Amendments to IFRS 4 “Applying IFRS 9 Financial Instruments with IFRS 4	January 1, 2018
Insurance Contracts”
IFRS 9 “Financial Instruments”	January 1, 2018
Amendments to IFRS 9 “Prepayment features with negative compensation”	January 1, 2019
IFRS 15 “Revenue from Contracts with Customers”	January 1, 2018
Amendment to IAS 7 “Statement of Cash Flows -Disclosure Initiative”	January 1, 2017
Amendment to IAS 12 “Income Taxes- Recognition of Deferred Tax Assets for	January 1, 2017
Unrealized Losses”
Amendments to IAS 40 “Transfers of Investment Property”	January 1, 2018

(Continued)

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

	Effective date
New, Revised or Amended Standards and Interpretations	per IASB
Annual Improvements to IFRS Standards 2014–2016 Cycle:
Amendments to IFRS 12	January 1, 2017
Amendments to IFRS 1 and Amendments to IAS 28	January 1, 2018
IFRIC 22 “Foreign Currency Transactions and Advance Consideration”	January 1, 2018

Except for the following items, the Group believes that the adoption of the above IFRSs would not have any material impact on its consolidated financial statements. The extent and impact of signification changes are as follows:

(i) IFRS 9 “Financial Instruments”

IFRS 9 replaces IAS 39 "Financial Instruments: Recognition and Measurement" which contains classification and measurement of financial instruments, impairment and hedge accounting.

`－` 1) Classification Financial assets

IFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model in which assets are managed and their cash flow characteristics. IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). The standard eliminates the existing IAS 39 categories of held to maturity, loans and receivables and available for sale. Under IFRS 9, derivatives embedded in contracts where the host is a financial assets in the scope of the standard are never bifurcated. Instead, the hybrid financial instrument as a whole is assessed for classification. In addition, IAS 39 has an exception to the measurement requirements for investments in unquoted equity instruments that do not have a quoted market price in an active market (and derivatives on such an instrument) and for which fair value cannot therefore be measured reliable. Such financial instruments are measured at cost. IFRS 9 removes this exception, requiring all equity investments (and derivatives on them) to be measured at fair value.

Based on its assessment, the Group does not believe that the new classification requirements will have a material impact on its accounting for trade receivables, loans, investments in debt securities and investments in equity securities that are managed on a fair value basis. At December 31, 2017, the Group had equity investments classified as available-for-sale with a fair value of 402,997 thousand that are held for long-term strategic purposes. At initial application of IFRS 9, the Group has designated these investments as measured at FVOCI. Consequently, all fair value gains and losses will be reported in other comprehensive income, no impairment losses would be recognized in profit or loss and no gains or losses will be reclassified to profit or loss on disposal. The Group estimated the application of IFRS 9’s classification requirements on January 1, 2018 resulting in a decrease of 38,042 thousand in the other equity interest, as well as an increase of 38,042 thousand in retained earnings.

(Continued)

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

－
2) Impairment Financial assets and contract assets

IFRS 9 replaces the “incurred loss” model in IAS 39 with a forward-looking “expected credit loss” (ECL) model. This will require considerable judgment as to how changes in economic factors affect ECLs, which will be determined on a probability-weighted basis.

The new impairment model will apply to financial assets measured at amortized cost or FVOCI, except for investments in equity instruments, and to contract assets.

Under IFRS 9, loss allowances will be measured on either of the following bases:

‧ 12-month ECLs. These are ECLs that result from possible default events within the 12 months after the reporting date; and
‧ Lifetime ECLs. These are ECLs that result from all possible default events over the expected life of a financial instrument.

Lifetime ECL measurement applies if the credit risk of a financial asset at the reporting date has increased significantly, since initial recognition and 12-month ECL measurement applies if it has not. An entity may determine that a financial asset’s credit risk has not increased significantly if the asset has low credit risk at the reporting date. However, lifetime ECL measurement always applies for trade receivables and contract assets without a significant financing component; an entity may choose to apply this policy also for trade receivables and contract assets with a significant financing component.

The Group estimated the application of IFRS 9’ s impairment requirements would not result in significant impact.

3) Disclosures

IFRS 9 will require extensive new disclosures, in particular about hedge accounting, credit risk and expected credit losses. The Group’s assessment included an analysis to identify data gaps against current processes and the Group plans to implement the system and controls changes that it believes will be necessary to capture the required data.

4) Transition

Changes in accounting policies resulting from the adoption of IFRS 9 will generally be applied retrospectively, except as described below.

‧ The Group will take advantage of the exemption allowing it not to restate comparative information for prior periods with respect to classification and measurement (including impairment) changes. Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 generally will be recognized in retained earnings and other equity interest as at January 1, 2018.

(Continued)

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

‧ The following assessments have to be made on the basis of the facts and circumstances that exist at the date of initial application.
The determination of the business model within which a financial asset is held.
The designation and revocation of previous designations of certain financial assets and financial liabilities as measured at FVTPL.

– The designation of certain investments in equity instruments not held for trading as at FVOCI.

(ii) IFRS 15 Revenue from Contracts with Customers

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognized. It replaces existing revenue recognition guidance, including IAS 18 “Revenue” and IAS 11 “Construction Contracts”.

1) Sales of goods

For the sale of products, revenue is currently recognized when the goods are delivered to the customers’ premises, which is taken to be the point in time at which the customer accepts the goods and the related risks and rewards of ownership transfer. Revenue is recognized at this point provided that the revenue and costs can be measured reliably, the recovery of the consideration is probable and there is no continuing management involvement with the goods. Under IFRS 15, revenue will be recognized when a customer obtains control of the goods. The Group has performed an initial assessment indicating the timing of the related risks and rewards transferred is similar to the timing of control transferred. Therefore, the Group believes that there would not be any material impact on its consolidated financial statements.

2) Transition

The Group plans to adopt IFRS 15 in its consolidated financial statements using the cumulative effect approach. As a result, there is no need to reproduce the comparative information in previous periods. The cumulative effect of the first application of the principle will adjust the retained earnings of January 1, 2018. The Group plans to us the practical expedients for completed contracts. This means that when a contract is deemed as a completed contracts at the date of adoption (January 1, 2018), it will not be restated.

The actual impacts of adopting the standards may change depending on the economic conditions and events which may occur in the future.

(Continued)

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

As of the date the following IFRSs that have been issued by the IASB, but not yet endorsed by the FSC:

FSC:
	Effective date
New, Revised or Amended Standards and Interpretations	per IASB
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 16 “Leases”	January 1, 2019
IFRS 17 “Insurance Contracts”	January 1, 2021
IFRIC 23 “Uncertainty over Income Tax Treatments”	January 1, 2019
Amendments to IAS 28 “Long-term interests in associates and joint ventures”	January 1, 2019
Annual Improvements to IFRS Standards 2015–2017 Cycle	January 1, 2019
Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement”	January 1, 2019

Those which may be relevant to the Group are set out below:

Issuance / Release

Dates
January 13, 2016 Standards or Interpretations
Content of amendment
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.

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

(Continued)

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

(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”).

(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.

(Continued)

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

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.

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 The Company The Company The Company The Company The Company The Company The Company Primax Cayman	Name of subsidiary 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) Diamond (Cayman) Holdings Ltd. (Diamond) Gratus Technology Corp. (Gratus Tech.) Global TEK Fabrication Co., Ltd. (Global TEK) Primax Industries (Hong Kong) Ltd. (Primax HK)	Principal activities Holding company Holding company Holding company 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 Holding company and customer service	Percentage of shareholding December 31, 2017 December 31, 2016 Description % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % - % - (note 1) % 100.00 % 100.00
			December 31, 2017 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % - % 100.00

(Continued)

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

Name of investor Diamond Global TEK Global TEK Primax HK and Primax Tech. Primax HK Primax HK Primax Tech. Destiny BVI. TWEL TWEL TWEL Premium Hui Zhou Premium Hui Zhou	Name of subsidiary Tymphany Worldwide Enterprises Ltd. (TWEL) Global TEK Co., Ltd. (GT) Global TEK Fabrication Co., Ltd. (Samoa) (GTF-S) Dongguan Primax Electronic & Telecommunication Products Ltd. (PCH2) Primax Electronics (KS) Corp., Ltd. (PKS1) Primax Electronics (Chongqing) Corp., Ltd. (PCQ1) Polaris Electronics Inc. (Polaris) Destiny Electronic Corp. (Destiny Beijing) Tymphany HK Ltd. (TYM HK) Premium Loudspeakers (Hui Zhou) Co., Ltd. (Premium Hui Zhou) TYP Enterrpise, Inc. (TYP) Tymphany Acoustic Technology HK Ltd. (TYM Acoustic HK) Dongguan Tymphany Acoustic Technology Co., Ltd. (Tymphany Dongguan)	Principal activities Holding company Manufacture of sophisticated machinery components and automotive parts Holding company Manufacture of multifunctional peripherals, computer mice, mobile phone accessories, consumer electronics products, and shredders Manufacture of computer, peripherals and keyboards Manufacture of computer peripherals and keyboards Sale of multi-function printers and computer peripheral devices and market development and customer service Research and development of computer peripheral devices and software Sale of audio accessories, amplifiers and their components Manufacture, research and development, design, and sale of audio accessories, amplifiers and their components Market development and customer service of amplifiers and their components Research and development, design, and sale of audio accessories, amplifiers and their components and holdings Manufacture, research and development, design and sale of audio accessories, amplifiers and their components	Percentage of shareholding December 31, 2017 December 31, 2016 Description % 100.00 % 70.00 (note 2) % - % - (note 1) % - % - (note 1) % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % - % 100.00 (note 3) % 66.44 % - (note 4) % - % 100.00 (note 5) % 100.00 % - (note 6) % 100.00 % - (note 7)
			December 31, 2017 % 100.00 % - % - % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % - % 66.44 % - % 100.00 % 100.00

(Continued)

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

Name of investor TYM Acoustic HK TYM Acoustic HK TYM Acoustic HK TYM Acoustic HK TYM Acoustic HK TYM HK TYM HK TYM HK Tymphany Dongguan GT GTF-S GTF-S GTF-HK	Name of subsidiary TYMPHANY ACOUSTIC TECHNOLOGY (UK) LIMITED (TYM UK) Tymphany Acoustic Technology Europe, s.r.o (TYM Acoustic Europe) TYP TYM HK Tymphany Acoustic Technology Limited (TYM Acoustic) TYMPHANY LOGISTICS, INC (TYML) Premium Huizhou Tymphany Dongguan Dong Guan Dong Cheng Tymphany Acoustic Technology Co., Ltd. (TYDC) GP Tech, Inc. (GP) Global TEK Fabrication Co., Ltd. (HK) (GTF-HK) Global TEK Co., Ltd. (Samoa) (GTS) WUXI GLOBAL TEK FABRICATION CO., LTD. (WUXI GLOBAL TEK)	Principal activities Research and development, design of audio accessories, amplifiers and their components Manufacture, install and repair of audio accessories and their components Market development and customer service of amplifiers and their components Sale of audio accessories, amplifiers and their components Research and development, design of audio accessories, amplifiers and their components Sale of audio accessories, amplifiers and their components Manufacture, research and development, design and sale of audio accessories, amplifiers and their components Manufacture, 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 Sale of automotive parts, industrial automation parts, communication parts and aerospace components Holding company Holding company Manufacture of sophisticated machinery components	Percentage of shareholding December 31, 2017 December 31, 2016 Description % 100.00 % - (note 6) % 100.00 % - (note 8) % 100.00 % - (notes 5) % 100.00 % - (note 3) % 100.00 % - (note 9) % 100.00 % 100.00 % - % 100.00 (note 4) % - % 100.00 (note 7) % 100.00 % 100.00 % - % - (note 1) % - % - (note 1) % - % - (note 1) % - % - (note 1)
			December 31, 2017 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % - % - % 100.00 % - % - % - % -

(Continued)

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

Name of investor GTS GTS and WUXI GLOBAL TEK	Name of subsidiary GLOBAL TEK (XI’ AN) CO., LTD. (GLOBAL TEK XI’ AN) GLOBAL TEK CO. (WUXI), LTD. (GLOBAL TEK WUXI)	Principal activities Manufacture of industrial automation parts, communication parts and aerospace components Manufacture of sophisticated machinery components and automotive parts	Percentage of shareholding December 31, 2017 December 31, 2016 Description % - % - (note 1) % - % - (note 1)
			December 31, 2017 % - % -

Note 1: 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.
Note 2: 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 subsidiaries through TWEL, and included them in the consolidated financial statements from the same date. Also, the Group acquired 5.5% of the shares of TWEL by cash, and 24.5% of the shares of TWEL by exchanging the shares of Premium Huizhou on October 31, 2017.
Note 3: TYM HK was originally a 100% owned subsidiary of TWEL; however, after the restructuring of the Group in the third quarter of 2017, TYM HK became a 100% owned subsidiary of TYM Acoustic HK.
Note 4: Premium Huizhou was originally a 100% owned subsidiary of TYM HK; however, after the restructuring of the Group in the third quarter of 2017, Premium Huizhou became 100% owned subsidiary of TWEL. TWEL decreased the ownership of Premium Huizhou to 66.44% due to the shares swap, and the issuance of employee stock ownership plans in the fourth quarter of 2017.
Note 5: TYP was originally a 100% owned subsidiary of TWEL; however, after the restructuring of the Group in the third quarter of 2017, TYP became a 100% owned subsidiary of TYM Acoustic HK.
Note 6: The Company was incorporated in January 2017.
Note 7: Tymphany Dongguan was originally a 100% owned subsidiary of TYM HK; however, after the restructuring of the Group in the third quarter of 2017, Tymphany Dongguan became a 100% owned subsidiary of Premium Huizhou.
Note 8: TYM Acoustic HK acquired all shares of Bang & Olufsen s.r.o (renamed as Tymphany Acoustic Technology Europe, s.r.o. after merger) by cash on June 1, 2017.
Note 9: The Company was incorporated in December 2017.

(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 the 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 the 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 the 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 the 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 the 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 the 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 the 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 the 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 the 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 the 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.

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.

(Continued)

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

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.

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.

(Continued)

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

(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 carryforward 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).

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.

(Continued)

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

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.

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:

(Continued)

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

(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:

(i) Level 1: quoted prices (unadjusted) in active markets for identifiable assets or liabilities.
(ii) Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

(iii) 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.

(6) Explanation of significant accounts:

(a) Cash and cash equivalents

Cash on hand Checking accounts and demand deposits Time deposits	December 31, 2017 December 31, 2016 $ 3,279 2,946 6,022,395 1,761,981 1,795,337 4,594,989 $ 7,821,011 6,359,916

(Continued)

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

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:

Details of financial instruments were as follows:
		December 31,	December 31,
		2017	2016
Financial assets at fair value through profit or loss –
current:
Derivative financial assets:
Forward exchange contracts	$	125,940	141,317
Foreign exchange swap contracts		15,211	-
$		141,151	141,317
Financial liabilities at fair value through profit or
loss – current:
Derivative financial liabilities:
Forward exchange contracts	$	(69,167)	(72,909)
Foreign exchange swap contracts		(33,940)	(77,521)
	$	(103,107)	(150,430)

(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, 2017 and 2016:

	December 31, 2017
Derivative financial instruments	Nominal amount	Maturity date Predetermined rate January 4, 2018~ June 26, 2018 29.437~30.021 January 4, 2018~ March 26, 2018 29.792~30.328 January 19, 2018~ April 19, 2018 6.6085~6.6677 January 19, 2018~ April 19, 2018 6.5475~6.6875 January 12, 2018~ February 9, 2018 30.052~30.232 January 5, 2018~ June 26, 2018 29.583~30.0155
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 Foreign exchange swap contracts `－`swap in USD/ swap out TWD Foreign exchange swap contracts `－`swap in TWD / swap out USD	USD 299,000 USD 276,500 USD 75,000 USD 66,000 USD 103,500 USD 116,000

(Continued)

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

	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
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 USD 189,500 USD 81,000

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

Stocks listed in domestic markets Stocks unlisted in domestic markets Stocks unlisted in foreign markets	December 31, 2017 December 31, 2016 $ - 586,404 380,835 287,517 22,162 13,880 $ 402,997 887,801

(i) WK Technology Fund IV Ltd. refunded $1,280 and $2,816 to the Group due to capital reduction in April 2016 and July 2017, respectively.
(ii) WK Global Investment III Ltd. refunded $2,254 and $4,757 to the Group due to capital reduction in April 2016 and July 2017, respectively.
(iii) 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.
(iv) In the second quarter of 2016, the Group sold 841 thousand shares of Nien Made Enterprise Co., Ltd. for $220,270. The gain from disposal of which was recognized as other gains and losses, amounted to $140,969, deducting the cost of $79,301. Also, in the fourth quarter of 2017, the Group sold 1,764 thousand shares of Nien Made Enterprise Co., Ltd. for $497,186. The gain from disposal of which was recognized as other gains and losses, amounted to $330,887, deducting the cost of $166,299.
－
(v) The Group invested $21,045 in the unlisted company Grove Ventures, L.P, and classified as available-for-sale financial assets in March 2017.
(vi) The unrealized gains (losses) were $(1,090) and $110,706 for the years ended December 31, 2017 and 2016, respectively, and were recognized as unrealized gains on available-for-sale financial assets. The Group reclassified the realized gains of Nien Made Enterprise amounted to $330,887 in 2017 as gains from disposal.

(Continued)

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

(vii) 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, 2017 December 31, 2016 $ 175,324 3,761 13,019,199 13,798,350 105,911 102,841 737,687 495,392 (127,640) (99,936) (52,676) (98,302) $ 13,857,805 14,202,106

(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, 2017 and 2016.
(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, 2017 and 2016, the details of transferred accounts receivable which conformed to the criteria for derecognition were as follows:

			December 31, 2017
Buyer Mega International Commercial Bank HSBC Bank Bank of Taiwan EnTie Bank	Amount sold NT$ $ - - - 81,751 $ 81,751	Credit facilities US$ (expressed in thousand) 15,000 45,000 29,250 7,000 96,250	Cash received in advance NT$ Interest rate Guarantee (promissory note) expressed in thousands - - US$ 3,750 - - US$ 13,500 - - NT$ 210,000 - - - -	Amount derecognized NT$ Amount not received NT$ - - - - - - - 81,751 - 81,751

(Continued)

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

			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	Amount derecognized NT$ Amount not received NT$ 336,651 37,406 533,157 59,240 404,146 44,905 1,273,954 141,551

(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, 2017 December 31, 2016 $ 1,797,211 1,618,227 1,351,885 1,485,837 3,641,997 3,566,483 $ 6,791,093 6,670,547

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

For the years ended December 31, 2017 and 2016, the Group recognized the following items as cost of goods sold:

Gains and (losses) on inventory valuation Unallocated manufacturing overhead resulting from the actual production being lower than the normal capacity Losses on disposal of inventories Gains on physical inventories, net	2017 2016 $ 72,997 (792,757 (66,035) (135,888 (90,243) (19,737 16,093 7,126 $ (67,188) (941,256

(f) Business combination

Based on the resolution approved during the board of directors’ meeting of TWEL, one of the main subsidiaries of the Company, held on March 13, 2017, acquired all shares of Bang & Olufsen s.r.o. (renamed as TYM Acoustic Europe after merger) amounting to EUR18,000 through TYM Acoustic HK. Through this transaction, the Company will establish the market for its audio products in Europe, strengthen the cooperation with its clients and expand its technique, manufacturing process and global market. The purchase agreement was settled on June 1, 2017.

(Continued)

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

(i) Consideration transferred

According to the share purchase agreement, the consideration transferred was EUR18,000. As of December 31, 2017, TYM Acoustic HK deposited EUR1,500 in Escrow Account based on the share purchase agreement.

The seller raised an objection against the net assets of TYM Acoustic Europe on July 31, 2017. Both the seller and the Group resolved that TYM Acoustic Europe should pay an additional amount of $40,689 (EUR1,139) to the seller on September 5, 2017.

(ii) Obtaining control

The Company indirectly holds 66.44% of TYM Acoustic Europe’s shares through TWEL. The Company has included TYM Acoustic Europe in its consolidated financial statements since the settlement date.

(iii) 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. As of the reporting date, the share purchase agreement was in accordance with the preliminary purchase price allocation, which is subject to change in the future. The Company engaged experts to evaluate its identifiable net assets, and the preliminary information was as follows:

future. The Company engaged experts to evaluate its identifiable preliminary information was as follows:	net assets, and the
Items Consideration transferred Less: fair value of identifiable net assets Goodwill	Amount
	$ 653,796 475,000 $ 178,796

(iv) The cost of acquisition

The consulting fees and on-site examination expenses of $19,004 due to the acquisition transaction were recognized as administrative expenses in the statement of comprehensive income.

(v) Simulated operating results

Operating results of Bang & Olufsen s.r.o. were merged into the Company’ s consolidated comprehensive income statement since the acquisition date, which had contributed to the operating revenue and the income before tax of $1,398,688 and $33,264, respectively. If the acquisition had occurred on January 1, 2017, the simulated operating revenue and income before tax would have been $61,690,924 and $2,833,659, respectively.

(Continued)

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

(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.

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, 2017 December 31, 2016 % 33.56 % 30 % - % -

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to the 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,
2017
December 31,
2016
$ 10,455,985
4,510,885
3,479,864
3,377,729
(9,105,990)
(3,496,113)
(72,344)
(243,387)
$
4,757,515
4,149,114
$
1,596,530
1,244,734
2017
2016
$
20,473,852
8,902,027
$ 389,297
237,550
122
(62,004)
$
389,419
175,546
$
111,566
71,265
$
116,185
52,664
2017
2016
$ 2,164,634
(572,724)
(1,224,052)
(221,015)
1,106,085
(607)
(3,807)
(22,145)
$
2,042,860
(816,491)
$
-
-

(Continued)

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

(ii) Global TEK and its subsidiaries

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 in cash and cash equivalents
Dividends paid to non-controlling interests

January to ,
December 2017
January to
September, 2016
$
-
1,929,626
$ -
61,896
-
(38,410)
$
-
23,486
$
-
43,327
$
-
16,439
January to
December, 2017
January to
September, 2016
$ -
321,226
-
(161,102)
-
38,022
-
(26,190)
$
-
171,956
$
-
-

(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, 2017 and 2016, were as follows:

Cost or deemed cost: Balance on January 1, 2017 Additions Disposals Acquisition from business combination Reclassifications Effect of movements in exchange rates Balance on December 31, 2017	Land $ 134,701 - - - - - $ 134,701	Buildings, leasehold improvement, and additional equipment	Machinery and equipment	Office and other equipment	Construction in progress and testing equipment	Government grants Total
		3,802,758 58,945 (116,139) 25,997 98,776 (60,973) 3,809,364	5,672,304 473,923 (375,911) - 349,984 (95,646) 6,024,654	510,457 93,159 (34,088) 12,883 22,678 (7,889) 597,200	347,678 625,190 - 59 (554,871) (4,267) 413,789	(16,286) 10,451,612 - 1,251,217 13,701 (512,437) - 38,939 - (83,433) 301 (168,474) (2,284) 10,977,424

(Continued)

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

Balance on January 1, 2016 Additions Disposals Reclassifications Disposal of subsidiaries Effect of movements in exchange rates Balance on December 31, 2016 Depreciation and impairments loss: Balance on January 1, 2017 Depreciation Disposals Reclassifications Effect of movements in exchange rates Balance on December 31, 2017 Balance on January 1, 2016 Depreciation Impairment loss Disposals Reclassifications Disposal of subsidiaries Effect of movements in exchange rates Balance on December 31, 2016 Carrying amounts: Balance on December 31, 2017 Balance on December 31, 2016 Balance on January 1, 2016	Land $ 284,973 - - 111,822 (262,094) - $ 134,701 $ - - - - - $ - $ - - - - - - - $ - $ 134,701 $ 134,701 $ 284,973	Buildings, leasehold improvement, and additional equipment	Machinery and equipment	Office and other equipment	Construction in progress and testing equipment	Government grants Total
		4,145,565 49,514 (94,696) 381,033 (340,019) (338,639) 3,802,758 1,731,111 224,238 (93,204) (3,797) (27,386) 1,830,962 1,737,377 245,594 - (90,910) 35,827 (47,041) (149,736) 1,731,111 1,978,402 2,071,647 2,408,188	6,578,407 396,263 (696,426) 425,506 (461,910) (569,536) 5,672,304 3,632,382 1,037,844 (299,809) (5,477) (53,762) 4,311,178 3,718,475 1,126,355 74,584 (619,931) (249,717) (58,972) (358,412) 3,632,382 1,713,476 2,039,922 2,859,932	680,211 41,155 (83,133) (12,851) (58,963) (55,962) 510,457 383,934 54,426 (31,219) (118) (7,139) 399,884 449,371 79,501 384 (76,609) (29,572) 3,579 (42,720) 383,934 197,316 126,523 230,840	503,242 988,516 (63) (977,213) (133,277) (33,527) 347,678 - - - - - - - - 11,882 - - (11,882) - - 413,789 347,678 503,242	(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 (13,237) 5,734,190 (2,926) 1,313,582 13,701 (410,531) - (9,392) 178 (88,109) (2,284) 6,539,740 (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 - 4,437,684 (3,049) 4,717,422 (3,152) 6,284,023

(i) The unamortized deferred revenue of equipment subsidy amounted to $946,180 and $1,310,945 for the years ended December 31, 2017 and 2016, respectively.

(ii) The Group did not provide any of the aforementioned property, plant and equipment as collateral.

(Continued)

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

(j) Investment property

Cost or deemed cost: Balance on January 1, 2017 Additions Balance on December 31, 2017 Balance on January 1, 2016 Additions Reclassifications Balance on December 31, 2016 Depreciation and impairment losses: Balance on January 1, 2017 Depreciation Balance on December 31, 2017 Balance on January 1, 2016 Depreciation Reclassifications Balance on December 31, 2016 Carrying amounts: Balance on December 31, 2017 Balance on December 31, 2016 Balance on January 1, 2016 Fair value: Balance on December 31, 2017 Balance on December 31, 2016 Balance on January 1, 2016	Land $ 50,190 - $ 50,190 $ 162,012 - (111,822) $ 50,190 $ 33,941 - $ 33,941 $ 33,941 - - $ 33,941 $ 16,249 $ 16,249 $ 128,071	Buildings and other equipment Total 31,735 81,925 - - 31,735 81,925 172,167 334,179 - - (140,432) (252,254) 31,735 81,925 12,307 46,248 463 463 12,770 46,711 41,529 75,470 3,560 3,560 (32,782) (32,782) 12,307 46,248 18,965 35,214 19,428 35,677 130,638 258,709 $ 81,930 $ 84,490 $ 592,092

(i) The fair value of investment property is based on the quotation from third parties, which is categorized within Level 3.
(ii) 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.
(iii) 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.

(Continued)

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

(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, 2017 and 2016, were as follows:

Goodwill Customer Relationships Cost or deemed cost: Balance on January 1, 2017 $ 1,850,383 718,800 Acquisition - - Acquisition from business combination 178,796 - Effect of movements in exchange rates (3,684) - Balance on December 31, 2017$ 2,025,495 718,800 Balance on January 1, 2016 $ 2,191,382 827,800 Acquisition - - Disposal of subsidiaries (340,999) (109,000) Effect of movements in exchange rates - - Balance on December 31, 2016$ 1,850,383 718,800 Amortization and impairment loss: Balance on January 1, 2017 $ - 213,901 Amortization - 71,880 Effect of movements in exchange rates - - Balance on December 31, 2017$ - 285,781 Balance on January 1, 2016 $ - 151,559 Amortization - 80,055 Disposal of subsidiary - (17,713) Effect of movements in exchange rates - - Balance on December 31, 2016$ - 213,901 Carrying amounts: Balance on December 31, 2017$ 2,025,495 433,019 Balance on December 31, 2016$ 1,850,383 504,899 Balance on January 1, 2016 $ 2,191,382 676,241	Technology
	419,300 - - -
	419,300

Goodwill
Customer
Relationships
Cost or deemed cost:
Balance on January 1, 2017
$ 1,850,383
718,800
Acquisition
-
-
Acquisition from business
combination
178,796
-
Effect of movements in
exchange rates
(3,684)
-
Balance on December 31, 2017$
2,025,495
718,800
Balance on January 1, 2016
$ 2,191,382
827,800
Acquisition
-
-
Disposal of subsidiaries
(340,999)
(109,000)
Effect of movements in
exchange rates
-
-
Balance on December 31, 2016$
1,850,383
718,800
Amortization and impairment
loss:
Balance on January 1, 2017
$ -
213,901
Amortization
-
71,880
Effect of movements in
exchange rates
-
-
Balance on December 31, 2017$
-
285,781
Balance on January 1, 2016
$ -
151,559
Amortization
-
80,055
Disposal of subsidiary
-
(17,713)
Effect of movements in
exchange rates
-
-
Balance on December 31, 2016$
-
213,901
Carrying amounts:
Balance on December 31, 2017$
2,025,495
433,019
Balance on December 31, 2016$
1,850,383
504,899
Balance on January 1, 2016
$
2,191,382
676,241

Technology

419,300
-
-
-

419,300

(Continued)

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

(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 the intangible assets identified from the acquisition of TYM Acoustic Europe on June 1, 2017, please refer to note 6(f).

(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 Unused credit lines Annual interest rates	December 31, 2017 December 31, 2016 $ 995,638 - $ 17,453,299 13,301,651 0.97%~4.96% 0.93%~1.27%

(m) Long-term borrowings

December 31, 2017

		Decemb
Unsecured bank loans Less: current portion Total Unused credit lines Unsecured bank loans Less: current portion Total Unused credit lines	Currency	Annual interest rate
	TWD
	Currency	Annual interest rate
	TWD	0.95~1.56%

(i) Pursuant to the loan agreements with 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, 2017, 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.

(Continued)

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

(ii) Please refer to note 9 for the details of the outstanding guarantee notes.

(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, 2017 December 31, 2016 $ 299,316 234,469 489,361 327,873 461,370 12,989 $ 1,250,047 575,331

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 receivable are as follows:

Less than one year	December 31, 2017 December 31, 2016 $ 1,484 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, 2017 December 31, 2016 $ 156,494 160,593 88,082 96,865 68,412 63,728 - - $ 68,412 63,728

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.

(Continued)

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

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 $88,082 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, 2017 and 2016, were as follows:

Defined benefit obligation on January 1 Disposal of subsidiary Discontinued operations Benefits paid Current service costs and interest cost Remeasurement of net defined liabilities Defined benefit obligation on December 31	2017 2016 $ 160,593 180,297 - (3,105) - (16,279) (12,898) (4,995) 2,707 3,417 6,092 1,258 $ 156,494 160,593

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, 2017 and 2016, were as follows:

Fair value of plan assets on January 1 Disposal of subsidiary Remeasurement of net defined liabilities Contributions paid Interest income Benefits paid Fair value of plan assets on December 31	2017 2016 $ 96,865 113,587 - (15,904) 183 (271) 3,231 3,506 701 942 (12,898) (4,995) $ 88,082 96,865

(Continued)

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

4) Expenses recognized in profit or loss

The expenses recognized in profit or loss for the Group for the years ended December 31, 2017 and 2016, were as follows:

Current service costs Net interest of net liabilities for defined benefit Expenses	2017 2016 $ 1,153 1,401 853 1,074 $ 2,006 2,475

5) Remeasurements of net defined benefit liability (asset) recognized in other comprehensive income.

The Company’s remeasurements of the net defined benefit liability (asset) recognized in other comprehensive income for the years ended December 31, 2017 and 2016, were as follows:

Balance on January 1 Recognized during the period Balance on December 31	2017 2016 $ 4,421 3,081 5,909 1,340 $ 10,330 4,421

6) Actuarial assumptions

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

Discount rate Future salary increase rate	December 31, 2017 December 31, 2016 % 1.250 1.375% % 3.250 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 $3,192. The weighted-average duration of the defined benefit plans is 11 years.

7) 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.

(Continued)

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

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

December 31, 2017 Discount rate Future salary increase rate December 31, 2016 Discount rate Future salary increase rate	Influences of defined benefit obligations
	Increased 0.25% Decreased 0.25% $ (3,420) 3,533 $ 3,374 (3,283) $ (3,586) 3,708 $ 3,545 (3,447)

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 2017 and 2016.

(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 $337,071 and $370,871 for the years ended December 31, 2017 and 2016, respectively, recorded as operating cost and operating expenses in the statement of comprehensive income.

(p) Income taxes from continuing operations

(i) The components of income tax expenses for the years ended December 31, 2017 and 2016, were as follows:

Current tax expense Deferred tax expense (benefit) Income tax expense	2017 2016 $ 591,664 970,336 86,935 (192,650) $ 678,599 777,686

(Continued)

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

(ii) Reconciliation of income tax expenses and profit before tax for the years ended December 31, 2017 and 2016, were as follows:

Income tax calculated based on domestic tax rate of individual entity of the Group 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	2017 2016 $ 901,871 606,212 (168,149) (47,655) (232,750) (96,547) 24,801 3,501 62,744 65,978 (74,012) (41,196) 164,094 287,393 $ 678,599 777,686

(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:

follows:
		December 31,	December 31,
		2017	2016
Aggregate amount of temporary differences related
to investments in subsidiaries	$	573,124	422,133

2) Unrecognized deferred tax assets

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

Deductible temporary differences	December 31, 2017 December 31, 2016 $ 73,400 109,500

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.

(Continued)

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

3) Recognized deferred tax assets and liabilities

Changes in the amount of deferred tax assets and liabilities for the years ended December 31, 2017 and 2016, were as follows:

Investment income recognized under the equity method (overseas)	Unrealized foreign exchange gains	Amortization of appraised value adjustment of intangible assets
$ 136,577 51,480 $ 188,057 155,486 (43,432) 24,523 $ 136,577	- 24,493	73,631 (10,483) 63,148 152,009 (63,309) (15,069) 73,631
	24,493
	- - -
	-

Bad debt in excess of tax limit	Loss carryforward	Unfunded pension fund contribution	Unrealized sales returns and allowances	Deferred granted revenue 220,770 (47,475)
$ 31,636 15,695 $ 47,331 $ 33,566 - (1,930) $ 31,636	- 12,755	14,298 (208) 14,090 14,473 - (175) 14,298	57,615 42,483 100,098 44,241 - 13,374 57,615
	12,755			173,295
				189,223 - 31,547
				220,770

(iv) Except for 2014, the Company’s income tax returns have been examined by the tax authority through the years to 2015.
(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, 2017 (Note) $ (Note) $ 2017 (Note)	December 31, 2017 (Note) $ (Note) $ 2017 (Note)	December 31, 2016
			4,779,419
			508,028
			2016 (actual)
			14.50 %

(Continued)

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

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

Note: According to the amendments to the “Income Tax Act” enacted by the office of the President of the Republic of China (Taiwan) on February 7, 2018, effective January 1, 2018, companies will no longer be required to establish, record, calculate, and distribute their ICA due to the abolishment of the imputation tax system.

(q) Capital and other equity

As of December 31, 2017 and 2016, the nominal ordinary shares both amounted to $5,500,000. Par value of each share is $10 (dollars), which means in total there were 550,000 thousand authorized ordinary shares, of which 445,688 thousand and 442,134 thousand shares, respectively, were issued. All issued shares were paid up upon issuance.

Reconciliation of shares outstanding for the years ended December 31, 2017 and 2016, were as follows:

(in thousands of shares) Balance on January 1 Exercise of employee stock options Issuance of restricted stock Retirement of restricted stock Balance on December 31	Ordinary shares 2017 2016 442,134 441,188 648 1,331 3,000 - (94) (385) 445,688 442,134

(i) Ordinary shares
1) The Company issued 648 thousand and 1,331 thousand new shares of ordinary shares for the exercise of employee stock options in 2017 and 2016, 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, 2017 and 2016, were as follows:

Exercise price per share: $24.10 Exercise price per share: $25.20	December 31, 2017
	Exercised shares (in thousands) Exercise price 128 $ 3,085 December 31, 2016

	Exercised shares (in thousands) Exercise price 120 $ 3,024

(Continued)

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

(ii) Capital surplus

The balances of capital surplus as of December 31, 2017 and 2016, were as follows:

Additional paid-in capital Employee stock options Restricted employee stock options Long-term investment	December 31, 2017 December 31, 2016 $ 545,657 508,583 233,624 229,175 150,209 53,708 303,000 - $ 1,232,490 791,466

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 according to the distribution plan proposed by the board of directors and submitted to the stockholders’ meeting for resolution.

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.

(Continued)

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

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, 2017.

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 May 25, 2017, and June 20, 2016, the stockholders’ meeting resolved the distribution of earnings for 2016 and 2015, respectively. The distribution was NT$2.5 and 2.1 (dollars) per share, which amounted to $1,111,886 and $927,933, 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.

(Continued)

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

Period following the grant of options 2 years 3 years	Exercisable percentage (cumulative)
	50 % 100 %

b) Procedure for fulfilling obligation: Primax Holdings fulfills its obligation by issuing new ordinary shares.
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 the 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 $11,072 and $2,517 in 2017 and 2016, respectively.
7) As of December 31, 2017, 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 ) December 30, 2008/ November 12, 2009 11.42 30,828 5 years (May 23, 2005~ November 11, 2014) 2 ~ 3 years	Plan 2 (note ) December 30, 2008/ November 12, 2009 11.42 7,224 6~8 years (January 2, 2008~November11, 2017) 3 ~ 5 years	Plan 3 (note )
			Issued in November 2011 Issued in October 2012 November 24, 2011 October 22, 2012 16.20 24.10 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: 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.

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.

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

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:

Period of stock options	Plan 1 Plan 2 0.20 0.20 2.37~5 6~8
Exercise price of Primax Holdings’s stock options (USD) Expected time until expiration (years)

(Continued)

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

Period of stock options	Plan 1 Plan 2 0.91677~1 0.91677~0.92827 34.78%~44.59% 38.98%~48.44% - - 2.439%~2.665% 2.509%~2.538%
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:

			Plan 3	Plan 3
			Issued in	Issued in October
Period of stock options	Plan 1	Plan 2	November 2011	2012
Exercise price of stock options	11.42	11.42	18.2	28.25
(NT dollars)
Expected time until expiration	5	8	5	5
(years)
Stock price per share (NT dollars)	16.50	16.50	26.02	28.25
Expected volatility of stock price	45.18%	45.18%	29.12%	32.38%~34.61%
Expected cash dividend rate	-	-	6%	3.77%
Risk-free interest rate	2.26%	2.26%	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:
	Plan 1		Plan 2
	Before the	After the	Before the	After the
	modification	modification	modification	modification
Primax Holdings		the Company	Primax Holdings	the Company
Granted units of options	7,365	21,654	2,331	6,853

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%

(Continued)

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

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

Outstanding on January 1 Granted during the year Forfeited during the year Exercised during the year Expired during the year Outstanding on December 31 Exercisable on December 31	2017 Weighted- average exercise price Stock options (in thousands) 22.16 957 - - 15.21 (301) 24.23 (656) - - - - - -	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
	Weighted- average exercise price 22.16 - 15.21 24.23 - - -

As of December 31, 2017 and 2016, 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, 2017 December 31, 2016 - - - 211 - - - 746 - 957 - 0.82

10) As at 31 December 2017, the Group had 2 share-based payment arrangements as follows:

Grant date Exercise price Granted units (thousand) Service period Vesting period	Employee stock options Employee stocks ownership plans November 2014 July 2015 September 2017 November 18, 2014 July 1, 2015 September 30, 2017 $15.74 $18.82 CNY$1.3406 700 2,750 35,937 5 years 5 years 15 years 3 ~4 years 3 ~5 years 12 months after Premium Hui Zhou listed
	November 2014 November 18, 2014 $15.74 700 5 years 3 ~4 years

(Continued)

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

The Group measured the fair value of the 2 aforementioned share-based payment arrangements. The measurement inputs were 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	Employee stock options 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%	Employee stocks ownership plans
		September 2017
		CNY$1.3406 15 CNY$2.0121 - - -

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

Outstanding on January 1 Granted during the year Forfeited during the year Exercised during the year Expired during the year Outstanding on December 31 Exercisable on December 31	2017 Weighted- average exercise price Stock options (in thousands) 18.27 3,308 - - - - - - 18.27 (3,308) - - - -	2016 Weighted- average exercise price Stock options (in thousands) 18.20 3,450 - - - - - - 16.50 (142) 18.27 3,308 - -
	Weighted- average exercise price 18.27 - - - 18.27 - -

(ii) Restricted stock

1) As of December 31, 2017, 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) October 1, 2013 November 20, 2013 February 10, 2014 July 17, 2014 22.80 25.15 27.30 52.00 Free grants Free grants Free grants Free grants 1,450 186 135 220 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)	Plan 2 (note 1) Plan 3 (note 1) February 24, 2015 August 18, 2015 February 13, 2017 September 7, 2017 43.70 38.40 45.80 72.40 Free grants Free grants Free grants Free grants 1,225 1,775 2,450 550 1~3years (note 2 and 3) 1~3 years (note 2) 1~3 years (note 2) 1~3 years (note 2)

(Continued)

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

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.
Plan 3 –After the shareholders’ meeting on June 20, 2016, 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 2,450 thousand shares and 550 thousand shares on January 23 and August 10, 2017, 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.

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.

(Continued)

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

2) The related information on restricted stock of the Company was as follows:

	(Thousand shares)		2017		2016
	Outstanding on January 1			1,771	3,270
	Granted during the year			3,000	-
	Forfeited during the year		-		-
	Vesting during the year			(743)	(1,214)
	Expired during the year			(94)	(285)
	Outstanding on December 31			3,934	1,771
Expenses and liabilities attributable to share-based		payment	of the	continuing	operations for
2017	and 2016 were as follows:
			2017		2016
Expenses attributable to employee stock options		$	13,676		3,596
Restricted stock			79,420		43,182
Total		$	93,096		46,778
Salary payable:
Current		$	-		1,938

(iii) Expenses and liabilities attributable to share-based payment of the continuing operations for 2017 and 2016 were as follows:

(s) Earnings per share

(i) Basic earnings per share

The calculation of basic earnings per share for the years ended December 31, 2017 and 2016, based on the profit attributable to owners of parent of the Company and the weighted-average number of ordinary shares outstanding was as follows:

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	2017 2016
	$ 2,057,415 1,915,501 - 18,569 $ 2,057,415 1,934,070 440,907 439,169 $ 4.67 4.36 - 0.04 $ 4.67 4.40

(Continued)

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

Weighted-average number of ordinary shares (thousand shares)

Ordinary shares on January 1 Exercise of employee stock options Vesting of restricted stock Ordinary shares on December 31		2017 2016 440,363 437,818 152 760 392 591 440,907 439,169

(ii) Diluted earnings per share

The calculation of diluted earnings per share for the years ended December 31, 2017 and 2016, 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
Weighted-average number of ordinary shares on
December 31 (basic)
Effect of employee stock options
Estimated effect of employee stock bonuses
Effect of restricted stock
Weighted-average number of ordinary shares on
December 31 (diluted)

2017
2016

$ 2,057,415
1,915,501
-
18,569
$
2,057,415
1,934,070
444,846
443,212
$ 4.63
4.32
-
0.04
$
4.63
4.36
2017
2016
440,907
439,169
529
745
1,117
2,174
2,293
1,124
444,846
443,212

(Continued)

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

(t) Operating revenue

The details of operating revenue for the years ended December 31, 2017 and 2016, were as follows:

Goods sold Services rendered Continuing operations Discontinued operations Total	2017 2016 $ 59,409,145 62,973,145 1,332,547 1,356,317 60,741,692 64,329,462 - 1,926,626 $ 60,741,692 66,256,088

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, 2017 and 2016, were as follows:

Employee remuneration Directors’ remuneration	2017 2016 $ 68,182 74,000 34,094 36,803 $ 102,276 110,803

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 each period. The differences between the amounts distributed and those accrued in the financial statements, if any, are accounted for as changes in accounting estimate and recognized as profit or loss in the distribution year.

(Continued)

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

The differences between the amounts approved in the directors’ meeting and those recognized in the financial statements for the distributions of earnings for 2016 and 2015 were as follows:

Employee remuneration Stock Cash Directors’ remuneration Employee remuneration Stock Cash Directors’ remuneration	2016 Actual earnings distributed Accrued in the financial statement Difference $ - - - 74,000 74,000 - 36,800 36,803 3 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 2017 and 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, 2017 and 2016, were as follows:

Interest revenue of cash in banks Rent revenue Dividend income Other	2017 2016 $ 110,012 124,882 8,423 5,028 23,325 14,692 1,607 5,322 $ 143,367 149,924

(Continued)

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

(w) Other gains and losses

The other gains and losses from continuing operations for the years ended December 31, 2017 and 2016, were as follows:

Net gains (losses) on financial assets/liabilities measured at fair value through profit or loss Foreign currency exchange gains (losses), net 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	2017 2016 $ 76,196 (9,111) (20,520) 242,423 - (22,677) (77,548) (19,100) 330,887 140,969 - 248,006 - (200,263) 232,015 (48,295) $ 541,030 331,952

(x) Reclassification adjustments of components of other comprehensive income

The reclassification adjustment for other comprehensive income for the years ended December 31, 2017 and 2016, were as follows:

Unrealized gains and losses of available-for-sale financial assets, net of tax: Net change in fair value Net change in fair value reclassified to profit or loss Net change in fair value recognized in other comprehensive income	2017 2016 $ (1,090) 251,675 (330,887) (140,969) $ (331,977) 110,706

(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, 2017 December 31, 2016 $ 827,739 763,565 62,006 213,509 9,641 17,593 2,218 13,247 91,632 - $ 993,236 1,007,914

(Continued)

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

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, 2017 and 2016, were as follows:

Balance on January 1, 2017 Impairment loss recognized (reversal amount) Amounts written off Exchange differences on translation of foreign currency Balance on December 31, 2017 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 $ - 66,591 - - $ 66,591 Individually assessed impairment $ - - - - - $ -	Collectively assessed impairment Total 99,936 99,936 (31,357) 35,234 - - (7,530) (7,530) 61,049 127,640 Collectively assessed impairment Total 29,247 29,247 74,106 74,106 - - (605) (605) (2,812) (2,812) 99,936 99,936

(ii) Liquidity risk

The following table shows the contractual maturities of financial liabilities:

December 31, 2017 Non-derivative financial liabilities: Short-term borrowings Notes and accounts payable Other payables Long-term borrowings Guarantee deposits	Carrying amount $ 995,638 16,350,178 2,858,327 218,888 174,167	Contractual cash flows	Within 6 months 997,078 16,350,178 2,858,327 108,721 -	6~12 months - - - 28,532 -	1~2 years - - - 56,677 -	2~5 years Over 5 years - - - - - - 27,822 - - 174,167
		997,078 16,350,178 2,858,327 221,752 174,167

(Continued)

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

Contractual cash flows - 3,187,373 (3,089,268) 20,699,607 16,892,918 2,713,494 609,653 143,237 - 2,766,941 (2,615,359) 20,510,884	Within 6 months - 3,187,373 (3,089,268) 20,412,409 16,892,918 2,713,494 277,546 - - 2,766,941 (2,615,359) 20,035,540	6~12 months - - - 28,532 - - 110,096 - - - - 110,096	1~2 years - - - 56,677 - - 137,431 - - - - 137,431	2~5 years Over 5 years - - - - - - 27,822 174,167 - - - - 84,580 - - 143,237 - - - - - - 84,580 143,237

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

(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, 2017	D	ecember 31, 2016
	Foreign currency $ 529,047 262,270 361,298 20,037 412,867 259,738 345,140 7,203	Exchange rate 6.534 7.817 29.848 0.8375 6.5342 7.8170 29.848 0.8375	Foreign currency 385,629 101,376 428,216 - 366,735 94,552 377,974 -	Exchange rat TWD 6.937 12,447,718 7.755 3,272,316 32.279 13,822,384 - - 6.937 11,837,839 7.755 3,052,044 32.279 12,200,623 - -
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.

(Continued)

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

A weakening (strengthening) of 5% of the TWD, CNY, HKD, and EUR against the USD as of December 31, 2017 and 2016, would have increased or decreased the net profit before tax by $220,429 and $122,595, 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 2017 and 2016, foreign exchange gain (loss) (including realized and unrealized portions) amounted to loss $20,520 and gain $242,423, 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 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.

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 $16,508 and $14,390 for the years ended December 31, 2017 and 2016, 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):

Price of securities at the reporting date 10% rise 10% fall	2017 2016 Other comprehensive income after tax Other comprehensive income after tax $ - 58,640 $ - (58,640)

(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 :

(Continued)

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

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, 2017	December 31, 2017	December 31, 2017
	Carrying amounts $ 141,151 $ 402,997 $ 7,821,011 13,120,118 737,687 90,805 $ 21,769,621 $ 103,107 $ 1,214,526 16,350,178 3,991,128 1,105,153 174,167 $ 22,835,152		Fair Value
		Level 1 - - -	Level 2 - - -	Level 3 Total 141,151 141,151 402,997 402,997 103,107 103,107

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		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 $ 150,430		Fair Value
		Level 1 - 586,404 -	Level 2 - - -	Level 3 Total 141,317 141,317 301,397 887,801 150,430 150,430

(Continued)

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

Financial liabilities carried at amortized cost Borrowings Notes and accounts payable Other payables Salary payable Guarantee deposits Total		December 31, 2016	December 31, 2016	December 31, 2016
	Carrying amounts $ 601,111 16,892,918 3,878,606 1,146,183 143,237 $ 22,662,055		Fair Value
		Level 1	Level 2	Level 3 Total

2) 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 cannot 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. If the price of capital increase by cash is reliable, the fair value will be estimated on the issuance price of ordinary shares, while others will be based on market approach of comparable business. For stocks in the emerging market, the estimated fair value is adjusted for the lack liquidity. When prices listed in the emerging market are available, the fair value is estimated on the basis of unadjusted prior trade prices.
3) There is no transferring of fair value hierarchy for 2017 and 2016.

(Continued)

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

4) Reconciliation of Level 3 fair values

	2017	Total 292,284 38,044 88,128 22,585
Fair value through profit or loss	Available for sale		Fair value through profit or loss
	301,397 - 88,128 13,472
	402,997	441,041

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

The Group’ s financial instruments that use Level 3 inputs to measure fair value include “financial assets and liabilities at fair value through profit or loss”, “derivative financial instruments” and “ available-for-sale financial assets – equity investments”. Quantified information of significant unobservable inputs was as follows:

Item Available-for-sale financial assets – equity securities not listed on emerging stock market 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 Guideline Public Company method (note 1) (note 2)	Significant unobservable inputs Inter-relationships between significant unobservable inputs and fair value Lack-of-Marketability Discount (10% on December 31, 2017) The Higher the Lack- of-Marketability Discount is, the lower the fair value will be (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 the Consolidated Financial Statements

6) Sensitivity analysis for fair values of financial instruments using Level 3 Inputs

The Group’s fair value measurement on financial instruments is reasonable. However, the measurement would be different if different valuation models or valuation parameters are used. For financial instruments using level 3 inputs, if the valuation parameters changed, the impact on net income or loss and other comprehensive income or loss are as follows:

December 31, 2017 Available-for- sale financial assets-equity securities listed on emerging stock market	Input Discount of lack Marketability	Other comprehensive income Variation Advantageous changes Disadvantageous changes ±10`％` $ 37,468 (37,468)

(z) Financial risk management
(i) Overview

The Group has exposure 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.

(Continued)

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

(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 $7,282,716 (including restricted deposits) in the HSBC Bank and 15 other financial institutions, and $5,994,946 (including restricted deposits) in Postal Savings Bank of China and 8 other financial institutions, representing 19% and 16% of total assets, as of December 31, 2017 and 2016, respectively. The Group believes that there is no significant credit risk from the above-mentioned financial institutions.

2) Notes and accounts receivable

There was no sales to individual customers constituting over 10% of total revenue for the year ended December 31, 2017. Sales to individual customers constituting over 10% of total revenue for the year ended December 31, 2016, totaled 15%. As of December 31, 2016, 7% 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 $17,453,299 and $13,301,651 as of December 31, 2017 and 2016, respectively.

(Continued)

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

(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.

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. All of the equity securities have been disposed in 2017.

(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, 2017 and 2016, were 66% and 67%, respectively.

(Continued)

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

(7) Related-party transactions:

(a) Names and relationship of the related parties

The followings are related parties that have had transactions with the Group during the periods covered in the consolidated financial statements.

Name Relationship Specialty Technologies, LLC (Specialty), United Substantive related party Industrial Development Limited (UIDL), Stuart Croxford (SC), X.T. Liu (XT), Tom Zilvervloot B.V. (TZBV), Huizhou Bochuang Investment Partnership Company (Bochuang) HUANG, YA- HSING and his family members Key management personnel of the subsidiary Global TEK. (The Company disposed parts of shares of Global TEK and lost control of the subsidiary in October 2016)

(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 2017 2016 $ 273,551 238,563	Notes and accounts receivable December 31, 2017 December 31, 2016 105,911 102,841
	2017
	$ 273,551

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

－
(ii) 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:

Relationship	Account		2017			Trading quantities 11,020 (thousand) -	20	16
		Trading quantities - -	Trading targets - Equity	Proceeds from disposal - 479,752	Gains or losses from disposal		Trading target Shares -	Proceeds from disposal (note) Gains or losses from disposal 549,347 164,785 - -
HUANG, YA- HSING and his family members TZBV, SC and Bochuang	Investment using equity method `″`				- - (note 1)

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

Note 1: The amount is the capital surplus derived from the difference between the selling price and the cost during the restructuring, in which there were no related gains (losses) of disposal.

The Company had received all the proceeds as of December 31, 2017 and 2016.

(Continued)

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

－ (iii) Property transaction Acquired of equity securities

Relationship	Account		2017	Trading price 723,139		2016
		Trading quantities 16,500 (thousand)	Trading target Shares		Trading quantities -	Trading target Trading price - -
UIDL`、`SC and XT	Investment using equity method

Short-term employee benefits Post-employment benefits Other long-term benefits Termination benefits Share-based payments	2017 2016 $ 155,349 183,825 1,111 1,129 - - - - 40,783 17,088 $ 197,243 202,042

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

(8) Pledged assets:

As of December 31, 2017 and 2016, assets pledged as collateral were as follows:

Pledged assets Other non-current assets – restricted assets	Pledged to secure Guarantee letters issued by bank	December 31, 2017 December 31, 2016 $ 1,142 1,163

(9) Commitments and contingencies:

(a) The Group’s unused letters of credit for guarantee of purchasing materials and borrowings were as follows:

	December 31,	December 31,
	2017	2016
$	298,480	-

(b) For the detail of the Group’s guarantee, please refer to note 13.
(c) 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, 2017 December 31, 2016 $ 173,837 198,121

(Continued)

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

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

Sales of accounts receivable Long-term borrowings	December 31, 2017 December 31, 2016 $ 724,878 2,805,777 $ 880,000 2,160,000

The aggregate unpaid amounts of contracts pertaining to the purchase of equipment	The aggregate unpaid amounts of contracts pertaining to the purchase of equipment	The aggregate unpaid amounts of contracts pertaining to the purchase of equipment	were as follows:
		December 31,	December 31,
		2017	2016
Property, plant and equipment	$	41,209	42,286

(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:

(a) According to the amendments to the “Income Tax Act” enacted by the office of the President of the Republic of China (Taiwan) on February 7, 2018, an increase in the corporate income tax rate from 17% to 20% is applicable upon filing the corporate income tax return commencing with 2018. This increase does not affect the amounts of the current or deferred income taxes recognized in 2017. However, it will increase the Company’s current or deferred tax charge accordingly in the future. If the new tax rate is applied in calculating the taxable temporary differences and tax losses recognized in 2017, the deferred tax assets and deferred tax liabilities would increase by $55,383 and $36,184, respectively.
(b) In order to expand the business scale and strengthen the Company’s competitiveness in the market, the board of directors’ meeting resolved to acquire 37% shares of Belfast Limited, a company that engages in the manufacturing of electric power steering system and adaptive front lighting system, with an approximate amount of USD$48,100 on November 10, 2017 by participating in its capital increase by cash, and purchasing its outstanding shares. Until March 13, 2018, this investment has been approved by Investment Commission, Ministry of Economics Affairs, ROC. (MOEA), and its amount USD$48,100 has been exported in January, 2018.
(c) Due to response to the capital expenditure for the property, plant and equipment in the future, and expanding the working capital of Premium HuiZhou, the board of directors’ meeting resolved to increase its investment in Premium Huizhou amounting to USD$45,000 on March 13, 2018.

(Continued)

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

(12) Other:

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

By function By item	2017	2017	2017	2016	2016	2016
	Operating cost	Operating expenses	Total	Operating cost	Operating expenses	Total
Employee benefits Salaries Labor and health insurance Pension Others Depreciation Amortization	3,431,156 108,800 224,062 78,218 1,198,737 17,730	2,805,559 133,246 115,015 166,846 114,845 181,426	6,236,715 242,046 339,077 245,064 1,313,582 199,156	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
Discontinued operations The Group resolved to disposed parts of the shares of Global TEK in the board of directors’ meeting held on June 21, 2016. Profit and loss, and cash flows from discontinued operations are summarized as follows: For the nine months ended September 30, 2016 Results from operating activities: Operating revenue $ 1,926,626 Operating cost (1,457,401) Gross profit 469,225 Operating expenses (277,699) Net operating income 191,526 Non-operating income (expenses) (86,301) Income before income taxes 105,225 Income tax expense (43,329) Net income from discontinued operations $ 61,896 Net income attributable to: Stockholders of parent $ 18,569 Non-controlling interests 43,327 $ 61,896 Cash flows from discontinued operations: Cash flows from operating activities $ 321,226 Cash flows from investing activities (161,102) Cash flows from financing activities 38,022 Effect of foreign currency exchange translation (26,190) Net increase in cash and cash in equivalents $ 171,956

(b) Discontinued operations

(Continued)

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

(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	Related party	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	Col	lateral	Individual funding loan limits	Maximum limit of fund financing
													Item	Value
1 2 3	PKSI Tymphan Donggua TYM HK	The Company y n TYDC TYM Acoustic HK	Other receivables Other receivables Other receivables	Y `〃` `〃`	781,263 38,341 863,693	423,944 - 761,124	423,944 - 722,322	- 2% 2%	Necessary to loan to other parties `〃` `〃`	- - -	Operating capital `〃` Investment capital	- - -		- - -	867,628 364,980 747,124	867,628 364,980 747,124

Note 1: After approval by the Board of directors, PKS1, Tymphany Dongguan and TYM HK can lend the individual and total amount shall not exceed its net worth in the latest financial statements to parent company and subsidiaries whose voting shares are 100% owned, directly or indirectly.

Note 2: Related transactions have been eliminated during the preparation of the 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 p 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 the period	Property pledged for guarantees and endorsements (Amount)	Ratio of accumulated amounts of guarantees and endorsements 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 t	Subsidiary endorsements/ guarantees o third parties on behalf of parent company	Endorsements/ guarantees to third parties on behalf of companies in Mainland China
		Name	Relationshi with the Company
0 1 `〃`	The Company PCH2 `〃`	PCH2 PCQ1 PKS1	The subsidiary of Primax HK and Primax Tech. The same parent company `〃`	3,415,582 1,501,202 1,501,202	338,930 193,674 167,398	313,404 131,331 164,164	- 16,938 56,552	- - -	% 2.75 % 2.62 % 3.28	9,108,218 4,003,206 4,003,206	Y - -	- - -	Y Y Y

Note 1: The amount of the guarantee to a company shall not exceed 30% of the Company’s net worth in the latest financial statements. The total amount of the guarantee to total company shall not exceed 80% of the Company’s net worth in the latest financial statements.
Note 2: The amount of the guarantee to a company shall not exceed 30% of the PCH2’s net worth in the latest financial statements. The total amount of the guarantee to total company shall not exceed 80% of the PCH2’s net worth in the latest financial statements.

Note 3: The above counter-parties of guarantee and endorsement are subsidiaries included in the consolidated financial statements.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES

Notes to the Consolidated Financial Statements

(iii) Securities held as of December 31, 2017 (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	Note
				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. Global TEK Grove Ventures L.P. Shares: Echo. Bahn. WK Global Investment III Ltd.	- - - - - - - - - -	Available-for-sale financial asset- non-current `〃` `〃` `〃` `〃` `〃` `〃` `〃` Available-for-sale financial asset- non-current `〃`	359 230 179 53 6 917 5,510 - 400 473	2,000 2,004 2,102 - 49 - 374,680 16,417 397,252 - 5,745 5,745	3.59 0.38 1.62 0.76 0.02 2.04 9.18 2.73 11.90 1.32	2,000 2,004 2,102 - 49 - 374,680 16,417 - 5,745	359 512 179 53 6 917 5,510 - 400 630	3.59 0.38 1.66 0.76 0.02 2.04 10.00 5.74 11.90 1.32

(iv) Individual securities acquired or disposed of with accumulated amount exceeding the lower of TWD$300 million or 20% of the Company’s paid-in 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	Sa	Sa	les		Ending Balance	Ending Balance
					Shares (thousands	) Amount	Shares (thousands)	Amount	Shares (thousands)	Price	Cost	Gain (loss) on disposal	Shares (thousands)	Amount
TYM Acoustic HK TYM HK TWEL TWEL TYM Acoustic HK Diamond TWEL	Shares: TYM Acoustic Europe Premium Hui Zhou Premium Hui Zhou TYM HK TYM HK TWEL Premium Hui Zhou	Investment accounted for using equity method `〃` `〃` `〃` `〃` `〃` `〃`	Initial Offerings TWEL TYM HK TYM Acoustic HK TWEL UIDL, SC and XT TZBV, SC and Bochuang	None The Group `〃` `〃` `〃` Substantive related parties `〃`	- - - 144,395 - 38,501 -	- 410,738 - 1,540,112 - 2,904,380 586,768	187,800 - - - 144,395 16,500 -	653,796 - 569,138 - 714,258 723,139 -	- - - 144,395 - - -	- 569,138 - 714,258 - - 479,752	- 643,733 - 837,712 - - 479,752	- - (note 1) - - (note 1) - - -	187,800 - - - 144,395 55,001 -	545,980 (note 2) - 1,514,469 (note 2) - 747,124 (note 2) 3,187,565 (note 3) 1,514,469 (note 3)

(Continued)

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

Name of company	Category and name of security	Account name	Name of counter- party	Relationship with the company	Beginning Balance	Beginning Balance	Purchases	Purchases	Sa	Sa	les		Ending Balance	Ending Balance
					Shares (thousands)	Amount	Shares (thousands)	Amount	Shares (thousands)	Price	Cost	Gain (loss) on disposal	Shares (thousands)	Amount
The Company PCH2 `〃` PCQ1 PKS1	Shares: Nien Made Enterprise Co., Ltd. Financial instruments of floating income and capital 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 `〃` `〃` `〃`	Initial Offerings `〃` `〃` `〃` `〃`	None `〃` `〃` `〃` `〃`	1,763,621 - - - -	586,404 - - - -	- - - - -	- 1,450,402 9,146,504 3,684,887 550,197	1,763,621 - - - -	497,186 1,455,108 9,167,750 3,705,442 558,263	166,299 1,450,402 9,144,803 3,694,627 555,556	330,887 4,706 (note 4) 21,246 (note 4) 20,555 (note 4) 8,066 (note 4)	- - - - -	- - - - -

Note 1: The amount is the capital surplus derived from the difference between the selling price and the cost during the restructuring in the third quarter of 2017, in which there were no related gains (losses) of disposal. Also, this investment has been eliminated during the preparation of the consolidated financial statement.
Note 2: The difference between the ending balance and the purchasing price is the investment income (losses) accounted by using equity method, difference between purchasing price and net worth, as well as the capital increase and the adjustment of exchange differences on translation. Also, this investment has been eliminated during the preparation of the consolidated financial statement.
Note 3: The amount is the capital surplus derived from the differences between the selling price and the cost during acquiring the shares of the subsidiaries and the restructuring in the fourth quarter of 2017, in which there were no related gains (losses) of disposal. Also, this investment has been eliminated during the preparation of the consolidated financial statement.

Note 4: Gains of disposal include valuation and exchange differences on translation.

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

Name of company	Related party	Nature of relationship		Transaction details	Transaction details	Transaction 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 Cayman PCH2 PKS1 PCQ1 Polaris TYM HK The Company PCH2	Subsidiary The subsidiary of Primax HK The subsidiary of Primax HK The subsidiary of Primax HK The subsidiary of Primax Tech The subsidiary of TYM Acoustic HK Parent The subsidiary of Primax HK	Purchase Purchase Purchase Purchase (Sale) (Sale) (Sale) Purchase	140,623 26,362,084 1,079,140 5,278,105 (2,886,921) (202,897) (140,623) 140,623	% - % 81 % 3 % 16 % (8) % (1) % (100) % 100	60 days `〃` 360 days 60 days 90 days 60 days `〃` `〃`	Price agreed by both side `〃` `〃` `〃` `〃` `〃` `〃` `〃`	The same as general purchasing `〃` `〃` `〃` The same as general selling `〃` `〃` The same as general purchasing	(31,085) (6,137,747) (421,786) (1,748,395) 22,202 6,979 31,085 (16,045)	-% (73)% (5)% (21)% -% -% 100% (100)%

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to the 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)
PCH2 `〃` PKS1 PCQ1 Polaris Premium Hui Zhou Tymphany Dongguan TYDC TYM Acoustic HK TYM HK `〃` `〃` `〃` TYM Acoustic Europe	The Company Primax Cayman The Company The Company The Company TYM HK TYM HK TYM HK TYM Acoustic Europe The Company Premium Hui Zhou Tymphany Dongguan TYDC TYM Acoustic HK	The parent of Primax Cayman The parent of Primax HK The parent of Primax Cayman The parent of Primax Cayman The parent of Primax Tech. The subsidiary of TYM Acoustic HK The subsidiary of TYM Acoustic HK The subsidiary of TYM Acoustic HK Subsidiary The parent of Diamond The parent of TYM Acoustic HK The subsidiary of Premium Hui Zhou The subsidiary of Tymphany Dongguan Parent	(Sale) (Sale) (Sale) (Sale) Purchase (Sale) (Sale) (Sale) Purchase Purchase Purchase Purchase Purchase (Sale)	(26,362,084) (140,623) (1,079,140) (5,278,105) 2,886,921 (5,073,442) (11,102,092) (1,246,821) 1,281,595 202,897 5,073,442 11,102,092 1,246,821 (1,281,595)	% (82) % - % (100) % (90) % 100 % (92) % (97) % (99) % 96 % 1 % 27 % 60 % 7 % (93)	`〃` `〃` 360 days 60 days 90 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 selling `〃` `〃` `〃` `〃` The same as general purchasing	6,137,747 16,045 421,786 (note 1) 1,748,395 (22,202) 1,888,768 4,873,979 65,706 (437,898) (6,979) (1,888,768) (4,873,979) (65,706) 437,898	82% -% 100% 90% (100)% 93% 97% 80% (93)% -% (26)% (67)% (1)% 93%

Note 1: Accounts receivables over payment terms have been classified as other receivables-non-current. Note 2: Related transactions have been eliminated during the preparation of the consolidated financial statements.

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

Name of company	Counter-party	Nature of relationship	Ending balance (note 2)	Turnover rate		Overdue	Amounts received in subsequent period (note 1)	Allowance for bad debts
					Amount	Action taken
PCH2 PKS1 PCQ1 Premium Hui Zhou Tymphany Dongguan TYM Acoustic Europe	The Company The Company The Company TYM HK TYM HK TYM Acoustic HK	The parent of Primax Cayman The parent of Primax Cayman The parent of Primax Cayman The subsidiary of TYM Acoustic HK The subsidiary of TYM Acoustic HK Parent	6,137,747 845,730 1,748,395 1,888,768 4,873,979 437,898	% 4.02 % 2.60 % 2.88 % 3.53 % 3.66 % 5.85	- 423,944 - - - -	Reclassify to Long-term payable, and enhance the control of receivables	5,399,648 133,362 973,149 649,807 3,699,981 316,220	- - - - - -

Note 1: Amounts were collected as of March 13, 2018.

Note 2: Related transactions have been eliminated during the preparation of the consolidated financial statements.

(Continued)

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

(ix) Trading in derivative instruments: Please refer to note 6(b).

(x) Business relationships and significant intercompany transactions:

No	Name of company	Name of counter-party	Nature of relationship (Note 2)		Intercompany transactions, 2017	Intercompany transactions, 2017	Intercompany transactions, 2017
				Account name	Amount	Trading terms	Percentage of consolidated total operating revenues or total assets
0 `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` 1 2 `〃` 3 `〃` 4 5 `〃`	The Company `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` Primax Cayman Premium Hui Zhou `〃` Tymphany Dongguan `〃` TYDC TYM Acoustic HK `〃`	Primax Cayman PCH2 `〃` PKS1 `〃` PCQ1 `〃` Polaris TYM HK PCH2 TYM HK `〃` `〃` `〃` `〃` TYM Acoustic Europe `〃`	Subsidiary The subsidiary of Primax HK `〃` `〃` `〃` `〃` `〃` The subsidiary of Primax Tech. The subsidiary of TWEL The subsidiary of Primax HK The subsidiary of TYM Acoustic HK `〃` `〃` `〃` `〃` Subsidiary `〃`	Purchase Purchase Accounts Payable Purchase Accounts Payable Purchase Accounts Payable Sale Sale Purchase Sale Accounts receivable Sale Accounts receivable Sale Purchase Accounts payable	140,623 26,362,084 6,137,747 1,079,140 421,786 5,278,105 1,748,395 2,886,921 202,879 140,623 5,073,442 1,888,768 11,102,092 4,873,979 1,246,821 1,281,595 437,898	Price agreed by both side Price agreed by both side 60 days Price agreed by both side 360 days Price agreed by both side 60 days Price agreed by both side 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 Price agreed by both side 90 days	% 0.23 % 43.40 % 16.25 % 1.78 % 1.12 % 8.69 % 4.63 % 4.75 % 0.33 % 0.23 % 8.35 % 5.00 % 18.28 % 12.90 % 2.05 % 2.11 % 1.16

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.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES

Notes to the Consolidated Financial Statements

(b) Information on investees:

The following is the information on investees for the year ended December 31, 2017 (excluding information on investees in Mainland China):

Name of investor	Name of investee	Location	Main businesses and products	Original investment amount	Original investment amount	Balance as of December 31, 20	Balance as of December 31, 20	17	Highest balance during theyear	Highest balance during theyear	Net income (losses) of investee	Share of profits/losses of investee	Note
				December 31, 2017	December 31, 2016	Shares (thousands)	Percentage of ownership	Carrying value	Shares (thousands)	Percentage of ownership
The Company `〃` `〃` `〃` `〃` `〃`	Primax Cayman Primax Tech. Destiny BVI. Destiny Japan Diamond Gratus Tech. Total	Cayman Islands Cayman Islands Virgin Island Japan Cayman Islands USA	Holding company Holding company Holding company Market development and customer service Holding company Market development and customer service	2,540,588 897,421 30,939 7,032 2,517,298 9,330 6,002,608	2,540,588 897,421 30,939 7,032 2,517,298 9,330 6,002,608 -	8,147,636 285,067 1,050 0.50 84,050 300	100.00 100.00 100.00 100.00 100.00 100.00	5,135,159 2,021,715 14,551 16,386 3,089,647 9,647 10,287,105	8,147,636 285,067 1,050 0.5 84,050 300	100.00 100.00 100.00 100.00 100.00 100.00	963,666 204,489 (10,972) 1,025 293,587 523 1,452,318	853,625 154,146 (10,972) 1,025 293,587 523 1,291,934
Primax Cayman	Primax HK	Hong Kong	Holding company and customer service	2,375,164	2,375,164	602,817	100.00	5,346,825	602,817	100.00	967,397	967,397
Primax Tech.	Polaris	USA	Sale of multi-function printers and computer peripheral devices	52,680	52,680	1,600	100.00	373,193	1,600	100.00	8,712	8,712
Diamond	TWEL	Cayman Islands	Holding company	2,711,450	2,515,800	55,001	100.00	3,187,565	55,001	100.00	500,879	298,734	(note 3)
Premiurn Hui Zhou	TYM Acoustic HK	Hong Kong	Research and development, design, and sale of audio accessories, amplifiers and their components	19,497	-	5,000	100.00	147,011	5,000	100.00	(14,475)	(22,017)	(note 2)
TYM Acoustic HK `〃` `〃` `〃` `〃`	TYM HK TYP TYM UK TYM Acounstic Europe Tymphany Acoustic	Hong Kong USA United Kingdom Czech Taiwan	Holding company and sale of audio accessories, amplifiers and their components Market development and customer service of amplifiers and their components Research and development, design of audio accessories, amplifiers and their components Manufacture, install and repair of audio accessories and their components Research and development, design, and sale of audio accessories, amplifiers and their components	76,280 (note 1) 15 (note 1) 15,631 653,796 -	- - - - -	144,395 0.50 400 187,800 -	100.00 100.00 100.00 100.00 100.00	747,124 8,200 16,624 545,980 -	144,395 0.5 400 187,800 -	100.00 100.00 100.00 100.00 100.00	376,600 3,748 563 29,907 -	20,869 892 563 29,907 -	(note 2) (note 2)
TYM HK	TYML	USA	Sales of audio accessories, amplifiers and their components	6,628	6,628	200	100.00	10,057	200	100.00	1,219	3,447

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 information is represented after the restructuring in the third quarter of 2017.
Note 3: The information is represented after the acquiring 30% of the capital from minority interest in the fourth quarter of 2017
Note 4: Related transactions have been eliminated during the preparation of the consolidated financial statements.

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to the 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:

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, 2017 (note 2)	Investment flows	Investment flows	Accumulated outflow of investment from Taiwan as of December 31, 2017 (note 2)	Net income (losses) of the investee	Percentage of ownership	Highest Percentage of ownership during the year	Investment income (losses)	Book value	Accumulated remittance of earnings in current period
					Outflow	Inflow
PCH2 Destiny Beijing PKS1 PCQ1 Premium Hui Zhou Tymphany Dongguan TYDC	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 `〃` `〃`	2,037,050 40,353 891,956 572,472 1,311,036 149,240 91,360	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 `〃`	1,773,902 33,893 710,138 645,580 2,711,436 16,140 -	- - - - - - -	- - - - - - -	1,636,597 31,340 656,656 596,960 2,507,232 14,924 -	613,116 (10,972) (35,216) 176,309 265,156 197,738 5,320	100% 100% 100% 100% 66.44% 66.44% 66.44%	100% 100% 100% 100% 75.5% 75.5% 75.5%	613,116 (10,972) (35,216) 176,309 194,561 129,391 3,432	5,004,008 14,547 867,628 1,076,168 1,514,469 242,493 64,726	- - - - - - -

Note 1: The above information on the exchange rate is as follows: HKD:TWD 3.8183; USD:TWD 29.8480; CNY:TWD 4.5680.

Note 2: The differences 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 6: Related transactions have been eliminated during the preparation of the consolidated financial statements.

(ii) Limitation on investment in Mainland China:

Name of Company	Accumulated Investment in Mainland China as of December 31, 2017	Investment Amounts Authorized by Investment Commission, MOEA	Upper Limit on Investment
The Company	5,526,547	6,282,248	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.

(Continued)

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

(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.

For the years ended December 31, 2017 and 2016, the Group’s segment financial information was as follows:

Revenue External revenue Intra-group revenue Elimination from discontinued operations Total segment revenue Profit from segments reported Elimination from discontinued operations Total profit				2017 Non-computer Peripherals Total 40,113,434 60,741,692 - - - - 40,113,434 60,741,692 1,449,598 2,847,580 - - 1,449,598 2,847,580 (Continued)
	Computer Peripherals
	$ 20,628,258 - - $ 20,628,258 $ 1,397,982 - $ 1,397,982

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

Revenue External revenue Intra-group revenue Elimination from discontinued operations Total segment revenue Profit from segments reported Elimination from discontinued operations Total profit			2016
	Computer Peripherals		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
	$ 25,730,665 - - $ 25,730,665 $ 1,541,299 - $ 1,541,299

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 Non-current assets: China Taiwan Other Total	2017 2016 $ 32,911,250 35,009,994 13,508,587 14,221,870 14,321,855 15,097,598 $ 60,741,692 64,329,462 December 31, 2017 December 31, 2016 $ 4,309,012 4,701,807 358,412 371,047 2,904,466 2,722,283 $ 7,571,890 7,795,137

(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 2017 and 2016 is as follows:

Company A	2017	Percentage of net sales % 9	2016 Net sales Percentage of net sales 9,524,714 % 15
	Net sales $ 5,218,313

AI assistant

Primax — Annual Report 2017

52436_rns_2017-11-14_75481021-7f07-497e-8290-bf427d124749.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:

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, 2017 and 2016

(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, 2017 and 2016

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

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

Consolidated Statements of Changes in Equity

For the years ended December 31, 2017 and 2016

(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, 2017 and 2016

(Expressed in Thousands of New Taiwan Dollars)

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

(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 the Consolidated Financial Statements

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

－ 1) Classification Financial assets

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

4) Transition

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

2) Transition

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

Issuance / Release

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

(4) Summary of significant accounting policies:

(a) Statement of compliance

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

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

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

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

(d) Foreign currencies

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

(ii) Foreign operations

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

(g) Financial instruments

(i) Financial assets

2) Available-for-sale financial assets

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

3) Loans and receivables

4) Impairment of financial assets

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

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

2) Other financial liabilities

3) Derecognition of financial liabilities

(h) Inventories

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

(i) Discontinued operations

(j) Investment property

(i) Recognition and measurement

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

(iv) Depreciation

(l) Lease

(ii) Lessee

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

1) Recognition

Primax Annual Report 2017

`－` 1) Classification Financial assets