Primax - Annual Report 2017 | FinancialReports.eu

Stock Code:4915

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

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 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 financial statements, the Chinese version shall prevail.

		Contents	Page
1.	Cover Page		1
2.	Table of Contents		2
3.	Independent Auditors’ Report		3
4.	Balance Sheets		4
5.	Statements of Comprehensive Income		5
6.	Statements of Changes in Equity		6
7.	Statements of Cash Flows		7
8.	Notes to the Financial Statements
	(1)	Company history	8
	(2)	Approval date and procedures of the financial statements	8
	(3)	New standards, amendments and interpretations adopted	8`～`13
	(4)	Summary of significant accounting policies	13`～`25
	(5)	Significant accounting assumptions and judgments, and major sources	25`～`26
		of estimation uncertainty
	(6)	Explanation of significant accounts	26`～`61
	(7)	Related-party transactions	61`～`64
	(8)	Pledged assets	65
	(9)	Commitments and contingencies	65
	(10)	Losses due to major disasters	65
	(11)	Subsequent events	65
	(12)	Other	66
	(13)	Other disclosures
		(a) Information on significant transactions	66`～`70
		(b) Information on investees	70
		(c) Information on investments in mainland China	71`～`72
	(14)	Segment information	72
9.	Statement of major accounting items		73~83

Independent Auditors’ Report

To the board of directors of PRIMAX ELECTRONICS LTD.:

Opinion

We have audited the financial statements of PRIMAX ELECTRONICS LTD.(“the Company”), which comprise the balance sheets as of December 31, 2017 and 2016, the statements of comprehensive income, changes in equity and cash flows for the years ended December 31, 2017 and 2016, and notes to the 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 financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2017 and 2016, and its financial performance and its cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers.

Basis for Opinion

We conducted our 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 Financial Statements section of our report. We are independent of the Company 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 investees accounted for using equity method. Those financial statements were audited by other auditors, and our opinion, insofar as it relates to the amounts included for those investments, is based solely on the reports of the other auditors. The Company’s investment in these companies constituting 6% and 4% of the total assets, as of December 31, 2017 and 2016, respectively. The related share of profit of associates accounted for using the equity method amounted constituting 17% and 11% of the profit before tax, for the years ended December 31, 2017 and 2016, respectively.

Key Audit Matters

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

3-1

Evaluation of inventories

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

Description of key audit matter:

Inventories of the Company are measured at the lower of cost and net realizable value. Due to the fast hightech revolution, as well as the advancement of production technologies that may lead the 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, the 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 Company; 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 subsequent period to assess whether the allowance for inventories are reasonable.

Investments accounted for using equity method

Please refer to Note 4(h) “Investments in subsidiaries”, and Note 5 “Significant accounting assumptions and judgments, and major sources of estimation uncertainty” of the financial statements.

Description of key audit matter:

The Company’s investments accounted for using equity method are all subsidiaries of the Company. Based on the scope and nature of their businesses which may influence the outcome of their operations, the net realizable value of inventories in certain subsidiaries required the managements to make subjective judgments, which is the major source of estimation uncertainty. Therefore, the valuation of inventories of the investments accounted for using equity method is one of the key audit matters for our audit.

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

How the matter was addressed in our audit:

For the principal audit procedures on the valuation of inventories of the investments accounted for using equity method, please refer to key audit matters 1 “Evaluation of inventories”. In addition, the consolidated financial statements of Tymphany Worldwide Enterprises Ltd. and its subsidiaries were audited by other auditors; therefore, we issued audit instructions to their auditors as guidelines to communicate the key audit matters with them and obtained the feedbacks required in the audit instructions.

3-2

The principal audit procedures on the assessment of impairment of intangible assets of the investments accounted for using equity method included: evaluating the identification of cash generating units and any indication of impairment relating to intangible assets made by management; acquiring intangible evaluation reports from external expert engaged by the Company; 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 financial reports.

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

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

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

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

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an 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 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 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 Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

3-3

Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient and appropriate audit evidence regarding the financial information of the investments in other entities accounted for using the equity method to express an opinion on this financial statements. We are responsible for the direction, supervision and performance of the audit. We remain solely responsible for our audit opinion of the Company.

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 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 financial statements are intended only to present the 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 financial statements are those generally accepted and applied in the Republic of China.

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

Balance Sheets

December 31, 2017 and 2016

(Expressed in Thousands of New Taiwan Dollars)

December 31, 2017	December 31, 2017	December 31, 2016
Amount	%	Amount % 783,593 3 9,352,640 35 150,430 1 2,331,760 8 359,279 1 219,856 1 382,222 1 13,579,780 50 781,263 3 218,889 1 1,159,073 4 345,574 1 2,504,799 9 16,084,579 59 4,421,343 16 3,024 - 791,466 3 788,634 3 97,300 - 4,779,419 18 118,538 1 10,999,724 41 27,084,303 100
28,195 8,339,013 103,107 1,828,968 206,129 248,553 135,555
10,889,520
423,944 83,333 885,580 461,235
1,854,092
12,743,612

See accompanying notes to financial statements.

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

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(r) and 7) 5000 Operating costs (notes 6(e), (m), (s), 7 and 12) Gross profit Operating expenses (notes 6(m), (s), 7 and 12): 6100 Selling expenses 6200 Administrative expenses 6300 Research and development expenses Total operating expenses Net operating income Non-operating income and expenses: 7010 Other income (notes 6(t) and 7) 7020 Other gains and losses (notes 6(c), (u) and 7) 7070 Share of profit of subsidiaries accounted for using equity method 7050 Finance costs Total non-operating income and expenses Profit from operations before tax 7950 Less: Income tax expense (note 6 (n)) Profit 8300 Other comprehensive income (loss): 8310 Items that may not be reclassified subsequently to profit or loss: 8311 Actuarial gains (losses) on defined benefit plans 8360 Items that may be reclassified subsequently to profit or loss: 8361 Exchange differences on translation of foreign operation’s financial statements 8362 Unrealized gains on available-for-sale financial assets (note 6(v)) Components of other comprehensive income that will be reclassified to profit or loss 8300 Other comprehensive income after tax Comprehensive income Earnings per share (note 6(q)) 9710 Basic earnings per share (NT dollars) 9810 Diluted earnings per share (NT dollars)	2017	% 100 94 6 2 1 3 6 - - 2 4 - 6 6 - 6 - - - (1) (1) (1) 5 4.67 4.63	2016 Amount % 45,739,783 100 42,106,442 92 3,633,341 8 670,475 2 442,145 1 970,860 2 2,083,480 5 1,549,861 3 33,468 - 371,406 1 424,575 1 (31,786) - 797,663 2 2,347,524 5 413,454 1 1,934,070 4 (1,340) - (1,340) - (610,956) (1) 110,706 - (500,250) (1) (501,590) (1) 1,432,480 3 4.40 4.36
	Amount $ 35,023,563 32,785,654 2,237,909 605,515 434,624 971,418 2,011,557 226,352 52,076 619,291 1,291,934 (10,820) 1,952,481 2,178,833 121,418 2,057,415 (5,909) (5,909) (112,643) (331,977) (444,620) (450,529) $ 1,606,886 $ $

See accompanying notes to financial statements.

(English Translation of and Report Originally Issued in Chinese) PRIMAX ELECTRONICS LTD.

Statements of Changes in Equity

For the years ended December 31, 2017 and 2016

(Expressed in Thousands of New Taiwan Dollars)

Share capital	Share capital	Share capital	Capital surplus	Retained earnings	Retained earnings	Retained earnings	Retained earnings	Retained earnings	Retained earnings	Retained earnings	Retained earnings
								Exchange differences on translation of foreign financial statements		Unrealized gains (losses) on available- for-sale financial assets
Ordinary shares	Advance receipts for share capital			Legal reserve	Special reserve	Unappropriated retained earnings
$ 4,411,877 - - - - - (3,850) - - - 13,316 4,421,343 - - - - - - (940) - - - 6,480 30,000 $ 4,456,883		15,174	777,368	611,322	97,300		3,951,934		351,045		294,760
		- -	- -	- -	- -						- 110,706
		-	-	-	-						110,706
				177,312 - - - - - -	- - - - - - -						- - - - - - -
				788,634 - -	97,300 - -
				-	-
				193,407 - - - - - - - -	- - - - - - - - -
				982,041	97,300

Note ： For the years ended December 31, 2017 and 2016, the Directors’ remuneration amounted to 34,094 and 36,803, and the employee remuneration amounted to 68,182 and 74,000, respectively. The amounts were deducted from the statements of comprehensive income in 2017 and 2016, respectively.

See accompanying notes to financial statements.

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

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 before tax
Adjustments:
Adjustments to reconcile profit (loss):
Depreciation and amortization
Losses related to inventories
Amortization of long-term deferred revenue
Provision (reversal of provision) for bad debt expense and sales returns and discounts
Interest expense
Interest income
Compensation cost of share-based payment
Share of profit of subsidiaries accounted for using equity method
Gain on disposal of subsidiaries
Loss (gain) on disposal of property, plant and equipment
Gain on disposal of available-for-sale financial assets
Total adjustments to reconcile profit (loss)
Changes in operating assets and liabilities:
Accounts receivable, including related parties
Other receivables
Inventories
Other current assets
Deferred tax assets
Other operating assets
Changes in operating assets
Notes and accounts payable, including related parties
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:
Proceeds from disposal and settle of share of subsidiaries accounted for using equity method
Acquisition of available-for-sale financial assets
Proceeds from capital reduction of available-for-sale financial assets
Proceeds from disposal of available-for-sale financial assets
Acquisition of property, plant and equipment
Acquisition of long-term deferred revenue
Acquisition of unamortized expense
Decrease in refundable deposits
Dividends received
Other investing activities
Net cash flows from investing activities
Cash flows from (used in) financing activities:
Decrease in short-term borrowings
Repayment of long-term borrowings
Decrease in guarantee deposits
Cash dividends
Exercise of employee stock options
Decrease in long-term accounts payable to related parties
Net cash flows used in financing activities
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
$ 2,178,833
2,347,524
43,534
41,765
112,940
32,516
(378,087)
(336,211)
37,431
43,345
6,804
31,383
(20,293)
(11,599)
79,420
43,182
(1,291,934)
(424,575)
-
(248,006)
(186)
474
(330,887)
(140,969)
(1,741,258)
(968,695)
1,530,152
3,477,770
842,880
(1,036,774)
52,038
225,636
5,891
(5,079)
-
(54,750)
48,222
(62,265)
2,479,183
2,544,538
(1,769,025)
(422,970)
(151,212)
(52,401)
(120,371)
569,820
28,697
72,680
(48,548)
132,613
(2,060,459)
299,742
418,724
2,844,280
(1,322,534)
1,875,585
856,299
4,223,109
20,293
11,599
(6,736)
(31,315)
(417,927)
(234,992)
451,929
3,968,401
-
559,498
(21,045)
-
2,816
1,280
497,186
220,270
(21,309)
(23,062)
104,594
476,552
(10,120)
(23,710)
(510)
(441)
23,325
14,692
1,826
91
576,763
1,225,170
-
(1,120,518)
(382,223)
(715,556)
34,936
34,977
(1,111,886)
(927,933)
15,892
19,097
(357,319)
-
(1,800,600)
(2,709,933)
(771,908)
2,483,638
4,751,198
2,267,560
$
3,979,290
4,751,198

See accompanying notes to financial statements.

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

Notes to the 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 major business activities of the Company were the manufacture and sale of multi-function printers, scanners, digital camera modules, computer mice, keyboards, track pads, mobile phone accessories, consumer electronics products and shredders.

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 financial statements:

The 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”
IFRS 14 “Regulatory Deferral Accounts”	January 1, 2016
Amendment to IAS 1 “Presentation of Financial Statements-Disclosure	January 1, 2016
Initiative”

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

	Effective date per
New, Revised or Amended Standards and Interpretations	IASB
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 Company assessed that the initial application of the above IFRSs would not have any material impact on the 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 Company 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
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

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

Except for the following items, the Company believes that the adoption of the above IFRSs would not have any material impact on its 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 Company 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 Company had equity investments classified as available-for-sale with a fair value of 397,252 thousand that are held for long-term strategic purposes. At initial application of IFRS 9, the Company 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 Company estimated the application of IFRS 9’s classification requirements on January 1, 2018 resulting in a decrease of 38,042 thousand in other equity interest, as well as an increase of 38,042 thousand in retained earnings.

－
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.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

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. The Company choose to apply this policy also for trade receivables and contract assets with a significant financing component.

The Company 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 Company’s assessment included an analysis to identify data gaps against current processes and the Company 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 Company 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.
‧ 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.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(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 Company 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 Company believes that there would not be any material impact on its financial statements.

2) Transition

The Company 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 Company plans to use 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.

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 of Settlement”	January 1, 2019
	(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

Those which may be relevant to the Company 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 Company is evaluating the impact on its financial position and financial performance upon the initial adoption of the abovementioned standards or interpretations. The results thereof will be disclosed when the Company completes its evaluation.

(4) Summary of significant accounting policies:

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

(a) Statement of compliance

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

(b) Basis of preparation
(i) Basis of measurement

Except for the following significant accounts, the 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; and
3) The defined benefit liabilities are recognized as plan assets less the present value of the defined benefit obligation.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(ii) Functional and presentation currency

The functional currency is determined based on the primary economic environment in which the Company operates. The Company’ s 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) Foreign currencies

(i) Foreign currency transactions

Transactions in foreign currencies are translated to the functional currency of the Company 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.

(ii) Foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to the Company’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 Company’ 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 Company 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 noncontrolling interest. When the Company 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.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(d) 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.
(e) 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.

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.

(f) Financial instruments

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

(i) Financial assets

The Company classifies financial assets into the following categories: available-for-sale financial assets, and loans and receivables.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

1) 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 Company’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.

2) 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 accounts receivables 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 tradedate accounting.

3) 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 Company on terms that the Company 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.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

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 Company 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 accounts 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.

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.

4) Derecognition of financial assets

Financial assets are derecognized when the contractual rights of the cash inflow from the asset are terminated, or when the Company 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.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

The Company 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 Company 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.

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 (including related parties), salary payable, other payables and loan 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 Company 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 Company presents financial assets and liabilities on a net basis when the Company 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.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(iii) Derivative financial instruments

The Company 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 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.

(g) 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.

(h) Investments in subsidiaries

Investments in subsidiaries are accounted for using the equity method. There is no difference between net income and comprehensive income in the Company’ s financial statements and net income and comprehensive income attributable to stockholders of the parent. The equity in the Company’ s financial statements and the equity attributable to stockholders of the parent in the Company’ s consolidated financial statements are also the same. Changes in the Company’ s ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. When the Company loses control over its subsidiaries, the Company derecognizes the investment by the book value on the date of loss of control and remeasures the rest of the investments at fair value on the same date.

(i) 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 profit or loss, and it is included in other gains and losses.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(j) 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 to investment use.

(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 Company. 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 and additional equipment: 1 ~ 51 years
2) Machinery and equipment: 1 ~4 years
3) 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.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(k) 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.

(l) Intangible assets

Intangible assets that are acquired by the Company are measured at cost, less accumulated amortization and any accumulated impairment losses.

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.

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 from the date that they are available for use. The estimated useful lives for the current and comparative periods are as follows:

(i) Trademarks 10 years

(ii) Patents 2.5~10 years

(iii) 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 estimates.

(m) 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 Company 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.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

The Company 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 an improvement 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.

(n) 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.

(ii) Services

The Company 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.

(o) 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 Company’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 Company’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 Company’s obligations and that are denominated in the same currency in which the benefits are expected to be paid.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

The calculation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Company, 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 Company. An economic benefit is available to the Company 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.

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 Company 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.

(p) 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.

(q) Income taxes

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

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

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

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

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

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

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

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

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

(r) Earnings per share

The Company 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 potentially dilutive ordinary shares. Dilutive potential ordinary shares comprise employee stock options, employee remuneration, and restricted stock.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(s) Operating segments

Please refer to the Company’s consolidated financial statements for the years ended December 31, 2017 and 2016, for further details.

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

The preparation of the financial statements in conformity with the Regulations 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 estimates and assumptions. 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 financial statements.

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

(a) Valuation of inventories

As inventories are measured at the lower of cost or net realizable value, the Company 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) Valuation of inventories and assessment of impairment of intangible assets of investments accounted for using equity method

Please refer to note 5(a) for inventories valuation. The Company’s investments accounted for using equity method include intangible assets from premium investment. The assessment of impairment of intangible assets required the Company 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 Company’ s accounting policies include measuring financial and non-financial assets and liabilities at fair value through profit or loss. The Company 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 Company 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.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

The Company 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 (unobservable inputs).

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

(6) Explanation of significant accounts:

(a) Cash and cash equivalents

Cash	and cash equivalents
			December 31,	December 31,
			2017	2016
Cash	on hand	$	451	543
Checking accounts and demand deposits			2,600,847	931,183
Time	deposits		1,377,992	3,819,472
$			3,979,290	4,751,198
Please refer to note 6(w) for the currency risk and the interest rate risk of the Company’s cash and
cash equivalents.
Financial assets and liabilities at fair value through profit or loss
(i)	The derivative financial instruments were as follows:
			December 31,	December 31,
			2017	2016
	Financial assets at fair value through profit or loss –
	current:
	Forward exchange contracts	$	77,884	141,317
	Foreign exchange swap contracts		15,211	-
	$		93,095	141,317
	Financial liabilities at fair value through profit or
	loss – current:
	Forward exchange contracts	$	(69,167)	(72,909)
	Foreign exchange swap contracts		(33,940)	(77,521)
		$	(103,107)	(150,430)

(b) Financial assets and liabilities at fair value through profit or loss

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(ii) The Company 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 Forward exchange contracts – buy USD / sell TWD Forward exchange contracts`－` buy TWD / sell USD Forward exchange contracts – buy CNY/ sell USD Forward exchange swap contracts– swap in USD/ swap out TWD Forward exchange swap contracts– swap in TWD/ swap out USD	Nominal amount Maturity date Predetermined rate USD 299,000 January 4, 2018~ June 26, 2018 29.437~30.021 USD 276,500 January 4, 2018~ March 26, 2018 29.792~30.328 USD 6,000 February 26, 2018 6.6875 USD 103,500 January 12, 2018~ February 9, 2018 30.052~30.232 USD 116,000 January 5, 2018~ June 26, 2018 29.583~30.0155 December 31, 2016
Derivative financial instruments Forward exchange contracts – buy USD / sell TWD Forward exchange contracts`－` buy TWD / sell USD Forward exchange swap contracts – swap in TWD / swap out USD	Nominal amount Maturity date Predetermined rate USD 252,000 January 5, 2017~ March 27, 2017 31.157~32.015 USD 189,500 January 5, 2017~ March 27, 2017 31.765~32.290 USD 81,000 January 5, 2017~ January 19, 2017 31.245~31.920

(iii) Please refer to note 6(w) for the liquidity risk of the Company’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 16,417 - $ 397,252 873,921

(i) WK Technology Fund IV Ltd. refunded $1,280 and $2,816 to the Company due to capital reduction in April 2016 and July 2017, respectively.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(ii) The Company held 30% shares of Global TEK Fabrication Co., Ltd’s shares and sold 20% of them at $50 per share on October 3, 2016. The total proceeds of $549,347 were received. The Company 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 Fabrication Co., Ltd. The Company reclassified the carrying amounts of the －
remaining shares to available-for-sale financial asset non-current. Please refer to the Company’s consolidated financial statements of 2017 for further information on losing control of subsidiaries.
(iii) In the second quarter of 2016, the Company 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 Company 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.
－
(iv) The Company invested $21,045 in the unlisted company Grove Ventures, L.P, and classified as available-for-sale financial assets in March 2017.
(v) The unrealized gains were $2,288 and $111,105 for the years ended December 31, 2017 and 2016, respectively, and were recognized as unrealized gains on available-for-sale financial assets. The Company reclassified the realized gains of Nien Made Enterprise amounted to $330,887 in 2017 as gains from disposal.
(vi) The Company did not provide any of the aforementioned available-for-sale financial assets as collateral.
(d) Accounts receivable, and other receivables (including related parties)

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 $ 6,385,246 7,437,179 29,181 513,446 184,718 1,050,923 (101,027) (76,977) (27,829) (20,494) $ 6,470,289 8,904,077

(i) The Company did not provide any of the aforementioned accounts receivable and other receivables (including related parties) as collateral.
(ii) Please refer to note 6(w) 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.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

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

			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 Finished goods and merchandise	December 31, 2017 December 31, 2016 $ 9,896 102,684 2,118,545 2,190,735 $ 2,128,441 2,293,419

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

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

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

Losses on inventory valuation Losses on disposal of inventories Gains (losses) on physical inventories, net	2017 2016 $ (23,422) (10,601) (90,243) (19,737) 725 (2,178) $ (112,940) (32,516)

(f) Investments accounted for using equity method

The Company’s investments accounted for using the equity method at the reporting dates comprise:

Subsidiaries	December 31, 2017 December 31, 2016 $ 10,287,105 9,317,894

(i) Please refer to the Company’s consolidated financial statements for the year ended December 31, 2017, for details of subsidiaries.
(ii) The Company did not provide investments accounted for using the equity method as collateral.
(g) Property, plant and equipment

The cost, and depreciation of the property, plant and equipment of the Company for the years ended December 31, 2017 and 2016, were as follows:

Cost or deemed cost: Balance on January 1, 2017 Additions Disposals Reclassifications Balance on December 31, 2017 Balance on January 1, 2016 Additions Disposals Reclassifications Balance on December 31, 2016 Depreciation: Balance on January 1, 2017 Depreciation Disposals Balance on December 31, 2017	Land $ 22,879 - - - $ 22,879 $ 22,879 - - - $ 22,879 $ - - - $ -	Buildings and additional equipment 141,789 - (116) - 141,673 141,789 - - - 141,789 131,935 353 (116) 132,172	Machinery and equipment 71,514 6,149 (2,593) 2,987 78,057 67,355 10,148 (8,759) 2,770 71,514 48,516 10,788 (2,099) 57,205	Other equipment 46,264 3,596 (663) 8,136 57,333 44,743 4,580 (3,059) - 46,264 37,856 5,496 (627) 42,725	Testing equipment Total 4,646 287,092 11,564 21,309 - (3,372) (15,014) (3,891) 1,196 301,138 204 276,970 8,334 23,062 - (11,818) (3,892) (1,122) 4,646 287,092 - 218,307 - 16,637 - (2,842) - 232,102

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

Balance on January 1, 2016 Depreciation Disposals Balance on December 31, 2016 Carrying amounts: Balance on December 31, 2017 Balance on December 31, 2016 Balance on January 1, 2016	Land $ - - - $ - $ 22,879 $ 22,879 $ 22,879	Buildings and additional equipment 131,577 358 - 131,935 9,501 9,854 10,212	Machinery and equipment 44,394 12,712 (8,590) 48,516 20,852 22,998 22,961	Other equipment 35,445 4,995 (2,584) 37,856 14,608 8,408 9,298	Testing equipment Total - 211,416 - 18,065 - (11,174) - 218,307 1,196 69,036 4,646 68,785 204 65,554

(i) The unamortized deferred revenue of equipment subsidy amounted to $885,580 and $1,159,073 for the years ended December 31, 2017 and 2016, respectively.

(ii) The Company did not provide property, plant and equipment as collateral.

(h) Investment property

Cost or deemed cost: Balance on January 1, 2017 Additions Balance on December 31, 2017 Balance on January 1, 2016 Additions 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 Balance on December 31, 2016	Land $ 162,012 - $ 162,012 $ 162,012 - $ 162,012 $ 33,941 - $ 33,941 $ 33,941 - $ 33,941	Buildings and other equipment Total 172,167 334,179 - - 172,167 334,179 172,167 334,179 - - 172,167 334,179 45,089 79,030 3,560 3,560 48,649 82,590 41,529 75,470 3,560 3,560 45,089 79,030

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

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 $ 128,071 $ 128,071 $ 128,071	Buildings and other equipment Total 123,518 251,589 127,078 255,149 130,638 258,709 $ 555,061 $ 629,690 $ 592,092

(i) The fair value of investment property is based on the quotation from third parties, which is categorized within Level 3.
(ii) Investment property comprises a number of commercial properties which are leased to third parties. Each of the leases contains an initial non-cancellable period between 1 and 2 years. Subsequent renewals are negotiated with the lessee, and no contingent rents are charged. Please refer to note 6(l) for further information.

(iii) The Company did not provide any of the aforementioned investment property as collateral.

(i)

Intangible assets

The cost and amortization of the intangible assets of the Company for the years ended December 31, 2017 and 2016, were as follows:

Cost: Balance on January 1, 2017 Acquisition Balance on December 31, 2017 Balance on January 1, 2016 Acquisition Balance on December 31, 2016 Amortization: Balance on January 1, 2017 Amortization Balance on December 31, 2017 Balance on January 1, 2016 Amortization Balance on December 31, 2016	Trademarks $ 25,584 - $ 25,584 $ 25,584 - $ 25,584 $ 18,548 2,559 $ 21,107 $ 15,990 2,558 $ 18,548	Patents 64,271 - 64,271 64,271 - 64,271 64,271 - 64,271 62,337 1,934 64,271	Copyrights Total 30,832 120,687 - - 30,832 120,687 30,832 120,687 - - 30,832 120,687 14,902 97,721 2,056 4,615 16,958 102,336 12,846 91,173 2,056 6,548 14,902 97,721

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

Carrying amount: Balance on December 31, 2017 Balance on December 31, 2016 Balance on January 1, 2016	Trademarks $ 4,477 $ 7,036 $ 9,594	Patents - - 1,934	Copyrights Total 13,874 18,351 15,930 22,966 17,986 29,514

The Company did not provide any of the aforementioned intangible assets as collateral.

(j) Short-term borrowings

The details were as follows:

Unsecured bank loans Unused credit lines Annual interest rates	December 31, 2017 December 31, 2016 $ - - $ 8,966,896 10,044,220 0.97%~1.84% 0.93%~1.27%

(k) Long-term borrowings

December 31, 2017

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. Notes to the Financial Statements

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

(l) Operating lease

(i) Lessee

Non-cancellable operating lease rentals are payable as follows:

Less than one year Between one and five years	December 31, 2017 December 31, 2016 $ 93,430 90,708 - 93,430 $ 93,430 184,138

The Company leases a number of offices under operating leases. The lease terms are 15 years.

(ii) Lessor

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

Less than one year between two and five years More than five years	December 31, 2017 December 31, 2016 $ 11,381 10,957 37,135 37,775 75,600 84,857 $ 124,116 133,589

(m) 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

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

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

1) Composition of plan assets

The Company 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 Company’ 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 Company for the years ended December 31, 2017 and 2016, were as follows:

		2017	2016
Defined benefit obligation on January 1	$	160,593	160,913
Business combinations
Benefits paid		(12,898)	(4,995)
Current service costs and interest cost		2,707	3,417
Remeasurement of net defined benefit liabilities		6,092	1,258
Defined benefit obligation on December 31	$	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 Company for the years ended December 31, 2017 and 2016, were as follows:

Fair value of plan assets on January 1 Interest income Remeasurement of net defined liabilities Contributions paid Benefits paid Fair value of plan assets on December 31	2017 2016 $ 96,865 97,683 701 942 183 (271) 3,231 3,506 (12,898) (4,995) $ 88,082 96,865

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

4) Expenses recognized in profit or loss

The expenses recognized in profit or loss for the Company 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) Remeasurement of net defined liability (asset) recognized in other comprehensive income

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

Balance on January 1 Recognized during the period Balance on December 31	2017 2016 $ 4,421 2,892 5,909 1,529 $ 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 Company to the defined benefit plans for the one-year period after the reporting date was $3,192. The weighted-average lifetime of the defined benefit plans is 11 years.

7) Sensitivity analysis

When computing the present value of the defined benefit obligations, the Company 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. Notes to the Financial Statements

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

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 change in the method and assumptions used in the preparation of the sensitivity analysis for 2017 and 2016.

(ii) Defined contribution plans

The Company allocates 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 this defined contribution plan, the Company contributes a fixed amount to the Bureau of Labor Insurance without additional legal or constructive obligation.

The Company recognized pension costs under the defined contribution method amounting to $43,315 and $41,230 for the years ended December 31, 2017 and 2016, respectively, recorded as operating expenses and operating cost in the statement of comprehensive income.

(n) Income taxes

(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 Income tax expense	2017 2016 $ 35,506 432,225 85,912 (18,771) $ 121,418 413,454

(ii) The Company had no income tax recognized directly in equity or other comprehensive income for the years ended December 31, 2017 and 2016.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

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

Profit before tax Income tax calculated based on the Company’s domestic tax rate Overseas investment gains recognized under the equity method Investment tax credits accrued Prior year’s income tax adjustment 10% surtax on unappropriated earnings Gains on disposal of stocks Others Income taxes expense	2017 2016 $ 2,178,833 2,347,524 370,401 399,079 (168,149) (47,655) (51,586) (41,196) 5,620 7,106 62,744 65,978 (56,251) (50,023) (41,361) 80,165 $ 121,418 413,454

(iv) 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 cannot be realized. Therefore, they were not recognized as deferred tax assets.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the 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:

Deferred tax liabilities: Balance on January 1, 2017 Recognized in profit or loss Balance on December 31, 2017 Balance on January 1, 2016 Recognized in profit or loss Balance on December 31, 2016	Investment income recognized under the equity method (overseas)	Unrealized foreign exchange gains		Others Total
	$ 136,577 51,480 $ 188,057 $ 112,054 24,523 $ 136,577	- 24,493 24,493 - - -		16,984 153,561 - 75,973 16,984 229,534 5,528 117,582 11,456 35,979 16,984 153,561

Deferred tax assets: Balance on January 1, 2017 Recognized in profit or loss Balance on December 31, 2017 Balance on January 1, 2016 Recognized in profit or loss Balance on December 31, 2016	Bad debt in excess of tax limit $ 25,454 21,818 $ 47,272 $ 20,939 4,515 $ 25,454	Unfunded pension fund contribution 14,298 (208) 14,090 14,473 (175) 14,298	Unrealized sales returns and allowances 57,615 42,483 100,098 44,241 13,374 57,615	Loss on inventory valuation 4,570 2,781 7,351 3,267 1,303 4,570	Deferred granted revenue 197,042 (46,493) 150,549 173,185 23,857 197,042	Unrealized exchange losses 49 (49) - 17,339 (17,290) 49	Others Total 49,241 348,269 (30,271) (9,939) 18,970 338,330 20,075 293,519 29,166 54,750 49,241 348,269

(v) Except for 2014, the Company’s income tax returns have been examined by the tax authority through the years to 2015.

(vi) 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 December 31, 2016 (Note) $ 4,779,419 (Note) $ 508,028 2017 2016 (actual) (Note) 14.50 %	December 31, 2017 December 31, 2016 (Note) $ 4,779,419 (Note) $ 508,028 2017 2016 (actual) (Note) 14.50 %
		2016 (actual)
		14.50 %

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

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

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.

(o) 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 Redemption 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. Notes to the 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 stock 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 common stock 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, the capital increase via transferring of the paid-in capital, in excess of par value, should not exceed 10% of the total common stock 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 shareholders’ 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. Notes to the 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 were NT$2.5 and 2.1 (dollars) per share, which amounted to $1,111,886 and $927,933, respectively.

(p) 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. Notes to the 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 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. Notes to the 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 24.1 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 0.2 0.2 2.37~5 6~8 0.91677~1 0.91677~0.92827
Exercise price of Primax Holdings’s stock options (USD) Expected time until expiration (years) Stock price per share of Primax Holdings (USD)

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

Period of stock options	Plan 1 Plan 2 34.78%~44.59% 38.98%~48.44% - - 2.439%~2.665% 2.509%~2.538%
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 October 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
Granted options	Primax Holdings		the Company	Primax Holdings		the Company
Granted units		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 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%
	Before the modification
	USD0.20 0.39~3.89 USD1.12 33.56%~45.36% - 1.005%~1.5%

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the 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 22.16 - 15.21 24.23 - - -	Weighted- average exercise price Stock options (in thousands) 24.66 1,728 - - 25.20 (25 25.62 (746 - - 22.16 957 22.16 957

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

(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)	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 (notes 2 and 3) 1~3 years (note 2) 1~3 years (note 2) 1~3 years (note 2)
	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)

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the 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. Notes to the 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		were as follows:
		2017	2016
Restricted stock	$	79,420	43,182
Salary payable:
Current	$	-	1,938

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

(q) 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 and the weighted-average number of ordinary shares outstanding was as follows:

Profit of the Company for the year Weighted-average number of ordinary shares (thousand shares) Basic earnings per share (NT dollars)	2017 2016 $ 2,057,415 1,934,070 440,907 439,169 $ 4.67 4.40

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

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(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 and the weighted-average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares was as follows:

Profit of the Company for the year Weighted-average number of ordinary shares (diluted / thousand shares) Diluted earnings per share (NT dollars) 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 1,934,070 444,846 443,212 $ 4.63 4.36 2017 2016 440,907 439,169 529 745 1,117 2,174 2,293 1,124 444,846 443,212

(r) Operating revenue

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

Goods sold Services rendered Total	2017 2016 $ 34,135,266 44,778,842 888,297 960,941 $ 35,023,563 45,739,783

(s) Employee’s, 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

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

The estimated amounts mentioned above are calculated based on the net profit before tax, excluding the remuneration to employees, directors and supervisors of each period, multiplied by the percentage of remuneration to employees, directors and supervisors as specified in the Company’s articles. These remunerations were expensed under operating costs or operating expenses during each period. The differences between the amounts distributed and those accrued in the financial statements, if any, are accounted for as changes in accounting estimates and recognized as profit or loss in the distribution year.

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

Employee remuneration Stock Cash Directors’ remuneration Employee remuneration Stock Cash Directors’ remuneration		2016
	Actual earnings distributed $ - 74,000 36,800	Accrued in the financial statements Difference - - 74,000 - 36,803 3 2015
	Actual earnings distributed $ - 78,500 32,000	Accrued in the financial statements Difference - - 78,269 (231) 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.

(t) Other income

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

Interest revenue of cash in banks Rent revenue Cash dividend revenue	2017 2016 $ 20,293 11,599 8,458 7,177 23,325 14,692 $ 52,076 33,468

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(u) Other gains and losses

The details of other gains and losses for the years ended December 31, 2017 and 2016, were as follows:

Net losses on financial assets/liabilities measured at fair value through profit or loss Foreign currency exchange gains, net Gains on sale of available-for-sale financial assets Gains on disposal of subsidiaries Compensation loss Other	2017 2016 $ (10,012) (9,113) 57,284 160,646 330,887 140,969 - 248,006 - (180,000) 241,132 10,898 $ 619,291 371,406

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

(w) Financial instruments

(i) Credit risk

The aging analysis of 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 181-365 days Past due over a year	December 31, 2017 December 31, 2016 $ 365,148 505,192 14,794 208,462 7,381 10,926 473 4,028 88,597 - $ 476,393 728,608

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

The Company assesses the uncollectible amount of accounts and other receivables (including related parties) based on the aging analysis, the collection history, the customers’ current financial status and the insurance status, and recognizes an allowance for doubtful debts accordingly. After the Company’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 Balance on December 31, 2016	Individually assessed impairment $ - 66,591 - - $ 66,591 Individually assessed impairment $ - - - - $ -	Collectively assessed impairment Total 76,977 76,977 (36,495) 30,096 - - (6,046) (6,046) 34,436 101,027 Collectively assessed impairment Total 19,647 19,647 57,778 57,778 - - (448) (448) 76,977 76,977

(ii) Liquidity risk

The following table shows the contractual maturities of financial liabilities:

December 31, 2017 Non-derivative financial liabilities: Notes and accounts payable Accounts payable - related parties Other payables Long-term accounts payable to related parties Long-term borrowings Guarantee deposits Derivative financial liabilities: Outflow Inflow	Carrying amount $ 28,195 8,339,013 1,334,403 423,944 218,888 160,639 103,107 - - $ 10,608,189	Contractual cash flows 28,195 8,339,013 1,334,403 423,944 221,752 160,639 - 3,187,373 (3,089,268) 10,606,051	Within 6 months 28,195 8,339,013 1,334,403 - 108,721 - - 3,187,373 (3,089,268) 9,908,437	6~12 months - - - - 28,532 - - - - 28,532	1~2 years - - - - 56,677 - - - - 56,677	2~5 years Over 5 years - - - - - - 423,944 - 27,822 - - 160,639 - - - - - - 451,766 160,639

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

December 31, 2016 Non-derivative financial liabilities: Notes and accounts payable Accounts payable - related parties Other payables Long-term accounts payable to related parties Long-term borrowings Guarantee deposits Derivative financial liabilities: Outflow Inflow	Carrying amount $ 783,593 9,352,640 1,520,893 781,263 601,111 125,703 150,430 - - $ 13,315,633	Contractual cash flows 783,593 9,352,640 1,520,893 781,263 609,653 125,703 - 2,766,941 (2,615,359) 13,325,327	Within 6 months 783,593 9,352,640 1,520,893 - 277,546 - - 2,766,941 (2,615,359) 12,086,254	6~12 months - - - - 110,096 - - - - 110,096	1~2 years - - - - 137,431 - - - - 137,431	2~5 years Over 5 years - - - - - - 781,263 - 84,580 - - 125,703 - - - - - - 865,843 125,703

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

Financial assets Monetary items USD:TWD Financial liabilities Monetary items USD:TWD	December 31, 2017 Foreign currency Exchange rate TWD $ 348,026 29.848 10,387,878 339,620 29.848 10,136,980	December 31, 2017 Foreign currency Exchange rate TWD $ 348,026 29.848 10,387,878 339,620 29.848 10,136,980	December 31, 2016	December 31, 2016
	Foreign currency $ 348,026 339,620	Exchange rate 29.848 29.848	Foreign currency 416,943 376,297	Exchange rat TWD 32.279 13,458,517 32.279 12,146,505

2) Sensitivity analysis

The Company’ s exposure to foreign currency risk arises from the translation of the foreign currency exchange gains and losses on cash and cash equivalents, accounts and other receivables (including related parties), loans and borrowings, notes and accounts payable (including related parties), and other payables (including related parties) that are denominated in foreign currency.

A weakening (strengthening) of 5% of the TWD against the USD as of December 31, 2017 and 2016, would have increased or decreased the net profit before tax by $12,545 and $65,601, respectively. The analysis is performed on the same basis for both periods.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

3) Exchange gains and losses on monetary items

The Company’s exchange gains and losses on monetary items (including realized and unrealized) translated to the Company’s functional currency were as follows:

TWD	2017 Exchange gains and losses Average exchange rate $ 57,284 1	2016
	Exchange gains and losses $ 57,284	Exchange gains and losses Average exchange rate 160,646 1

(iv) Interest rate analysis

Please refer to note 6(x) 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 liabilities with variable interest rates, the analysis is based on the assumption that the amount 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 Company 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 $9,400 and by $10,374 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):

Prices of securities at the reporting date	2017 2016 Other comprehensive income after tax Other comprehensive income after tax $ - 58,640 $ - (58,640)
Increasing 10% Decreasing 10%

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(vi) Fair value

1) Kinds of financial instruments and fair value

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

Financial assets at fair value through profit or loss – current Available-for-sale financial assets – non-current Loans and receivables Cash and cash equivalents Notes and accounts receivable (including related parties) Other receivables Refundable deposits Total Financial liabilities at fair value through profit or loss – current Financial liabilities carried at amortized cost Borrowings Notes and accounts payable (including related parties) Other payables Long-term accounts payable to related parties Salary payable Guarantee deposits Total		December 31, 2017	December 31, 2017	December 31, 2017
	Carrying amounts $ 93,095 $ 397,252 $ 3,979,290 6,285,571 184,718 26,719 $ 10,476,298 $ 103,107 $ 218,888 8,367,208 1,828,968 423,944 206,129 160,639 $ 11,205,776		Fair Value
		Level 1 - - -	Level 2 - - -	Level 3 Total 93,095 93,095 397,252 397,252 103,107 103,107

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the 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 (including related parties) Other payables Long-term accounts payable to related parties Salary payable Guarantee deposits Total		December 31, 2016	December 31, 2016	December 31, 2016
	Carrying amounts $ 141,317 $ 873,921 $ 4,751,198 7,853,154 1,050,923 26,209 $ 13,681,484 $ 150,430 $ 601,111 10,136,233 2,331,760 781,263 359,279 125,703 $ 14,335,349		Fair Value
		Level 1 - 586,404 -	Level 2 - - -	Level 3 Total 141,317 141,317 287,517 873,921 150,430 150,430

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 can not be reached, then the market is non-active. In general, a market with low trading volume or high bid-ask spreads is an indication of a non-active market.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

The Company 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.
4) Reconciliation of Level 3 fair values

Balance on January 1 Recognized in profit or loss Recognized in other comprehensive income Acquisition / disposal Balance on December 31		2017	Total 278,404 (10,012) 91,506 27,342 387,240		2016 Available for sale Total 16,297 42,584 - (9,113) (3,000) (3,000) 274,220 247,933 287,517 278,404
	Fair value through profit or loss $ (9,113) (10,012) - 9,113 $ (10,012)	Available for sale 287,517 - 91,506 18,229 397,252		Fair value through profit or loss 26,287 (9,113) - (26,287) (9,113)

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

The Company’ 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	Valuation technique Guideline Public Company method	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

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

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

note 1: The fair value is based on unadjusted prior trade prices, therefore there is no need to show the sensitivity analysis of unobservable inputs.
note 2: The fair value is based on the quotation of a third party, therefore there is no need to show the sensitivity analysis of unobservable inputs.
6) Sensitivity analysis for fair values of financial instruments using Level 3 Inputs

The Company’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)

(x) Financial risk management
(i) Overview

The Company has exposure to the following risks 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.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(ii) Structure of risk management

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

(iii) Credit risk

Credit risk is the risk of financial loss to the Company if a customer or a counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company’ s cash and cash equivalents, accounts and other receivables (including related parties), and derivative instruments.

1) Cash and cash equivalents

The Company had deposited $3,935,028 (including restricted deposits) in HSBC Bank and 8 other financial institutions, and $4,634,282 (including restricted deposits) in DBS Bank and 7 other financial institutions, representing 16% and 17% of total assets, as of December 31, 2017 and 2016, respectively. The Company believes that there is no significant credit risk from the above-mentioned financial institutions.

2) Accounts receivable

Sales to individual customers (including related parties) constituting over 10% of total revenue for the years ended December 31, 2017 and 2016, totaled 15% and 21%, respectively. As of December 31, 2017 and 2016, 10% and 7%, respectively, of the ending balance of accounts receivable (including related parties) was accounted for by those customers. In order to reduce credit risk, the Company 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 Company did not suffer any significant credit loss from those customers during the financial reporting period.

3) Derivative instruments

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

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(iv) Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’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 Company’ s reputation.

The Company manages sufficient cash and cash equivalents so as to cope with its operations and mitigate the effects of fluctuations in cash flows. The Company had unused bank facilities of $8,966,896 and $10,044,220 as of December 31, 2017 and 2016, respectively.

(v) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates, and equity prices, will affect the Company’ 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 Company is exposed to currency risk on sales, purchases, and borrowings that are denominated in a currency other than the functional currency. These transactions are denominated in USD.

The Company uses forward exchange contracts and foreign exchange swap contracts to hedge its currency risk. The Company 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 Company’s main assets and liabilities with a floating-interest-rate basis are deposits and borrowings. The Company believes that cash flow risk arising from interest rate fluctuation is insignificant.

3) Other market price risk

The Company 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.

(y) 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.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

The Company 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 Company’s debt ratio as of December 31, 2017 and 2016, were 53% and 59%, respectively.

(7) Related-party transactions:

(a) Parent company and ultimate controlling company

Name of related party
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.)
Primax Industries (Hong Kong) Ltd. (Primax HK)
Tymphany Worldwide Enterprises Ltd. (TWEL)
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)
Premium Loudspeakers (Hui Zhou) Co., Ltd.
(Premium Huizhou)
Tymphany Acoustic Technology HK Ltd.
(TYM Acoustic HK)
Dongguan Tymphany Acoustic Technology Co., Ltd.
(Tymphany Dongguan)
TYMPHANY ACOUSTIC TECHNOLOGY (UK)
LIMITED (TYM UK)
Tymphany Acoustic Technology Europe, s.r.o.
(TYM Acoustic Europe)
TYP Enterprises, Inc.(TYP)
Tymphany HK Ltd.(TYM HK)

Relationship with the Group

A subsidiary
A subsidiary
A subsidiary
A subsidiary
A subsidiary
A subsidiary
A subsidiary
A subsidiary
A subsidiary
A subsidiary
A subsidiary
A subsidiary
A subsidiary
A subsidiary
A subsidiary
A subsidiary
A subsidiary
A subsidiary
A subsidiary
A subsidiary

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

Name of related party Tymphany Acoustic Technology Limited (TYM Acoustic) TYMPHANY LOGISTICS, INC (TYML) Dong Guan Dong Cheng Tymphany Acoustic Technology Co., Ltd. (TYDC)

Ya Xing Huang and his family members

Primax Electronics Korea Co., Ltd. (Primax Korea) Global TEK Fabrication Co., Ltd. (Global TEK) Global TEK Co., Ltd. (GT)

Global TEK Fabrication Co., Ltd.(Samoa) (GTF-S) 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)
GLOBAL TEK (XI’ AN) CO., LTD. (GLOBAL TEK XI’ AN)
GLOBAL TEK CO. (WUXI), LTD. (GLOBAL TEK WUXI)

Relationship with the Group

A subsidiary A subsidiary A subsidiary

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.)
A subsidiary (Primax Korea was closed and finished the liquidation process in March 2016)
A subsidiary (The Company disposed parts of shares of Global TEK and lost control of the subsidiary in October 2016.)
A subsidiary (The Company disposed parts of shares of Global TEK and lost control of the subsidiary in October 2016.)
A subsidiary (The Company disposed parts of shares of Global TEK and lost control of the subsidiary in October 2016.)
A subsidiary (The Company disposed parts of shares of Global TEK and lost control of the subsidiary in October 2016.)
A subsidiary (The Company disposed parts of shares of Global TEK and lost control of the subsidiary in October 2016.)
A subsidiary (The Company disposed parts of shares of Global TEK and lost control of the subsidiary in October 2016.)
A subsidiary (The Company disposed parts of shares of Global TEK and lost control of the subsidiary in October 2016.)
A subsidiary (The Company disposed parts of shares of Global TEK and lost control of the subsidiary in October 2016.)
A subsidiary (The Company disposed parts of shares of Global TEK and lost control of the subsidiary in October 2016.)

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(b) Significant transactions with related-party

(i) Sales

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

follows:
Subsidiaries	Sales 2017 2016 $ 3,089,818 4,445,229	Accounts receivable – related parties
	2017 $ 3,089,818	December 31, 2017 December 31, 2016 29,181 513,446

The sales prices for related parties and other customers were not significantly different. The credit terms for other customers are within 90 days, but they can be lengthened for related parties.

(ii) Purchases

The amounts of purchases by the Company from related parties and the outstanding balances were as follows:

PCH2 Primax HK PCQ1 Others (note)	Purchases 2017 2016 $ 26,362,084 18,234,471 - 16,357,886 5,278,105 5,189,828 1,224,274 1,476,216 $ 32,864,463 41,258,401	Accounts payable – related parties
	2017 $ 26,362,084 - 5,278,105 1,224,274 $ 32,864,463	December 31, 2017 December 31, 2016 6,137,747 6,971,192 - - 1,748,395 1,922,281 452,871 459,167 8,339,013 9,352,640

Note: Individual amount not exceeding 10%.

The prices of purchases were determined based on the cost plus a reasonable profit margin. The payment terms of related parties and other vendors are 60 days to 360 days and 20 days to 120 days, respectively.

Accounts payable to subsidiaries over normal payment terms agreed by both sides was reclassified to long-term payable. On December 31, 2017 and 2016, long-term accounts payable to related parties were $423,944 and $781,263, respectively.

(iii) Purchase of service

The amounts of purchase of service by the Company from its related parties and the outstanding balances were as follows:

Subsidiaries	Purchase of service 2017 2016 $ 40,733 28,448	Purchase of service 2017 2016 $ 40,733 28,448	Other payables December 31, 2017 December 31, 2016 3,242 1,540
	2017 $ 40,733
		28,448

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(iv) Receivable and payable on behalf of related parties

The other payables arising from receiving the equipment subsidy on behalf of subsidiaries amounted to $16,322 and $9,828 for the years ended December 31, 2017 and 2016.

The other receivables arising from the materials purchased on behalf of the subsidiaries amounted to $94,599 and $854,518 for the years ended December 31, 2017 and 2016.

－
(v) Property transaction disposal of equity securities

Details of the Company’s disposal of its investment accounted by equity method to its related parties were as follows:

Relationship	Account		201	7	Gains or losses from disposal -		20	16
		Trading quantities -	Trading targets -	Proceeds from disposal -		Trading quantities 11,020 (thousand)	Trading targets Shares	Proceeds from disposal (note) Gains or losses from disposal 549,347 164,785
Other related parties	Investment using equity method

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

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

(vi) Guarantees and endorsements

The amounts of guarantee the Company provided to subsidiaries were as follows:

Purchasing of raw materials	December 31, 2017 December 31, 2016 $ 313,404 338,930

(vii) Lease

The Company leased out its investment properties to its subsidiaries as office buildings and entered into 15-years lease contract by reference of the rental price of the nearby offices. The rental income in 2017 and 2016 amounted to $9,914 and $8,640 and there were no receivables on December 31, 2017 and 2016. Please refer to note 6(l) for non-cancellable receivable.

Short-term employee benefits Post-employment benefits Termination benefits Other long-term benefits Share-based payments	2017 2016 $ 122,978 121,107 1,111 1,129 - - - - 40,783 17,088 $ 164,872 139,324

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

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(8) Pledged assets: None

(9) Commitments and contingencies:

(a) For the detail of the Company’s guarantees provided to subsidiaries, please refer to notes 7 and 13.
(b) The following are savings accounts provided by the Company to the banks in order for the bank to issue a guarantee letter to customs as guarantee deposits.

Guarantee letters	December 31, 2017 December 31, 2016 $ 6,000 6,000

(c) Guarantee notes provided as part of agreements with banks to sell its accounts receivable 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

(d) The Company entered into lease agreements for its office. Please refer to note 6(l) 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. Notes to the Financial Statements

(12) Other:

Employee benefit, depreciation, and amortization expenses are summarized by function as below:

By functio By item	n 2017	n 2017	n 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	102,796 6,619 3,463 4,226 7 -	1,135,525 73,508 41,858 52,820 16,630 23,337	1,238,321 80,127 45,321 57,046 16,637 23,337	153,736 6,883 3,699 5,963 7 -	1,178,444 68,929 40,006 53,531 18,058 20,140	1,332,180 75,812 43,705 59,494 18,065 20,140

The average number of the Company’s employees for the years ended December 31, 2017 and 2016, was 811 and 783, respectively.

(13) Other disclosures:

(a) Information on significant transactions:

The following were the information on significant transactions required by the Regulations for the Company:

(i) Loans to other parties:

Number 1 2 3	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	Collateral	Collateral	Individual funding loan limits	Maximum limit of fund financing
													Item	Value
	PKS1 Tymphany Dongguan TYM HK	The Company 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.

(ii) Guarantees and endorsements for other parties:

											(In Thous	ands of New Taiwan Dollars)	ands of New Taiwan Dollars)
No.	Name of guarantor	Counter-party of guarantee and endorsement L Name Relationship with the Company		imitation on amount of guarantees and endorsements for a specific enterprise	Highest balance for guarantees and endorsements during the period	Balance of guarantees and endorsements as of reporting date	Actual usage amount during 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	Subsidiary endorsements/ guarantees to third parties on behalf of parent company	Endorsements/ guarantees to third parties on behalf of companies in Mainland China
		Name
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

(Continued)

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

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 net worth in the latest financial statements. The total amount of the guarantee to total company shall not exceed 80% of the PCH2 net worth in the latest 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	Note
				Shares/Units (thousands)	Carrying value	Percentage of ownership (%)	Fair value
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

(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	S	S	ales		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 Diamond	Shares: TYM Acoustic Europe Premium Hui Zhou Premium Hui Zhou TYM HK TYM HK TWEL	Investment accounted for using equity method `〃` `〃` `〃` `〃` `〃`	Initial Offerings TWEL TYM HK TYM Acoustic HK TWEL UIDL, SC and XT	None The Group `〃` `〃` `〃` Substantive related parties	- - - 144,395 - 38,501	- 410,738 - 1,540,112 - 2,904,380	187,800 - - - 144,395 16,500	653,796 - 569,138 - 714,258 723,139	- - - 144,395 - -	- 569,138 - 714,258 - -	- 643,733 - 837,712 - -	- - (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)

(Continued)

PRIMAX ELECTRONICS LTD. Notes to 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
TWEL The Company PCH2 `〃` PCQ1 PKS1	Premium Hui Zhou 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 `〃` `〃` `〃`	TZBV, SC and Bochuang Initial offerings `〃` `〃` `〃` `〃`	`〃` None `〃` `〃` `〃` `〃`	- 1,763,621 - - - -	586,768 586,404 - - - -	- - - - - -	- - 1,450,402 9,146,504 3,684,887 550,197	- 1,763,621 - - - -	479,752 497,186 1,455,108 9,167,750 3,705,442 558,263	479,752 166,299 1,450,402 9,144,803 3,694,627 555,556	- 330,887 4,706 (note 3) 21,246 (note 3) 20,555 (note 3) 8,066 (note 3)	- - - - - -	1,514,469 (note 3) - - - - -

Note 1: The amount is the capital surplus derived from the differences 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.

Note 2: The differences between the ending balance and the purchasing price is the investment income (losses) accounted for using equity method, differences between purchasing price and net worth, as well as the capital increase and the adjustment of exchange differences on translation. Note 3: 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. Notes to Financial Statements

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)
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 `〃` `〃` `〃` `〃`	`〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃`	The same as general selling `〃` `〃` `〃` The same as general purchasing 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.

(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	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.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

(ix) Trading in derivative instruments: Please refer to note 6(b) in the consolidated financial statements for the year ended December 31, 2017.
(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	Original investment amount	Original investment amount	Balance as of Decembe	Balance as of Decembe	r 31, 2017	Net income (losses) of investee	Share of profits/losses of investee	Note
			businesses and products	December 31, 2017	December 31, 2016	Shares (thousands)	Percentage of ownership	Carrying value
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	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	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	8,712	8,712
Diamond	TWEL	Cayman Islands	Holding company	2,711,450	2,515,800	55,001	100.00	3,187,565	500,879	298,734	(note 3)
Premium Huizhou	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	(14,475)	(22,017)	(note 2)
TYM Acoustic HK `〃` `〃` `〃` `〃`	TYM HK TYP TYM UK TYM Acoustic 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 0.5 400 187,800 -	100.00 100.00 100.00 100.00 100.00	747,124 8,200 16,624 545,980 -	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	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.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to 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)	Investm	ent flows	Accumulated outflow of investment from Taiwan as of December 31, 2017	Net income (losses) of the investee	Percentage of ownership	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 `〃` `〃`	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%	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.

(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 PCH2, Destiny Beijing, PKS1, and PCQ1, 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. Notes to Financial Statements

(iii) Significant transactions:

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

(14) Segment information:

Please refer to the Company’s consolidated financial statements for the year ended December 31, 2017, for details.

PRIMAX ELECTRONICS LTD.

Statement of cash and cash equivalents

December 31, 2017

(Expressed in thousands of New Taiwan Dollars)

Item Cash on hand Checking accounts and demand deposits Time deposits	Description Amount $ 451 2,600,847 USD46,167 thousand ; Exchange rate29.848 1,377,992 $ 3,979,290

Statement of accounts receivable

Item Accounts receivable: Corporation P Corporation A Corporation U Other (individual amount not exceeding 5%) Total Less: Allowance for doubtful accounts Allowance for sales returns and discounts Net accounts receivable	Description Amount Operating revenue $ 644,354 `〃` 611,451 `〃` 355,049 `〃` 4,774,392 6,385,246 (101,027) (27,829) $ 6,256,390

PRIMAX ELECTRONICS LTD.

Statement of other receivables

December 31, 2017

(Expressed in thousands of New Taiwan Dollars)

Item Other receivables`－`related parties Receivables due to sale of accounts receivable Other (individual amount not exceeding 5%) Total	Description Amount Payable on behalf of related parties $ 94,599 Remaining receivables due to sale of accounts receivable 81,751 8,368 $ 184,718

Statement of inventories

Item Finished goods and merchandises Less: Provision for finished goods and merchandises Subtotal Raw material Less: Provision for raw material Subtotal Net amount	Cost Net realizable value $ 2,179,971 2,164,677 (61,426) 2,118,545 9,948 10,285 (52) 2,174,962 9,896 $ 2,128,441	Cost Net realizable value $ 2,179,971 2,164,677 (61,426) 2,118,545 9,948 10,285 (52) 2,174,962 9,896 $ 2,128,441
		2,164,677 10,285 2,174,962

PRIMAX ELECTRONICS LTD.

－ Statement of changes in available-for-sale financial asset non-current

From January 1 to December 31, 2017

(Expressed in thousands of New Taiwan Dollars)

Name of investee Green Rich Technology Co., Ltd. WK Technology Fund IV Ltd. Changing Information Technology Inc. Formosoft International Inc. Syntronix Corp. Global TEK Co., Ltd. Nien Made Enterprise Co., Ltd. Ricavision International Inc. Grove Ventures, L.P	Beginning Balance Number of shares Amount 359 $ 4,000 512 3,820 179 2,802 53 646 6 749 5,510 275,500 1,764 586,404 917 - - - $ 873,921	Additions Number of shares Amount - - - - - - - - - - - - - - - - - 21,045 21,045	Disposal Number of shares Amount - - - - - - - - - - - - 1,764 (166,299) - - - - (166,299)	Other adjustments (note) Number of shares Amount - (2,000) (282) (1,816) - (700) - (646) - (700) - 99,180 - (420,105) - - - (4,628) (331,415)	Ending Balance Pledged Number of shares Amount or guaranteed 359 2,000 None 230 2,004 `〃` 179 2,102 `〃` 53 - `〃` 6 49 `〃` 5,510 374,680 `〃` - - `〃` 917 - `〃` - 16,417 `〃` 397,252
		Number of shares - - - - - - - - -	Number of shares - - - - - - 1,764 - -	Number of shares - (282) - - - - - - -

Note: Other adjustments comprise capital reduction to refund and unrealized gains or losses on available-for-sale financial assets.

PRIMAX ELECTRONICS LTD.

Statement of changes in investment accounted for using equity method

From January 1 to December 31, 2017

(Expressed in thousands of New Taiwan Dollars)

Name of investee Primax Industries (Cayman Holding) Ltd. Primax Technology (Cayman Holding) Ltd. Destiny Technology Holding Co., Ltd Primax Destiny Co., Ltd. Diamond (Cayman) Holdings Ltd. Gratus Technology Corp.	Beginning Balance Number of shares Amount 8,147,636 $ 4,336,069 285,067 1,922,225 1,050 26,320 0.5 16,146 84,050 3,007,259 300 9,875 $ 9,317,894	Additions Number of shares Amount - - - - - - - - - - - - -	Disposal Number of shares Amount - - - - - - - - - - - - -	Other adjustments Number of shares Amount (Note1) - 799,090 - 99,490 - (11,769) - 240 - 82,388 - (228) 969,211	Ending Balance Number of shares Percentage of holding shares Amount 8,147,636 % 100.00 5,135,159 285,067 % 100.00 2,021,715 1,050 % 100.00 14,551 0.5 % 100.00 16,386 84,050 % 100.00 3,089,647 300 % 100.00 9,647 10,287,105	Ending Balance Number of shares Percentage of holding shares Amount 8,147,636 % 100.00 5,135,159 285,067 % 100.00 2,021,715 1,050 % 100.00 14,551 0.5 % 100.00 16,386 84,050 % 100.00 3,089,647 300 % 100.00 9,647 10,287,105	Market value or book value Pledged of guaranteed 5,356,284 None 2,105,199 `〃` 14,551 `〃` 16,386 `〃` 3,089,647 `〃` 9,647 `〃` 10,591,714
		Number of shares - - - - - -	Number of shares - - - - - -	Number of shares - - - - - -	Number of shares 8,147,636 285,067 1,050 0.5 84,050 300	Percentage of holding shares % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00

Note 1: Adjustments under equity method valuation.

PRIMAX ELECTRONICS LTD.

Statement of changes in property, plant and equipment

From January 1 to December 31, 2017

(Expressed in thousands of New Taiwan Dollars)

Please refer to note 6(g) for Property, plant and equipment.

Statement of changes in investment property

Please refer to note 6(h) for Investment property.

Statement of notes and accounts payable

Item Corporation b Corporation a Other (individual amount not exceeding 5%)	Description Amount Operating cost $ 19,300 `〃` 8,079 816 $ 28,195

PRIMAX ELECTRONICS LTD.

Statement of other payables

December 31, 2017

(Expressed in thousands of New Taiwan Dollars)

Item Expense payables Others (note) Total Note : individual amount	Description Amount Payables for allowance for sales return and discount $ 737,212 Research and development expense for projects and inspection 450,387 Employee and director remuneration 340,128 Taxes related to income and tariff 132,174 Accounts payable for maintenance and equipment, labor and health insurance and employee benefits 169,067 $ 1,828,968 not exceeding 5%	Description Amount Payables for allowance for sales return and discount $ 737,212 Research and development expense for projects and inspection 450,387 Employee and director remuneration 340,128 Taxes related to income and tariff 132,174 Accounts payable for maintenance and equipment, labor and health insurance and employee benefits 169,067 $ 1,828,968 not exceeding 5%

PRIMAX ELECTRONICS LTD.

Statement of other current liabilities

December 31, 2017

(Expressed in thousands of New Taiwan Dollars)

Item	Description		Amount
Sales revenue received in advance	Advance sales receipts`－`non-related parties	$	231,497
Other (note)			17,056
Total		$	248,553

Note : individual amount not exceeding 5%

Statement of other non-current liabilities

Item		Amount
Deferred tax liabilities`－`non-current	$	229,534
Guarantee deposits		160,639
Accrued pension liabilities		68,412
Other (note)		2,650
	$	461,235

Note : individual amount not exceeding 5%

PRIMAX ELECTRONICS LTD.

Statement of long-term borrowings

December 31, 2017

(Expressed in thousands of New Taiwan Dollars)

Creditor CTBC Bank The Export-Import Bank of the Republic of China Total	Description Long-term borrowings `〃` Less: Current portion	Amount $ 80,000 138,888 (135,555) $ 83,333	Term of contract 2015.1~2018.1 2015.2~2020.2	Interest rate Pledged on guaranteed Note 1 None Note 2 `〃`

Note 1: Interest rate is calculated by US CD rate plus 0.30% per annum. Note 2: Interest rate is calculated by TAIBOR plus 0.48% per annum.

PRIMAX ELECTRONICS LTD.

Statement of operating revenue

From January 1 to December 31, 2017

(Expressed in thousands of New Taiwan Dollars)

Item Operating revenue: Computer peripherals Non-Computer peripherals Less: Sales returns Sales discounts Net service revenue Net operating revenue	Quantity (in thousands) Amount 79,715 $ 20,463,268 77,460 14,443,138 34,906,406 (65,261) (705,879) 34,135,266 888,297 $ 35,023,563

PRIMAX ELECTRONICS LTD.

Statement of operating costs

From January 1 to December 31, 2017

(Expressed in thousands of New Taiwan Dollars)

Item		Amount
Raw material On January 1, 2017	$	102,736
Add: Purchases		662,710
Less: Raw material on December 31, 2017		(9,948)
Sales of raw material		(755,498)
Raw material used		-
Manufacturing overhead		130,474
Manufacturing cost		130,474
Add: Finished goods and merchandises on January 1, 2017		2,228,739
Purchases from triangular trade		31,357,296
Gain on physical finished goods and merchandises		725
Less: Finished goods and merchandises on December 31, 2017		(2,179,971)
Loss on disposal of inventories		(90,243)
Cost of finished goods and merchandises		31,447,020
Service costs		470,196
Sales of raw material		755,498
Loss on inventory valuation, obsolescence and physical inventories		22,697
Loss on disposal of inventories		90,243
Operating costs	$	32,785,654

PRIMAX ELECTRONICS LTD.

Statement of selling, administrative, research and development expenses

From January 1 to December 31, 2017

(Expressed in thousands of New Taiwan Dollars)

Item Salaries Rent expense Travel allowance Service expense Storage fee Bad debt expense Freight expense Other expense (note) Total	Selling expenses $ 268,875 17,542 40,825 31,084 58,603 30,096 35,133 123,357 $ 605,515	Administrative expenses Research and development expenses 256,997 609,653 23,139 48,870 11,317 64,071 65,013 13,522 - - - - 47 822 78,111 234,480 434,624 971,418

Note : individual amount not exceeding 5%

AI assistant

Primax — Annual Report 2017

52436_rns_2017-11-14_8c162dff-8817-447f-bda3-d61bfb545bcc.pdf

FINANCIAL STATEMENTS

Table of contents

Independent Auditors’ Report

Opinion

Basis for Opinion

Other Matter

Key Audit Matters

Description of key audit matter:

How the matter was addressed in our audit:

Description of key audit matter:

How the matter was addressed in our audit:

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

Auditor’s Responsibilities for the Audit of the Financial Statements

KPMG

Notes to Readers

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

Balance Sheets

December 31, 2017 and 2016

(Expressed in Thousands of New Taiwan Dollars)

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

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 and Report Originally Issued in Chinese) PRIMAX ELECTRONICS LTD.

Statements of Changes in Equity

For the years ended December 31, 2017 and 2016

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

Statements of Cash Flows

For the years ended December 31, 2017 and 2016

(Expressed in Thousands of New Taiwan Dollars)

Notes to the Financial Statements

For the years ended December 31, 2017 and 2016

(1) Company history

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

(3) New standards, amendments and interpretations adopted:

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(i) IFRS 9 “Financial Instruments”

－ 1) Classification Financial assets

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(ii) IFRS 15 Revenue from Contracts with Customers

1) Sales of goods

2) Transition

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(4) Summary of significant accounting policies:

(a) Statement of compliance

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(ii) Functional and presentation currency

(c) Foreign currencies

(i) Foreign currency transactions

(ii) Foreign operations

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

1) Available-for-sale financial assets

2) Loans and receivables

3) Impairment of financial assets

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(ii) Financial liabilities and equity instruments

1) Classification of debt or equity

2) Other financial liabilities

3) Derecognition of financial liabilities

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(iii) Derivative financial instruments

(g) Inventories

(h) Investments in subsidiaries

(i) Investment property

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(j) Property, plant and equipment

(i) Recognition and measurement

(ii) Reclassification to investment property

(iv) Depreciation

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(ii) Lessee

(l) Intangible assets

(m) Impairment of non-financial assets

Primax Annual Report 2017

`－` 1) Classification Financial assets