Primax - Annual Report 2016 | FinancialReports.eu

4915.TT

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Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd.

No.669, Ruiguang Rd., Neihu Dist., Taipei City 114, Taiwan (R.O.C.) Tel: +886-2-2798-9008

www.primax.com.tw

H u m a n M a c h i n e I n t e r f a c e E x p e r t

1. Names, titles, telephone numbers and e-mail addresses of the Spokesperson and Deputy Spokesperson: Spokesperson: Sean Lin / Title: Special Assistant to the Chairman / Telephone: +886-2-2798-9008 / E-mail: [email protected] Deputy Spokesperson: Cherryie Chen / Title: Investor Relation Manager / Telephone: +886-2-2798-9008 / E-mail: [email protected]

2. Registered address and telephone of corporate headquarters

Registered address of corporate headquarters: No. 669, Ruiguang Road, Neihu District, Taipei City / Telephone: +886-2-2798-9008

3. Name, address, website, and telephone number of share registration and transfer agent

Name: SinoPac Securities / Address: 3F, No. 17, Bo’ai Road, Zhongzheng District, Taipei City / Telephone: +886-2-2381-6288 Website: http://www.sinopac.com

Names of CPAs: YUNG-HUA HUANG, CHI-LUNG YU / Name of CPA firm: KPMG Taiwan Address: 68F., No.7, Section 5, Sinyi Road, Sinyi District, Taipei City / Telephone: +886-2-8101-6666 Website: http://www.kpmg.com.tw

5. Names of the exchanges in foreign countries where the stock of PRIMAX is listed for trading and the means for inquiry of the securities: None

6. Company website: http:// www.primax.com.tw

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I. Letter to Shareholders

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01
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2016 Financial Performance

2017 Business Strategy and Technology Developments

03

Establishment date

Company background

III. Corporate Governance Report

04 1. Organizational system

Profiles of the Directors, Supervisors, General Manager, Vice General Manager, Assistant General Manager, department heads, and branch officers 06
Profiles of the Remuneration to Directors, Supervisors, General Manager, and Vice General Managers in the most recent year 10

Corporate governance operation

CPAs fees

6. CPAs replacem ent

If the Company’s Chairman, General Manager, or any managerial officer in charge of finance or accounting matters has in the most recent year held a position at the accounting firm of its CPA or at an affiliated enterprise, their names, titles, and the service time with the accounting firms and affiliated enterprise should be disclosed 29
The change in equity transfer and equity pledge of the directors, supervisors, managers, and shareholders with over 10% shareholding in the most recent year and as of the printing date of the annual report

The Top-Ten shareholders who are related party mutually, or spouse, and relatives within the second degree of kinship
31
The stock shares of one invested business held by the Company, the Company’s directors, supervisors, and managers, and the business controlled by the Company directly or indirectly, and the consolidated shareholding ratio
32

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IV. Capital Overview

33
1. Capitalization 33 2. Composition of Shareholders 35 3. Distribution Profile of Share Ownership 36 4. List of Major Shareholders 36 5. Market price, net worth, earnings, and dividends per share within two （ 2 ） years and the related information 37
1. The Company’s dividend policy and its implementation 37 7. The impact of the stock dividend proposed in the shareholders’ meeting on the Company’s business performance and the earnings per share 38
1. Remuneration to employees, directors and supervisors 38 9. The Company’s buying back shares 39 10. The process of corporate bonds, preferred stock, and GDR 39
1. Employee stock warrant status 39 12. The process of new restricted employee shares 41 13. Stock acquisition or transfer from other companies with new shares issued 43
1. Fund plan and its execution 43
V. Operation overview 44 1. Business content 44 2. Market and production and sales overview 60 3. The number of staffs, average service years, average age and academic degree of staffs in the last two years and as of the printing date of the annual report 66
1. Environmental protection expenses information 66 5. Labor relations 67 6. Material Contracts 68

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status and financial performance, and risk management 69

69 70 71

Financial status 2. Financial performance
Cash flow
The impact of major capital expenditures on financial business in the most recent year

Investment policy in the most recent year, main reason for its profits or losses, improvement plan and the investment plans within the year

and the investment plans within the year 71 6. Risk analysis and evaluation 72 7. Other important events 75

VII. Special notes 76

Affiliated company’s information
The process of private placement in the most recent year and as of the printing date of the annual report

The disposition of the Company’s stock shares by the subsidiaries in the most recent year and as of the printing date of the annual report

82 82

Other supplementary information
The occurrence of the events affecting shareholders’ equity or securities price as defined in Article 36, Paragraph 3 Section 2 of Securities Exchange Act in the most recent year and as of the printing date of the annual report

VIII. Financial review 83 1. The condensed balance sheet and consolidated income statement of the last five years 84 2. The financial analysis of the last five years 86 3. The Audit Committee’s review report on the 2016 financial statements 88 4. The 2016 consolidated financial statements and notes had been audited by the CPAs 88

The 2016 Proprietary financial statements and notes had been audited by the CPAs

181

The impact of the financial difficulties of the Company and the affiliated companies, if any, on the Company’s financial position in the most recent year and as of the printing date of the annual report 264

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Dear shareholders,

2016 has been a year of challenge and opportunity to PRIMAX. In the wake of the declining growth in the PC peripherals industries under frail demand, PRIMAX could still make ceaseless effort in optimizing the products and upgrading related technologies and manufacturing process and could assist major customers to launch new products in the market of high competition. This contributed to the successful growth and transformation from PC to Non-PC business.

Tymphany, a subsidiary of PRIMAX in audio products, has demonstrated its strength in significant growth of revenue and profit in 2016 after years of hard work. In supporting the momentum of the growth in mobile device related business, the business beyond PC peripherals helped to contribute a bigger share of revenue and profit to PRIMAX.

PRIMAX furthered its effort in pushing product quality and yield rate to a higher standard and reinforcing related investment in process automation for better control of manufacturing cost and expenses so as to optimize the gross profit structure of products. In light of the importance of the research and development of new technologies and new products in the future, expenses have been incurred only for achieving the set objectives. As a result, PRIMAX again yielded positive operating results in 2016.

The Company’s 2016 business operation is reported as follows:

Primax Electronics Ltd. 2016 Annual Report

1. 2016 Financial Performance

（ 1 ） Financial Results

The consolidated revenues of Primax group in 2016 amounted to NT$64,329,462 thosuand, an increase of 1.25% over 2015. The consolidated net income in 2016 amounted to NT$2,048,662 thousand, an increase of 12.75% over 2015.

（ 2 ） Budget Execution

（ 3 ） Cash Flow Analysis

3）Ch Fl Ali
as ow nayss			Unit: NT$1,000
Item	2016	2015	Net change
Net cash infow（outfow）from operatingactivities	2,282,949	5,022,351	（2,739,402）
Net cash infow（outfow）from investingactivities	（731,991）	（1,974,604）	1,242,613
Net cash infow（outfow）from fnancingactivities	（2,615,165）	（2,227,894）	（387,271）

（ 4 ）

Unit: NT$1,000

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Item 2016 2015 （ restated ）
Return on Equity（%） 16.28 15.65
Operating Income to paid-in Capita（%） 53.68 47.75
Profit before tax to paid-in Capital（%） 62.53 54.80
Net Profit Margin（%） 3.18 2.86
Earnings per Share（NT$） 4.40 4.06
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（ 5 ） R&D Investments

Primax group spent NT$2,204,249 thousand on research and development in 2016. This investments were mainly for new product and new technology developments, as well as manufacturing process improvements, mainly automation.

2. 2017 Business Strategy and Technology Developments

PRIMAX has been successful for the last few years in its strategy of new technologies and new products, such as the touch technology, fingerprint module, backlight keyboard, cable/wireless audio, high-end camera modules packaging process. These are good examples that Primax could not only invest in key technologies but execute to translate these technologies into different applications that make financial sense and therefore contribute to revenue and profit growth.

opportunity in automotive electronic products based on its core technology in camera and audio.

The PC segment has long been a stable cash cow business. Since the market demand being saturated, the Company has to improve its production efficiency and product quality for existing products, and develops new products such as gaming peripherals, high-end trackpads, and other human machine interface for different applications with more complicated technology integration.

In the aspects of strategic and product planning development, the non-PC segment has performed well in 2016. We will keep abreast of the market trend and consumer demand proactively by aiming at the research and development of cloud technology, mobile devices, digital home and IoT and related application products, Such as the application of high-end camera module, duel camera, and the wireless audio products and headphones, so as to optimize the product portfolio and maximize the total return. The Company seeks to explore potential business

In sum, PRIMAX will continue its successful execution to expand market share and improve cost structure for existing product lines, and then extend the technologies to different applications and platforms albeit the change in the macroeconomic environment and the challenges from the competitors. In addition, PRIMAX will continue its management efforts and execution efficiency to achievesustainable growth in both revenues and profits.

Chairman: Liang, Li-Sheng General Manager: Yang, Hai-Hung

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1. Establishment date: March 20, 2006

2. Company background:

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日期大事記
March 2006 The company was approved to establish on March 20 2006. Formerly titled as Primax
Electronics Ltd., the company had initial capital of NT$1,000,000.
October 2007 The company was renamed as Primax Electronics Ltd.
December 2007 The company acquired PRIMAX Technology Co., Ltd.（hereinafter, former “PRIMAX”）.
The company remained the acquirer and former PRIMAX remained the acquiree.
The company renamed as PRIMAX Electronics Limited with Mr. Liang, Li-Sheng acted as
February 2008 the Chairman.
December 2009 IPO of the company shares.
December 2009 The company listed it stock for trading in the emerging stock market of Taiwan.
December 2009 The Board of Investment, MOEA, approved PRIMAX to invest for the establishment of
PRIMAX Kunshan Plant via a third place.
The Board of Investment, MOEA, approved PRIMAX to invest for the establishment of
February 2011 PRIMAX Chongqing Plant via a third place.
October 2012 PRIMAX successfully listed its stock for trading at TWSE.
October 2012 New capital of NT$235,290,000, raised by issuing new shares and made its stated
capital amounting to NT$4,269,698,210.
PRIMAX successfully acquired 70% of the equity shares issued by speaker manufacturer
January 2014 Tymphany Group and made registration of change in shareholding.
PRIMAX successfully acquired 30% of the equity shares issued by automobile and
January 2015 aerospace precision machinery manufacturer, GLOBALTEK.
October 2016 PRIMAX disposed 20% of the equity shares of GLOBALTEK, which ended the power of
control over GLOBALTEK.
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02 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report

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III. Corporate Governance
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1. Organizational system

（ 1 ） Organizational Structure

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Shareholders Meeting
Remuneration
Committee
Board of Directors
Audit
Committee
Chairman CSR Office
Audit Office
CEO
Investor Relations
PC Human
Global Legal Affairs and IT
Peripheral Intellectual Property Resources
Deployment Products Unit Rights Division Department Department
Non-PC Technology Quality Finance and
Peripheral R&D Assurance Administration
Products Unit Center Department Division
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China
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Japan
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USA
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（ 2 ） The business operations of each main department

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Department Main job responsibilities
1. Supervising the adequate presentation of the Company’s financial statements.
2. Supervising the commission (discharge) of the CPAs and their independence and
performance.
Audit Committee ’s internal control.
3. Supervising the effective implementation of the Company4. Supervising the Company’s compliance with the relevant laws and regulations.
5. Supervising the control of the Company’s existing or potential risks.
6. Supervising the performance of the Company’s internal audit department.
1. Enact the policy, system and standard and structure of remuneration to the directors
(including the Chairman), general manager, and vice general manager in accordance with the Company’s objectives, operational performance and competitive environment,
Remuneration and has it reviewed as required.
Committee 2. Periodically assess the operational performance of the chairman, general manager, and
vice general manager and approve the contents and amount of their respective salaries
and compensation.
3. Assess and approve the welfare standard of the general manager and vice general manager.
The CSR Office is established by the Chairman with the authorization of the Board of
Directors:
1. Responsible for enacting CSR policies, systems or related management approach
CSR Office 2. Assist each business and staff unit to promote and implement corporate social responsibility 3. Study domestic and foreign benchmark enterprisesprojects in response to the Company’s economic, environmental and social issues’ best practices of business
sustainable practices and provide advice and guidance to the relevant departments for practice in order to continue to strengthen the Company’s competitiveness of its
sustainable operations
Review and audit the implementation of the internal control system, and regularly report
it to the Board of Directors and management, and measure operational efficiency with
Audit Office recommendations for improvement suggested in a timely manner in order to ensure
effective implementation of the internal control system and to improve the effectiveness of
the overall organization
Investor Relations A spokesman system and operation, investor relations activities and opinions process,
external information disclosure, and media publishing and contact related business
1. Quality system planning and supervision
2. Design quality and technology upgrade
Quality Assurance
3. Product quality upgrade
Department
4. Customer complaints process and improvement
5. Employee quality training plan and implementation
Legal Affairs and
Intellectual Property Intellectual property rights management and legal affairs handling
Rights Division
Finance and
1. Dealing with accounting, finance, tax and shareholder service matters
Administration Division 2. Supporting project implementation and promotion matters
1. Employees and Human Resource Management
Human Resources 2. Salary and benefits management
3. Education and Training and Development
Department 4. General Affairs Services
5. Health and Safety Management
It is divided into PC peripheral products and non-PC peripheral products; also, each
business group is in charge of research and development and marketing.
‧ R&D:
Product Business New product research, design and development
Group New product project assessment, analysis and planning
New product manufacturing technology and document and data transfer
‧ Marketing
Product planning, marketing and market development
Technology Be responsible for the research, design and development of the core technology of all
R&D Center products.
1. Organize and plan the safety, implementation and system integration of the Company’s
electronic information
2. The enactment and maintenance of computerized information management system and
current manual processes analysis and future operating process design
3. The new application system planning and development and the function expansion and
IT Department update of the developed application system
4. User education and training and operational planning
5. Disaster recovery management planning and execution
6. Equipment Planning and Management
7. Computer operation management
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04 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report

2. Profles of the Directors, Supervisors, General Manager, Vice General Manager, Assistant General Manager, department heads, and branch ofcers （1）Directors and Supervisors Directors and Supervisors（I）	2. Profles of the Directors, Supervisors, General Manager, Vice General Manager, Assistant General Manager, department heads, and branch ofcers （1）Directors and Supervisors Directors and Supervisors（I）	2. Profles of the Directors, Supervisors, General Manager, Vice General Manager, Assistant General Manager, department heads, and branch ofcers （1）Directors and Supervisors Directors and Supervisors（I）	2. Profles of the Directors, Supervisors, General Manager, Vice General Manager, Assistant General Manager, department heads, and branch ofcers （1）Directors and Supervisors Directors and Supervisors（I）	2. Profles of the Directors, Supervisors, General Manager, Vice General Manager, Assistant General Manager, department heads, and branch ofcers （1）Directors and Supervisors Directors and Supervisors（I）	2. Profles of the Directors, Supervisors, General Manager, Vice General Manager, Assistant General Manager, department heads, and branch ofcers （1）Directors and Supervisors Directors and Supervisors（I）	2. Profles of the Directors, Supervisors, General Manager, Vice General Manager, Assistant General Manager, department heads, and branch ofcers （1）Directors and Supervisors Directors and Supervisors（I）	2. Profles of the Directors, Supervisors, General Manager, Vice General Manager, Assistant General Manager, department heads, and branch ofcers （1）Directors and Supervisors Directors and Supervisors（I）	2. Profles of the Directors, Supervisors, General Manager, Vice General Manager, Assistant General Manager, department heads, and branch ofcers （1）Directors and Supervisors Directors and Supervisors（I）	2. Profles of the Directors, Supervisors, General Manager, Vice General Manager, Assistant General Manager, department heads, and branch ofcers （1）Directors and Supervisors Directors and Supervisors（I）	2. Profles of the Directors, Supervisors, General Manager, Vice General Manager, Assistant General Manager, department heads, and branch ofcers （1）Directors and Supervisors Directors and Supervisors（I）	2. Profles of the Directors, Supervisors, General Manager, Vice General Manager, Assistant General Manager, department heads, and branch ofcers （1）Directors and Supervisors Directors and Supervisors（I）	2. Profles of the Directors, Supervisors, General Manager, Vice General Manager, Assistant General Manager, department heads, and branch ofcers （1）Directors and Supervisors Directors and Supervisors（I）								03. 31. 2017 / Unit: Shares / %	03. 31. 2017 / Unit: Shares / %	03. 31. 2017 / Unit: Shares / %	03. 31. 2017 / Unit: Shares / %	03. 31. 2017 / Unit: Shares / %	03. 31. 2017 / Unit: Shares / %	03. 31. 2017 / Unit: Shares / %	03. 31. 2017 / Unit: Shares / %	03. 31. 2017 / Unit: Shares / %	03. 31. 2017 / Unit: Shares / %	03. 31. 2017 / Unit: Shares / %	03. 31. 2017 / Unit: Shares / %	03. 31. 2017 / Unit: Shares / %
Title	Nationality or Place of Ritti	Name	Gender	Date Elected	Term （Years）	Date First Eltd	Shareholding when elected		Current shareholding		Spouse & Minor Shareholding		Shareholding by Nominee Arrangement			Main experience (education and degree)				Currently hold a position with the Company		Other ofcers, directors, or supervisors who are a spouse or a relative within the second degree of kinship
	egsraon					ece	Shares	%	Shares	%	Shares	%	Shares		%					and others		Title						Name				Relationship
Chairman	Republic of China	Liang, Li-Sheng	Male	06.29.2015	3 years	10.23.2009 （Note 8）	1,500,001	0.34	1,500,001	0.34	0	0	0		0	Department of Business Administration, Tamkang University Chairman of Primax Electronics Ltd.				Note 1		Director/ General Manager						Yang, Hai-Hung				In-law
Director / General Manager	Republic of China	Yang, Hai-Hung	Male	06.29.2015	3 years	10.23.2009 （Note 8）	1,962,465	0.45	1,812,465	0.41	0	0	0		0	Master of Mechanical Engineering, University of Texas, USA General Manager of Products Division of PRIMAX				Note 2		Chairman						Liang, Li-Sheng				In-law
Director	Republic of China	Yang, Chi-Ting	Male	06.29.2015	3 years	03.11.2011	1,926,963	0.44	1,926,963	0.43	1,900,962	0.43	0		0	MBA, University of Southern California, USA Chailease HoldingCompanyLimited Chief Auditor				Note 3		－						－				－
Director	Republic of China	Pan, Yung-Chung	Male	06.29.2015	3 years	09.05.2014	8,291,046	1.89	8,264,046	1.86	0	0	0		0	Department of Electronics, Feng Chia University General Manager of Business Department of PRIMAX				Note 4		Director / General Manager of Business Department						Pan Yung-Tai				Brothers
Director / General Manager of Business Department	Republic of China	Pan, Yung-Tai	Male	06.29.2015	3 years	09.05.2014	4,617,987	1.05	4,668,599	1.05	815,517	0.18	0		0	Department of Mechanical Engineering, Chung Yuan Christian University General Manager of Business Department of PRIMAX				Note 5		Director						Pan, Yung-Chung				Brothers
Director / Vice General Manager	Republic of China	Tsao, Chung-Feng	Male	06.29.2015	3 years	06.29.2015	3,078,651	0.70	3,212,651	0.72	406,586	0.09	0		0	EMBA, National Taiwan University PRIMAX Vice General Manager				None		－						－				－
Independent Director	Republic of China	Ku, Tai-Chao	Male	06.29.2015	3 years	03.30.2010	0	0	0	0	0	0	0		0	Bachelor of Law, National Taiwan University Vice President of Taiwan Stock Exchange Corporation				None		－						－				－
Independent Director	Republic of China	Wei, Yung-Tu	Male	06.29.2015	3 years	06.29.2015	500,000	0.11	620,000	0.14	0	0	1,000,000		0.22	MBA, University of Georgia USA President of Deloitte & Touche				Note 6		－						－				－
Independent Director	Republic of China	Cheng, Chih-Kai	Male	06.29.2015	3 years	06.29.2015	0	0	0	0	0	0	0		0	Department of Management Science, National Chiao Tung University, Senior Vice President of Synnex USA				Note 7		－						－				－
														Directors		and Supervisors（II）																03.31.2017
														Conditions Name			Whether meet one of the following professional qualifcation requirements together with at least fveyears of work experience?				Meet the independence criteria (Note)										Number of other public companies in which the individual is concurrently serving as an Independent Director
																	An instruction or higher position in a Department of Commerce, Legal Afairs, Finance, Accounting, or Other Academic Department related to the business needs of the Company in a Public or Private Junior College, College or University	A Judge, Public Prosecutor, Attorney, Certifed Public Accountant, or Other Professional or Technical Specialist who has passed a national examination and been awarded a Certifcate in a profession necessary for the business of the Company	With work experience in the areas of commerce, legal afairs, fnance, or accounting, or otherwise necessary for the business of the Company		1	2	3	4	5	6	7	8	9	10
														Liang, Li-Sheng			－－ＶＶＶＶＶＶＶ 0
														Yang, Hai-Hung			－－ＶＶＶＶＶＶＶ 0
														Yang, Chi-Ting			－－ＶＶＶＶＶＶＶＶＶＶＶ 0
														Pan, Yung-Tai			－－ＶＶＶＶＶＶ 0
														Pan, Yung-Chung			－－ＶＶＶＶＶＶ 0
														Tsao, Chung-Feng			－－ＶＶＶＶＶＶＶＶＶＶ 0
														Ku, Tai-Chao			－－ＶＶＶＶＶＶＶＶＶＶＶ 0
														Wei, Yung-Tu			－ＶＶＶＶＶＶＶＶＶＶＶＶ 3
														Cheng,Chih-Kai			－－ＶＶＶＶＶＶＶＶＶＶＶ 0

（ 1 ） Directors and Supervisors

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Whether meet one of the following professional qualification Meet the independence criteria Number of
requirements together with at least five years of work experience? (Note) other public
Conditions An instruction or higher position A Judge, Public Prosecutor, Attorney, With work experience in companies
Legal Affairs, Finance, Accounting, in a Department of Commerce, Other Professional or Technical Certified Public Accountant, or the areas of commerce, legal affairs, finance, in which the individual is
or Other Academic Department Specialist who has passed a national or accounting, or 1 2 3 4 5 6 7 8 9 10 concurrently
Name related to the business needs of examination and been awarded a otherwise necessary serving as an
Junior College, College or Universitythe Company in a Public or Private Certificate in a profession necessary for the business of the Company for the business of the Company Independent Director
Liang, Li-Sheng －－ＶＶＶＶＶＶＶ 0
Yang, Hai-Hung －－ＶＶＶＶＶＶＶ 0
Yang, Chi-Ting －－ＶＶＶＶＶＶＶＶＶＶＶ 0
Pan, Yung-Tai －－ＶＶＶＶＶＶ 0
Pan, Yung-Chung －－ＶＶＶＶＶＶ 0
Tsao, Chung-Feng －－ＶＶＶＶＶＶＶＶＶＶ 0
Ku, Tai-Chao －－ＶＶＶＶＶＶＶＶＶＶＶ 0
Wei, Yung-Tu －ＶＶＶＶＶＶＶＶＶＶＶＶ 3
Cheng, Chih-Kai －－ＶＶＶＶＶＶＶＶＶＶＶ 0
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（2） Not a director or supervisor of the Company’s affiliates （The same does not apply, however, if the person is an independent director of the Company, its parent company, or of the parent company and established in accordance of applicable domestic laws or the laws of the host countries）.
（3） Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under someone else’s name（s）, in an aggregate amount of 1% or more of the total number of outstanding shares of the Company or ranking in the top 10 in holdings.
（5） Not a director, supervisor, or employee of an institutional shareholder that directly holds 5% or more of the total number of outstanding shares of the Company or that holds shares ranking in the top five （5） in holdings.
（7） Not a professional individual or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that provides commercial, legal affairs, financial, accounting services, or consultation to the Company or to any affiliate of the Company, or a spouse thereof. This rule shall be waived for members of the remuneration committee established by companies listed in TWSE or Gre Tai Securities Market who perform the function of the committee in accordance with Article VII of the Regulations Governing the Appointment and Exercise of Powers by the Remuneration Committee of a Company Whose Stock is Listed on the Stock Exchange or Traded Over the Counter.

（2）Profiles of the General Manager, Vice General Manager, Assistant General Manager, department heads, and branch ofcers	（2）Profiles of the General Manager, Vice General Manager, Assistant General Manager, department heads, and branch ofcers	（2）Profiles of the General Manager, Vice General Manager, Assistant General Manager, department heads, and branch ofcers	（2）Profiles of the General Manager, Vice General Manager, Assistant General Manager, department heads, and branch ofcers	（2）Profiles of the General Manager, Vice General Manager, Assistant General Manager, department heads, and branch ofcers	（2）Profiles of the General Manager, Vice General Manager, Assistant General Manager, department heads, and branch ofcers	（2）Profiles of the General Manager, Vice General Manager, Assistant General Manager, department heads, and branch ofcers	（2）Profiles of the General Manager, Vice General Manager, Assistant General Manager, department heads, and branch ofcers	（2）Profiles of the General Manager, Vice General Manager, Assistant General Manager, department heads, and branch ofcers					03.31.2017; Unit: share; %	03.31.2017; Unit: share; %	03.31.2017; Unit: share; %
Title	Nationality	Name	Gender	Date Elected	Shareholding		Spouse & Minor Shareholding		Shareholding by Nominee Arrangement		Main experience （education and degree）	Currently serving duties at other	Manager who is the spouse or a relative within the second degree of kinship
					Shares	%	Shares	%	Shares	%		company	Title	Name	Relationship
Director / General Manager	Republic of China	Yang, Hai-Hung	Male	07.02.2010	1,812,465	0.41	0	0	0	0	Master of Mechanical Engineering, University of Texas, USA General Manager of Products Department of PRIMAX	Note 1	－	－	－
Director / General Manager of Business Department	Republic of China	Pan, Yung-Tai	Male	12.28.2007 （note 7）	4,668,599	1.05	815,517	0.18	0	0	Department of Mechanical Engineering, Chung Yuan Christian University General Manager of Business Department of PRIMAX	Note 2	－	－	－
Director / Vice General Manager	Republic of China	Tsao, Chung- Feng	Male	12.28.2007 （note 7）	3,212,651	0.72	406,586	0.09	0	0	EMBA, National Taiwan University Vice General Manager of PRIMAX	None	－	－	－
Senior Vice General Manager	Republic of China	Hsiao, Ying-Yee	Male	09.19.2016	0	0	0	0	0	0	Swiss Business School EMBA CFO of CMC Magnetics co., Ltd.	None	－	－	－
Vice General Manager	Republic of China	Chou, Yen-Chou	Male	01.17.2011	492,000	0.11	0	0	0	0	Doctoral of Industrial Engineering, University of Cincinnati USA Senior Assistant General Manager of Operations, Hon Hai Group	Note 3	－	－	－
Vice General Manager	Republic of China	Lee, Chiu- Sheng	Male	10.01.2014	510,000	0.11	42,000	0.01	0	0	Department of Industrial Engineering, National Tsing Hua University FOXCONN VP Operations	Note 4	－	－	－
Vice General Manager	Republic of China	Chiang, Yan-Ying	Female	04.01.2015	626,606	0.14	0	0	0	0	Department of Labor Relations, Chinese Culture University; EMBA, National Chengchi University PRIMAX Senior Assistant General Manager	None	－	－	－
Vice General Manager	Republic of China	Chang, Ching-Kai	Male	04.01.2015	646,203	0.15	0	0	0	0	Department of Information Engineering, Tamkang University PRIMAX Senior Assistant General Manager	None	－	－	－
Vice General Manager	Republic of China	Chang, Yao-Han	Male	10.07.2015	139,000	0.03	0	0	0	0	Graduate Institute of International Afairs and Strategic Studies, Tamkang University PRIMAX Senior Assistant General Manager	None	－	－	－
Vice General Manager	Republic of China	Wei, Hao-San	Male	10.07.2015	409,732	0.09	10,000	0.002	0	0	Electrical Engineering Institute, California State University, Long Beach（USA） PRIMAX Senior Assistant General Manager	Note 5	－	－	－
Vice General Manager	Republic of China	Chuo, Yu-Shan	Male	01.01.2017	0	0	0	0	0	0	EMBA, NCCU General Manger, Automotive Electronics Division, Quanta Storage Inc.	None	－	－	－
Assistant General Manager	Republic of China	Pan, Yen-Jen	Male	12.05.2013	24,000	0.005	0	0	0	0	Department of Accounting, Soochow University Assistance General Manager, Auditing Services, PwC Taiwan	Note 6	－	－	－

（ 2 ） Profiles of the General Manager, Vice General Manager, Assistant General Manager, department heads, and branch officers
Note 4 : Dongguan PRIMAX Electronic Telecommunication Products Co., Ltd. Director and General Manager, Primax Electronic（Kunshan）Co., Ltd. General Manager, and Primax Electronics（Chongqing）Corp. Ltd. General Manager.
Note 5 : Destiny Technology（Japan）Corporation Director, Beijing Destiny Electronic Technology Corporation General Manager,

3. Profles of the Remuneration to Directors, Supervisors, General Manager, and Vice General Managers in the most recent year: （1）Remuneration to Directors in the most recent year（2016）	3. Profles of the Remuneration to Directors, Supervisors, General Manager, and Vice General Managers in the most recent year: （1）Remuneration to Directors in the most recent year（2016）	3. Profles of the Remuneration to Directors, Supervisors, General Manager, and Vice General Managers in the most recent year: （1）Remuneration to Directors in the most recent year（2016）	3. Profles of the Remuneration to Directors, Supervisors, General Manager, and Vice General Managers in the most recent year: （1）Remuneration to Directors in the most recent year（2016）	3. Profles of the Remuneration to Directors, Supervisors, General Manager, and Vice General Managers in the most recent year: （1）Remuneration to Directors in the most recent year（2016）	3. Profles of the Remuneration to Directors, Supervisors, General Manager, and Vice General Managers in the most recent year: （1）Remuneration to Directors in the most recent year（2016）	3. Profles of the Remuneration to Directors, Supervisors, General Manager, and Vice General Managers in the most recent year: （1）Remuneration to Directors in the most recent year（2016）	3. Profles of the Remuneration to Directors, Supervisors, General Manager, and Vice General Managers in the most recent year: （1）Remuneration to Directors in the most recent year（2016）	3. Profles of the Remuneration to Directors, Supervisors, General Manager, and Vice General Managers in the most recent year: （1）Remuneration to Directors in the most recent year（2016）	3. Profles of the Remuneration to Directors, Supervisors, General Manager, and Vice General Managers in the most recent year: （1）Remuneration to Directors in the most recent year（2016）				Unit: NT$1,000 / 1,000 shares	Unit: NT$1,000 / 1,000 shares	Unit: NT$1,000 / 1,000 shares	Unit: NT$1,000 / 1,000 shares	Unit: NT$1,000 / 1,000 shares	Unit: NT$1,000 / 1,000 shares	Unit: NT$1,000 / 1,000 shares	Unit: NT$1,000 / 1,000 shares	Unit: NT$1,000 / 1,000 shares	Unit: NT$1,000 / 1,000 shares	Unit: NT$1,000 / 1,000 shares	Unit: NT$1,000 / 1,000 shares	Unit: NT$1,000 / 1,000 shares	Unit: NT$1,000 / 1,000 shares	Unit: NT$1,000 / 1,000 shares
Title	Name	Remuneration to Directors								Ratio of total			Relevant Remuneration Received by Directors Who are Also Employees											Ratio of total remuneration （A+B+C+D+E+F+G） to net income（%）（Note 1）			Compensation Paid to Directors from an Invested Company Other than the Company’s Subsidiary
		Base Compensation （A）（Note 4）		Pension （B）		Compensation to Directors（C）（Note 2）（Note 5）		Bonus to Directors （D）（Note 6）		remuneration （A+B+C+D）to net income（%）（Note 1）			Salary, Bonuses and Allowances （E）		Pension （F）			Proft Sharing- Employee Bonus（G）（Note 3）
		The	All	The	All	The	All	The	All	The		All	The	All	The		All	The Company			All Consolidated Entities			The Company	All Consolidated Entities
		Company	Consolidated Entities	Company	Consolidated Entities	Company	Consolidated Entities	Company	Consolidated Entities	Company		Consolidated Entities	Company	Consolidated Entities	Company		Consolidated Entities	Cash Stock			Cash Stock
Chairman	Liang, Li-Sheng	12,361	12,361	0	0	3,110	3,110	0	0	0.8		0.8	0	0		0	0	0		0	0	0		0.8	0.8		0
Director / General Manager	Yang, Hai-Hung	0	0	0	0	33,690	33,690	725	725	1.78		1.78	43,200	43,200		0	0	0		0	0	0		4.01	4.01		0
Director	Yang, Chi-Ting
Director	Pan, Yung-Chung
Director / General Manager of Business Department	Pan, Yung-Tai
Director / Vice General Manager	Tsao, Chung-Feng
Independent Director	Ku, Tai-Chao
Independent Director	Wei, Yung-Tu
Independent Director	Cheng, Chih-Kai

											Range of remuneration paid to each director of the Company							Name of director
																Total remuneration paid （A+B+C+D）							Total remuneration paid （A+B+C+D+E+F+G）
																The Company			All Consolidated Entities				The Company			All Consolidated Entities
											Less than NT$2,000,000					－			－				－			－
											NT$2,000,000（inclusive）~ NT$5,000,000（exclusive）					Yang, Hai-Hung Pan, Yung-Tai Pan, Yung-Chung Tsao, Chung-Feng Yang, Chi-Ting Wei, Yung-Tu			Yang, Hai-Hung Pan, Yung-Tai Pan, Yung-Chung Tsao, Chung-Feng Yang, Chi-Ting Wei, Yung-Tu				Yang, Chi-Ting Wei, Yung-Tu			Yang, Chi-Ting Wei, Yung-Tu
											NT$5,000,000（inclusive）~ NT$10,000,000（exclusive）					Ku, Tai-Chao Cheng, Chih-Kai			Ku, Tai-Chao Cheng, Chih-Kai				Pan, Yung-Chung Tsao, Chung-Feng Ku, Tai-Chao Cheng, Chih-Kai			Pan, Yung-Chung Tsao, Chung-Feng Ku, Tai-Chao Cheng, Chih-Kai
											NT$10,000,000（inclusive）~ NT$15,000,000（exclusive）					－			－				－			－
											NT$15,000,000（inclusive）~ NT$30,000,000（exclusive）					Liang, Li-Sheng			Liang, Li-Sheng				Liang, Li-Sheng Yang, Hai-Hung Pan, Yung-Tai			Liang, Li-Sheng Yang, Hai-Hung Pan, Yung-Tai
											NT$30,000,000（inclusive）~ NT$50,000,000（exclusive）					－			－				－			－
											NT$50,000,000（inclusive）~ NT$100,000,000（exclusive）					－			－				－			－
											NT$100,000,000 and more					－			－				－			－
											Total					9			9				9			9

（ 1 ） Remuneration to Directors in the most recent year （ 2016 ）

（ 2 ） Remuneration to General Manager and Vice General Manager in the most recent year （ 2016 ）

Unit: NT$1,000 / 1,000 shares

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Ratio of total
Profit Sharing-
Salary Pension Bonuses andAllowances Employee Bonus remuneration （ A+B+C+D ）
（ A ）（ B ）
（ C ）（ D ） to net income
（ Note 1 ）（ % ）（ Note 2 ） Compensation
Paid to
Directors from
an Invested
Title Name
Company
Other than the
Company’s
Subsidiary
Director / Yang,
General Manager Hai-Hung
Director / General
Pan,
Manager of Business
Department （Note 3） Yung-Chung
Director / General
Pan,
Manager of Business
Yung-Tai
Department
Senior Vice General Lee,
Manager （Note 4） Yi-Ping
Director / Vice General Tsao,
Manager Chung-Feng
Chou,
Vice General Manager Yen-Chou
38,451 39,713 0 0 55,063 55,063 0 0 0 0 4.84% 4.90% None
Vice General Manager Liu,
（Note 5） Chia-Lun
Lee,
Vice General Manager
Chiu-Sheng
Chiang,
Vice General Manager
Yan-Ying
Chang,
Vice General Manager
Ching-Kai
Wei,
Vice General Manager Hao-San
Chang,
Vice General Manager Yao-Han
Senior Vice General Hsiao,
Manager （Note 6） Ying-Yee
All
Entities
The Company Consolidated
The Company The Company The Company The Company
Cash Stock Cash Stock
All Consolidated Entities All Consolidated Entities All Consolidated Entities All Consolidated Entities
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Note 1 : Refers to the earnings distribution proposal in the most recent year（2016）resolved by the Board of Directors（03.07.2017）for an amount of NT$74,000 Thousand to be distributed as cash dividend to employees. The employee bonus to General Manager and Vice General Manager had not yet been discussed by the Remuneration Committee as of the printing date of the annual report; therefore, the cash dividend is distributed in current year proportionally to the amount distributed last year.

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Note 2 : The net income of the Company in 2016 amounted to NT$1,934,070 thousand.
Note 3 : Pan, Yung-Chung retired from the general manager of the business department on 12.31.2016.
Note 4 : Lee, Yi-Ping resigned on 08.31.2016.
Note 5 : Liu, Chia-Lun resigned on 06.30.2016.

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Range of remuneration paid to each General Name of General Manager and Vice General Manager
Manager and Vice General Manager of the Company The Company All Consolidated Entities
Liu, Chia-Lun Liu, Chia-Lun
Less than NT$2,000,000
Hsiao, Ying-Yee Hsiao, Ying-Yee
NT$2,000,000（inclusive）~
NT$5,000,000 （not inclusive） Tsao, Chung-Feng Tsao, Chung-Feng
Lee, Chiu-Sheng Lee, Chiu-Sheng
Pan, Yung-Chung Pan, Yung-Chung
Chang Yao-Han Chang, Yao-Han
NT$5,000,000（inclusive）~
NT$10,000,000 （not inclusive） Chiang, Yan-Ying Chiang, Yan-Ying
Chang, Ching-Kai Chang, Ching-Kai
Lee, Yi-Ping Lee, Yi-Ping
Chou, Yen-Chou Chou, Yen-Chou
NT$10,000,000（inclusive）~ Pan, Yung-Tai Pan, Yung-Tai
NT$15,000,000 （not inclusive） Wei, Hao-San Wei, Hao-San
NT$15,000,000（inclusive）~
NT$30,000,000 （not inclusive） Yang, Hai-Hung Yang, Hai-Hung
NT$50,000,000 NT$30,000,000（（not inclusiveinclusive）~）－－
NT$100,000,000 NT$50,000,000（（not inclusiveinclusive）~ ）－－
－－
NT$100,000,000 and more
Total 13 13
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（ 3 ） Name of the managers receiving remuneration to employees in the most recent year （ 2016 ） and the distribution implemented.

Unit: NT$1,000 / 1,000 shares

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Stock Cash Ratio of total amount
Title Name amount amount Total to net income
（ Note 1 ）（ Note 1 ）（ % ）（ Note 2 ）
Director / General Manager Yang, Hai-Hung
General Manager of Business Department
（Note 3） Pan, Yung-Chung
General Manager of Business Department Pan, Yung-Tai
Dirctor / Vice General Manager Tsao, Chung-Feng
Senior Vice General Manager（Note 4） Lee, Yi-Ping
Vice General Manager Chou, Yen-Chou
Vice General Manager（Note 5） Liu, Chia-Lun －－－ 0%
Vice General Manager Lee, Chiu-Sheng
Vice General Manager Chiang, Yan-Ying
Vice General Manager Chang, Ching-Kai
Vice General Manager Wei, Hao-San
Vice General Manager Chang, Yao-Han
Senior Vice General Manager（Note 6） Hsiao, Ying-Yee
Assistant General Manager Pan,Yen-Jen
Managers
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Note 1 : Refers to the earnings distribution proposal in the most recent year（2016）resolved by the Board of Directors（03.07.2017）for an amount of NT$74,000 thousand to be distributed as cash dividend to employees. The employee bonus to General Manager and Vice General Manager had not yet been discussed by the Remuneration Committee as of the printing date of the annual report; therefore, the cash dividend is distributed in current year proportionally to the amount distributed last year.

Note 2 : The net income of the Company in 2016 amounted to NT$1,934,070 thousand.

Note 3 : Pan, Yung-Chung retired from the general manager of the business department on 12.31.2016. Note 4 : Lee, Yi-Ping resigned on 08.31.2016.

Note 5 : Liu, Chia-Lun resigned on 06.30.2016.

12 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report

（ 4 ） The ratio analysis of total remuneration paid by the Company and by all companies included in the consolidated financial statements for the most recent two fiscal years to directors, supervisors, general manager, and vice general manager of the Company to the net income in the proprietary or independent financial report; in addition, the policies, standards, and portfolios for the payment of remuneration, the procedures for determining remuneration, and the correlation with business performance and future risk.
The ratio analysis of total remuneration paid by the Company and by all companies included in the consolidated financial statements for the most recent two fiscal years to directors, supervisors, general manager, and vice general manager of the Company to the net income in the proprietary or independent financial report:

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Ratio of total remuneration to net income （ loss ）
Identity 2015 2016
The Company Consolidation The Company Consolidation
Director 4.78% 4.78% 4.81% 4.81%
Supervisors 0.19% 0.19% N/A N/A
General Manager / Vice General Manager 6.48% 6.57% 4.84% 4.90%
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The policies, standards, and portfolios for the payment of remuneration, the procedures for determining remuneration, and the correlation with business performance:
(1) The Company’s remuneration to Directors includes directors’ compensation. Remuneration to Directors is distributed by the Company’s annual profit, if applicable, with less than two percent appropriated as remuneration to directors in accordance with the Articles of Association, resolved by the Remuneration Committee, proposed to the Board of Directors and resolved by the shareholders’ meeting. Remuneration to chairman is proposed by Human Resource Department taking the competitive environment and operating risk into consideration and complying with the corporate management policy and bonus plan, approved by the Remuneration Committee assessing the performance of chairman, and resolved by the Board of Directors.
(2) The remuneration to the General Manager and Vice General Manager is defined by the job position held, the operating scale, the competitive environment, the industry standard, the performance goal, and risks in the future, and proposed by Human Resource Department taking the competitive environment and operating risk into consideration and complying with the corporate management policy and bonus plan, approved by the Remuneration Committee assessing the performance of chairman, and resolved by the Board of Directors.

4. Corporate governance operation

（ 1 ） Board of Directors operation:

The attendance of the directors and supervisors for the 10 Board meetings （ A ） held by the Company as of the printing date of the annual report （ 8 meetings in 2016 and 2 meetings in 2017 ） as follows:

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Attendance Attendance Rate （ % ）
Title Name By Proxy Remark
in Person [B] [B/A]
Chairman Liang, Li-Sheng 10 0 100 —
Director Yang, Hai-Hung 10 0 100 —
Director Yang, Chi-Ting 9 1 90 —
Director Pan, Yung-Tai 8 2 80 —
Director Pan, Yung-Chung 8 2 80 —
Director Tsao, Chung-Feng 10 0 100 —
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Attendance Attendance Rate （ % ）
Title Name By Proxy Remark
in Person[B] [B/A]
Independent Director Ku, Tai-Chao 9 1 90 —
Independent Director Wei, Yung-Tu 10 0 100 —
Independent Director Cheng, Chih-Kai 8 2 80 —
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Other mandatory notes:

I. If any of the following applies to the operation of the Board, specify the date, the session, the content of the motion, the opinions of independent directors, and the responses to the opinions of the independent directors:
（1） Particulars inscribed in Article 14, Paragraph 3 of the Securities and Exchange Act：As of the printing date of the annual report, the resolutions of the Board of Directors of the Company were approved by all the attendees.
（2） Further to the aforementioned issues, other resolutions of the Board with adverse opinions or qualified opinions from the independent directors on records or written declaration：None.
the names of the Directors, the content of the motions, the reasons for the avoiding the conflict of interests and the voting are specified below:
（1） For Motion No. 1 discussed in the Board on January 25, 2016 on bonus to the senior management in 2015, Director Yang, Hai-Hung, Pan, Yung-Tai, Pan, Yung-Chung and Tsao, Chung-Feng were parties related to the motion and had themselves excused from the discussion and voting on the motion to avoid the conflict of interest. For Motion No. 2 discussed on the same day regarding bonus to the Chairman in 2015, the Chairman is a party related to the motion and had himself excused from the discussion and voting of the motion for avoiding a conflict of interest.
（2） For Motion No. 5 discussed in the Board on March 24 2016 on the amendment to the “Regulations Governing the Remuneration to the Chairman” of the Company, the Chairman is a party related to the motion and was excused from the discussion and voting on the motion for avoiding a conflict of interest. Motion No. 6 on the amendment to the “Regulations Governing the Remuneration to Managers”, Director Yang, Hai-Hung; Pan, Yung-Tai, and Pan, YungChung , and Tsao, Chung-Fen were parties related to the motion, and had themselves excused from the discussion and voting on the motion. Motion No. 7 discussed on the same day on the adjustment of salaries to senior officers in 2016 and Motion No. 8 on the bonus to senior management and key officers in 2016, Director Yang, Hai-Hung; Pan, Yung-Tai, and Pan, Yung-Chung , and Tsao, Chung-Fen were parties related to the motions, and had themselves excused from the discussion and voting on the motions for avoidance of a conflict of interest. For Motion No. 9 discussed on the same day regarding the performance standard and bonus to the Chairman in 2016, the Chairman is a party related to the motion and had himself excused from the discussion and voting of the motion for avoiding a
（3） For Motion No. 1 discussed by the Board on January 23 2017 regarding bonus to the senior officers in 2016, Director Yang, Hai-Hung; Pan, Yung-Tai, and Pan, Yung-Chung , and Tsao, Chung-Fen were parties related to the motions, and had themselves excused from the discussion and voting on the motions for avoidance of a conflict of interest. For Motion No. 2 discussed on the same day regarding bonus to the Chairman in 2016, the Chairman is a party related to the motion and had himself excused from the discussion and voting of the motion for avoiding a conflict of interest. For Motion No. 3 discussed on the same day regarding remuneration to employees in 2016, Director Yang, Hai-Hung; Pan, Yung-Tai, were parties related to the motion, and had themselves excused from the discussion and voting on the motion for avoidance of a conflict of interest. For Motion No. 4 discussed on the same day regarding the initial offering of RS for employees, Director Yang, Hai-Hung; Pan, Yung-Tai, were parties related to the motion, and had themselves excused from the discussion and voting on the motion for avoidance of a conflict of interest.
（4） For Motion No. 4 discussed on the Board on March 7 2017 regarding the adjustment of salaries for senior officers in 2017, Director Yang, Hai-Hung; Pan, Yung-Tai, and Tsao, Chung-Feng were parties related to the motions, and had themselves excused from the discussion and voting on the motions for avoidance of a conflict of interest. For Motion No. 5 discussed on the same day regarding bonus to senior management and key officers in 2017, Director Yang, Hai-Hung; Pan, Yung-Tai, and Tsao, Chung-Feng were parties related to the motions, and had themselves excused from the discussion and voting on the motions for avoidance of a conflict of interest. For Motion No. 6 regarding the performance standard and bonus to the Chairman in 2017, the Chairman is a party related to the motion and had himself excused from the discussion and voting of the motion for avoiding a conflict of interest.
III. The objective of enhancing the functions of the Board of Directors （such as, setup an Audit Committee, enhance the transparency of information, etc.） in current year and in the most recent year, and the assessment of its implementation.）
The objective of enhancing the functions of the Board of Directors
（1） The Company’s Board of Directors had resolved on January 12, 2011 to have the Remuneration Committee setup. The Remuneration Committee members were appointed in accordance with Article 5 of the Company’s “Remuneration Committee Charter”. The Remuneration Committee under the Board of Directors is aimed to strengthen the function of the Board of Directors.
（2） The Company’s Board of Directors had resolved on July 7, 2015 to have the Audit Committee setup. The Audit Committee members were appointed in accordance with Article 4 of the Company’s “Audit Committee Charter”. The Audit Committee under the Board of Directors is aimed to strengthen the function of the Board of Directors.
（3） Substantiate corporate governance and improve information transparency: the Board of Directors is operated in accordance with the “Rules of Procedure for Board of Directors Meetings”. The Company’s board meeting is convened in accordance with the “Rules of Procedure for Board of Directors Meetings” adequately.
（4） Advanced study of directors and supervisors: The Company arranges advanced studies for directors and supervisors to help them obtain necessary information conveniently in order to maintain their core values and professional strengths and abilities.
Assessment of the execution: The Company upholds the principle of transparent operation to have important resolutions published on the MOPS after the board meeting in order to protect the interests of shareholders.

14 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report

（ 2 ） The operation of the Audit Committee or the Supervisors ’ participating in the Board of Directors operation:

The Company’s Audit Committee is with three members appointed. The tenure of the current term is from July 7, 2015 to July 6, 2018.
There were 7 Audit Committee meetings （ A ） held in 2016 with the attendance of the Independent Directors as follows:

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Title Name Actual number of meeting Actual attendance rate Remark
attended in person （ B ）（ % ）（ B/A ）
Independent Director Ku, Tai-Chao 7 100 —
Independent Director Wei, Yung-Tu 7 100 —
Independent Director Cheng, Chih-Kai 5 71 —
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Other mandatory notes:

I. If any of the following applies to the operation of the Audit Committee, specify the date, the session, the content of the motions, the resolution of the Audit Committee, and responses to the opinions of the Audit Committee.
（1） Particulars inscribed in Article 14, Paragraph 5 of the Securities and Exchange Act: As of the printing date of the annual report, the resolutions of the Company’s Audit Committee were approved by all the attendees.
（2） Further to the aforementioned issues, other motions not passed by the Audit Committee but resolved at the consent of more than two-thirds of the Directors: None.
name of the Independent Director, the content of the motion, causes for avoiding conflicts of interest, and voting scenario should be detailed as follows: None.

III. The communication among the Independent Directors, Internal Auditor, and CPAs:

（1） The Company’s Internal Auditor communicates with the Independent Directors on the audit findings in the meetings of the Audit Committee regularly and reports on the implementation of internal audit and the follow-up with defects detected in the audits. In the meetings, the committee requires that the level of risk shall be specified in the audit report and report on the outcome of internal audit on the risk attribute inherent to the operation cycle. Recommendations prescribed the Independent Directors shall be executed at once. The Company’s Audit Committee has a good communication with the Internal Auditor in the conduct of internal audits.
（2） The Company’s contracted CPAs report financial statements auditing or audit result and other mandatory communicating matters in the Article Committee on a quarterly basis; in addition, report any special events to the Audit Committee promptly. There had not any special event referred to above occurred in 2016. The Company’s Audit Committee has a good communication with the contracted CPAs.
（ 3 ） How does the Company’s corporate governance differ from the “Corporate Governance Best-Practice Principles for TWSE/GTSM Listed Companies” and its root cause?

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How does the Company’s corporate Operation governance differ from the “Corporate Assessment items Governance Best-Practice Principles Yes No Summary for TWSE/GTSM Listed Companies” and its root cause? The Company has the “Corporate Governance BestHas the Board of Directors had the diversification Practice Principles” enacted; also, the diversification of policy defined and implemented for the sake of Ｖ the board directors is stated in Article 20. The Company the directors? will have the election of board directors implemented in accordance with the Principles. Has the Company, in addition to the The Company will have other functional committee Remuneration Committee and Audit Committee, Ｖ setup in the future depending on the needs of the actual voluntarily setup other functional committee? operation. Has the Company enacted the “Rules Governing The Company has enacted the Performance Evaluation of the Board of Directors“Rules Governing the ” and the Performance Evaluation of the Board of its assessment methods. Also, performs at least one Directors” and the assessment methods, and Ｖ assessment before the end of the year. The assessment ’ method can be downloaded from the Company s has the performance evaluation performed website or MOPS. The last performance evaluation regularly every year? of the Board was completed in January 2017. The the score is outstanding.

The Audit Committee of the Company has the CPAregularly every year in accordance with the “Corporate Governance Best-Practice Principles ’s independence and performance assessed No significant difference for TWSE/GTSM Listed Companies” as follows: （1）Review CPA’s resume.

（2） He/she is not a director, supervisor, manager, or holding a position with other companies that may affect the job responsibility or cause
（3） Does not have the same CPA contracted as the auditor for seven consecutive years.

Has the Company assessed the independence Ｖ（4） Obtain the declaration of independence from of the contracted CPAs regularly? the commissioned CPA annually. （5） Review the auditing and tax service quality and timeliness. （6） No litigation or any disciplinary action received from the competent authorities. （7） Review the scale of operation and reputation of the CPA Firm. （8） Interaction with the management and internal auditor The most recent review was completed on March 6, 2017, when the Audit Committee was considered and the above requirements were met. Has the TWSE/GTSM-listed company established a full-time （part-time） position for handling issues of corporate governance or appointed designated personnel to administer The Corporate Social Responsbility Office of PRIMAX corporate governance （including but not is the body responsible for the advocacy of corporate IV limiting to feeding information for the Directors Ｖ governance. The Finance and Management Division No significant and Supervisors for the performance of their is the executive body of corporate governance under difference assigned duties, reporting on Board meeting the supervision of the CFO and is responsible for the and Shareholders Meeting, company registration conduct of corporate governance. and registration of change, and preparation of minutes of Board meetings and Shareholders Meetings on record）? Has the Company established channels for communications with the stakeholders V （employees, customers and suppliersand special page for stakeholder relation including but not limiting to shareholders, ）, Ｖ The Companyrelationsto respond to issues related to the Company” section and has someone designated ’s website is designed with an “’s investor No significant difference at the official website of the Company with stakeholders. proper responses to the issues of corporate social responsibility of high concern to the stakeholders?

16 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report

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How does the Company’s corporate
Operation governance differ from the “Corporate
Assessment items Governance Best-Practice Principles
Yes No Summary for TWSE/GTSM Listed Companies”
and its root cause?
Has the Company commissioned a professional “
Ｖ The Company has ” SinoPac Securities Stock Affairs No significant
stock affairs agency to handle the affairs related to shareholders’ meeting? Agency commissioned to handle the related matters. difference
The Company has setup the websites with the
Has the Company setup website to disclose Ｖ “Investment” section included for having information
financial operations and corporate governance
information? disclosed full financial business and corporate
governance information.
Does the Company have other information
disclosure methods adopted （such as, The Company has constructed an English website with No significant
constructing an English website, designating a spokesperson and acting spokesperson designated difference
specific individuals to be responsible for the Company’s information collection and Ｖ to be responsible for communicating to the public on behalf of the Company; in addition, has specific
disclosure, substantiating a spokesperson individuals designated to have information disclosed on
system, the public offering conference recording uploaded to the Company’s website, etc.）? the MOPS in accordance with the law and regulations.
1. The Company has committed based on the Labor
Standards Law to protect the basic rights of
employees and has enacted the Employee Welfare
Committee in accordance with the Employee
Welfare Act. The existing welfare system includes: a
periodical health check, birthday and three festival
gifts （vouchers）, weddings and funeral subsidy,
scholarships and financial aid, domestic and overseas
travel subsidy, emergency assistance loans, year-end
party and lotteries, and other community activities.
2. The Company attaches great importance to the
harmonious labor relations. For safeguarding employeesperform a two-way communication for the Company’ rights and benefits, employees can ’s
systems and work environmental issues through
department meetings, staff seminars, labor relation
Does the Company have any other important meetings, employee suggestion boxes, etc.; also,
information that can help understand the regularly inspect and maintain the safety and health
Company（including but not limited to the interests of ’s corporate governance operation of the working environment in order to ensure employees’ work safety and health.
employees, employee care, investor relations, 3. The Company has a smooth communication channel
VIII supplier relations, the rights of stakeholders, the Ｖ constructed with the employees, bankers, customers, No significant
advanced study of directors and supervisors, the vendors, and other stakeholders of the Company difference
implementation of risk management policy and in order to protect the legitimate interests of both
risk measurement standard, the implementation parties.
of customer policy, the liability insurance
4. The Company has established the procedures for
acquired by the Company for the directors and
supervisors, etc.）? customer management service, customer satisfaction
surveys, and handling customer complaint. Regarding
customer grievances, properly identify the root cause
of the problem and accountability, and evaluate
customer satisfaction periodically to ensure providing
customers with the best services.
5. The Company has various internal regulations and
internal control systems enacted lawfully, a variety
of risk management and assessment performed;
in addition, the internal audit unit will have the
implementation of internal control system audited
periodically and occasionally.
6. Advanced study of Directors: Please refer to the Annual Report “2016 Director’s Advanced Studies”
（page 19）.
7. The Company has acquired liability insurance for
directors and supervisors every year.
VI.
VII. Information disclosure
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Specify the measures taken for improvement of corporate governance with reference to the evaluation of corporate governance by the Corporate Governance Center of Taiwan Stock Exchange Corporation in the most recent year, and the issues pending on improvement at top priority （Skip if not included in evaluation）.

The rating result of corporate governance on PRIMAX in 2015 was among the top 21% - 35% of the enterprises. In 2016, electronic voting system has been introduced to the General Meeting of shareholders and voting is cast on a motion by motion basis. This measure indicated IX that PRIMAX high treasure the rights of the shareholders. In addition, the meeting has also passed the Corporate Social Responsibility Best Practice Principles and the Regulations Governing the Evaluation of Board Performance. The Corproate Social Responsibility Office has been established for the fortification of the function of the Board and realization of corporate social responsibility. In disclosure and information transparency, PRIMAX has made improvement in the disclosure of complete information contained in the annual report and on the official website of the Company. Furthremore, PRIMAX has declared material information in Chinse and in English at the MOPS website. PRIMAX has improved in all aspects, in 2016 the corporate governance evaluation results ranked significantly increased to the top 5%.

Continuing education / Training of board directors in 2016:

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Date of Hours Total hours
Title Name continuing Organizer Course Title of of continuing
education study eduction in 2016
11.29.2016 Governance Association Taiwan Corporate Group Governance 3
Director Liang, The View of Professional Directors 6
Li-Sheng 12.02.2016 Taiwan Corporate in Corporate Governance and 3
Governance Association Construction of Competent Board of
Directors
The 12th International Corporate
Governance Summit:The Development
10.07/2016 Taiwan Corporate and Efficacy of Diversified Organization 3
Director Hai-HungYang, Governance Association of the Board and the Best Practice in the Peformance of the Functions of 6
Nomination Committee
10.28.2016 Taiwan Corporate The Opportunity and Risk of Digital 3
Governance Association Technology Trend
Securities and Futures The 2016 Corporate Governance
01.26.2016 Forum Series – Insider Trade and 3
Director Yang, Institute Corporate Social Responsibility 6
Chi-Ting
05.11.2016 Taiwan Corporate The Prevention and Detection of 3
Governance Association Corproate Corrpution
Director Pan, 10.20.2016 Financial Supervisory The 11th Taipei Corporate Governance 6 6
Yung-Tai Commission Forum – Full day class
Director Pan, 10.20.2016 Financial Supervisory The 11th Taipei Corporate Governance 6 6
Yung-Chung Commission Forum – Full day class
05.20.2016 Taiwan Corporate Function and Performance Evaluation 3
Tsao, Governance Association of the Board
Director 6
Chung-Feng 05.20.2016 Taiwan Corporate Protection of Business Secrets 3
Governance Association
The 2016 Corporate Governance
01.26.2016 Taiwan Academy of Banking Forum Series – Insider Trade and 3
and Finance
Corporate Social Responsibility
Independent Ku, 6
Director Tai-Chao
The essence of the obligations to
06.03.2016 Governance AssociationTaiwan Corporate the proxies of the Directors and 3
Supervisors
Cases of major controversy over the
03.04.2016 Governance AssociationTaiwan Corporate responsibilities of the Directors and Supervisors in financial reporting 3
04.13.2016 Taiwan Academy of Banking Wealth Management and Tax Planning 3
and Finance for High Assets Customers
07.06.2016 Governance AssociationTaiwan Corporate The Trend of Change in Taxation 3
07.28.2016 Securities and Futures Case Study on Public Acquisition and 3
Independent Wei, Institute Defense An Inevitable Legal War 21
Director Yung-Tu
07.29.2016 Securities and Futures The Practice of Independent Directors 3
Institute and Functional Commitees
The Prospect of Taiwan Economy
Securities and Futures under Global Ecoomic Turbulence
09.07.2016 3
Institute and Trend of Global Application of the
Regional Industry Chain in the Future
Securities and Futures The Development of International and
12.06.2016 Institute Domestic Anti-Tax Sheltering and the 3
Responses of the Enterprises
2016 Economic Outlook and Decision
03.22.2016 Taiwan Insitution of Directors 3
of Reengineering
Independent Cheng, 6
Director Chih-Kai Loyalty to the Principal – The Essence
03.25.2016 Governance AssociationTaiwan Corporate of the Obligation of Proxies to the 3
Directors and Supervisors.
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18 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report

（ 4 ） If the Company has a Remuneration Committee setup, the composition, mandate, and operation of the Committee should be disclosed accordingly:

Board of Directors has three members appointed to form the Remuneration Committee in accordance with the Company’s “Remuneration Committee Charter”. The Remuneration Committee shall meet at least twice a year and there were 3 meetings convened in the most recent year.

To improve corporate governance and strengthen the function of the Board of Directors, PRIMAX had established the Remuneration Committee in 2011 to assist the Board of Directors assessing and verifying the remuneration policy and system of the Chairman and managers. The

1. Information of the Remuneration Committee members

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Conditions
Conditions Whether with more than five years of work experience or not?And the following professional qualifications Meet the independence criteria （ Note ） Number of
An instruction or higher A Judge, Public Prosecutor, With work other public
position in a Department of Commerce, Legal Attorney, Certified Public Accountant, or Other experience in the areas of in which the companies
IdentityName Affairs, Finance, Professional or Technical Commerce, Legal individual is Remark
Accounting, or Other Specialist who has passed Affairs, Finance, 1 2 3 4 5 6 7 8 concurrently
Academic Department a national examination and or Accounting, serving as an
Needs of the Company in a Public or Private Junior Related to the Business in a profession necessary for been awarded a Certificate necessary for the business of the or otherwise Independent Director
Name College, the business of the Company Company
Independent Ku, －－ＶＶＶＶＶＶＶＶＶ 0 －
Director Tai-Chao
Independent Cheng, －－ＶＶＶＶＶＶＶＶＶ 0 Assumed office
Director Chih-Kai on 07.07.2015
Others Yao, －－ＶＶＶＶＶＶＶＶＶ 0 Assumed office
Heng-Shan on 03.27.2014
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Note: Please tick the corresponding boxes • if the member has qualified any of the following conditions during the two （2） years prior to being elected or during the term of office.
（1）
（2） Not the Directors or Supervisors of the Company or its affiliates, except the Independent Directors of the Company, parent company, or subsidiary established by domestic law of the law of the host countries.
（3） Not a natural-person shareholder who holds shares, together with those held by the personchildren, or held by the person under someone else’s name（s）, in an aggregate amount of 1% or more of ’s spouse, minor the total number of outstanding shares of the Company or ranking in the top-10 in holdings.
（4） Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship, of any of the persons in the preceding three subparagraphs.
（5） Not a director, supervisor, or employee of an institutional shareholder that directly holds 5% or more of the total number of outstanding shares of the Company or that holds shares ranking in the top five in holdings.
（6） Not a director, supervisor, officer, or shareholder holding 5% or more of the shares of a specified company or institution that has a financial or business relationship with the Company.
（7） Not a professional individual or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that provides commercial, legal affairs, financial, accounting services, or consultation to the Company or to any affiliate of the Company, or a spouse thereof.
（8）

2. The operation of the Remuneration Committee

（ 1 ） The Company’s Remuneration Committee is with three members appointed.
（ 2 ） The tenure of the current term is from July 7, 2015 to June 28, 2018. There were 3 Remuneration Committee meetings （ A ） held in the most recent year with the attendance of the members as follows:

Title	Name	Actual number of meeting attended in person（B）	Actual attendance rate （%）（B/A）
Convenor	Ku, Tai-Chao	3	100%
Member	Cheng, Chi-Kai	3	100%
Member	Yao, Heng-Shan	3	100%

Other mandatory notes:

If the Board of Directors has decided not to accept or amend the proposal of the Remuneration Committee, the date of the Board meeting, the term, the content of the motion, the resolution of the Board meeting, and the Company’s handling the opinions of the Remuneration Committee should be detailed （such as, if the remuneration resolved in the Board meeting is better than the proposal of the Remuneration Committee, the difference amount and the root cause should be detailed）: None.
For the matters resolved by the Remuneration Committee with the opposition or reservation of the members documented or written, the date of the Remuneration Committee meeting, the term, the content of the motion, the opinions of all members, and the handling the opinions of the members should be detailed: None.

Note:

（1） For members of the Remuneration Committee resigned before the end of the fiscal year, specify the date of departure, the attendance rate（%）will be counted by the ratio of its presence in the meetings of the Remuneration Committee in the duration of employment to the total number of meetings held by the committee in the same period.
（2） If there is an election of members the Remuneration Committee held before the end of the fiscal year, specify the names of the new and former members, and note that if the members are newly elected, former members, or reelected to the seats. The attendance rate （%） will be counted by the ratio of its presence in the meetings of the Remuneration Committee in the duration of employment to the total number of meetings held by the committee in the same period.

（ 5 ） CSR performance: The systems and measures adopted by the Company for the tasks of environmental protection, community involvement, social contribution, social services, social welfare, consumer rights, human rights, security and health, and other social responsibility activities, and the performance.

How does the Company ’ s Operation corporate social responsibility “ differ from the Corporate Assessment items Social Responsibility BestYes No Summary GTSM Listed CompaniesPractice Principles for TWSE/” and its root cause? Has the Company setup the corporate The Company’s “Primax Corporate Social Responsibility Best-Practice social responsibility （CSR） policies Ｖ Principles” were enacted and approved by the Board of Directors for or systems, and reviewed the publication. The detailed information of the 2016 implementation effect effectiveness of the implementation? was fully disclosed in the annual Corporate Social Responsibility Report. The Company follows the Corporate Social Responsibility Best Practice Has the Company held the CSR education and training programs Ｖ Principles for TWSE/GTSM-listed Companies“ thereby holds training regularly to reinforce their knowledge in this regard. In 2016, the regularly? Company has held 3 occasions related to social charity. Has the Company designated a specific corporate social responsibility with （part-time） unit to promote The corporate social responsibility office was established by the Chairman with the authorization of the Board of Directors. The No significant the management authorized by the Ｖ designated individuals are to be in charge of proposing and executing difference. the policy, system, related guidelines and solid promotional plan of the Board of Director to handle the process corporate social responsibility; also, to report it to the Board of Directors and report the result to the Board of Directors? regularly. The Company has regularly participated in external remuneration survey Has the Company setup a reasonable to ensure the competitiveness of remuneration and to be referred for the remuneration policy, had the employee making of internal remuneration policies. Moreover, in addition to the performance evaluation system and Ｖ corporate social responsibility policies security of a fixed annual salary, performance bonus will be distributed according to the annual achievement of the Company and personal combined, and established a clear and effective reward and discipline system? performance and contribution of each employee, without discrimination against gender, religion, race, and nationality. The Company has the concept of environmental protection Is the Company committed to enhance the utilization efficiency of resources and the use of renewable materials Ｖ substantiated in the green design and green management proactively while providing products and services; in addition, the raw materials used in the products are in line with international environmental with low environmental impact? standards and customer requirements. The Company has established a green procurement management Has the Company based on the system and the control in manufacturing process and materials characteristics of the industry to Ｖ to ensure the products in line with environmental requirements; establish an appropriate environmental moreover, a dedicated unit is assigned to maintain the production No significant management system? plant environment quality in Mainland China and to strengthen the difference. implementation of energy-saving and carbon reduction measures. Has the Company paid attention to the impact of climate change on operating activities and implemented greenhouse The Company has enacted the Voluntary Reduction Declaration“Greenhouse Gas Inventory and ”, and is committed to greenhouse gas gas inventory, and enacted corporate Ｖ inventory in order to actually grasp the situation of gas emissions and energy-saving and carbon reduction initiate further greenhouse gas reductions voluntarily according to the strategies and greenhouse gases inventory result. reduction strategies?

20 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report

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How does the Company’s
Operation corporate social responsibility differ from the “Corporate
Assessment items Social Responsibility Best-
Yes No Summary GTSM Listed CompaniesPractice Principles for TWSE/” and
its root cause?
Has the Company The “Regulations Governing the Recruitment and Employment of Personnel”
enacted the relevant established by the Company are duly in compliance with applicable labor laws,
management policies the internationally recognized principles of basic human right such as EICC,
and procedures in Ｖ and has reviewed and revised the internal code of the Company governing
accordance with the human resources. The Company also seeks to protect the rights of the
relevant regulations and international bill of employees provided by law and adopted the non-discriminatory and equity policy in employment so as to develop an atmosphere of “ “friendly workplace” ”
human rights? and the realization of the corporate philosophy of the Best Employer .
The Company has the for Conduct” enacted with the reporting system and operations regulated “Procedures for Ethical Management and Guidelines
Has the Company
comprehensively. The Company has arranged four complaint channels to
established an employee
improve the mutual understanding between the Company and employees,
grievance mechanism Ｖ including employee suggestion mailbox, employee opinion survey, General
and channel, and has employee complaints Manager mailbox, appeal to staff representatives, and appeal to the direct
supervisor / Human Resources, and has employee complaint handled through
handled properly?
the established grievance procedure to value the importance of each opinion
suggested by employees.
Primax factories are located in China while the R&D Office is in Taiwan
Headquarters. Primax has the related management measures implemented as
follows to provide employees with a safe and healthy working environment:
1. Education and Training: It includes first aid, mechanical safety, ESH risk
identification, occupational health, emergency response, etc., also, the
health education seminar for health improvement.
Has the Company
offered employees 2. Risk Control: Fire alarm and chemical spill drills.
a safe and healthy 3. Health Check: In addition to regular health checks, provide specific
working environment, Ｖ physical check service to the position holders with higher risks, such as,
and provided employees serum ALT, hearing tests, ECG, etc., especially those employees who are
with safety and health associated with the operation of X-ray; also, additional full body check
education on a regular service of the skin, liver, kidney, and lymph nodes.
basis?
4. Medical care: Primax has clinic/medical center setup in the factory and
office area with medical staff stationed regularly to serve. Each department
is also equipped with medical kits to provide staff with emergency medical
treatment, disease prevention, medical information and other services. No significant
5. The Company's mainland factories are certified by OHSAS 18001 difference.
Occupational Safety and Health Management System.
Has the Company
The Company provides employees with a regular communication mechanism.
established a regular
communication mechanism with the The CEO holds a meeting with employees every six months to communicate the Company’s overall business plans and outlook, achievements and
staff, and reasonably Ｖ corporate culture focus. The Business Director convenes a meeting on a quarterly basis to ensure that the department colleagues grasp the business
given employees a
overview. The Labor Conference is held on a quarterly basis to communicate
notice of operating
important corporate matters and measures. The Company also encourages
change that may have a
significant impact on the the executives and colleagues to conduct a one-on-one interview occasionally in order to maintain good interaction.
Company?
Has the Company established an effective Ｖ The Companyof occupational function to be tightly integrated with the Companydevelopment strategies and objectives. The training system is divided into ’s learning and development is based on the core structure ’s future
career-training program
three categories: Professional occupational function training, supervisor talent
for employees?
training, and general occupational function training.
Has the Company
enacted relevant
The Company has established the procedures for customer management
consumer protection
service, customer satisfaction surveys, and handling customer complaint.
policy and grievance Ｖ Regarding customer grievances, properly identify the root cause of the
procedure regarding
problem and accountability, and evaluate customer satisfaction periodically to
R&D, procurement,
ensure providing customers with the best services.
production, operation,
and service process?
The Company has the concept of environmental protection substantiated in
Has the Company the green design and green management proactively while providing products
handled the marketing and services in order to comply with laws, meet customer requirements,
and labeling of and fulfill responsibilities as global citizens. In addition to meeting green
products and services Ｖ product-related laws and regulations （such as, RoHS, REACH, ErP ....） and
in compliance with customer requirements, establish response capabilities of the staff within the
relevant regulations and organization and suppliers, and conduct related training and integration with
international norms? information management systems （PLM） to substantiate the green product
policy.
III. Maintaining social welfare
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V. If the Company has established the corporate social responsibility best practice principles in accordance with the “Corporate Social Responsibility Best Practice Principles for TWSE/GTSM-listed Companies”, elaborate the difference between the practice and the documented principles:
The Company has established the “PRIMAX Corporate Social Responsibility Best Practice Principles” and implemented these principles in the aspects of corporate governance, concern for the employees, safeguarding the community, and protection of the earth. The practice is congruent with the principles. For reference of corporate governance, refer to the section of “corporate governance in operation”. For information on concern for the employees, guarding the community, and protection of the earth, refer to the CSR report of the year.

VI. Other important information that helps understand the operation of corporate social responsibility

regulations, and has specific personnel designated to handle various matters in order to protect the interests of employees.
education and training for the staff to perform job responsibility, the disaster prevention measures training, and health check in accordance with the Labor Safety and Health Act.
The Company takes responsibility for consumer protection and product safety, and actively solves the product problems raised by customers
The Company takes the health of the employees as vital responsibility and proactively advocates the improvement of their health including the holding of ball games, development of sports organizations, subsidy for road running, calorific value chart in the employee cafeteria, lectures on prevention of diseases, alleviation of stress, and withdrawal from smoking and other health related topics.
In the pursuit of corporate governance, the Company follows the instructions of the Financial Supervisory Commission of the ROC in evaluation and proposed corrective action plan for improvement in the course of examination so as to make a viable system for the operation of the Board.
In social charity, the Company sees education is an issue that deserved utmost attention. In 2016, the Company has entered into an agreement with NTUST under which an amount of NT$30 million will be injected in a period of 3 years for the establishment of a Joint Technology R & D Center. In addition, the Company has also engaged in cooperation with EDUCATION X TECHNOLOGY making a donation of NT$10 million over a period of 5 years for the establishment of a cloud education platform and development of digital teaching materials.
VII. If the Company’ should be detailed:

The Company’s 2016 Corporate Social Responsibility Report will be written in accordance with GRI G4 version and will be certified by SGS in accordance with the AA1000 Class I High Assurance Verification.

Primax Electronics Ltd. 2016 Annual Report

（ 6 ） Substantiating ethical corporate management and policies:

How does the Company’s ethical Operation corporate management differ “ Assessment items from the Ethical Corporate Management Best-Practice Yes No Summary Principles for TWSE/GTSM Listed ” Companies and its root cause? 1. The Company has enacted the and Guidelines for Conduct” to ensure the business management in “Procedures for Ethical Management compliance with the related regulations for the TWSE/GTSM listed companies or other behavioral guidelines. Has the Company explicitly 2. The CompanyMeetings” is with the board director’s “Rules of Procedure for Board of Directors ’s “avoiding conflict of interest” expressed the ethical corporate clause included. For the board directors or their representatives management policies and approaches in the Articles of with a conflict of interest against the motion to be resolved in the board meeting that is detrimental to the Company’s best interest, Association and external documents, Ｖ the conflicting directors or representatives may state their opinions and the commitment of having the and inquiries but may not participate in discussion and voting. In management policies substantiated addition, they should be excused from the discussion and voting in by the Board of Directors and the the meeting, and may not vote on behalf of other directors. management? 3. The Company has enacted the of Insider Trading” to explicitly define that directors, supervisors, “Rule Governing the Prevention managers, and employees should exercise due diligence as a It is in conformity with good administrator, loyalty, and good faith to conduct business, and to sign a confidentiality agreement not to disclose any material the ethical corporate management code information to any third party. without any significant nonconformity “ identified. Has the Company setup the program to prevent unethical conduct, and has In addition to enacting the Guidelines for Conduct”, the CompanyProcedures for Ethical Management and ’s “Work Rules” and “Code of the operating procedures, guidelines Ｖ Conduct” are also introduced to regulate staff’s complying with the for conduct, and disciplinary act and grievance system enacted in each laws and ethics. In addition, the Company requires suppliers and subcontractors to sign the “Supplier Declaration” in order to establish program and executed accordingly? a fair, honest, trustworthy, and transparent trading environment. Has the Company adopted preventive measures for the events stated in Article 7, Paragraph 2 of the “Ethical Corporate Management It is clearly defined in the CompanyManagement and Guidelines for Conduct’s “Procedures for Ethical ” not to accept illegal gains, Best-Practice Principles for TWSE/GTSM Listed Companies” or other Ｖ prohibiting facilitation payments, and other prevention program and operating procedures; moreover, regulating the procedures for political operating activities with a higher contributions, charitable donations, and sponsorship program. risk of unethical conduct within the business scope? The Company has the ethical corporate management evaluation Has the Company assessed the ethical conduct record of the procedure, prior to establishing a business relation, clearly defined in “ ” the Procedures for Ethical Management and Guidelines for Conduct . counterparty, and has the ethical Ｖ It prohibits the Company from dealing with any unethical companies corporate management clauses and requires having the ethical corporate management clauses included in the contracts signed with included in the contracts to be signed by the Company and the the counterparty? counterparty. Has the Company designated a The Company has designated the Human Resources Department specific （part-time） unit to promote to promote the ethical corporate management and to report the ethical corporate management and Ｖ execution status to the Board of Directors. For any unethical conduct to report the result to the Board of occurred, the designated unit will have the process and subsequent It is in conformity with Directors periodically? discussion and corrective action reported to the Board of Directors. the ethical corporate management code 1. The CompanyMeetingsfor Conductof interest” and ” clause included. For the board directors or their ” are with the board director’s “Procedures for Ethical Management and Guidelines “Rules of Procedure for Board of Directors ’s “avoiding conflict without any significant nonconformity identified. Has the Company enacted a policy to prevent conflicts of interest, provided an appropriate communication Ｖ representatives with a conflict of interest against the motion to be resolved in the board meeting that is detrimental to the Companybest interest, the conflicting directors or representatives may state their opinions and inquiries but may not participate in discussion ’s channel, and substantiated its and voting. In addition, they should be excused from the discussion implementation? and voting in the meeting, and may not vote on behalf of other directors.

The Company’ the business executed by them should have it reported to the direct supervisor and the designated unit.

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How does the Company’s ethical
Operation
corporate management differ “
Assessment items from the Ethical Corporate
Management Best-Practice
Yes No Summary Principles for TWSE/GTSM Listed ”
Companies and its root cause?
Has the Company established
an effective accounting system The Company has an accounting system and internal control system
and internal control system to
enacted in accordance with the relevant laws and regulations. The Audit
substantiate ethical corporate Ｖ
management, and delegated Office has regularly checked the compliance of the accounting system
and internal control system and has the result reported to the Board of
the internal audit unit to inspect Directors.
periodically or commissioned CPAs
to perform an audit?
Has the Company held internal
The Company has regularly organized internal education and training
and external education and training Ｖ on ethical corporate management, and advocated the importance of
on ethical corporate management periodically? protecting the confidentiality of business information.
Has the Company enacted a
specific reporting and incentive system, established a convenient reporting channel, and assigned a Ｖ The Company has the award and punishment, grievance system, and disciplinary action stipulated in the and Guidelines for Conduct”, and has ethical corporate management “Procedures for Ethical Management
specific delegate to deal with the included in the Code of Conduct and human resources policies.
reported party? It is in conformity with
the ethical corporate
Has the Company enacted the The Company has established a system for filing complaints management code
investigation standard, operating procedure, and the related confidentiality mechanism to handle Ｖ synonymously. In addition, a designated body for handling business secret has also been established for the management of the business sccret , retention of secrets and confidentiality procedure. The performance will without any significant nonconformity identified.
the reported nonconformities? be reviewed regularly to ensure sustainability and effectiveness.
Has the Company taken measures The Company has the relevant norms included in the “Procedures
to protect whistleblowers from Ｖ for Ethical Management and Guidelines for Conduct” to ensure that
improper treatment? whistleblowers will not be treated improperly.
It is in conformity with
Has the Company disclosed the content of its Management Best Practice Principles” and the performance on “Ethical Corporate Ｖ Please refer to the MOPS Companycorporate management best-practice principles. Please also refer to the ’s website （http://www.primax.com.tw/（http://newmops.twse.com.tw/） for the ethical ） or the the ethical corporate management code without any significant
the Company’s website and MOPS? annual CSR report for the information of activity promotion. nonconformity identified.
system
s reporting III. The operation of the Company’
IV. Strengthening
information disclosure
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V. If the Company has the ethical corporate management best-practice principles enacted in accordance with the Practice Principles for TWSE/GTSM Listed Companies”, please state the difference between its operations and the enacted Principles: No significant “Ethical Corporate Management Best-

The Human Resources Department is the dedicated unit to have the Ethical Corporate Management Best Practice Principles, Code of Conduct, and related approaches enacted, to clearly prohibit accepting any illegal gains; also, to advocate the importance of ethics and moral value through internal training and promotion activities, to establish a reporting system, and to ensure an effective operation.

VI. Other important information that helps understand the operation of ethical corporate management （such as, the Company’s discussing and amending its Ethical Corporate Management Best Practice Principles and others）.
（I）Require the Company’s suppliers and subcontractors to sign the “Supplier Declaration”.
（II） It is clearly defined in the Companyexplain the Company’s ethical corporate management policy and the relevant regulations to the counterparty throughout the business process, ’s “Procedures for Ethical Management and Guidelines for Conduct” that the Company’s colleagues should and should specifically disclaim, directly or indirectly, any offer, promise, request, or accept illegal gains in any form or name, including kickbacks, commissions, facilitation payments, or any illegal gains offered or received from other channels.
（III）Strengthen advocating the importance of integrity and moral at the orientation scheduled for new recruits.
（ 7 ） If the Company has the corporate governance best practice principles enacted and the relevant regulations, the inquiry approaches should be disclosed:

Please visit the MOPS （ http://newmops.twse.com.tw/ ） or the Company’s website （ http://www. primax.com.tw/ ） for the Company’s corporate governance best practice principles and the relevant regulations.

（ 8 ） Other important information that helps understand the operation of corporate governance: None

24 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report

（ 9 ） The following matters should be disclosed for the implementation of internal control systems

1. Internal Control Declaration

PRIMAX Electronics Limited

（ 10 ） the disciplinary action had been brought against the internal staff for violating internal control system, the major nonconformities, and the corrective action in the most recent year and as of the printing date of the annual reports: None.

Statement of Internal Control System

Date: March 7, 2017

The Company ’ s 2016 internal control system is declared as follows in accordance with the results of the self-examination:

The Company is fully acknowledged that it is the responsibility of the Board of Directors and the management to establish, executes, and maintains the internal control system. The Company has already had established such a system. The purpose is to have the operating effect and efficiency （including profitability, performance, assets security, etc.）, reported reliably, timely, transparently, and in compliance with the relevant specifications, law, and regulations, and with reasonable assurance provided.
Internal control system has its inherent limitations, regardless how perfect the design is. An effective internal control system can only provide a reasonable assurance for the achievement of the three objectives referred to above. Moreover, due to changes in the environment and situation, the effectiveness of the internal control system may thus vary along with it. However, the Company ’ s internal control system is designed with a self-monitoring mechanism. Therefore, the Company will be able to take action to have nonconformities corrected upon identification.
The Company has based on the internal control system effectiveness criteria of the “Regulations Governing Establishment of Internal Control Systems by Public Companies”（hereinafter referred to as “Regulations”） to determine whether the internal control system design and implementation is effective or not. According to the internal control system effectiveness criteria of the “Regulations Governing Establishment of Internal Control Systems by Public Companies”, the internal control system is classified into five composing elements in accordance with the management and control process, including: 1. environment control, 2. risk assessment, 3. control operation, 4. information and communication, and 5. supervise operation. Each composing element contains a number of projects. Please refer to the “Regulations Governing Establishment of Internal Control Systems by Public Companies” for the projects in the preceding paragraph.
The Company has adopted the internal control system criteria in the preceding paragraph to assess the effectiveness of the internal control system design and execution.
The Company based on the assessment result in the preceding paragraph, believes that the Company ’ s internal control system on December 31, 2016 （including the supervision and management of subsidiaries）, including understanding the operational results and effectiveness and the level of efficiency achieved, is reported reliably, timely, transparently, and in compliance with the relevant specifications, laws, and regulations, and the internal control system design and implementation is valid and can provide reasonable assurance of achieving the above objectives.
This Declaration will be the focus of the Company ’ s annual report and prospectus, and it will be published to the public. If the information disclosure in the preceding paragraph involves fraudulent, concealment, and any false presentation, the relevant legal obligation for such violation will be handled in accordance with Article 20, Article 32, Article 171, and Article 174 of the Securities Exchange Act.
This Declaration has been passed by a session of the Board dated March 7 2017 with the presence of 9 Directors in common consent.

PRIMAX Electronics Limited Chairman: Signature General Manager: Signature

2. If the internal control system is commissioned to CPAs for project review, the CPA ’ s review report should be disclosed: None

（ 11 ） Important resolutions reached in the shareholders’ meeting and board meeting in the most recent year and as of the printing date of the annual report.
The content of the important resolution reached in the shareholders’ meeting and its implementation.

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Time Important issues
1. Passed the motion of amendment to the “Articles of Incorporation” of PRIMAX.
Status: approved by MOEA for incorporation on 8.12.2016.
2. Passed the motion of 2016 Review of Operaiton and Financial Statements.
3. Passed the motion of the proposal for distribution of earnings of PRIMAX in 2015.
Status: Scheduled the distribution base on 7.25.2016 and released on 8.24.2016 for a cash
dividend of NT$2.1 per share.
6.20.2016 “ ”
4. Passed the proposal of issuing New Restricted Employee Shares .
Status: approved by FSC on 10.18.2016 and became effective, and could be offered within one
year thereafter.
5. Passed the motion of lifting the ban on conflict of interest of the new Directors.
6. Passed the motion of regulating the retirement of the chairman of the Company.
Status: follow the regulation in subsequent action.
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2. Important resolutions of the Board of Directors

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Time Important issues
1. Passed the motion of the proposal for bonus payment for the senior managers in 2015.
2. Passed the motion of the proposal for bonus payment for the Chairman in 2015.
1.25.2016 3. Passed the motion of amendment to the “Articles of Incorporation” of PRIMAX.
4. Passed the motion of the establishment of the “Corporate Governance Best Practice Principles”
of PRIMAX.
1. Passed the motion of the assessment of the state of independence of the CPAs acting as external
auditors for PRIMAX.
2. Passed the motion of the revocation of the ” “Regulation Governing the Retirement of the
Appointed Managers .
3. Passed the Company's “Rules Governing Remuneration to the Chairman” enacted.
“ ”
4. Passed the motion of amendment to the Regulation Governing the Remuneration to Managers .
5. Passed the motion of adjustment of salaries for the senior managers in 2016.
6. Passed the motion of proposal for bonus payment to senior managers and key personnel in 2016.
3.24.2016 7. Passed the motion of proposal for the standard of performance evaluation of the Chairman and
bonus payment in 2016.
“ ”
8. Passed the motion of planning for the offering of RS Warrants .
9. Passed the motion of the proposal for districution of earnings in 2015.
10. Passed the motion of the plan for remuneration to Directors and to the employees in 2015.
11. Passed motion of the date, time, place and content of the major proposals for the regular
session of General Meeting of shareholders in 2016.
12. Passed the motion of lifting the ban on conflict of interest of the Directors. 13. Passed the motion of the “Corporate Social Responsibility Best Practice Principles” of PRIMAX.
1. Passed the motion of the proposal for distribution of dividend.
5.12.2016 2. Passed the motion of amendment to the ” “Regulations Governing the Evaluation of Board
Performance .
3. Passed the motion of the Disposition of Long-term equity investment.
1. Passed the ex-dividend day and the dividend payment day for the districution of earnings in
6.21.2016 2015.
2. Passed the motion of disposing the equity shares of Global TEK.
1. Passed the motion of the plan for investment of Grove Ventures. L.P.
8.11.2016
2. Passed the motion of 2016 new restricted employee shares issuance.
8.30.2016 1. Passed the motion of the replacement of the CFO.
9.21.2016 1. Passed the motion of reconsideration of the disposal of the equity shares of GlobalTEK.
1. Passed the motion of routine assessment of the state of independence of the CPAs acting as
11.10.2016 external auditors for PRIMAX.
2. Passed the motion of the Regulation For the Evaluation of Performance of the Board of PRIMAX.
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26 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report

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Time Important issues
1. Passed the motion of bonus payment to senior managers in 2016.
2. Passed the motion of bonus payment to the Chairman in 2016.
1.23.2017 3. Passed the motion of remuneration to the employees in 2016.4. Passed the motion of the initial offering of RS warrants in 2016.
5. Passed the motion of the establishment of the Nomination Committee and organization code of
the Nonimation Committee.
1. Passed the motion of distributin of earnings in 2016.
2. Passed the motion of adjustment of salaries for the senior managers in 2017.
3. Passed the motion of bonus payment to the senior managers and key personnel in 2017.
4. Passed the motion of the of proposal for the standard of performance evaluation of the Chairman
and bonus payment in 2017.
3.7.2017
5. Passed the motion of the offering of RS warrants.
6. Passed the motion of the remuneration to the Directors and the employees in 2016.
7. Passed the motion of the nomination members for the 1st term of the Nomination Committee.
8. Passed the proposal of lifting the non-compete clause against the directors.
9. Passed motion of the date, time, place and content of the major proposals for the regular session
of General Meeting of shareholders in 2017.
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（ 12 ） For the matters resolved by the Board of Directors with the opposition or reservation of the directors or supervisors documented or written in the most recent year and as of the printing date of the annual report, please detail the content of the opposition or reservation: None.
（ 13 ） The summary of the resignation and discharge of the Company’s Chairman and General Manager, Accounting Officer, Finance Officer, Internal Auditor, and R&D Director in the most recent year and as of the printing date of the annual report. 04.15.2017

04.15.2017

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Title Name Date of office Date of departure Reason for resignation or discharge
General Manager of Pan, 02.22.1989 12.31.2016 Retirement
Business Department Yung-Chung
Senior Vice General Manager Yi-PinLee,g 01.02.2013 08.31.2016 Resignation
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5. CPAs fees

Unit: NT$1,000

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Name of CPA firm Name of CPAs Audit period Remark
KPMG Huang, Yung-Hwa、Yu, Chi-Lung 2016 —
Range of Amount Audit fees classification Audit fees Non-audit fees Total
1 Under 2,000 — — —
2 2,000（inclusive）~ 4,000 — — —
3 4,000（inclusive）~ 6,000 — — —
4 6,000（inclusive）~ 8,000 — — —
5 8,000（inclusive）~ 10,000 9,180 — 9,180
6 10,000 and more — — —
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For the CPAs fee containing any of the following circumstances, the following information should be disclosed:

（ 1 ） If the non-audit fee paid to auditors, the audit firm, and its affiliates accounted for more than onefourth of total audits fees, the audit fee and non-audit fee amount and non-audit service content should disclosed.

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Non-audit fees CPA’s
Name of Audit
CPA firm Name of CPAs fees System design commercial registrationIndustrial and resourcesHuman Others Subtotal auditing period Remark
KPMG Huang, Yung-Hua 9,180 0 0 0 0 0 2016 —
Yu, Chi-Lung The full year
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（ 2 ） If the audit firm was replaced and the audit fee paid to the new audit firm was less than the payment of the previous year, the audit fee amount before and after the replacement and the reasons called for the replacement should be disclosed: None.
（ 3 ） If the audit fee reduced more than 15% from the year before, the decrease of the audit fee amount and ratio and the reason for such decrease should be disclosed: None.

6. CPAs replacement

（ 1 ） Information of former CPAs:

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Item Explanation
Date of replacement 05.13.2015
Reason for replacement and explanation KPMG internal work adjustment
Please indicate whether the termination or rejection of the commission is None
initiated by the consigner or the CPAs.
Please state the opinions other than an unqualified opinion were rendered in the Auditor’s Report within the last two years and the root causes. None
Whether different from the opinion of the issuer or not? None
Other disclosures（Article 10, Part 1-（4）~（7）of Section 6, of This
None
standard should be disclosed）
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（ 2 ） About the successor CPAs

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Item Explanation
Name of CPA Firm KPMG
Name of CPAs Huang, Yung-Hua and Yu, Chi-Lung
Commissioning date 05.13.2015
The advisory matters and results prior to the commission regarding the
accounting treatment or accounting principle of specific transactions and None
the possible audit opinion on the financial report.
The written opinion of the successor CPAs regarding the oppositions to the opinions of the former CPA’s. None
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（ 3 ） Reply of the former CPAs to Article 10, Paragraph 6, Part1 and Part 2,Section 3, of this standard: None.

7. If the Company’s Chairman, General Manager, or any managerial officer in charge of finance or accounting matters has in the most recent year held a position at the accounting firm of its CPA or at an affiliated enterprise, their names, titles, and the service time with the accounting firms and affiliated enterprise should be disclosed: None.

28 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report 29

8. The change in equity transfer and equity pledge of the directors, supervisors, managers, and shareholders with over 10% shareholding in the most recent year and as of the printing date of the annual report.

（ 1 ） Changes in equity transfer and equity pledge

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2016 01/01/2017~03/31/2017
Title Name Change in quantity Change in Change in quantity Change in
quantity of shares quantity of shares
of shareholding under lien of shareholding under lien
Chairman Liang, Li-Sheng 0 0 0 0
Director/General
Yang, Hai-Hung 0 0 0 0
Manager
Director Yang, Chi-Ting 0 0 0 0
Director Pan, Yung-Chung （27,000） 0 0 （713,000）
Director /
General Manager of Pan, Yung-Tai （184,000） 0 0 0
Business Department
Director /
Tsao, Chung-Feng 74,000 0 0 0
Vice General Manager
Independent Director Ku, Tai-Chao 0 0 0 0
Independent Director Wei, Yung-Tu 0 0 0 0
Independent Director Cheng, Chih-Kai 0 0 0 0
Senior Vice General
Hsiao, Ying-Yee（Note 1） 0 0 0 0
Manager
Senior Vice General
Lee, Yi-Ping（Note 2）（63,000） 0 0 0
Manager
Vice General Manager Chou, Yen-Chou 180,000 0 0 0
Vice General Manager Liu, Chia-Lun（Note 3） 7,000 0 0 0
Vice General Manager Lee, Chiu-Sheng 110,000 0 45,000 0
Vice General Manager Chiang, Yan-Ying （17,500） 0 （19,000） 0
Vice General Manager Chang, Ching-Kai 56,500 0 15,000 0
Vice General Manager Chang, Yao-Han 64,000 0 15,000 0
Vice General Manager Wei, Hao-San 56,000 0 0 0
Vice General Manager Chuo, Yu-Shan（Note 4） 0 0 0 0
Assistant General
Pan, Yen-Jen 27,000 0 （3,000） 0
Manager
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Note 2 : Resigned from office on 08.31.2016. Note 3 : Resigned from office on 06.30.2016.

（ 2 ） The counterparty of equity transfer is a related party: None

（ 3 ） The counterparty of equity pledge is a related party: None

9. The Top-Ten shareholders who are related party mutually, or spouse, and relatives within the second degree of kinship 03.27.2017 / Unit: Shares

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Name and Relationship Between
Current and minor Spouse Shareholding by Nominee the Company’s Top Ten
Shareholding Shareholders, or Spouses or
Name Shareholding Arrangement Relatives Within Two Degrees. Remark
Shares % Shares % Shares % Name Relationship
CAMPBELL
ALPINE ASIA TECHNOLOGY Kindred within
INVESTMENTS 28,581,062 6.43% 0 0 0 0 CORPORATION the 2nd tier —
LIMITED （Director: Yang,
Hai-Hung）
ALPINE ASIA
CAMPBELL INVESTMENTS Kindred within
TECHNOLOGY 11,204,909 2.52% 0 0 0 0 LIMITED the 2nd tier —
CORPORATION （Director: Liang,
Li-Sheng）
HSBC Entrusted Bit
Coin Global 9,757,000 2.19% 0 0 0 0 None None —
Choice-Global High
Yield Certificate
Yeh, Yu-Fen 9,600,227 2.16% 0 0 0 0 None None —
HSBC Entrusted
HSBCGIF Asian 8,860,000 1.99% 0 0 0 0 None None —
small business fund
Pan, Yung-Chung 8,264,046 1.86% 0 0 0 0 None None —
Lazard Emerging
Markets Small Cap 8,237,000 1.85% 0 0 0 0 None None —
Equity Trust
Carmignac Portfolio 7,914,087 1.78% 0 0 0 0 None None —
Public Service
Pension Fund 7,611,000 1.71% 0 0 0 0 None None —
Management Board
JPMorgan
Chase Bank N.A.
Taipei Branch
in custody for
Franklin Templeton 7,445,000 1.67% 0 0 0 0 None None —
Investment
Funds-Templeton
Asian Smaller
Companies Fund
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30 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report

10. The stock shares of one invested business ’ s

held by the Company, the Company directors, supervisors, and managers, and the business controlled by the Company directly or indirectly, and the consolidated shareholding ratio. 03.31.2017 / Unit: 1,000 shares / %

03.31.2017 / Unit: 1,000 shares / %

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Ownership by
Directors, Managers
Ownership by PRIMAX Total Ownership
and Directly/ Indirectly
Long-term Investment
Owned Subsidiaries
Shares % Shares % Shares %
Dongguan PRIMAX Electronic
Telecommunication Products －（Note 1） 100.00 －－－（註 1） 100.00
Co., Ltd.
Primax Electronics －（Note 1） 100.00 －－－（註 1） 100.00
（Kun Shan） Co., Ltd.
Primax Electronics －（Note 1） 100.00 －－－（註 1） 100.00
（Chongqing） Co., Ltd.
Beijing Destiny Electronic －－
－（Note 1） 100.00 －（註 1） 100.00
Technology Co., Ltd.
Destiny Technology －－
0.5 100.00 0.5 100.00
（Japan） Corp.
Polaris Electronics Inc. 1,600 100.00 －－ 1,600 100.00
Primax Industries 602,817 100.00 －－ 602,817 100.00
（Hong Kong） Ltd.
Primax Technology －－
285,067 100.00 285,067 100.00
（Cayman Holding） Ltd.
Primax Industries 8,147,636 100.00 －－ 8,147,636 100.00
（Cayman Holding） Ltd.
Destiny Technology Holding －－
1,050 100.00 1,050 100.00
Co., Ltd
Diamond （Cayman） Holdings －－
84,050 100.00 84,050 100.00
Ltd.
Gratus Technology Corp 300 100.00 －－ 300 100.00
Tymphany Worldwide －－
38,501 70.00 38,501 70.00
Enterprises Ltd. （Note 2）
TYP Enterprises, Inc. （Note 2） 0.35 70.00 －－ 0.35 70.00
Tymphany HK Ltd. （Note 2） 101,077 70.00 －－ 101,077 70.00
TYMPHANY LOGISTICS, INC 140 70.00 －－ 140 70.00
（Note 2）
Premium Loudspeakers －－
－（Note 1） 70.00 －（Note 1） 70.00
（Huizhou） Co., Ltd. （Note 2）
Dongguan Tymphany Acoustic －－
－（Note 1） 70.00 －（Note 1） 70.00
Technology Co., Ltd. （Note 2）
Dongguan Dongcheng Tymphany
Acoustic Technology Co., Ltd. －（Note 1） 70.00 －－－（Note 1） 70.00
（Note 2）
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Note 1: It is a company with limited liability; therefore, no stock shares issued.

Note 2: Indirectly holds 70% of the company’s shares through Diamond （Cayman） Holdings Ltd.

==> picture [596 x 398] intentionally omitted <==

1. Capitalization

03.27.2017 / Unit: Shares

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Type of stock Authorized capital stock Remark
shares Outstanding stock shares Unissued stock shares Total
Common stock 444,754,324 55,245,676 500,000,000 Listed in TWSE
03.27.2017 / Unit: NT$1,000 / 1,000 shares
Authorized capital stock Paid-in capital Remark
Year / Issuing
Capital increase
Month price Shares Amount Shares Amount Sources of Capital by Assets other Others
than cash
2006.03 10 100 1,000 100 1,000 Initial capital stock None Note 1
2007.06 10 90,000 900,000 85,400 854,000 Capital increase in cash for NT$853,000 thousand None Note 2
2007.09 10 400,000 4,000,000 321,500 3,215,000 Capital increase in cash for NT$2,361,000 thousand None Note 3
2007.11 10 400,000 4,000,000 379,000 3,790,000 Capital increase in cash for NT$575,000 thousand None Note 4
2009.11 10 500,000 5,000,000 379,935 3,799,349 Conversion of employee stock warrant for None Note 5
NT$9,349 thousand
2010.04 10 500,000 5,000,000 383,079 3,830,791 Conversion of employee stock warrant for None Note 6
NT$31,442 thousand
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Note 1: Fu-Jian-Shang-Zi No. 09574650700 Letter dated 03.20.2006. Note 2: Jing-Shou-Shang-Zi No. 09601140030 Letter dated 06.26.2007. Note 3: Jing-Shou-Shang-Zi No. 09601235870 Letter dated 09.27.2007. Note 4: Jing-Shou-Shang-Zi No. 09601273090 Letter dated 11.07.2007. Note 5: Jing-Shou-Shang-Zi No. 09801254590 Letter dated 11.04.2009. Note 6: Jing-Shou-Shang-Zi No. 09901076470 Letter dated 04.16.2010.

32 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report

03.27.2017 / Unit: NT$1,000 / 1,000 shares

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Authorized capital stock Paid-in capital Remark
Year / Issuing
Capital increase
Month price Shares Amount Shares Amount Sources of Capital by Assets other Others
than cash
2010.09 10 500,000 5,000,000 385,336 3,853,364 [Conversion of employee stock ] None Note 7
warrant for NT$22,573 thousand
2011.01 10 500,000 5,000,000 386,397 3,863,965 [Conversion of employee stock ] None Note 8
warrant for NT$10,601 thousand
2011.03 10 500,000 5,000,000 397,475 3,974,746 [Conversion of employee stock ] None Note 9
warrant for NT$110,781 thousand
2011.12 10 500,000 5,000,000 398,439 3,984,399 [Conversion of employee stock ] None Note 10
warrant for NT$9,653 thousand
2012.04 10 500,000 5,000,000 401,080 4,010,798 [Conversion of employee stock ] None Note 11
warrant for NT$26,399 thousand
2012.05 10 500,000 5,000,000 401,458 4,014,582 [Conversion of employee stock ] None Note 12
warrant for NT$3,785 thousand
2012.10 10 500,000 5,000,000 403,441 4,034,408 [Conversion of employee stock ] None Note 13
warrant for NT$19,826 thousand
2012.10 10 500,000 5,000,000 426,970 4,269,698 [Capital increase in cash for ] None Note 13
NT$235,290 thousand
2013.03 10 500,000 5,000,000 428,966 4,289,658 [Conversion of employee stock ] None Note 14
warrant for NT$19,960 thousand
2013.05 10 500,000 5,000,000 431,346 4,313,457 [Conversion of employee stock ] None Note 15
warrant for NT$23,799 thousand
Stock dividend – new restricted
2013.10 10 500,000 5,000,000 432,796 4,327,957 employee shares for NT$14,500 None Note 16
thousand
1. Conversion of employee stock
warrant for NT$5,916 thousand
2013.12 10 500,000 5,000,000 433,573 4,335,733 2. Stock dividend – new None Note 17
restricted employee shares for
NT$1,860 thousand
1. Conversion of employee stock
warrant for NT$2,730 thousand
2014.03 10 500,000 5,000,000 433,981 4,339,813 2. Stock dividend – new None Note 18
restricted employee shares for
NT$1,350 thousand
1. Conversion of employee stock
warrant for NT$750 thousand
2014.06 10 500,000 5,000,000 433,831 4,338,313 2. Cancellation of new restricted None Note 19
employee shares for NT$2,250
thousand
Stock dividend – new restricted
2014.08 10 500,000 5,000,000 434,051 4,340,513 employee shares for NT$2,200 None Note 20
thousand
1. Conversion of employee stock
warrant for NT$7,015 thousand
2014.12 10 500,000 5,000,000 434,658 4,346,578 2. Cancellation of new restricted None Note 21
employee shares for NT$950
thousand
1. Conversion of employee
stock warrant for NT$27,659
thousand
2015.03 10 500,000 5,000,000 438,649 4,386,487 2. Stock dividend – new None Note 22
restricted employee shares for
NT$12,250 thousand
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Note 7: Jing-Shou-Shang-Zi No. 09901206110 Letter dated 09.13.2010. Note 15: Jing-Shou-Shang-Zi No. 10201096770 Letter dated 05.28.2013. Note 8: Jing-Shou-Shang-Zi No. 10001005610 Letter dated 01.11.2011. Note 16: Jing-Shou-Shang-Zi No. 10201214400 Letter dated 10.22.2013. Note 9: Jing-Shou-Shang-Zi No. 10001060980 Letter dated 03.31.2011. Note 17: Jing-Shou-Shang-Zi No. 10201247440 Letter dated 12.11.2013. Note 10: Jing-Shou-Shang-Zi No. 10001275550 Letter dated 12.05.2011. Note 18: Jing-Shou-Shang-Zi No. 10301032580 Letter dated 12.11.2013. Note 11: Jing-Shou-Shang-Zi No. 10101059950 Letter dated 04.09.2012. Note 19: Jing-Shou-Shang-Zi No. 10301102920 Letter dated 06.12.2014. Note 12: Jing-Shou-Shang-Zi No. 10101091810 Letter dated 05.22.2012. Note 20: Jing-Shou-Shang-Zi No. 10301160910 Letter dated 08.14.2014. Note 13: Jing-Shou-Shang-Zi No. 10101211370 Letter dated 10.12.2012. Note 21: Jing-Shou-Shang-Zi No. 10301251420 Letter dated 12.12.2014. Note 14: Jing-Shou-Shang-Zi No. 10201041250 Letter dated 03.07.2013. Note 22: Jing-Shou-Shang-Zi No. 10401045290 Letter dated 03.24.2015.

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Note 23: Jing-Shou-Shang-Zi No. 10401110510 Letter dated 06.29.2015. Note 24: Jing-Shou-Shang-Zi No. 10401190870 Letter dated 09.17.2015. Note 25: Jing-Shou-Shang-Zi No. 10401282090 Letter dated 01.04.2016. Note 26: Jing-Shou-Shang-Zi No. 10501040780 Letter dated 03.08.2016. Note 27: Jing-Shou-Shang-Zi No. 10501121270 Letter dated 06.04.2016. Note 28: Jing-Shou-Shang-Zi No. 10501222010 Letter dated 09.21.2016.

Note 29: Jing-Shou-Shang-Zi No. 10501279810 Letter dated 12.02.2016. Note 30: Jing-Shou-Shang-Zi No. 10601026170 Letter dated 02.24.2017. Note 31: Jing-Shou-Shang-Zi No. 10601038880 Letter dated 03.27.2017. Note 32: Employee stock option amounted to NT$ 250,000 has been exercised pending on registration.

2. Composition of Shareholders

Domestic Natural Persons 20.60 % Number of Shareholders: 7,278 person Shareholding:91,635,606

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Governmental Agencies
4.78 %
Number of Shareholders: 5 person
March 27 2017 Shareholding: 21,275,000
Composition of
Shareholders Financial Institutions
2.73 %
Shareholding Total
Number of Shareholders: 48 person
444,779,324
Foreign Institutions Number of Shareholders Total Shareholding:12,160,657
and Natural Persons
70.54 % 7,657 Other Juridical Persons
person 1.35 %
Number of Shareholders: 294 person
Shareholding: 313,734,556 Number of Shareholders: 32 person
Shareholding:5,973,505
----- End of picture text -----

34 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report

03.27.2017 / Unit: person / shares

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----- Start of picture text -----

Shareholder Ownership （ Unit: Share ） ShareholdersNumber of Total Shares Owned Ownership （ % ）
1 to 999 275 37,815 0.009%
1,000 to 5,000 5,614 11,415,949 2.567%
5,001 to 10,000 761 6,512,971 1.464%
10,001 to 15,000 170 2,268,429 0.51%
15,001 to 20,000 181 3,426,412 0.77%
20,001 to 30,000 114 2,993,442 0.673%
30,001 to 50,000 116 4,811,942 1.082%
50,001 to 100,000 113 8,285,052 1.863%
100,001 to 200,000 73 10,680,827 2.401%
200,001 to 400,000 60 17,411,336 3.915%
400,001 to 600,000 33 16,029,893 3.604%
600,001 to 800,000 29 20,293,472 4.563%
800,001 to 1,000,000 18 16,678,759 3.75%
Over 1,000,001 100 323,933,025 72.83%
Total 7,657 444,779,324 100.00%
----- End of picture text -----

4. List of Major Shareholders

03.27.2017 / Unit: Shares

==> picture [441 x 246] intentionally omitted <==

----- Start of picture text -----

Shares Total Shares Owned Ownership
Name of Major Shareholders （ % ）
ALPINE ASIA INVESTMENTS LIMITED 28,581,062 6.43%
CAMPBELL TECHNOLOGY CORPORATION 11,204,909 2.52%
HSBC Entrusted Bit Coin Global Choice-Global High Yield Certificate 9,757,000 2.19%
Yeh, Yu-Fen 9,600,227 2.16%
HSBC Entrusted HSBCGIF Asian small business fund 8,860,000 1.99%
Pan, Yung-Chung 8,264,046 1.86%
Lazard Emerging Markets Small Cap Equity Trust 8,237,000 1.85%
Carmignac Portfolio 7,914,087 1.78%
Public Service Pension Fund Management Board 7,611,000 1.71%
JPMorgan Chase Bank N.A. Taipei Branch in custody for Franklin
Templeton Investment Funds - Templeton Asian Smaller Companies 7,445,000 1.67%
Fund
----- End of picture text -----

5. Market price, net worth, earnings, and dividends per share within two （ 2 ） years and the related information

==> picture [441 x 194] intentionally omitted <==

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Item Year 2015 2016
Highest Market Price 48.5 51.5
Market price
Lowest Market Price 30.8 34.2
per share
Average Market Price （ Note 1 ） 42.27 42.45
Net worth Before Distribution 23.90 25.05
per share After Distribution 21.80 22.55
Weighted average Shares （ thousand shares ） 436,372 439,169
Earnings per share
Earnings per share 4.06 4.4
Cash dividend （ Note 4 ） 2.1 2.5
Dividend per share Stock From retained earnings 0 0
（ Note 2 ） dividend From capital reserve 0 0
Accumulated Undistributed Dividends 0 0
Return on investment Price/Earning （ P/E ） ratio 10.41 9.65
analysis Price/Dividend （ P/D ） ratio 20.13 16.98
（ Note 3 ） Cash dividend yield rate 0.0497 0.0589
----- End of picture text -----

Note 1: The annual average market price is calculated according to the annual sales value and volume.

Note 2: The Companybut not yet presented in the shareholder’s 2016 earnings distribution proposal was resolved by the Board of Directors on March 07, 2017, ’s meeting for resolutions.

Note 3: P/E ratio = Current average closing price per share / Earnings per share.

P/D ratio = Current average closing price per share / Cash dividend per share.

Cash dividend yield rate = Cash dividend per share / Current average closing price per share.

Note 4: The dividend payout ratio of the Company's 2014 and 2015 distributions was 51.21% and 52.33% respectively. The expected dividend payout ratio for the 2016 distribution was 57.49%.

6. The Company’s dividend policy and its implementation

（ 1 ） Dividend policy enacted in the Company’s Articles of Association:

If PRIMAX made a profit, it shall be used for write-off loss carried forward, followed by the appropriation of 10% as legal reserve. No appropriation for legal reserve will be necessary if the amount of such reserve is equal to the paid-in capital of PRIMAX. As required by law, the appropriation or reversal of special reserve shall be pooled up into the undistributed earnings at the beginning of period as accumulated earnings distributable to the shareholders. The Board shall prepare the plan for distribution and present before the General Meeting of shareholders for approval.

The Company’s dividend policy is to be determined by the Board of Directors by referring to the Company’s operating conditions, capital expenditure budget, future fund needs and long-term financial planning; also, by taking the interest of shareholders and the balance of dividend into consideration. According to current dividend policy and without any specific conditions taken into consideration, it is for an amount not less than 50% of the net income. The earnings distribution is with stock dividend or cash dividend distributed. The cash dividend distribution ratio shall not be less than 10% of the total dividend, provided that the proportion of cash dividends paid may be adjusted in accordance with the overall operating conditions of the year.

（ 2 ） The distribution of dividend proposed in current year:

The Company’s 2016 earnings distribution proposal was resolved by the Board of Directors on March 7 2017 with a cash dividend of NT$1,111,885,810 （ Dividend payout ratio is approximately 57.49% ） to be distributed to shareholders. This earnings distribution proposal will be resolved in the general shareholders’ meeting on May 25 2017and then processed accordingly.

36 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report

7. The impact of the stock dividend proposed in the shareholders’ ’s meeting on the Company

business performance and the earnings per share: No dividend distribution scheduled

8. Remuneration to employees, directors and supervisors

（ 1 ） The percentage or range of earnings as remuneration to employees and remuneration to directors and supervisors defined in the Company’s Articles of Association
The Company’
to employees and with less than 2% appropriated as remuneration to directors in accordance with the amendment of the Articles of Association proposed in the shareholders’ meeting. If the Company is with accumulated losses, an amount for making up the losses should be reserved in advance before appropriating remuneration to employees and remuneration to directors and supervisors according to the ratio referred to above.

the actual distribution amount is resolved in the shareholders’ meeting and the change in estimate is not significant enough to have the financial statements recomposed, the amount of difference will be recognized as profit or loss in the following year.

The ratio of remuneration to employees paid with stock dividend to the total of net income and remuneration to employees:
The Company has not proposed the distribution of stock dividend to employees; therefore, it is not applicable.
（ 4 ） If the actual distribution of remuneration to employees, directors, and supervisors in the previous year （ including number of shares distributed, amount, and stock price ） was different from the
remuneration to employees, directors, and supervisors recognized, the amount of difference, root cause, and accounting treatment should be detailed.

The Company had cash dividend to employees and remuneration to directors and supervisors distributed in 2015 for an amount of NT$78,500,000 and NT$32,000,000, respectively, which was different from the estimated amount of NT$78,268,840 and NT$31,907,533 by an amount of - NT$231,160 and - NT$92,467 due to a change in estimates. Also, the change in estimate was not significant enough to have the financial statements recomposed; the amount of difference would be recognized as profit or loss in the following year.

The remuneration to employees paid with stock or cash in the preceding paragraph is also available
to the qualified employees of the subsidiaries.
deducting the remuneration to employees and remuneration to directors and supervisors.

The remuneration to employees and remuneration to directors and supervisors must be with the consent of the majority of the presenting directors in the Board meeting that is with two thirds of the directors attended; in addition, the resolution must be reported in the shareholders’ meeting.

（ 2 ） The accounting treatment for the estimation basis used to estimate current remuneration to employees and remuneration to directors and supervisors, the number of shares applied for the calculation of stock dividend to employees as remuneration, and the difference between the actual distribution amount and the estimated amount.

The Company’s remuneration to employees and remuneration to directors according to the Company Law and the Company’s Articles of Association is in conformity with the requirements of （ 96 ） Ji-Mi-Zi No. 052 Letter of the Accounting Research and Development Foundation. While preparing interim and annual financial statements, estimate the remuneration to employees and remuneration to directors in advance that are to be booked in the respective account as operating cost or operating expense according to the nature of such remuneration paid. The difference between the earnings distribution resolved in the shareholders meeting and the estimated distribution amount in the financial statements should be treated as change in estimates and it is to be booked as profit or loss.

（ 3 ） The distribution of remuneration resolved by the Board of Directors:
The remuneration to employees and remuneration to directors and supervisors paid with cash dividend or stock dividend. If the actual expense amount differs from the estimated amount, the amount of difference, root cause, and accounting treatment should be disclosed.

The Company’s Board of Directors resolved on March 7, 2017 to have remuneration to employees in cash and remuneration to directors and supervisors distributed for an amount of NT$74,000,000 and NT$36,800,000, respectively, which was different from the estimated amount of NT$74,000,000 and NT$36,803,496 by an amount of NT$0 and NT$3,496 due to a change in accounting estimates. Once

9. The Company’s buying back shares: None

10. The process of corporate bonds, preferred stock, and GDR: None

11. Employee stock warrant status

（ 1 ） Outstanding employee stock warrant status and its impact on shareholders’ equity

The Company merged the former Primax on 12.28.2007 and acquired its related employee stock warrant previously issued; also, it was exchanged for the employee stock warrant issued by Primax Electronics Holdings, LTD. （ British Cayman Islands ） as the main business entity in 2008; also, all rights and obligations were the same as those offered by the former Primax Electronics Holdings, LTD. （ British Cayman Islands ） had intended to propose a dissolution and liquidation plan in 2009; therefore, it was again exchanged for the employee stock warrant issued by Primax as the main business entity and with all rights and obligations same as those offered by Primax Electronics Holdings, LTD. （ British Cayman Islands ） . The Company’s

Board of Directors for the issuance of stock and employee stock warrant had the 2008 1st and 2nd employee stock warrant issuance and subscription approach amended on November 12, 2009 that was approved by the Securities and Futures Bureau with SFC.Far.Zi No. 0980062637 Letter issued. In addition, the Company in consideration of the annual expansion of the scale of operation, in order to strengthen the existing management team, has the 2011 employee stock warrant issuance and stock subscription approach enacted on September 30, 2011 that was approved by the Securities and Futures Bureau with SFC.Far. Zi No. 1000051000 Letter issued on October 26, 2011. The Company’s respective issuance of employee stock warrant is shown as follows:

38 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report

03.31.2017

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----- Start of picture text -----

1st Tranche ESOP in 2008 ESOP issued in 2011
Type of Stock Option （ Note 1 ）（ Note 2 ）
12.01. 2009 12.01. 2009 10.26. 2011 10.26. 2011
The effective date of declaration
Issuance date （ Note 3 ） 01.02.2008 11.12. 2009 11.24. 2011 10.22. 2012
Duration 8 years 8 years 5 years 5 years
Number of stock warrant issued （ Note 4 ） 6,482,700 370,440 1,500 3,500
Ratio of number of stock option to the 1.47 0.08 0.34 0.79
total number of outstanding shares （ % ）
A 43% stock option can be A 43% stock option can be A 50% stock option can A 50% stock option can
exercised starting from the exercised starting from the be exercised at the end be exercised at the end
4th year to the end of the 6th 4th year to the end of the 6th of the 2nd year; also, a of the 2nd year; also, a
Subscription period year and the remaining 57% year and the remaining 57% 100% stock option can be 100% stock option can be
stock option can be exercised stock option can be exercised exercised at the end of the exercised at the end of the
starting from the 6th year to starting from the 6th year to 3rd year till the expiry date. 3rd year till the expiry date.
the end of the 8th year. the end of the 8th year.
Mode of exercise Exchange for new Exchange for new Exchange for new Exchange for new
shares shares shares shares
Period and ratio restricted for subscription Note 1 Note 1 Note 2 Note 2
（ % ）
Quantity of shares acquired through
6,174,000 159,289 675,000 1,914,500
exercise of ESOP
Amount of stock option exercised 70,507,084 1,819,081 12,040,000 50,648,500
Quantity of shares not being subscribed
308,700 211,151 825,000 1,585,500
under ESOP （ Note 5 ）
Subscription price per share for the 11.42 11.42 16.20 25.20
unexercised options
Quantity of shares not being subscription
under the exercise of options in proportion 0.07 0.05 0.19 0.36
to total outstanding shares （ % ）
The stock warrant will be The stock warrant will be The stock warrant will be The stock warrant will be
executed annually after three executed annually after three executed annually after two executed annually after two
The impact on shareholders’ equity years and five years from the issuing date; also, the former shareholding’s equity will be years and five years from the issuing date; also, the former shareholding’s equity will be years and three years from the issuing date; also, the former shareholding’s equity years and three years from the issuing date; also, the former shareholding’s equity
diluted year after year with a diluted year after year with a will be diluted year after year will be diluted year after year
limited dilution effect. limited dilution effect. with a limited dilution effect. with a limited dilution effect.
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Note 1: The employee stock warrant issued currently is for 8 years starting from the issuing date of the former Primax Electronics Holdings, Ltd. employee stock warrant and it is executed in accordance with the following schedule in a lump sum. The stock option that was not exercised on the expiry date will be deemed as a waiver and the stock option holders may not assert their stock option rights.
Schedule: A 43% stock option can be exercised starting from the 4th year to the end of the 6th year.
- A 57% stock option can be exercised starting from the 6th year to the end of the 8th year.
- If the employees with the stock warrant had left the employment for any reason or had committed severe negligence of violating labor contracts or work rules, or poor job performance, the Company is entitled to have the outstanding stock warrant withdrawn and then have it reissued. The stock warrant recovered and then re-issued is effective starting from the re-issuing date. However, if the employees after the Company’s public offering had left the employment for reasons or had committed severe negligence of violating labor contracts or work rules, or poor job performance, the Company is entitled to have the outstanding stock warrant withdrawn and then have it cancelled. It was issued on 01.02.2008 and had expired.
“employee stock warrant” issued for two years starting from the issuing date and a 100% stock option can be exercised after three years from the issuing date. If the employees after receiving the stock warrant had left the employment for any reason or had committed severe negligence of violating labor contracts or work rules, or poor job performance, the Company is entitled to have the outstanding stock warrant withdrawn and then have it cancelled. The stock option that is not exercised on the expiry date will be deemed as a waiver and the stock option holders may not assert their stock option rights. The issuing date of 2011.11.24 has passed.
Note 3: Except for the stock warrant issued on 11.12.2009, 11.24.2011, and 10.22.2012, the issuing date of the remaining stock warrants by Primax Electronics Holdings, LTD （British Cayman Islands） and former Primax as the main business entities referred to the employee stock warrant issued on 12.30.2008 by the Company as the business entity.
Note 4: That was the units issued on 12.01.2009 and 10.26.2011 with the approval of the Financial Supervisory Commission, respectively. In addition, except for the 2011 employee stock warrant subject to the subscription of 1,000 shares per unit while the remaining respective employee stock warrant is subject to 1 share per unit.
Note 5: It is the balance of the issued unit net of the unit executed and invalid and cancelled unit.
（ 2 ） The managers received employee stock warrant and the name, acquisition, and subscription of the employees on the top-ten stock warrant subscribers list:

03.31.2017 / Unit: NT$1,000 / 1,000 shares / %

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----- Start of picture text -----

The quantity of Exercised Unexercised
subscription
Number units in % of
% of Shares to
Title Name of Options Granted proportion to the total Shares Price Per Share Value of Shares Outstanding Shares to Shares Price Per Share Value of Shares Outstanding Common
subscription Common Shares
quantity Shares
Director/General Yang,
Manager Hai-Hung
General Manager
of Business Pan,
Yung-Tai
Department
Vice General Tsao,
Manager Chung-Feng
Vice General Chou,
Manager Yen-Chou 11.42 56,749
4,969
Vice General Liu, Chia-Lun 50 18.20 910 211 11.42
Manager （Note 2） 5,830 1.31 50 17.90 895 1.24 125 25.20 5,561 0.08
Vice General Lee, 425 26.50 3,312
Manager Chiu-Sheng 25.20 7,560
Vice General Chiang,
Manager Yan-Ying
Vice General Chang,
Manager Ching-Kai
Vice General Wei, Hao-
Manager San
Vice General Chang,
Manager Yao-Han
Senior Assistant Lee,
General Manager Hung-Ta
Senior Assistant Luo,
General Manager Ming-Deh
Assistant General Lin,
Manager Chun-Hsien
Senior Assistant Chang,
General Manager Chen-Deh 515 11.42 5,876
25 18.20 455
Assistant General Cheng, 225 17.90 4,027
Manager Cheng-Ho
1,245 0.28 100 17.10 1,710 0.28 100 25.20 2,520 0.00002
Senior General Chen, 140 27.70 3,878
Manager （Note 3） Chi-Hsu 90 26.50 2,385
General Manager Rai-YuanLing, 50 25.20 1,260
Senior General Ma,
Manager Yu-Cheng
Senior General Chen,
Manager Kuang-Tzer
Senior Assistant Chen, Ying-
General Manager Shou
Managers
Employee
︵Note: 1
︶
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Note 1: The top-ten employee stock warrant subscribers refer to the employees other than the managers. Note 2: Resigned on 06.30.2016.

Note 3: Resigned on 12.31.2016.

Note 4: A total of 444,754,324 shares were issued on 03. 31.2017.

（ 3 ） The private placement of employee stock warrant in the last three years: None

12. The process of new restricted employee shares

（ 1 ） The process of new restricted employee shares without fulfilling the vested conditions completely and its impact on shareholders:

03.31.2017

==> picture [440 x 49] intentionally omitted <==

----- Start of picture text -----

Type of new restricted The first issue in The second issue
employee shares 2014 in 2014 The first issue in 2016
10.06.2014 10.06.2014 10.18.2016
The effective date of declaration
Issuing date 02.24.2015 08.18.2015 02.13.2017
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40 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report

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----- Start of picture text -----

Type of new restricted The first issue in The second issue
employee shares 2014 in 2014 The first issue in 2016
Number of new restricted employee
shares issued （ shares ） 1,225,000 1,775,000 2,450,000
Issuing price 0 0 0
Ratio of the number of new
restricted employee shares issued to 0.28 0.40 0.55
total outstanding shares （ % ）
Vested conditions of the new Shall comply with the Company’s operating results Shall comply with the Company’s operating results
restricted employee shares and individual performance as defined in the Rules. and individual performance as defined in the Rules.
1. Employees may not have the new restricted employee shares 1. Employees may not have the new restricted employee shares
sold, mortgaged, transferred, gifted, pledged, or disposed in sold, mortgaged, transferred, gifted, pledged, or disposed in
any form before fulfilling the vested conditions. any form before fulfilling the vested conditions.
2. The attendance, motion, speech, and voting right of the shareholders’ meeting should be implemented in accordance with 2. The attendance, motion, speech, and voting right of the shareholders’ meeting should be implemented in accordance with
the trust and depository contracts. the trust and depository contracts.
The limitation of rights of the new
restricted employee shares 3. Except for the limitations in the preceding paragraph, the 3. Except for the limitations in the preceding paragraph, the
other rights of the new restricted employee shares received other rights of the new restricted employee shares received
according to the Rules, including but not limited to stock according to the Rules, including but not limited to stock
dividends, bonuses and rights to additional paid-in capital, dividends, bonuses and rights to additional paid-in capital,
stock subscription from cash capital increase, voting right, etc., stock subscription from cash capital increase, voting right, etc.,
before fulfilling the vested conditions, are without any limitation same as the Company’s common stock issued. before fulfilling the vested conditions, are without any limitation same as the Company’s common stock issued.
The custody of new restricted It is handled in accordance with the It is handled in accordance with the
employee shares trust depository method. trust depository method.
The process of new restricted employee The new restricted employee shares received but not yet fulfilling The new restricted employee shares received but not yet fulfilling
shares received or subscribed before the vested conditions will be called back without compensation by the vested conditions will be called back without compensation by
fulfilling the vested conditions the Company and it will then be cancelled. the Company and it will then be cancelled.
shares called or buyback Number of new restricted employee （ shares ） 240,000 160,000 0
Number of new restricted employee shares derestricted （ shares ） 633,000 484,500 0
Number of new restricted employee
shares （ shares ） 352,000 1,130,500 2,450,000
Ratio of the number of new
restricted employee shares to the 0.08 0.25 0.55
total outstanding shares （ % ）
The impact on shareholders’ equity No significant impact. No significant impact. No significant impact.
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----- Start of picture text -----

Released Unreleased
Number Ratio of the number Released Unreleased
of new of new restricted Restricted Restricted
Title Name restricted employee shares Number Issued Amount Shares as a Number Issued Amount Shares as
employee shares outstanding sharesto the total sharesof price issuanceof Percentage of Shares sharesof price issuanceof Percentage of Shares
Issued Issued
Senior Assistant Chang,
General Manager Chen-Deh
Senior Assistant Huang,
General Manager Chien-Nan
Assistant Ying,
General Manager Chung-Wen
Assistant Hung,
General Manager Chi-Ming
Assistant Chen,
General Manager Ying-Shou
Assistant Wang,
General Manager Wen-Lu
1,545,000 0.35% 390,500 0 0 0.09% 1,154,500 0 0 0.26%
Assistant Liou,
General Manager Rai-Ming
Assistant Wu,
General Manager Ta-Chuan
Assistant Hu,
General Manager Ching-Yuan
Assistant Shan,
General Manager Yi-Kuang
Assistant Lu,
General Manager Yu-Hung
Assistant Chih,
General Manager Chao-Hsi
Employees
----- End of picture text -----

Note: A total of 444,754,324 shares were issued on 03.31.2017.

Note: A total of 444,754,324 shares were issued on 03. 31,2017.

（ 2 ） The name of the managers received new restricted employee shares and the top-ten employees and the number of shares obtained by each of the employees:

03.31.2017

==> picture [441 x 279] intentionally omitted <==

----- Start of picture text -----

Ratio of the Released Unreleased
Number number of Released Unreleased
of new new restricted Restricted Restricted
Title Name restricted employee shares Number Issued Amount Shares as a Number Issued Amount Shares as
employee shares outstanding to the total sharesof price issuanceof Percentage of Shares sharesof price issuanceof Percentage of Shares
shares Issued Issued
Yang,
General Manager
Hai-Hung
General Manager of Pan,
Business Department Yung-Tai
Senior Vice General Hsiao,
Manager Ying-Yee
Chou,
Vice General Manager Yen-Chou
Tsao,
Vice General Manager
Chung-Feng
Chuo,
Vice General Manager Yu-Shan
2,500,000 0.56% 417,000 0 0 0.09% 2,083,000 0 0 0.47%
Lee,
Vice General Manager
Chiu-Sheng
Chiang,
Vice General Manager
Yan-Ying
Chang,
Vice General Manager
Ching-Kai
Chang,
Vice General Manager Yao-Han
Wei,
Vice General Manager Hao-San
Assistant General Pan,
Manager Yen-Jen
Managers
----- End of picture text -----

13. Stock acquisition or transfer from other companies with new shares issued

（ 1 ） Stock acquisition or transfer from other companies with new shares issued in the most recent year or as of the printing date of the annual report: None.
（ 2 ） Stock acquisition or transfer from other companies with new shares issued resolved in the Board meeting in the most recent year or as of the printing date of the annual report: None.

14. Fund plan and its execution

（ 1 ） Project content:

The prior issuance or private placement of marketable securities that was not yet completed or it was completed within the last three years without significant effect up to the last quarter prior to the printing date of the annual report: Not Applicable.

（ 2 ） Project execution:

Analyze the intended use of each project in the preceding paragraph up to the prior quarter of the printing date of the annual report, the execution, and comparison with the expected effect: Not Applicable.

42 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report

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1. Business content:

（ 1 ） Business Scope

1. The main business operations of the Company

CB01020 Business equipment manufacturing industry CC01030 Electrical appliances and audio-video electronic products manufacturing industry CC01060 Wired communication machinery equipment manufacturing industry CC01070 Wireless communication machinery equipment manufacturing industry CC01080 Electronic components manufacturing industry CC01101 Controlled telecommunications radio frequency equipment manufacturing industry CC01110 Computer and peripheral equipment manufacturing industry CE01030 Optical instrument manufacturing industry F401021 Controlled telecommunications radio frequency equipment importing industry I301010 Information software services industry F113050 Computer and multifunction products wholesale industry F118010 Information software wholesale industry F213030 Computers and multifunction product retail industry F218010 Information software retail industry C805050 Industrial plastic products manufacturing industry CA02010 Metal structures and architectural components manufacturing industry CA02090 Metal wire products manufacturing industry F401010 International trade industry F114030 Wholesale of Parts and Accessories for Automobiles and Motorcycles F214030 Retailing of Parts and Accessories for Automobiles and Motorcycles. ZZ99999 In addition to the chartered business, the business not-prohibited or non-restricted by law is also permitted for operation.

2. Business ratio

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----- Start of picture text -----

2. Business ratio Unit: NT$1,000
2016
Year
Item
Total Sales (%) of Total Sales
PC peripherals 25,730,665 40.00
Non-PC peripherals 38,598,797 60.00
Total 64,329,462 100.00
----- End of picture text -----

3. The Company’s current products （ services ）

PC peripheral products

Non-PC peripheral products

① Computer input device Basic roller mouse Traditional optical mouse Advanced Laser mouse

① Mobile device components products

．24-megapixel OIS camera module
．13-megapixel + 13-megapixel dual-camera module
．14-megapixel web camera module
．
．
Communications peripheral equipment
Wireless radio frequency optical and laser mouse
． Bluetooth headphones / Bluetooth stereo headphones / Bluetooth stereo module / Bluetooth desktop / car handsfree device / Bluetooth USB audio frequency signal receiver
． Bluetooth GPS receiver / Bluetooth USB data transmission receiver

Bluetooth mouse

． Desktop charging cradle / car charger / USB charging cable / Portable power supply unit / wireless charger / wireless charging module
Wireless Bluetooth dual-mode mouse
． MP3 charging dock / radio wired control device / remote ．Phone data transmission lines / USB Card ReceiverPhone data transmission lines / USB Card Receiver

Wireless presenter ．Phone data transmission lines / USB Card ReceiverPhone data transmission lines / USB Card Receiver Mini Mouse ② Business equipment products ③ Digital home and Image Scanner audio products Wired keyboard ．Flatbed scanner Portable wireless ．Automatic document feeder （ADF） networks storage Wireless keyboard ． Automatic reversing document device feeder （ARDF） Bluetooth keyboard ． Double-sided automatic document Bluetooth portable feeder （DADF） speaker Mechanical keyboard ．Office scanner module ． Scanner module software and One-piece sound Game mouse and keyboard firmware development bar （2.1, 5.1 sound track）

Game mouse and keyboard Backlit keyboard Notebook computer keyboards

Printer

Computers / audio
． Black and white and color laser speakers
printer control panel development
． Black and white and color laser printer software and firmware Headphones development Speaker driver
． Dot matrix business printer ． Thermal printer ． Portable thermal photograph printer ④ Wearable device products:
Multifunction Printers ． Black and white and color laser Smart Band Multifunction Printers
． Multifunction Printers control panel Smart Watch development

Ultra-thin tablet PC keyboard

Keyboard module Smart TV remote control

Living room input device

MFi （Made for iPod, Made for iPhone） Wired Keyboard Bluetooth wireless game joystick
． Multifunction Printers software and firmware development

Fax machine

． Black and white fax machine

Games peripherals Capacitive stylus pen

Information processing device
． Computer terminals
． Mobile Internet devices
． Point of sales （POS）

② Notebook computer touch panel

． Cash register （CR）
． Lottery Machines
③ Digital Writing Tablet
． Shredder ．Binding machine
④ Network camera module ．Laminator ．Paper cutter 300,000 pixel – 2-megapixel Smart network camera
camera ． Surveillance camera
2-megapixel autofocus web ．Conference camera camera

44 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report

4. New products （ service ） development plan

PC peripheral products

Non-PC peripheral products

Computer input device mouse ① Mobile device components ② Business equipment products and keyboard products Commercial double-sided automatic document feeder Backlit keyboard Full HD slim NB camera （DADF） scanner module Commercial network scanner Keyboard module High-speed multifunction 5/8-megapixel prime lens printer scanner module Bluetooth and wireless camera module （front lens） High-speed color laser printer controller and presenter control panel development Barcode label black and 5/8-megapixel telescopic Game mouse and keyboard zoom lens camera module. white / color printer High-speed B & W / Color Game console peripherals Laser multifunction product 13/16/20 –megapixel closecontrol panel development Multi-point touch panel loop fast automatic focus Mobile Internet devices camera module. Point of Sales （POS） Digital Writing Tablet service machine control 13/16/20/24-megapixel OIS board development Smart TV remote control + automatic focus camera Portable photo printer and module Internet of Things （IoT） Ultra-thin tablet PC keyboard interface development and leather keyboard Phase difference fast focus ③ Digital home and audio camera module products Capacitive stylus pen

Home Network Attached Storage （NAS） device Portable Wireless Network Attached Storage hard drive Digital home entertainment media server

13-megapixel +13-megapixel dual-lens camera module

Bluetooth stylus pen

Tablet phone game controller Living room input device Thin mechanical keyboard

13-megapixel +8-megapixel dual-lens zoom lens module

Digital home wireless audio system Digital home-related applied software Portable Wireless Speaker Noise control sound system Noise resistance earphones Sports earphones with health status measurement function

360 ° panorama / Sports camera

Surveillance camera

Tablet PC high-speed transmission expansion port Phone fingerprint Audio conference keyboard identification module High wattage wireless charging device Credit card fingerprint

④ Automotive Electronics and related products Vehicle use camera module

（ 2 ） Industry Overview

1. Industry current status and development

（ 1 ） PC peripheral products

PRIMAX’s PC peripheral products are mainly the keyboard and mouse of desktop and notebook computer; also, the market change of such product line is closely related to the development of personal computers. In recent years, the global market and Taiwan desktops and notebook computer sales had experienced negative growth due to the impact of the Tablet PC and Microsoft windows 10 failed to boost up demand for computers. However, the demand for tablet PC was also declining in the last year due to a saturated market; however, overall, desktop and notebook computer sales are mostly generated by the top-three brands moving towards the trend of “the bigger, the better.” PRIMAX had adopted the key-customer strategy to minimize the impact of a weak computer market. According to IDC, a famous market research firm, the growth of tablet PC in 2016

turned negative mainly because of the slowdown in the demand of the consumer market and the small panel tablet PC was affected by the low price big screen smart phones. However, compared to the slowdown in the consumer market, the commercial, educational and large-sized tablet computer market will gradually warm up. In terms of consumer demand and technology upgrade, detachable tablet PC has began to grow and the demand for input devices is also increasing. PRIMAX has achieved preliminary results in the consumer tablet keyboard and will follow the trend of the commercial, educational, large-size tablet and detachable tablet PC to actively expand the market with stable growth. In addition, the cyber game market is growing in recent years. The upgrade of online game quality and network speed has generated the demand for

advanced cyber game peripheral products. As such, the Company has committed significant effort in the gaming market from the very beginning and has successfully developed 5 major gaming brands as our customers. Further growth is expected in 2017.

market of Southeast Asia tends to be protectionist, manufacturing in the region will be the primary objective of the mobile phone manufacturers. Accordingly, suppliers of parts and components are also planning to cope with the change. The emerging market will replace existing market and become the prime force driving the growth of the global mobile phone market. It is expected that the global shipment volume of smart phone in 2017 will be more than 1.4 billion units. Driven by the rise of mobile APP in record high, the integrated application of the ecology chain starts to thrive, including mobile payment, IoE, and others. This allows for infinite imagination for the improvement of the way of life for mankind. Likewise, related parts and components for the mobile devices, such as camera lens module, fingerprint identification, wireless charger, and even different sensor equipment, will be in the area of growth in demand. In the area of camera lens module, the demand for high-end lens camera will continue to grow in 2017. Further to OAS, fast focus, slim products, application of double-lens will emerge as the mainstream item in the second half of the year and will challenge the suppliers of camera lens module

（ 2 ） Non-PC peripheral products

① Mobile device components products

According to the statistics released by IDC, global supply of mobile phones in 2016 was 1.47 billion units of which 310 million units were supplied by Samsung, 220 million units were supplied by Apple, 140 million units were supplied by Huawei, 99 million units were supplied by OPPO, and 77 million units were supplied by vivo. The top 3 brands of China, HOV, emerged as the fastest growing brands. Traditionally, Q1 of 2017 will be a slow season particularly in China, which will be the market of digesting the inventory carried forward from the previous year. High demand is expected to resume in Q2. These top 5 producers will still maintain the lion shares in the world market. However, the market in China is getting saturated and the famous brands of mobile phone tend to shift their gravity to Southeast Asia, Africa, Eastern Europe and Russia. As the

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46 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report

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in production capacity planning. The prevalence of mobile payment makes fingerprint identification the second to none choice of consumers. This function is expected to gain more than 60% of the market share of smart phone.

sale of printer and business machine hardware has

been on the decline. According to a survey report on the printer market of China in 2016 released by IDC, the total volume of the assembly of new machines fell and the volume of the assembly of mainstream printer firms also fell. In the wake of poor economic performance, the purchase from the government and the small and medium enterprises shrunk significantly. At the same time, the buying habit and demand of individual consumers also changed significantly. Price and promotion by advertising are no longer the primary factors affecting the choice of the consumers for products. Instead, the price/ performance ratio, reliability, and service gradually emerged as the factors critical for the decision of the consumers. The prevalence of mobile devices （ smart phones and tablet PC ） and the popularity of digital process also inflicted impact on the printer market that drove down the quantity of printer sale without a pause. Yet, a report released by IDC suggested that there will be 2.3% CAGR from 2014 to 2019, which draws the attention of the firms once again to the management of the printer market. The rapid

② Business equipment products

The Company deals with a wide range of business machines including scanners, printers, multiple-purpose printers （ business machine ） , fax machine, data processors （ such as: computer terminal, cashier machine ） , and office automation products （ such as: paper shredder, laminator ） , of which scanners and multiple-purpose business machines are the hot items.

Scanners, printers and business machines are products of mature technologies. Although high resolution and network connection of the products are still in demand, the price falls without a pause. The sluggish economy worldwide also mired the growth of the emerging market, to the extent that the

to develop innovative application in large scale, such as cloud printing and cloud scanning functions. With these functions, users just need to use their mobile devices to send document for printing through WiFi, or directly access to the image of the documents. These brand new functions emerged as a basic function for multiple-purpose business machine. The demand for these new functions and the expansion of the emerging market helped to boost the growth of A4 low-end B/W and color printers.

③ Digital home and audio products

The home network environment is maturing along with the increasing popularity of the broadband network and transmission speed, added to the increasing Wi-Fi products, smartphone, tablet PC and related commodities, the network / computer / mobile device （ smartphone / tablet computer ） and TV / electrical appliances interface and operating system has a blurred boundary. Different platforms and devices can be all connected and become a seamless audio and video entertainment environment. The user interface is also more intuitive and user-friendly. Digital home-related products and applications have become an inevitable trend and it becomes the highlight of current consumer electronics and the favorite of major electronics exhibitions, such as, CES, CeBIT, IFA, etc. The use of digital home audio/video streaming along with the upgrade of wireless network broadband （ IEEE802.11n MIMO, ac MU-MIMO ） has better met consumer’s expectations and led to the development of related products and services.

Each leading brand will continue to introduce more high-end related products recently, from UHD 4k LCD TV, all kinds of set-top boxes （ such as, Apple TV, Roku, Google Chromecast, and Amazon Fire TV ） , Internet storage devices （ eg NAS, DLNA wireless storage, etc. ） , audio and video entertainment servers （ such as, Xbox One and PS4 ） , wireless audio systems （ e.g. Soundbar ） ... etc. Both hardware manufacturers and Internet service providers had striven to upgrade product specifications and to improve sales in the last year. Although the product line and technology of each company may be different, from the perspective of market applications, audio/video streaming and cloud computing concepts related hardware and software applications have become the focus of the digital home product growth in the next few years.

The four screens and one cloud （ TV screen, computer screen, mobile phone screen, tablet PC screen, and home private cloud ） environment based on making the living room as a home entertainment center have met the consumer demands for video data storage （ Personal Cloud ） and convergence and sharing needs between devices. No matter if it is for hardware or software, the consumer demand for digital video, photos, music, file storage and management, and sharing and streaming is real and has helped create many new business opportunities.

Smart sound system emerged as the market for international big firms after the exploding growth of digital home. For upgrading their competitive power, the smart sound system firms understand the demand of the users with innovation and improvement so as to further the development. Easy to carry is vital for mobile smart hardware in the era of mobile network. However, some smart sound systems are still in big size with an attempt to keep the quality of sound and the number of speakers contained in the system that additional batteries are required for a longer stand-by mode. The size of the smart sound system will become smaller if the condition of sound quality could give way and make smart sound system function normally without connecting to power supply after installing a battery.

The sound quality of Smart audio had been criticized severely throughout the course of development in 2015. The Company aims to provide a high-quality sound experience, to invest sufficiently in R&D and the simulation of user aspect for stable sound quality, experience, and product. The over-emphasizing on smart audio products will have the essence of audio lost, because sound is closely interacting with human lives; therefore, the long-term use of smart audio should be for the pursuit of “good sound.” Therefore, in 2016, the smart audio manufacturers will gradually return to basics to create high-quality sound first before addressing the concern of being smart. At the same time, if smart audio is to become an important tool to the control digital home; it must be able to bring convenience to users, rather than complicated operation or cumbersome and impractical features. For product developers in an era of the Internet, it must be able to expand the user base, for example, to obtain the support of partners by opening the connection port in order to enhance the control over the digital home.

48 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report

In 2016, the new trend for smart sound system is the inclusion of voice assistance function that made it the center of control for smart home. Voice assistance function has attracted the attention of all sectors after the launch of Siri service by Apple. The handset is portable and convenient to carry. Yet, there is still limitation inherent to the device in certain situations and actual lives. In other words, one must take it out for using. In the advent of smart sound through voice assistance, the habit of using changed. Consumers just need to speak it out and get response. This makes voice assistance into application of daily lives possible. Accordingly, smart sound market can be upgraded and expanded to a new domain.

devices include sports bracelets, smart watch, and smart glasses of which smart watch enjoyed 27.8% CAGR and surpassed the growth of sports bracelet. In addition, this smart watch will account for 52.1% （ currently is 41% ） of the wearable device market by 2020.

Newly established companies, such as, Fitbit and Pebble had entered the wearable device market the earliest, followed by mobile device manufacturers, such as, Samsung, LG, Sony, etc. that had a smart watch with a higher price and more functions launched to meet the demands of more consumers. Wearable devices market is not yet mature; also, product applications, user interface, and operating system platform are still in rapid evolution. However, the continuing expectations of consumers in mobile computing and the participation of leading manufacturers, added to the smart watch launched by Apple with the attention of consumers gathered, wearable devices in the coming years will be one of the focuses for the growth of consumer electronics products.

④ Wearable devices products

Wearable devices have become popular very quickly in the last two years and have attracted new firms, PC brands, and mobile device manufacturers to the industry. IDC, a well-known research institution, projected that the CAGR of wearable devices from 2016 to 2020 will be 20.3% and the shipment volume in 2020 will be 213 million units worldwide. Wearable

2. The correlation of upstream, midstream and downstream of industries

（ 1 ） PC peripheral products:

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Consumer electronics
Components Peripheral System assembly
Network
card
Output device:
CPU Printer and drawing machine
Motherboard
DRAM
Graphics card
SHIP SET
Control card
SRAM The display device:
Monitoring products, terminals,
and liquid-crystal display
Printed circuit
board industry Storage devices: Personal PC Computersales
computer LAN
HDD, RAID, DISK Array, FDD and DISK, industry
Other COMBO, and CD/DVD ROM
components
CCD & CISCRT Input device: stationWork Compserveruter maintenanceRepair and
…………. service
Keyboard, mouse,
video scanners, and tablet and pen
Iron material
Copper box Power supply unit: computerMini
industry Power supply,
Chemical UPS (uninterruptible power system)
materials
Dry molding
Others: Software Communication
industry products
Computer chassis, heat tubes,
and related components
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（ 2 ） Non-PC peripheral products

① Mobile device components products:

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Upstream Midstream Downstream
Photonics Industry
CMOS, Lens Product
manufacturing plant
Electronic materials Module Cell phone system
manufacturing plant
PCB, Flex-PCB
Passive components, Connector Camera module Product
manufacturing plant
IC industry
Notebook computer
ISP, Memory, USB
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② Business equipment products:

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Multifunctional printers （ office machine ） industry supply chain
Upstream Midstream Downstream
Photonics Industry
CCD, lens
Electronic materials
System integrators
PCB, POWER
（ SI / ODM ）
IC industry
Image input / output
SOC, DRAM Module manufacturers Hardware Manufacturers
Plastic materials CIS, Inkjet Bead, （ OEM / EMS ）
Laser engine, Controller
Chassis, gear
Brand manufacturers
Metal material
（ Brand ）
Screws, washers
Software design
Operating system, drivers,
image processing
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Multi-function printers （ multi-function products, MFP ） are composed of several important modules, namely, document scanners, printers （ head ） , control panels, operating panels, automatic document feeders （ ADF ） , and paper trays. An image sensor is the key component of the Document Scanner, including CCD and CMOS techniques that are mostly controlled by Japanese manufacturers, mainly supplied by Sony and Toshiba. Midstream suppliers provide scan modules, including a sensors, mirrors, and lamps. Downstream system suppliers provide a complete scanner, including image scanning module, motor control, image capture control circuit, data transfer control circuit, chassis and software. System suppliers also offer automatic a document feeder （ ADF ） that is combined with the scanner to perform continuous scanning function.

PRIMAX’s upstream suppliers are all worldrenowned companies with a long-term and stable cooperative relationship established; therefore, the product quality and delivery have never encountered any raw materials supply shortages, interruption or delay, and the risk of PRIMAX’s facing the impact of changes in upstream operation is very low. PRIMAX has striven to reduce production costs and improve product quality by actively developing highspeed multifunction printer module and enhancing firmware and software applied programs and system integration technology. In addition, in response to customer’s product strategy in the emerging markets, PRIMAX has also developed a number of midend and low-end black and white laser printers and multifunction printers with very competitive quality and cost.

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Primax Electronics Ltd. 2016 Annual Report

③ Digital home and audio products:

In the area of Digital home and audio products, the Company has provided various forms of designs and manufacturing of audiovisual related products such as speakers, passive speakers, wireless sound system, wireless earphones, TV Sound bar, and camera-based video devices. In addition, there are also the personal storage devices such as Wireless Flash Drive and Wi-Fi Hard Drive.

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Wireless Speaker System Product Supply Chain
Upstream Midstream Downstream
Special paper industry
Speaker vibration membrane
Electronic materials
System integrators
PCB, POWER
（ SI / ODM ）
IC industry
MCU, DSP, Bluetooth Sound output Hardware Manufacturers
Module manufacturers
（ OEM / EMS ）
Plastic materials Acoustic transducer
Chassis, Keypad
Brand manufacturers
Metal material
（ Brand ）
Copper wire, magnet
Software design
Sound processing, Driver,
Network protocol
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④ Wearable device products:

Wearable devices contain sensors, display interface, wireless communication module, battery, and waterproof chassis. PRIMAX is currently focusing on the mainstream products of wearable devices, including smart band and smart watch with product design and manufacturing services provided.

from competitors; therefore, working towards high value-added products R&D is the future trend of the industry.

3. Product development trends

（ 1 ） PC peripheral products

PRIMAX’s PC peripherals are mainly used with desktop computers, notebook computers and personal digital information products. The PC peripherals market competition will be more severe due to the PC market shrinking and brand concentration effect. In response to the development trend of downstream product applications, keyboard and mouse manufacturers will respond to the future smart home, mobile device peripherals, IA （ information home appliance ） products, Internet of Things （ IoT ） , wearable products, and current consumer’s personal and human needs, and continue to research and develop the peripheral input devices for network television, entertainment computers, game consoles, handheld computers, mobile devices, etc. in order to improve the added value of products and increase the technology gap

（ 2 ） Non-PC peripheral products

① Mobile device components products The camera and fingerprint identification module manufactured by PRIMAX are mainly used in Notebook PC, tablet PC and smart phone. There is a few trends in the use of this item in Notebook PC; （ 1 ） Slim: the thickness of the lens must be congruent with the thickness of the panel. In the other words, the thinner the panel, the thinner the lens. According, corresponding encapsulation technology needs to be improved. Further to the CSP and COB technologies, which could be supplied by many lens suppliers, PRIMAX has advanced to the slimmest Chip on Stiffener （ CoS ） and even the Flip-chip technology in Chip of Flex （ CoF ） technology and is second

to none in the world market; （ 2 ） High resolution visual display, from BGA, HD （ 720P ） , FHD （ 1080P ） to 4K2K. Currently, HD has emerged as the mainstream item of Notebook PC and consumer PC will also emerge as the mainstream item this year; （ 3 ） Double-lens module: In 2015, PRIMAX is the first manufacturer that launched the double AA process to make the best precision effect double-lens module. There are different trends of development in smart phone and other mobile devices: （ 1 ） Big megapixel: devices with 16 megapixels and 24 megapixels are expected to launch to market this year; （ 2 ） High sensitive: most commonly high aperture value. The higher the aperture value, the closer the depth of the view which make focusing difficult. Corresponding focusing technology has to be improved as well. PRIMAX is a world-class precision device manufacturer. With the introduction of the AA precision technology introduced in 2011, PRIMAX can engage in mass and efficient production and surpassed its competitors at home; （ 3 ） Fast focusing: acceleration of the speed in focusing is necessary for capturing image in transient moment. The speed and precision of close-loop motor has long been the mainstream of this new technology. In addition, center motor is also another option for upgrade; （ 4 ） Optical Anti-Shake: this is indeed a basic requirement for digital camera. In the past, the dimension, technological advancement and cost cannot satisfy the needs of mobile phone. Nokia has taken the first move for a breakthrough and there are a few leading brands planning to launch the same kind of products to satisfy the needs of the camera module manufacturers. Active Alignment （ AA ） technology will be a determinant for attracting purchase orders; （ 5 ） Low height: mobile phone will be getting slimmer, and will pose greater challenge to materials control and encapsulation technology. As mentioned, PRIMAX is good in the low height technology and is second to none in the industry; （ 6 ） other new functions: Phase Detection AutoFocus （ PDAF ） ; （ 7 ） Double-camera module: there are numerous applications and depth of field and optical focusing will be the most popular. One of the distinctive feature of PRIMAX is the design of double-camera module with self-made equipment to achieve the most precise and efficient production. The industry chain as mentioned, including sensor, lens, VCM motors, IR filter and others have been well developed and are in strategic partnership.

In the area of fingerprint identification module, PRIMAX is one the key supplier that can engage

in mass production of capacitance and ultrasound fingerprint identification module. In capacitance model, PRIMAX can offer spray coating and ceramic plate in physical appearance. In the industry, there is a variety of choices for sensor. Indeed, the big is getting bigger in the industry and picking up the right strategic partner will be critical for success in competition.

② Business equipment products

With the rapidly growing sales of smartphones and tablet PC, consumers through Wi-Fi connection can have a photo shot and printed at the same time, and can have a document printed directly from the mobile device （ ex: Apple AirPrint[®] ） or store the scanned document images directly into the smartphones or tablets PC. The new functions of cloud printing （ such as HP ePrint and Google Cloud Print ） and scan-to-cloud are derived and met the needs of family life, entertainment and work at the same time. In order to meet the printing needs （ convenience, easy operations, compatibility, consistent print quality, etc. ） of mobile device users in various brands and platforms, the multifunction printer leaders, such as, Hewlett-Packard, Canon, Xerox, and Samsung, had set up the Mopria Alliance, jointly in September 2013 and enacted mobile printing standards, established a unified printing protocol, and initially focused on Android platform mobile devices. Currently, Mopria Alliance has 20 company members, including the multifunction printer brands, control panel chip design companies and application software development companies in the USA and Japan.

It is undeniable that smartphones and tablet PC have caused quite an impact on the printer industry, especially on the inkjet printer. In order to increase revenues and profitability, brand manufacturers have proposed “Managed Print Solution” to help companies reduce hardware equipment expenditures and printing costs. The leading manufacturers have proposed a comprehensive office document digitization process solution towards the development of a “Service-lead” business model and a customized system solution and service according to the characteristics of each industry. The most obvious example among them is Xerox, followed by other leading brands, such as HP, Canon, Lexmark, Ricoh, etc. Focus on the middle- and low-end laser A4 MFP development and mobile devices support that will need hardware significantly in the future.

③ Digital home and audio products Along with the popularity of broadband network

52 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report

and increasing transmission speed, added to the increasing wireless network products, smartphones, tablet PC and related applications of commodities, the consumer demand for digital information storage management and sharing, and the synchronized interaction between digital products is growing rapidly that has also activated the demand for personal Cloud or family Cloud technologies and products. In addition, the digital home-related products and functions have been further extended to individual mobile devices, such as Apple AirPlay and iTune and cloud digital program services such as Apple TV, Google chromecast, Roku, Amazon Fire TV and other set-top box providing digital content services, such as Netflix, Hulu, HBO, cable television, sports channels and so on. The constant upgrade of wireless network bandwidth （ 5G WiFi, IEEE802.11ac ） will accelerate the development of digital home related industries. Product range includes network storage devices, portable wireless hard drive, digital home audio and video multimedia server, home control and security monitoring, and digital home wireless audio system and so on. The emergence of voice assistance function made the device of microphone receiver a new function in demand further to speakers in sound system.

In the past, microphone was mostly a single headpiece matched with Bluetooth sound system for receiving voice in teleconferencing. In the era of voice assistance, single piece of microphone cannot satisfy the needs any more. Full-range voice detector with identification of the sources of voices in precision, the matrix type, microphone, emerged as a critical new technology. At the same time, microphone matching with a back-end voice processor and voice identification processor and related software also advanced in the same pace. This will be the next wave of audio products.

④ Wearable device products:

The global wearable consumer electronics sales have been growing steadily since the year of 2012 for two reasons, first of all, the industry’s major manufacturers have entered the wearable device market, and consumer trust in the brand name is expected to drive a wave of buying power. Furthermore, due to the increase in product sales channels, the wearable products that were only sold on the Internet before were sold in general channels now; therefore, the high visibility helps stimulate consumer’s desire to buy and the actual sales.

The wearable device penetration rate is low currently and it is with room to grow. New companies

and international companies actively engaged in the market. IDC, a market research institute, reported the sales of wearable devices to over 101 million units in 2016 （ 29% annual growth rate ） and a double-digit growth rate is expected in the next five years. However, wearable devices will not be able to replace smartphones in the next five years, but an auxiliary tool to the existing devices.

4. Product competition

（ 1 ） PC peripheral products

Keyboard and mouse are the input devices of personal computers. Although currently there are voice inputs, sensing inputs and other input methods available for choice; they are in no position to replace the leading role of keyboard inputs in the sense of input recognition, input efficiency and end-use scenarios. However, current information and electronic products are moving towards lightweight, small and easy to carry. In order to allow consumers to easily receive or transmit information, the application of the touch panel is emerging. The current application of the touch panel is for portable electronic products. The Desktop computers and Notebook computers are both still with the keyboard input used currently. According to market survey and feedback, prolonged use of the touch panel has caused considerable inconvenience, for example, typing sensitivity and user’s prolonged use resulting in sore hands. Therefore, currently, the touch panel input is only used for portable electronic products. For desktop and notebook computers, there is no solution for an absolute replacement available currently.

（ 2 ） Non-PC peripheral products

① Mobile device components products

The mobile phone industry takes billion of units of production and there are many competitors in the industry. Currently, there are 70 camera module suppliers in the world but less than 25 of which can supply more than a million pieces of products with full product line for camera monthly. The market is so huge that new entrants have been attracted to the competition ceaselessly. This is particularly the case in the vertical integration of related industries and the horizontal integration with mobile devices and other product lines. The competition from these two posed the gravest threat. The profit margin in this industry fell significantly and quickly since 2015. It was exacerbated with the requirement of great capital investment in the capacity of high-end items that the module suppliers tended to be in the world of survival to the fittest. Yet, the continued expansion of capacity led to excessive production capacity since 2016.

Firms tended to become irrational in taking purchase orders. As a result, there will be a reshuffle of the module suppliers to certain degree and small firms will be ousted or moving to the emerging market or niche market. Fingerprint module technology entails low entrance barrier and competitive has been getting increasing keen. PRIMAX will map out its overall strategy with reference to the intensity of competition.

② Business equipment products

The sale of the inkjet model is with the biggest market share （ around 60% ） . The low-price black and white laser printers and multifunction printers are growing rapidly in the emerging markets and facing severe competition. By product categories, the future growth rate of multifunction printers will be greater than printers. In summary, laser multifunction printer is with great market potential. Taking advantage of the fast, automatic scanning and double-sided copying to continuously meet consumer demands for wireless network function and continuously upgrade product digitalization applications. The substitution of the product is without significant risks; also, price, environmental protection, energy saving, printing costs, wireless network printing and localized design are the keys to triumphing in the fierce competition.

③ Digital home and audio products

PRIMAX, in addition to securing a stable development of the existing product line, actively strives to plan and develop new product lines with high market potential. Currently, the development is centered on the digital home-related applications for the products of network attached storage devices （ NAS ） , portable wireless Hard Drive, home digital video and audio multimedia server, digital home wireless audio systems, personal mobile wireless speakers, etc.

The market for home-network storage device remains in a preliminary stage with a low household penetration rate, mainly due to consumer’s being unfamiliar with the product functions. Therefore, manufacturers must be more focused on advertising and communications with consumers and continue to focus on innovation, research and development and in improving the user operation interface. In addition to traditional home-network storage devices, wireless portable hard drive is another business opportunity. Due to the explosive growth in smartphones and tablet PC that are with limited storage capacity and standby battery life, the wireless portable hard drive is not only helpful in expanding data storage capacity, but also in being the backup power source

when the mobile device is out of power, a very userfriendly and practical design.

In addition, the market of technology consumer products also thrived with the rising demand for smart phone, which also triggered a number of personal wireless multimedia entertainment needs. PRIMAX has long been engaging in the development of image processing and wireless Bluetooth communication technology, and the study on wireless audiovisual data transmission sharing since 2012. Two products are the gravity of study: （ 1 ） Wireless storage devices; and （ 2 ） Digital wireless sound equipment. Smart phone featured high resolution screen and powerful processor that allows for the playing of high definition films and smart phone also has its fatal imitation of small and expensive internal storage space. As such, it cannot be used as a computer that can be easily connected to an external HDD and wireless storage device emerged as the best solution. PRIMAX has also noticed that sound system featuring Bluetooth connectivity will be the mainstream product in the future. The prices of products of this kind varied widely. From USD10 a piece to almost USD1,000 a piece. Sound system of this kind is no longer a high-end item that only people with high income, who are usually at the 30s or 40s, can afford. Now, this kind of products is also affordable to the young peopled. Lowering the barrier for buying the products entailed many competitors in the market. Likewise, traditional sound system brand oriented towards high-end items tended to launch products for players at entry level. They wish to earn the brand loyalty of the consumers at young age. Such change in market prompts the traditional sound system brands to release more OEM products that give PRIMAX much better business opportunity.

The rise of smart sound system featuring voice assistance function also brings about new impact and business opportunity to the market. The symbolic item is the Echo of Amazon. Fortified with its extensive e-Commerce channels and strong cloud computer processor, the products quickly won positive and vigorous response from market after launching. It took only a little more than one year to sell a million units. This really is a great success in sound system products. In keeping up with the competition, Google will launch the same type of smart sound system featuring voice assistance function at the end of 2017, the Google Home. They are not traditional sound system maker but e-Commerce giant or Internet guru, and they launch sound products with their advantages of strong network connection and cloud computing

54 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report

capacity that can match good sound quality. This will bring account great change in market.

in a short-run, resulting in market saturation and the launch of homogeneous products will cause a serious red-ocean market crisis. For highend wearable devices, such as smart watch, the hardware specifications, process requirements and software compatibility are facing considerable difficulties. Currently, few notable products are mainly launched by Apple, Samsung, LG and other international companies; also, in conjunction with a communications network services, medical services, etc. It is necessary to explore the business models that can really promote the wearable devices successfully in the market.

keep abreast of critical sound engineering capacity and high quality capacity in mass production in order to excel in the competition.

④ Wearable devices products

Currently, low-end wearable devices, such as smart bands, are with a low market barrier; therefore, there will be many manufacturers entering the wearable device market with low market barriers

（ 3 ） Technologies and R&D Overview

1. R&D Expenses overview

（3）Technologies and R&D Overview	（3）Technologies and R&D Overview	（3）Technologies and R&D Overview
Unit: NT$1,000 1. R&D Expenses overview
Year	R&D expense	Percentage of operating income
2016	2,204,249	3.43%

Note: PRIMAX started to adopt IFRSs since 2013.

2. The technologies and products successfully developed in the most recent year and as of the printing date of the annual report.

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Year R&D achievements
．Designed and developed Bluetooth wireless keyboard for Tablet PC.
．Designed and developed 3 megapixel OAS automatic focusing camera module.
2010 ．
Designed and developed high-efficiency multifunction wireless charging platform.
．Designed and developed Bluetooth low energy-consumption equipment.
．Designed and developed Thermal Printer and color management technology.
．Designed and developed 8-megapixel OAS automatic focusing camera module
．Design and developed touch screen multimedia PC peripherals.
2011 ．Design and developed backlit keyboard.
．Designed and developed Wi-Fi mouse.
．Designed and developed Wi-Fi Keyboard.
．Designed and developed 13 megapixel OAS automatic focusing camera module.
．Designed and developed Smart TV remote control
．Designed and developed multi-point touch panel and automatic stylus pen.
2012 ． Designed and developed NFC （Near Field Communication technology） paired with Bluetooth
Keyboard Mouse
． Designed and developed network multimedia storage device.
． Designed and developed compound real document scanner.
． Designed and developed tablet PC thin keyboard
． Designed and developed new generation low power-consumption Bluetooth 4.0 input device.
． Designed and developed dual-mode （low power-consumption Bluetooth, 2.4G） wireless mouse.
． Designed and developed low power-consumption Bluetooth 4.0 stylus pen.
．
Designed and developed hand-gesture identification keyboard.
． Designed and developed Smart TV remote control with voice input.
． Designed and developed 13 megapixel OAS + automatic focusing camera module.
2013 ． Designed and developed multi-lens suspension control （hand gesture recognition） camera module.
． Designed and developed new generation high-capacity network multimedia wireless storage device.
． Designed and developed wireless network printer control panel.
． Designed and developed full-function multifunction printer single-chip control panel.
． Designed and developed new generation color multifunction printer control panel.
． Designed and developed high-speed high-quality color scanner module.
． Designed and developed high-speed ultra-thin double-sided color scanner module.
．
Designed and developed eyeball identification dual-lens camera module.
． Designed and developed new style thin multicolor backlit keyboard.
． Designed and developed new generation wearable devices.
2014 ． Designed and developed mobile device game peripherals.
． Designed and developed integrated keyboard protection set.
． Designed and developed mechanical game keyboard.
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Year R&D achievements
． Designed and developed Smart TV remote control with voice commands.
． Designed and developed 16 megapixel, 20 megapixel, and 26 megapixel OAS + fast focusing camera
module.
2014 ． Designed and developed 24 megapixel OAS automatic focusing camera module.
． Designed and developed global minimum 13-megapixel autofocus camera module.
． Designed and developed ultra-thin speakers.
． Designed and developed new structural reverse push-pull speaker units.
． Designed and developed IoT device platform, gateways, and terminal device.
． Designed and developed automatic noise-cancelling headphones.
． Designed and developed headphone and wearable device containing bio-sensing function.
．
Designed and developed array microphone with voice identification feature.
． Designed and developed wireless audio and headphone that can play network streaming music
synchronously.
． Designed and developed new generation wireless storage and access device with high-speed
communications capabilities.
． Designed and developed 21 megapixel + 5 megapixel top-notch double-lens camera,
2015 ． Designed and developed 3 megapixel vehicle use double-lens camera module.
．
Designed and developed multilayer thin film multicolor backlit module for keyboard.
． Designed and developed ultra-thin membrane keyboard.
． Designed and developed new generation folding Bluetooth low power-consumption keyboard.
． Designed and developed keyboard with multi-operating system switching function.
． Designed and developed USB Type-C keyboard and mouse.
． Designed and developed high-power wireless charging module.
．
Designed and developed low-profile loudspeaker transducer.
． Designed and developed battery modules positioning structure and battery module.
． Designed and developed 13-megapixel +13-megapixel double lens module, the highest standard of
the industry.
． Designed and developed 24-megapixel optical anti-shake camera module.
． Designed and developed 3-megapixel vehicle dual-lens camera module.
2016 ． Designed and developed capacitive fingerprint identification module （spray-on and Porcelain
Veneer）.
．
Designed and developed ultrasonic fingerprint identification module.
． Designed and developed thin mechanical game keyboard.
． Designed and developed a keyboard with voice input.
． Designed and developed voice assistance module featuring matrix microphone.
． Designed and developed slim home entertainment sound bar
． Designed and developed home entertainment system will full support to Dolby.
． Designed and developed wireless earbuds.
． Designed and developed voice input and gesture recognition smart speaker
． Designed and developed 180-degree remote control Surveillance Camera
． Designed and developed multiple-lens 360-degree wireless and real-time transmission 4K Video
camera system
． Designed and developed double-optical components paper feeding scanning module.
2017
． Designed and developed a new generation of mid-end paper feeding scanning module.
． Designed and developed a new generation of low-end paper feeding scanning module.
． Designed and developed paper jamming detection technology module
． Designed and developed image dynamic correction technology
． Designed and developed Bluetooth mobile labeling machine
． Designed and developed palm thermal label printer
． Designed and developed sportive camera stabilizing rod.
． Designed and developed sportive camera control extension rod.
． Designed and developed a new generation mid to high speed wireless online printer control panel.
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Note: the above includes technologies and products successfully developed by PRIMAX.

（ 4 ） Long-term and short-term business development plan

1. Short-term business development plan

1. Short-term business development plan c. Improved plant productivity, reduce costs, and 1 ） PC peripheral products continue to strengthen OEM/EMS business in a. Grasped the technological development trend order to increase turnover stably and improve of mouse, keyboard, tablet keyboard, stylus gross profit rate. Grasped mobile application pen, and smart remote control, and continue and related technology development trend. to research and develop new products in order to facilitate business promotion. （ 2 ） Non-PC peripheral products

（ 1 ） PC peripheral products

（ 2 ） Non-PC peripheral products

① Mobile device components products

b. Established a key components supply chain and establish the VMI / JIT system to effectively reduce inventory stock and to resolve material shortage problems.
With the advantage of accreditation by a few big
European and American brands, we committed the best of our effort in the market of China. Positioned

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Primax Electronics Ltd. 2016 Annual Report

on the basis of our success in the past, PRIMAX has successfully made the four major cell phone makers its customers. The primary strategy in the short run is the proper deployment of the entire group on the basis of existing customer relation. In the area of camera module, PRIMAX will introduce double-lens in full effort and regain the advantage of leadership in technology. In the area of fingerprint module, PRIMAX seeks to satisfy the needs of the customers and maintain its leading position. The keen and irrational competition compelled PRIMAX to go for devices of high added value in full effort and reinforce its partnership strategy with the suppliers in order to maintain its advantageous position.

In the cultivation of customer relation, PRIMAX takes the upgrade of gross margin from customers as a key indicator. Further to the emerging market, PRIMAX seeks to target strategic customers in depth and in scope of operation. In addition to the share of existing product line, PRIMAX also introduce the new related product line of cell phone for a larger share.

Autonomous automated production, high speed high-end production process with high profile 5S management will be the gravity of production in this year. In addition, the growth in purchase orders drives for the expansion of production capacity for high-end products, which will be the mission for sustainable growth.

② Business equipment products

PRIMAX actively developed a high-speed lowcost scanner module with mass production initiated successfully. Advanced commercial scanner and module products will soon be ready for mass production with the global business expanded actively. In terms of the design and production of laser printers and multifunction products, in addition to securing the existing customers, the mission is to develop a more competitive platform continuously and actively compete for the new product development projects of American and Japanese customers. A number of projects are currently in progress and will gradually be ready for mass production this year. Barcode label printer is another new product line. The first generation products are already under mass production and with good market feedback. The new generation product will soon be ready for mass production. The image module and MFP OEM business is growing stably and the mission is to actively compete for new customers and new products business. In

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continuous improvement of in-house technologies, a number of important patents have been obtained and new customers have been solicited successfully. Also, PRIMAX has transformed into an ODM business operation successfully and worked with customers to actively develop new products.

③ Digital home and audio products

PRIMAX, in addition to contin ~~uing the in-depth~~ development of the existing product line, will actively develop new product lines in order to secure a leading position on the next wave of digitalization in the sense of product design and key technology. The digital home-related products that are currently under active development are expected to create new profit momentum and generate profits. Currently, in addition to mastering the network storage device and digital home multimedia streaming related technology trends, we will continue to develop new platforms and software to facilitate business promotion and to actively establish a supply chain of key components. In terms of internal R&D programs, continue to strengthen software development ability and establish a long-term relationship with the software solutions providers in order to grasp the development trends of the related technologies. PRIMAX seeks to further cultivate its relations with major customers both in depth and in scope with a wider array of products. Currently, the major customers of PRIMAX are the leaders in market and they are congruent with the growth strategy of the Company. PRIMAX will gain a larger share in market and surpass its competitors.

PRIMAX will advance the market of earphones and will further develop its business operation on the basis of existing customers and leading brands in market.

2. Long-term business development plan

（ 1 ） PC peripheral products

a. Continue to upgrade automation capabilities, reduce labor costs and labor shortage, and enhance lean productivity and technology strength.

b. Develop new product lines （ such as wearable devices, mobile device game peripherals, etc. ） in order to develop new businesses and increase turnover.

（ 2 ） Non-PC peripheral products

① Mobile device components products

The large customer base and the targeted key parts and components suppliers of lens module/ fingerprint module in the upstream （ such as image chips, optical lens, motor, IR screened glass, and ceramic ） will be the bargaining chip for PRIMAX in its long-term strategy for achieving effective strategic cooperation. With close partnership, PRIMAX can maintain an edge in cost competition, technology advantage and resources guarantee. In addition, PRIMAX will （ 1 ） expand its operation in supporting customers in broadening the entire product line of camera lens module/fingerprint module in depth and will support customer-defined physical platform, including TV, wearable devices, tablet PC, mobile phone, and even vehicle use equipment for the needs of strategic customers and similar technology modules so derived; （ 2 ） expand other product lines of the customers in scope with the use of package deal to ensure sustained competitive advantage.

In terms of client management, gradually invest in and manage the customers in emerging markets that will soon flourish with remarkable results expected next year.

② Business equipment products

PRIMAX will continue to expand the technology and business of scanners and multi-function products, becoming the World No. 1 ODM Company. On the other hand, in response to the huge market demand for wireless broadband and mobile multimedia devices, PRIMAX has actively supported the development, integration and application upgrade of the mobile device scanning and printing related technologies. PRIMAX has accumulated profound ability and experience in the high-end scanner, automatic document feeder, automatic binding machine, and control panel design. PRIMAX

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will be able to expand such products businesses successfully with over two decades of experience in developing and producing image products and embedded devices. In terms of office automation products, continue to invest in technology development to lead the market in energy-saving, system integration and excellent user-friendly design and to grow together with the target key customers.

③ Digital home and audio products

In terms of long-term business development plans regarding new product development, PRIMAX, in addition to developing and expanding the technology and business of wireless network storage devices and digital home related products continuously, it will work closely with key customers to jointly develop new products to meet market demand and to create a win-win situation. In terms

of customer base, we will expand the Company’s existing customer base and target the leading brands in the market, including cooperating with the consumer electronics manufacturers in Europe, USA and Japan, leading the market in energysaving, system integration, and excellent userfriendly design and growing together with the target key customers. In addition to the development of hardware products, on the other hand, in response to the emerging cloud computing applications, PRIMAX will continue to upgrade the development, integration and application capabilities upgrade of the related software technologies. PRIMAX will be able to expand the business of such products and services with the profound design, R&D, management and execution capacity.

In the development of audio products in the long run, the sale of speakers will be further expanded. Further to promote the using of self-made speakers to existing system customers with full range, the sale of independent speaker units will also be intensified. This will help to achieve the growth of business and also promote the visibility and reputation of the independent sound system quality of PRIMAX, and is a joint effort with system development operation.

The development of the emerging market will be the intensification of developing the customers in China and Europe. China is an emerging big market for sound system products and will be an emerging market for voice assisting smart sound system in the future. In Europe, many traditional sound system firms quest for industrial transformation that PRIMAX can demonstrate its strength in help them in transformation.

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Primax Electronics Ltd. 2016 Annual Report

2. Market and production and sales overview

（ 1 ） Market analysis

1. Sales area of major commodities

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2015 （ restated ） 2016
Year
Amount Amount
By area （ NT$1,000 ） % （ NT$1,000 ） %
Mainland China 38,259,055 60.22 35,009,994 54.42
USA 11,216,040 17.65 14,221,870 22.11
Others 14,063,092 22.13 15,097,598 23.47
Total 63,538,187 100.00 64,329,462 100.00
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camera modules, fingerprint recognition modules, Bluetooth headphone of communication peripherals, charging cradles, wireless charging, etc., of which, the sale of the camera module is the most prominent. Mainly used in notebook computers, smart phones, tablet PCs and other information, communications and consumer electronics products; therefore, the future changes in consumer demands will be closely related to notebook computers, smart phones and tablet PCs.

2. Market share

PRIMAX is a professional manufacturer for PC peripheral products, the components of mobile devices, business equipment, and related products of digital home with a good reputation earned in the industry. Due to PRIMAX’s wide product range that can be used on the mouse, keyboards, touch panel, notebook computers, mobile phones, headphones, charging cradles, printers, scanners and electro-acoustic products, PRIMAX has started entering the automotive electronics market since 2015. The final products in use are quite different; therefore, there is no complete and objective market share statistics available for reference.

The shipment volume of Notebook PC in 2010 exceeded 200 million units. However, the shipment of Notebook PC turned sluggish in the last few years at just about 250 million units annually. Since the built in camera module of Notebook PC is a standard device, the shipment volume of built in camera module of Notebook PC will commensurate with the shipment volume of Notebook PC.

3. Future market supply and demand and growth （ 1 ） PC peripheral products

PRIMAX’s peripheral products include keyboards, mouse, mobile device peripherals, etc., mainly used with computers and tablet PC products of which the keyboard and mouse are the main sales items.

Tablet PC has its heyday in 2012~2013 but started to decline in 2014 （ except Apple, which still enjoyed stable growth ） . The shipment volume of this item in 2017 is expected to be the same. With the growth of shipment of mobile phone worldwide and the increased matching rate between camera module and audiovisual lens for mobile phones, the shipment volume of mobile phone camera module grew annually. With the prevalence of 3G and 4G, and the forthcoming 5G mobile network, the builtin sub camera for mobile phone （ which is the visual lens ） will increase in proportion year after year and will take the lead in driving the shipment of smart phone. There will be more than 70% of smart phone featuring a front camera and a rear camera. The ranking of brands is reshuffling all the times worldwide and the makers of China have earned the top 6 positions. In addition, some makers in India have their brands ranking around the 10th place. These indicated the dynamic and momentum of the high growth in the emerging market.

In 2016, the PC market fell by 6% and the global shipment of PC in 2017 was expected to fall marginally. Despite the negative growth in the PC market, the gaming market thrived. According to JPR, the hardware for gaming market in 2017 is expected to yield more than USD 30 billion in revenue while gaming peripheral items will be a market of USD 5 billion by value with an annual growth of 13% until 2020. PRIMAX has laid hand on this market since 2015 and has cultivated its links with the few international famous brands. The outcome is positive so far. To the contrast, the unit price of gaming product shipment is high that can help to fill the gap left behind by PC and tablet PC, and has contributed to revenue growth.

（ 2 ） Non-PC peripheral products

2-1. Mobile device components products PRIMAX’s mobile devices components include

2-2. Business equipment products

Due to intense market competition, multi-function products （ MFP ） terminal prices continue to fall, with inkjet and black and white laser models, in particular. The consumer inkjet models sales will continue to decline due to the sluggish global economic growth. However, PRIMAX’s focus of laser models will continue to grow slightly; also, the demand by emerging markets for MFP will continue to grow. Mature markets like Europe, USA and Japan will continue to demand more color MFP, mainly due to the switch from black and white to color MFP. The demand for printers and MFPs will continue to grow due to the impact of mobile devices and the digitalization trend; also, it is expected to have another wave of growth momentum created by relying on the upgrading performance, combined with digital workflow management capabilities, deepening vertical industrial custom-made practice, integrating the innovative applications of cloud services and focusing on the application of A4 low-end laser MFP and communication products.

2-3. Digital home and audio products

The continued decline of the price of full high definition TV （ FHD TV ） and the sustained growth of the demand of Ultra High Definition 4K TV （ UHD 4K ） , and perpetual upgrade of personal portable devices, multimedia game and audiovisual streaming box, the broadband of cable network （ 10/100Gb ） , the ceaseless improvement of wireless broadband technology （ IEEE802.11ac, 4G ） , the prevalence and diversity of cloud audiovisual streaming service, and the increasing abundance of high quality multimedia content allow for the colorful and plentiful presentation of home products. The continual launch of innovative devices, application and service will no doubt drive for further growth in the future.

The mushrooming of the voice assistance sound system market and the rapid development of AI in the last two years will contribute to the ample supply of smart sound system featuring network connectivity, voice assistance and connectivity to cloud and even new breed of products containing smart sound system module in the future. There will be a new wave of growth with quantum force in the sound system business.

4. Competitive niches

of scale.

The consumer electronics product life cycle is shortening. All manufacturers strive to contribute by

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investing resources in new product development and cost reduction; therefore, Original Equipment Manufacturing （ OEM ） has become the mainstream practice in markets under the consideration of reducing costs and speeding up production. In this trend, the manufacturers with experience in the related products and sufficient production capacity are preferred by international corporations for the OEM business. PRIMAX has decades of experience in the development, design and production of image products and embedded devices; also, it has strong and experienced R&D teams and strict manufacturing and quality control processes. PRIMAX with the support of its strong R&D teams can immediately adjust the production process upon the customers’ request and help customers optimize existing products; also, it can immediately respond to customer demands. PRIMAX has four production sites setup in Mainland China, including Dongguan, Kunshan, Chongqing and Huizhou, and continues to expand production capacity, possessed production capacity with “economies of scale” effect and flexible production planning. Such economies of scale, flexible production planning, and professional process technology have prevented competitors from entering the market easily. Moreover, such rich production resources have provided PRIMAX with advantages in competition for international companies OEM businesses.

B. Global logistics production

PRIMAX provides services to clients with global logistics, in addition to providing quality products to customers. PRIMAX also provides logistics services to customers. PRIMAX is with excellent process management capability, flexible production, comprehensive production and sales network from Dongguan, Kunshan, Chongqing, and Huizhou, and for the purpose of staying close to its customers with services provided, delivery is made through the global instant supply warehouse （ such as, USA, the Netherlands, China, etc. ） in order to shorten product delivery time, provide customers with the a stable and fast supply, and enable customers to establish a minimum inventory and reduce the backlog of funds; therefore, logistics service is one of the competitive niches of PRIMAX.

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Primax Electronics Ltd. 2016 Annual Report

C. Maintain strong partnerships with international companies

Ever since its establishment, PRIMAX has paid perpetual attention to the research and development of PC peripherals, mobile device components, business equipment, digital home and audio products. The quality and stability of products are highly recognized by our customers with continued purchase. The main customers of PRIMAX are famous international big firms.

PRIMAX focused on the research and development of PC peripherals, mobile device components, business equipment, digital home and audio products ever since its establishment. The product quality and stability of PRIMAX has been recognized by its customers with continued purchase orders. The key customers of PRIMAX are famous international big firms. PRIMAX can fully utilize its customer relation to acquire update market information through preliminary validation and authentication of products on the setup of specification and technological innovation so that PRIMAX can keep abreast of the market trend. For years, PRIMAX has cultivated strong bonding with upstream and downstream industries, and will be a vital partner to the big firms in the development of new products.

D. People-machine interface integration technology and software development capacity

development team with hardware, software, and people-machine interface R&D capabilities that will not only take the initiative to help customers improve product operation interface, but also actively develop highly user-friendly software and have it converted into consumer electronics products that are well accepted by the general public, such as, personal network server, wireless hard drive, and other emerging new technology products. Such effort of developing new applications by having the existing technologies integrated is beneficial to future development.

5. Advantages and disadvantages of future development and the responsive strategies Advantages:

A. International manufacturers continue to outsource OEM businesses to reduce costs

International brand manufacturers for operating branding business continuously, maintaining R&D technology and reducing production costs have the production operations commissioned to professional OEM factories in order to concentrate on the design, marketing and R&D to simplify management complexity, to improve operational efficiency, to

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streamline the organizational structure at the same time, to pool resources, to reduce production costs, to enhance brand value and to increase market share. In the electronics industry, the global division of labor is becoming obvious, and this operating mode has become necessary for all international brands; therefore, a large OEM business opportunity is in the making.

PRIMAX has setup production bases in Dongguan, Kunshan, Chongqing, and Huizhou of China for staying close to its customers in order to compete for OEM business and to reduce production costs. PRIMAX’s product development and technical capability have been appreciated by customers in recent years with sufficient production resources offered as the customer’s production support; also, provided customers with timely and most comprehensive services; therefore, international companies in the USA and Japan have granted their OEM businesses to PRIMAX. Apply PRIMAX’s professional technology development ability and excellent production management model to effectively reduce product production costs and to explore more business opportunities in a competitive OEM market.

B. End-user market is with much room for growth

※ PC peripheral products

PRIMAX’s PC peripheral products include mouse, keyboards, tablet PC keyboards, etc. Although future computer market scale and growth trends will slow down due to the current computer

brand business philosophy “the bigger, the better,” however, PRIMAX’s adequate customer strategy will help PRIMAX remain in a favorable position in competition. The growth in demand is also the result of the mushrooming of gaming industry with the demand for related keyboard and mouse. The sustained growth in the demand for businessoriented tablet PC also contributed to the growth in demand for tablet PC keyboard. The Company has already established its foothold in this area and the growth of demand in this product helped to bolster the sale performance.

※ Non-PC peripherals

※ ① Mobile device components products

PRIMAX’s mobile device components include notebook computers, smartphones, tablet PCs built-in camera module, fingerprint identification modules and communications peripheral equipment Bluetooth headphones, charging cradles, etc. Consumers like to use mobile phone cameras to take pictures or shoot video for sharing with friends and family. Therefore, the manufacturers of smartphone and tablet PCs continue to introduce high-pixel smartphone and tablet PCs with builtin camera modules. In addition, along with the prevailing network and increased bandwidth, notebook computers’ built-in camera module has become a standard accessory. Apparently, the built-in camera module has a great room for market growth. In addition, the mobile pay market is in full swing of development and the demand for fingerprint identification is huge and sudden; therefore, such demand has been the highest within two years. The increasing functions of mobile phones obviously consume more power. The mobile phone was able to be in a standby mode for over one week but not anymore. Instead, the demand for various mobile power supplies, USB charging cable and vehicle charging cable is growing substantially. In addition, the demand for Bluetooth headphones will continue to rise along with the development of network phones and portable device industry; therefore, PRIMAX’s revenue growth will be activated as well.

※ ② Business equipment products

PRIMAX’s business equipment products include laser printers, multifunction products, scanner, etc. The use of wireless technology for the printing and transmission of printers and MFPs is increasing along with the prevalence of wireless network technology. Along with the sales increase of smartphone and tablet PCs, and the upgraded functionality, consumers need the printing function of smartphone and tablet PCs more and more. The introduction of wireless MFP and printers in the market will be able to meet the printing needs of smartphone and tablet PCs; also, help improve PRIMAX’s product sales indirectly. In addition, the demand for black and white laser MFP in emerging markets remain growing that will have a direct contribution to PRIMAX’s sales growth.

※ ③ Digital home and audio products

The broadband network environment is becoming mature and home Wi-Fi wireless network prevailing rate is growing year by year; therefore,

the wireless transmission related applications are flourishing. Consumers’ demands for home entertainment audio and video streaming will drive the sales of home network storage devices and home entertainment server to go up. The explosive growth of mobile devices, such as the prevailing smartphones and tablet PCs, has caused the market demand for wireless audio and video storage devices to increase and it will drive consumers to buy portable wireless hard drives as the capacity expansion of mobile devices.

The Company is good at acoustic knowledge and the capacity in research and development, and is also capable of developing and manufacturing of related key components and speaker body. With the overall manufacturing and procurement capacity, the Company has the best advantage in competition.

Smart sound system also requires the humanmachine interface and wireless networking capacity, which is also an integral part of the core competence of the Company so that we are strong enough to outcompete the competitors in competition.

Disadvantages:

A. Shorter product life cycles

Information, communications, and consumer electronics products rotate quickly with shorter product life cycles, resulting in high management risk, In addition to the inability to consume inventory stock and reduce financial pressures, product development, design and production time is shortened that creates a challenge to PRIMAX’s professional technology and management ability.

※ Responsive measures: ：

PRIMAX actively develops new technologies to enhance research and development capabilities, continue to cultivate R&D talents and improve production efficiency and yield rate in order to shorten the product development cycle. In addition, PRIMAX has established a long-term good cooperative relationship with many well-known national and international manufacturers. At the time of developing products, cooperate and communicate with customers to fully understand the customer’s needs and market trends in order to rapidly develop and produce products that meet market demand. In addition, place raw materials with special specifications under strict control, actively reduce inventory and minimize the obsolescent product loss in order to effectively reduce costs and enhance market competitiveness.

In recent years, the rapid development of 3C

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Primax Electronics Ltd. 2016 Annual Report

products have driven market demand for components of PC peripheral products, mobile devices, and, business equipment, resulting in severe market competition, increasing price competition pressure, and causing the low price trend of electronic products that is detrimental to profitability.

of labor’s interests, added with the rapid domestic economic development of China, annual economic growth is at a double-digit rate, resulting in the working population in the coastal areas of China unwilling to stay on their jobs; therefore, labor shortage and rising wages have resulted in high operating costs to the enterprises.

※ Responsive measures:

PRIMAX focuses on enhancing its core competence and improving R&D technology and the production capacity for products. Continue to improve product manufacturing process through product design in order to reduce materials consumption; also, utilize advanced manufacturing equipment to improve production efficiency, while continuing to expand advanced products with higher gross profits in order to seek product differentiation, increase valueadded products, and separate from competitors by creating market segment, while maintaining close relations of cooperation with existing customers in order to secure existing markets.

For the sake of solving labor problems fundamentally and reducing labor costs, PRIMAX actively introduces modular automated production equipment and processes to improve production efficiency and reduce labor costs. At the same time, strive to improve the production procedures, simplify manufacturing processes and conduct automated testing; also, designate a specific unit to be responsible for the design and preparation of precision tooling and automated assembling equipment, and its utilization in mass production in order to master the production procedures and to control product quality. In addition, in recent years, continue to develop highly automated production and production line testing equipment in order to improve production efficiency and reduce production costs.

C. Labor shortage and rising labor costs in the Chinese market

In recent years, the provincial labor departments of China have wages increased for the protection

（ 2 ） Intended use and production process of main products

1. The intended use of main products

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----- Start of picture text -----

Main products and Intended use or function
services
Mouse Control computer cursor and scroll to provide easy operations in the Windows operating
system.
Keyboard Provide input characters as well as other convenient control keys
Touch panel Control computer cursor, scroll and other convenient controls by the touch panel.
Control computer cursors and graphics by a stylus pen. The pressure sensing device
Digital Writing Tablet
of a stylus pen can communicate with the capacitive touch panel to transmit the actual
and stylus pen
strokes interactively.
Wireless charging It is applicable to mobile phones, tablet PCs and notebook computers for power supply
device and charging function.
Micro-camera module It is applicable to mobile phones, tablet PCs, commercial and home monitoring, smart TV, game consoles, traffic recorders and GPS built-in camera modules.
Network camera It is applicable to notebook computers, LCD monitors, built-in network camera modules
module and externally attached network cameras.
Fingerprint
identification module It is applicable to mobile phones and tablet PCs.
Communications It is applicable to mobile phones or MP3 players, built-in images, externally attached
peripheral equipment voice, data transmission, power supply, and other devices.
Image Scanner It is applicable to personal computers, printers, file servers, flash drives and photo/
document digitization and preservation.
Multifunction Printers It is applicable to individuals, homes, offices, shops, hotels, digital data center, photo/
document scanning, photocopying, electronic documents printing and faxing documents.
Office automation It is applicable to individuals, homes, offices, shops, hotels, digital data centers, photo/
products document destruction, lamination and other processes.
Wireless storage It is applicable to personal and home audio/video entertainment and data storage, and
devices office data storage.
Suitable for individuals and families for appreciation of music, audiovisual integration, and
Wireless sound system
mobile phone communication.
Suitable for individuals and families, smart home control, voice data search, APP link and
Smart sound system
related service links, and appreciation of music.
----- End of picture text -----

2. Production process

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----- Start of picture text -----

Artificial
plug-in
Materials Automatic Loadingprocess Finishedgoods Loadingprocess Packaging Warehousing Warehousing Dispatching Shipments
plug-in inspection inspection
inspection assembly inspection
Outsourced
processing
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（ 3 ） Supply of main raw materials

without the possibility of a supply shortage. For the main raw materials of the subsidiaries and subsubsidiaries, PRIMAX has acquired through longterm cooperating suppliers for stabilizing supply source and quality; also, there are at least two suppliers of main raw materials retained for service; therefore, there should be no risk of a supply shortage or supply interruption that is detrimental to the Company’s operations.

PRIMAX’s products are mainly divided into two product lines of PC peripheral products and non-PC peripheral products. PRIMAX’s products are mainly purchased through Primax HK （ by triangular trade to buy from the sub-subsidiary, Dongguan Primax ） , Kunshan Primax and Chongqing Primax. Since they are 100% owned subsidiaries and sub-subsidiaries of PRIMAX, the delivery leadtime and sources of supply can be fully controlled

（ 4 ） more than 10% of the total purchase （ sale ） amount in one of the last two years, the purchase （ sale ） amount and percentage, and the reasons for the amount increase and decrease.
amount in any of the last two years
There was no supplier that accounted for more than 10% of the total purchase amount in any of the last two years.
The information on the customers that accounted for more than 10% of the total sales amount in any of the last two years Unit: NT$ million

Unit: NT$ million

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Year 2015 （ restated ） 2016
Relation to Relation to
Item Name Amount [Ratio to net sales ] Name Amount [Ratio to net sales ]
（ % ） issuer （ % ） issuer
1 Company 13,605 21.41 None Company 9,525 14.81 None
A A
－ Others 49,933 78.59 － Others 54,804 85.19 －
－ Net sales 63,538 100.00 － Net sales 64,329 100.00 －
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sales; therefore, as for the concern over PRIMAX’s sales target, there is no risk of sales centralization. PRIMAX, in addition to maintaining good relations with the existing customers, is actively developing new products in order to expand the market and customers for other products for dispersing customers of sales and for minimizing the risk of sales centralization.

PRIMAX’s top-ten customers in the last two years were all international well-known companies, a diversified and stable customer base. PRIMAX’s top-ten customers accounted for 53.37% and 50.04% of the net annual sales in 2015 and 2016, respectively. Among the top-ten customers, the percentage of sales from one single client and one single group did not exceed 30% of the total

（ 5 ） The production value and volume in the last two-year: Unit: NT$1,000 ／ 1,000 pcs

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----- Start of picture text -----

Main Production Year 2015 （ restated ） 2016
products
(by department) Capacity Output Amount Capacity Output Amount
PC peripheral products 200,872 92,758 26,386,263 217,258 88,041 21,562,052
Non-PC peripheral products 679,591 343,285 31,154,963 999,890 309,369 34,169,840
Total 880,463 436,043 57,541,226 1,217,148 397,410 55,731,892
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64 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report

（ 6 ） The sales volume and value statement of the last two-year:

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----- Start of picture text -----

Unit: NT$1,000 / 1,000 pcs
2015 （ restated ） 2016
Year
Major Domestic sales Exporting sales Domestic sales Exporting sales
Products Quantity Amount Quantity Amount Quantity Amount Quantity Amount
PC peripheral products 6,404 2,124,479 135,153 27,950,138 1,526 242,656 94,216 25,053,772
Non-PC peripheral products 21,179 3,704,236 136,590 27,815,031 14,662 2,696,179 257,747 34,980,538
Service income 0 0 0 1,944,303 0 0 0 1,356,317
Total 27,583 5,828,715 271,743 57,709,472 16,188 2,938,835 351,963 61,390,627
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age and academic degree of staffs in the last two years and as of the printing date of the annual report.

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Year 2015 2016 01/01/2017~04/15/2017
Technician （Engineering） 816 1,419 1,552
Number of
Management and business personnel 2,209 2,694 2,593
employees
Total 3,025 4,113 4,145
Average age 38 35 35
Average years of service 5 5 4
Ph.D. 0.3 0.3 0.3
Master’s 9.2 9.7 9.8
Educational
distribution Bachelor’s 66 66 65.4
ratio （%） Senior Higher School Education 15.9 15.4 15.2
Below Senior Higher School Education 8.5 8.6 9.3
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4. Environmental protection expenses information

The Company’s losses （ including compensation ） resulted from environmental pollution, the total amount of disposition and the disclosure of the response measures （ including improvement measures ） and possible expenses （ including the possible losses due to not taking countermeasures, the estimated amount of compensation and fine, and the fact that the potential losses cannot be reasonably estimated ） in the most recent year and as of the printing date of the annual report: None

PRIMAX’s 2016 environmental protection expenditure for each plant statistics

Unit: NT$

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Classification Description Expense
1. Direct Costs for Reducing Environmental Impact
（1）Pollution control cost Fees for air pollution control, water pollution 5,061,250
control, and others
（2）Resource Conservation Cost Costs for resource （e.g. water） conservation 8,605,580
（3） Waste Disposal and Recycling Costs for waste treatment incineration and landfill）（including recycling, 2,030,952
（1）Cost of training
（2） Environmental management system and
2. Indirect Cost for Reducing certification expenditures
Environmental Impact （Environmental （3） Environmental impact measurement and 27,589,640
Managerial Cost） monitoring fees
（4）Environmental protection product costs
（5）Environmental protection organization fees
（1）Costs for decontamination and remediation
（2） Environmental damage insurance fees and
3. Other Environmental Costs environmental taxes and expenses 0
（3） Costs related to environmental settlement,
compensations, penalties and lawsuits
Total 43,287,422
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V. Operation overview
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5. Labor relations

（ 1 ） and its implementation, as well as agreement between the employers and employees and the employees’ interest protection measures

’s welfare measures and its implementation

Company has the professional external training cost fully subsidized.

． Overseas training: Select colleagues who perform outstandingly at work and with a good potential for development to participate in short-term overseas professional training or meetings in order to enrich their international vision.

The Company has an Employee Welfare Committee set-up in accordance with the Employee Welfare Act to handle the appropriation and distribution of pension. The current welfare system includes: labor insurance and national health insurance, group insurance, annual health checks, birthday gift certificates, Labor Day / Dragon Boat Festival / Moon Festival gift money, employees and dependents weddings and funeral subsidy, staff and their families scholarships and financial aid, employee hospitalization condolence money, staff recreational activities, domestic and international travel allowance, emergency assistance loans to employees, year-end party and lotteries, and other community activities.

． Online Learning and Knowledge Community platforms: The digital LMS learning system provides general education, basic professional knowledge and English language courses to allow learning without time limits and space restrictions; colleagues can also conduct a knowledge exchange, sharing and discussions through the community forum on the platform and blog.
． Self-learning: Promote lifelong learning of job-related knowledge and skills; also, may apply for flexible working hours in order to initiate on-the-job training; in addition, in order to cope with the Company’s ’s s

． Self-learning: Promote lifelong learning of job-related knowledge and skills; also, may apply for flexible working hours in order to initiate on-the-job training; in addition, in order to cope with the Company’s ’s s international business model, English course subsidies are also available to colleagues to encourage them to strengthen their language skills. The Company has occasionally updated the list of books recommended to read and provided books subsidies to encourage colleagues to develop a reading habit.

2. Education, training, and its implementation

PRIMAX has constructed diversified learning and development channels for the staff’s synergistic effect of learning in order to enhance the Company’s competitiveness continuously and develop important technical and management personnel.

． On-the-job training: On-the-job learning and development is to help the staff enhance job experience by attending work meetings, project

（ mission ） assignments, job rotation, etc.

． Internal Training: Internal training is divided into three categories of supervisor training, professional training, and general training, including new recruit’s basic courses, supervisor courses at all levels, professional and technical courses, the course of quality, general education lectures, English courses, etc.

3. Retirement system and its implementation

PRIMAX （ formerly known as “Hung Chuan Investment Co., Ltd.” ） was established on March 20, 2006 and had merged PRIMAX with general rights and benefits of employees assumed unconditionally on December 28, 2007; also, the pension system of PRIMAX remained intact. The payment requirements and standards of labor pension are processed in accordance with the Labor Standards Law （ hereinafter referred to as “the old system” ） and the Labor Pension Act （ hereinafter “ ” referred to as the new system ） .

． External professional training: In order to encourage colleagues to continue their selfenhancement of professional capacity or to learn a second professional skill for career plans, the

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For employees who have chosen the old system or the new system but with seniority under the old system reserved, PRIMAX has a retirement plan enacted in accordance with the Labor Standards Law and has a labor pension reserve appropriated on a monthly basis and deposited in the special account with the Bank of Taiwan for the use of future pension payment. In addition, for employees that are

66 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report

（ 2 ） Enact sexual harassment prevention measures and a grievance and disciplinary approach to maintain a good working relationship and interaction principles between genders in order to prevent sex discrimination or harassment.

entitled to the new system, PRIMAX has an amount equivalent to 6% of the monthly salary appropriated as a labor pension reserve in accordance with the Labor Pension Act and has the amount deposited in the personal account with the Bureau of Labor Insurance.

（ 3 ） Establish labor-management meeting, organize labor-management meetings for communication and consultation regularly, and promote harmonious labor relations.

4. Agreement between employer and employees and the measures to safeguard employees’ interests

（ 4 ） Establish the employee welfare committee to organize group recreational activities and handle welfare matters regularly.

PRIMAX has maintained harmonious labor relations. Employees can communicate with the Company regarding the Company’s systems and work environment through the departmental meeting in order to maintain a good interaction between the employer and employees. In addition, PRIMAX’s employee welfare committee is responsible for handling employee welfare matters and has various activities arranged occasionally to enhance a harmonious working atmosphere and the loyalty between the employer and employees. The practice is illustrated as follows:

（ 5 ） Set-up flexible working hour system so that employees can manage to balance work and personal life.
（ 6 ） Education and training plan and subsidy, provide staff with occupational training and encourage employees to develop a second skill.
（ 7 ） In addition to the basic security of labor and health insurance, a group insurance is also available for a greater protection of employee’s life safety, healthcare, and family.
（ 1 ） Hold departmental meetings regularly, （ 8 ） Organize employee physical check-ups and communicate the Company’s and departmental health and safety checks regularly to ensure business plans, business overview and market employee’s physical and mental health and conditions to colleagues. safety of the working environment.

VI. Review and analysis of

（ 2 ） Any losses resulting from labor disputes in the most recent year and as of the printing date of the annual report: None
（ 3 ） The estimated loss amount and the response measures for current and future periods, if such amount cannot be reasonably estimated, please indicate the fact that it cannot be reasonably estimated.

PRIMAX since the date of incorporation has upheld integrity and responsible attitude to provide welfare to its employees, to create a harmonious relationship between employer and employees, and work together with the employees for the business growth of the Company and the business operations. Therefore, a harmonious labor relation is established and no incidents of labor disputes are expected to take place.

6. Material Contracts

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Nature of
contract Contracting Party Term of Agreement Main contents Restrictions
OEM product Customer E 08/01/2014~ project ended OEM camera modules and mouse Classified
OEM product Customer G 02/20/2006~ project ended OEM consumer electronic products Classified
OEM product Customer B 05/22/2007~ project ended OEM MFP Classified
OEM product Customer V 06/30/2008~6/30/2018 OEM consumer electronic products Classified
OEM product Customer U 08/2007~Project ended OEM mouse Classified
OEM product Customer T 02/20/2008~ project ended OEM consumer electronic products Classified
OEM product Customer H 06/01/2008~ project ended OEM MFP Classified
OEM product Customer O 01/2006~Project ended OEM consumer electronic products Classified
Licensing W 12/1/2012~11/30/2017 Technology Transfer Licensing Classified
Trade and lease Shin Kong Life Insurance 12/2008~12/2023 Sale and lease of Primax building None
Loan Agreement CTBC Bank 01/05/2015~01/05/2018 Bank mid-term and long - term loan None
Loan Agreement Export-Import Bank of the ROC 2/12/2015~2/12/2020 Bank mid-term and long - term loan None
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1. Financial status

Unit: NT$1,000

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Year Difference
2016 2015
Item Amount %
Current assets 27,799,554 30,413,161 （2,613,607） -8.59%
Investment -
Fixed assets 4,717,422 6,284,023 （1,566,601） -24.93%
Intangible assets 2,673,670 3,322,191 （648,521） -19.52%
Other assets 1,931,403 1,712,358 219,045 12.79%
Total assets 37,122,049 41,731,733 （4,609,684） -11.05%
Current liabilities 22,801,219 26,154,964 （3,353,745） -12.82%
Long-term liabilities 2,076,372 2,660,184 （583,812） -21.95%
Total liabilities 24,877,591 28,815,148 （3,937,557） -13.66%
Capital stock 4,424,367 4,427,051 （2,684） -0.06%
Capital surplus 791,466 777,368 14,098 1.81%
Retained earnings 5,665,353 4,660,556 1,004,797 21.56%
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68 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report

Unit: NT$1,000

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Year 2016 2015 Difference
Item Amount %
Other equity 118,538 565,406 （446,868） -79.03%
Non-controlling Interests 1,244,734 2,486,204 （1,241,470） -49.93%
Total shareholders’ equity 12,244,458 12,916,585 （672,127） -5.20%
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Decrease of long-term liabilities from the previous period: mainly because of the reimbursement of long-term loans.
Increase of retained earnings from the previous period: mainly because of the good profitability of the consolidated company.
Decrease of other equity from the previous period: mainly because of the decrease of foreign exchange translation adjustment.
Decrease of non-controlling interest from the previous period: mainly because of the disposal of Global TEK.

（ 1 ） most recent year （ 2016 ）

Unit: NT$1,000

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Cash balance Net cash provided Net cash used from Cash balance Remedy for liquidity shortage
12.31.2015 activities in 2016from operating investing and financing activities in 2016 12.31.2016 Investment plan Financing plan
－－
7,623,380 2,282,949 （1,263,464） 6,359,916
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（1） Operating activities: Net cash flow provided from operating activities amounted to NT$2,282,949 thousand is mainly the result of the increase in profit and the decrease of notes and accounts receivable.
（2） Investing activities: Net cash used from investing activities amounted to NT$731,991 thousand is mainly the result of the increase of acquiring property, plant, and equipment.
（3） Financing activities: Net cash used from financing activities amounted to NT$2,615,165 thousand is mainly the result of the reimbursement of short-term loans, long-term loans, and the release of cash dividend.
operating income and stable cash inflows that make the financial structure of the company healthy.
（ 2 ） Improvement plan for inadequate liquidity: The Company is without any inadequate liquidity that has occurred in the most recent year.

2. Financial performance

（ 1 ） two years

Unit: NT$1,000

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Item Year 2016 （ restated2015 ） Amount increase or decrease （ % ）
Net Sales 64,329,462 63,538,187 791,275 1.25%
Operating costs 57,062,275 56,794,922 267,353 0.47%
Gross profit 7,267,187 6,743,265 523,922 7.77%
Operating expense 4,893,716 4,636,397 257,319 5.55%
Operating income 2,373,471 2,106,868 266,603 12.65%
Non-operating income and expense 390,981 311,034 79,947 25.70%
Income before tax of the continued operations 2,764,452 2,417,902 346,550 14.33%
Income tax expense （benefit） 777,686 631,009 146,677 23.24%
Net profit in current period （including the net 2,048,662 1,816,935 231,727 12.75%
income of discontinued operations）
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Notes to items of significant change （changes for more than 20% from the previous period and the amount exceeding NT$10 million）:

Increase of non-operating incomes from the previous period: mainly because of the disposal of available-for-sale financial assets and net earnings from disposal of investments accounted for using equity method.

（ 3 ）（ 2017 ）

Unit: NT$1,000

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Cash balance Net cash provided Net cash provided from Cash balance Remedy for liquidity shortage
12.31.2016 from operating investing and financing 12.31.2017
activities in 2017 activities in 2017 Investment plan Financing plan
6,359,916 3,584,139 2,020,265 8,380,181 －－
----- End of picture text -----

（1） Operating activities: Net cash inflow from operating activities is expected to be NT$3,584,139 thousand mainly because of the projected profit in the period.
（2） Investing activities: Net cash outflow from investing activities is expected to be NT$1,874,103 thousand mainly because of the acquisition of property, plant and equipment.
（3） Financing activities: Net cash inflow from financing activities is expected to be NT$310,229 thousand mainly because of the exercise of employee stock warrants.
Improvement plan for anticipated cash deficiency and liquidity analysis: There is no anticipated cash deficiency; therefore, it’s not applicable.

（2017）is consolidated amount.

4. The impact of major capital expenditures on financial business in the most recent year: None

Increase of income tax expense from the previous period: mainly because of the increase of net income before tax of the continued operation.

（ 2 ） Expected sales within the year and its basis, and the possible impact on the Company’ s future financial operations and the responsive plan

The Company sales forecast is based on the industrial environment and future market supply and demand; also, taken into account the business development, current purchase orders status, production base capacity planning, etc. For the sales forecast of each major product in 2017, in terms of PC peripherals business unit, product sales will likely remain the same or grow slightly, while the non-PC peripherals business unit is expected to grow steadily due to the

effect of global information and communications c o m m o d i t y a n d m o b i l e p h o n e m a r k e t development and market demand for electrospeaker products. Currently, the Company has sound financial structure and excellent business constitution. The Company’s proprietary funds and the net cash inflow from operating activities are sufficient to support the demand for working capital and capital expenditure needs resulted from revenue growth.

5. Investment policy in the most recent year, main reason for its profits or losses, improvement plan and the investment plans within the year

（ 1 ） Investment policy

The Company’s management team for the operational requirements and future strategic development has professional information provided by the responsible units. The Finance and Management Office is to have data collected and proposals presented to the responsible

supervisor. For the investment proposals presented, the history and prospect of the invested company, market conditions and business constitution should be assessed for the reference of the decision-maker in making investment decisions.

70 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report

（ 2 ） improvement plans in the most recent year

12.31.2016 / Unit: NT$1,000

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----- Start of picture text -----

Remarks Amount of profit The main reason for the Improvement
Item （ loss ） in 2016 profit or loss plan
Primax Industries （Cayman Holding） Ltd. 251,896 Normal operation —
Primax Technology （Cayman Holding） Ltd. 11,354 Normal operation —
—
Destiny Technology Holding Co., Ltd （3,452） Normal operation
Destiny Technology （Japan） Corporation 242 Normal operation —
Diamond （Cayman）Holdings Ltd. 145,891 Normal operation —
Gratus Technology Corp. 75 Normal operation —
Primax Industries （Hong Kong） Ltd. 213,540 Normal operation —
Polaris Electronics Inc. 11,071 Normal operation —
Tymphany Worldwide Enterprises Ltd 166,285 Normal operation —
Tymphany HK Ltd 337,425 Normal operation —
TYP Enterprises Ltd 2,692 Normal operation —
TYMPHANY LOGISTICS, INC 4,674 Normal operation —
Dongguan Primax Electronic Telecommunication Products Ltd. （103,572） Normal operation —
—
Beijing Destiny Electronic Technology Ltd （3,452） Normal operation
Primax Electronics （Kunshan） Corp., Ltd. 69,114 Normal operation —
Primax Electronics （Chongqing） Corp., Ltd. 246,273 Normal operation —
Premium Loudspeakers （Huizhou） Co., Ltd. 88,159 Normal operation —
Dongguan Tymphany Acoustic Technology Co., Ltd 25,180 Normal operation —
Dongguan Dongcheng Tymphany Acoustic 0 Normal operation —
Technology Co., Ltd
WUXI GLOBAL TEK FABRICATION CO., LTD 7,343 Normal operation —
GLOBAL TEK （XI’AN） CO., LTD 2,171 Normal operation —
GLOBAL TEK （WU’XI） CO., LTD 37,395 Normal operation —
----- End of picture text -----

6. Risk analysis and evaluation

（ 1 ） on the Company’ s profit or loss and future responsive measures

1. Changes in exchange rate

for foreign exchange hedging, will continue to monitor changes in the exchange rate and the foreign exchange positions within PRIMAX; also, will maintain foreign currency assets and liabilities balanced in order to avoid the risk of changes in exchange rates and reduce the impact of changes in exchange rate on PRIMAX’s profit and loss.

PRIMAX’s revenue-based business is targeting on exporting business. The exporting products are mainly quoted in US dollars; also, PRIMAX’s transactions conducted with overseas suppliers and the purchase of machinery equipment from overseas suppliers are denominated in US dollars too, resulting in mutual offset effect, so it provides a natural hedging effect against changes in the exchange rate. PRIMAX’s 2016 net foreign exchange gain amounted to NT$242,423 thousand, accounted for 0.38% of net sales. Therefore, the overall foreign exchange does not constitute a risk factor burden on the profit status. However, PRIMAX in response to the risk of changes in the exchange rate on PRIMAX’s profit or loss, in addition to using spot and forward foreign exchange transactions

2. Changes in interest rate

The consolidated Group’s 2016 interest expense accounted for 0.14% of the net sales, indicating that such interest expense had no significant impact on the consolidated company’s profits and losses. In addition, PRIMAX regularly assesses bank loan interest rates and maintains good relations with banks in order to obtain more

==> picture [209 x 168] intentionally omitted <==

favorable interest rates and to reduce interest expenses.

According to the announcement of the Directorate-General of Budget, Accounting and Statistics （ DGBAS ） , Executive Yuan, R.O.C. （ Taiwan ） , the December, 2016 Consumer Price Index （ CPI ） rose by 1.70%, the Wholesale Price Index （ WPI ） annual growth rate was 1.84%, indicating that there was no significant inflation occurred, which had no significant impact on PRIMAX’s December 2016 profit and loss. PRIMAX

and will have sales price and raw materials and inventory adjusted accordingly; however, there was no significant impact that occurred as a result of

（ 2 ） The policy of engaging in high-risk, highly leveraged investments, loans to others, endorsements and guarantees, and derivative products, the main reason for the profit or loss, and future response measures

1. Engaged in high-risk and highly leveraged investments

according to the policies and response measures enacted in accordance with PRIMAX’s “Procedures for Loaning of Funds” and “Procedures for Making of Endorsement/Guarantee;” also, the related operations are processed prudently with the possible risks and relevant regulations considered.

PRIMAX focuses on its business management without engaging in high-risk investments and has never engaged in any highly leveraged investment.

2. Engaged in the loaning of funds and making

3. Derivative products trading

of endorsement and guarantee

PRIMAX had the derivatives transactions assessed carefully. The operations of any derivatives trading is aimed to help improve business performance and reduce PRIMAX’s operations and financial risks; also, it is processed in accordance with the “Procedures for Acquisition or Disposal of Assets” and scope of authorization.

PRIMAX had arranged the loaning of funds and making of endorsements/guarantees for the 100% owned subsidiaries for the need of business dealings in the most recent year and as of the printing date of the annual report. PRIMAX’s loaning of funds and making of endorsements/guarantees are handled

（ 3 ） Research and development plans in the future and projected investment

1. Research and development plans in the future

and smart home technology products. These will help to upgrade the research and development capacity of PRIMAX further and increase the market share of the products so that PRIMAX will be more internationalized and highly competitive.

The premium items of PRIMAX are PC peripherals, mobile device parts and components, business machine and digital home products. In the future, PRIMAX seeks to continue its joint ventures with international big firms and engage in strategic partnership with startup firms with gravity on gaming mouse, keyboard and keyboard module, multiple colors keyboard backlight module, double-lens cell phone camera module, computer built-in camera module, Bio-identification module, Bluetooth and wireless smart sound systems, Bluetooth and wireless earphone related items, multiplepurpose business machine scanner module, jet and laser multiple-purpose business machine, automobile electronics, automation production line, web sound system equipment, AI home appliance, smart health

2. Projected investment in research and development

PRIMAX’s projected research and development expenses are based on the progress of new products and new technology development; also, maintain a certain percentage of growth depending on future operating conditions in order to ensure PRIMAX’s competitive advantage. PRIMAX plans to invest in research and development for around NT$2.5 billion in 2017.

72 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report

（ 4 ） The impact of changes in domestic and foreign policies and law on the Company’ s financial operations and responsive measures:

regulations for the reference of the management. Therefore, PRIMAX is able to grasp any changes in policies and law domestically and internationally with effective response initiated.

PRIMAX has operated business in compliance with the governing regulations of the domestic and foreign invested companies. The related personnel also pay attention to changes in the law and

（ 5 ） The impact of changes in technologies and industry on the Company’ s financial business and responsive measures:

PRIMAX pays attention to, collects and analyzes PC peripheral products, mobile devices components and products, and market and technology development of MFP and digital home products. In addition to reducing the impact of technological change, enhance the research and development of high value-added products with high margins in order to have PRIMAX’s products diversified and stabilized, and ensure a profit source. PRIMAX （ 6 ） PRIMAX has a positive corporate image and is one of the leading suppliers of PC peripherals, mobile device parts and components, business machine and digital home products. With sound human resources development and training, and the

with outstanding process technologies continues to expand the strategic alliance system in-depth and in-width with the existing customers from product design, production, logistics support, distribution and after-sales service in order to strengthen the mutual long-term co-existence and common prosperity. The technological and industrial changes do not have a significant impact on PRIMAX’s financial operations so far.

（ 6 ） The impact of the change in corporate image on the Company ’ s crisis management and responsive measures:

operation as feedback to the shareholders, PRIMAX has performed its professed corporate social responsibility. In the quest for the maximization of shareholders’ equity, PRIMAX also seeks to perform its corporate social responsibility to its entirety so that the corporate image could be reinforced. As such, there is nothing that affected the corporate image in the most recent year to the date this annual report was printed.

PRIMAX has a positive corporate image and is one of the leading suppliers of PC peripherals, mobile device parts and components, business machine and digital home products. With sound human resources development and training, and the employee-oriented humane style of management, PRIMAX has attracted a large number of good people and technologies. With the strengthening of the management team and the result of business

（ 7 ） measures:

The Board of Tymphany Worldwide Enterprise Limited, a key subsidiary of PRIMAX, resolved on March 13, 2017 to establish a Hong Kong subsidiary, Tymphany Acoustic Technology HK Limited, by acquiring 100% of the stakes of Bang& Olufsen s.r.o. at the price of EUR18 million. Through this

transaction, Tymphany can fully expand its territory of audio products all over Europe with cultivating in-depth cooperation with customers. In addition, PRIMAX can further expand the design, technology and production process of audio products in depth and in scope.

（ 8 ） plant expansion: None.
（ 9 ） The risks of centralized purchase or sales and responsive measures.

2. The risks of centralized sales and the

responsive measures

therefore, PRIMAX did not have any centralized sales. PRIMAX, in addition to maintaining good relations with the existing customers, actively develops new products to expand the market and customers for new products in order to have the customers dispersed and to minimize the risk of centralized sales.

PRIMAX’s customers for sales are international well-known technology giants, a diversified clientele with stability. The top-ten customers accounted for 50% of net sales in 2016. Within the top-ten customers, the proportion of sales to a single customer does not exceed 30% of net sales;

（ 10 ） The impact of massive stock transfer or exchange by the directors, supervisors or major shareholders with more than 10% shareholdings on the Company, risks and responsive measures: None
（ 11 ） The impact of change in the Company ’ s right to operate, risks and responsive measures: None

（ 12 ） Litigation or non-litigation events

The plaintiff, the couples of Millicent Lombardi and Anthony Lombardi, was injured by a paper shredder and had a lawsuit filed with Eastern District Court of New York State （USA） on October 27, 2015 against PRIMAX ’ s customer, ACCO Brands Corp. and its dealer, Staples, Inc., for damages. ACCO Brands Corp. and Staples, Inc. claimed that the paper shredder was manufactured by the Company and supplied to ACCO Brands Corp. for sales; therefore, a lawsuit was filed with Eastern District Court of New York State （USA） on April 14, 2016 against PRIMAX for third party liability. The United States District Court for Eastern District of New York rejected the case on December 15, 2016 for reason of the lack of legal jurisdiction over the Company.

1. For PRIMAX’s litigation, non-litigation, or administrative contentious event that have been sentenced or are currently under proceeding in the court of law in the recent years and as of the printing date of the annual report; also, the results may be significantly influential to shareholders’ equity or securities prices, such indisputable fact, the subject amount, the litigation proceeding starting date, the main parties of the lawsuit and its current situation should be disclosed:

CSAA Insurance Exchange （USA） had sued PRIMAX ’ s affiliate, Polaris Electronics, Inc. and the customer, Woods Industries, Inc., in the Superior Court of California （USA） on November 18, 2013 in accordance with product liability clause and had demanded compensation for fire damages by subrogation on behalf of the insured, Manuel Dias and Pamela Dias. PRIMAX has reported it to the insurance company for record upon notice and has helped clarify the source of the product in question （Surge Protector） and necessary information. The case is still in the process of the California Superior Court of the United States.

2. The litigation, non-litigation or administrative contentious event of PRIMAX ’ s directors, supervisors, general manager, active owner, shareholders with more than 10% shareholdings and the subsidiaries that have been or are currently under proceeding in the court of law in the recent years and as of the printing date of the annual report; also, the results may be significantly influential to shareholders ’ equity or securities prices: None

（ 13 ） Other important risks and responsive measures: None

1. The risks of centralized purchase and

responsive measures

PRIMAX, except for the finished product procurement, has retained two or more qualified suppliers for procurement in order to maintain purchase flexibility, ensure uninterrupted

supply, and uphold bargaining advantage in order to achieve the goal of reducing cost. In summary, PRIMAX has not faced any risks of centralized purchasing of raw materials or supply interruption.

7. Other important events: None

74 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report

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----- Start of picture text -----

VII. Special notes
76 Primax Electronics Ltd. 2016 Annual Report
----- End of picture text -----

’s information

（ 1 ） ’s consolidated business report

（ 1 ） ’s overview

’s organizational chart （ 12.31.2016 ）

==> picture [478 x 480] intentionally omitted <==

----- Start of picture text -----

Primax Electronics Ltd.
（ TW ）
Primax Destiny Primax Technology Gratus
Co., Ltd. （Cayman Holding） Technology
（Japan） Ltd.（Cayman） Corp.
Destiny
Diamond
Technology Primax Industries
Holding Co., （Cayman Holding）Ltd. （Cayman）
Ltd. （Cayman） Holdings Ltd.
（Cayman）
（BVI）
Polaris
Beijing Destiny Primax
Electronic Industries Electronics 70
Technology Co., （Hong Kong） Inc. %
Ltd. Ltd. （US）
（PRC）（HK） Tymphany
Worldwide
32.84
% Enterprises Ltd.
（Cayman）
67.16
%
Tymphany TYP
Primax Electronics Primax Electronics Dongguan Primax Electronic HK Ltd. Enterprises,
（Kun Shan）（Chong Qing &. Telecommunication （HK） Inc.
Corp., Ltd. Corp., Ltd ） Products Ltd （US）
（PRC）（PRC）（PRC）
Tymphany Logistics.
Premium INC Dongguan Tymphany
Loudspeakers （US） Acoustic Technology
（Huizhou）Co., Ltd. Co. Ltd.
（PRC）（PRC）
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Dongguan Dongcheng Tymphany Acoustic Technology Co., Ltd. （PRC）

Primax Electronics Ltd. 2016 Annual Report

Unit: NT$1,000 / 12.31.2016

2 ’

==> picture [441 x 664] intentionally omitted <==

----- Start of picture text -----

Company Name EstablishmentDate Address Paid-in capital Principal businesses or production projects
Dongguan Primax Produce and sell PC
Telecommunication Electronic & 12.21.1995 B4079, Liu Wu Dao Section, Xincheng Qu, Shijie Chen, 2,075,044 peripherals, mobile device components, business
Products Ltd. Dongguan City equipment and other products.
Primax （Kunshan ） 11.17.2009 No. 2688 Tong Xin Road, 908,593 [Produce PC peripheral ]
Electronics Co., Ltd. Yushan Zhen, Kunshan City products.
Primax Electronics No. 999, Building No. 1, Xing
（Chongqing） Corp. 02.23.2011 Guang Blvd, Yongcuan Qu, 583,149 [Produce PC peripheral ]
Ltd. Chongqing City products.
Beijing Destiny
Electronic Suite 201-202, 2F., No. 10, He Research and develop PC
03.24.1994 Fang Road, Dinghai District, 41,105 peripheral products and
Technology Corp.,
Ltd Beijing business equipment.
PC peripherals, mobile
Destiny Technology 6th Fl., Hamamatsucho MK device components, business
（Japan） 07.28.1995 Bldg., 1-4-12 Kaigan, Minato- 6,933 equipment, other products
Corp., Ltd ku, Tokyo 105-0022 JAPAN of Market development,
customer service, etc.
Trading of PC peripherals,
mobile device components,
Polaris Electronics, Inc. 04.24.1996 356 S. Milpitas Blvd, Milpitas. CA. 95035 USA 51,646 business equipment, and
market development and
customer service.
Rm.1520-21, 15/F., Block A,
（Primax IndustriesHong Kong）Ltd. 05.19.1989 Hi-Tech Industrial Centre, 5-21 Pak Tin Par Street, 2,509,105 Trading of PC peripherals, mobile device components,
business equipment.
Tsuen Wan,N.T., Hong Kong.
2nd Floor, Midtown Plaza,
Primax Technology
（Cayman Holding） 10.08.1997 Elgin Avenue, George Town, 920,167 Holding company
Ltd. Grand Cayman KY1-1106,
Cayman Islands.
Primax Industries 2F, Zephyr House, Mary St.
（Cayman Holding） 10.24.1996 PO. Box 709, George Town, 2,629,975 Holding company
Ltd. Grand Cayman, Cayman
Islands, British West Indies.
Destiny Technology 01.19.2001 Sealight House, Tortola, 33,893 Holding company
Holding Co., Ltd. British Virgin Islands
P.O. Box 32052, The Grand
Diamond（Cayman） 10.08.2013 Pavilion Commercial Centre, Oleander Way, 802 West Bay 2,713,050 Holding company
Holdings Ltd.
Road, Grand Cayman, KY1-
1208 Cayman Islands.
Tymphany P.O. Box 309, Ugland House,
Worldwide 10.29.2013 Grand Cayman, KY1-1104 550,010 Holding company
Enterprises Ltd. Cayman Islands.
Market development and
TYP Enterprises, Inc. 01.06.2014 3 Harbor Drive, Suite 209 16 customer service of speakers
Sausalito, CA94965
and its parts and components.
Holding company and sale of
ROOM 1307-8 DOMINION sound system accessories,
Tymphany HK Ltd. 05.11.1995 CENTRE. 43-59 QUEENS 601,015 speakers and parts and
ROAD EAST, WANCHAI , components, related market
HONG KONG development and customer
service.
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----- Start of picture text -----

Company Name EstablishmentDate Address Paid-in capital Principal businesses or production projects
Premium Tiffany Industrial Park, Xinlian Research and development, design and sale of various
Loudspeakers 08.09.2004 Village, Xinxu Town,Huiyang 146,303 sound system accessories,
（Huizhou） Co., Ltd. District, Huizhou, Guangdong Province speakers and parts and
components.
LOGISTICS, INCTYMPHANY 04.29.2015 356 S. Milpitas Blvd, Milpitas. CA. 95035 USA 6,456 Sale of sound system accessories, speakers and
parts and components.
Research and development,
Dongguan Tymphany Liu Wu Dao Section, design and sale of various
Acoustic Technology 09.06.2015 Xincheng Qu, Shijie Chen, 16,140 sound system accessories,
Co., Ltd Dongguan City speakers and parts and
components.
Research and development,
Dongguan
No. 27, Dayuan Road, Zhang design and sale of various
Dongcheng
10.11,2016 Village, Dongcheng District, 93,064 sound system accessories,
Tymphany Acoustic
Dongguan speakers and parts and
Technology Co., Ltd
components.
Market development and
customer service in PC
Gratus Technology Corp 04.01.2015 356 S. Milpitas Blvd, Milpitas. CA. 95035 USA 9,684 peripherals, mobile device
components, and business
equipment.
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None
The primary business operations of the Company and its affiliated companies include PC peripherals and non-PC peripheral product design, manufacturing, processing, and sales. In general, the interaction and job division among the affiliated companies is to create maximum synergy through the mutual support of technology, production, marketing and services.

’s directors, supervisors and managers

12.31.2016

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Company Name Title Name or representative
Primax Industries （Hong Kong） Ltd. &
Chairman Primax Technology （Cayman Holding） Ltd.
Representative: Lee, Chiu-Sheng
Primax Industries （Hong Kong） Ltd. &
Dongguan Primax Electronic & Director Primax Technology （Cayman Holding） Ltd.
Telecommunication Products Ltd. Representative: Ying, Chung-Wen
Primax Industries （Hong Kong） Ltd. &
Director Primax Technology （Cayman Holding） Ltd.
Representative: Chang, Chen-Deh
General Manager Lee, Chiu-Sheng
Executive Director Primax Industries （Hong Kong） Ltd.
Representative: Yang, Hai-Hung
Primax （Kunshan ）
Electronics Co., Ltd Supervisors Primax Industries （Hong Kong） Ltd.
Representative: Chang, Chen-Deh
General Manager Lee, Chiu-Sheng
Executive Director Primax Industries （Hong Kong） Ltd.
Representative: Yang, Hai-Hung
Primax Electronics
（Chongqing） Corp. Ltd. Supervisors Primax Industries （Hong Kong） Ltd.
Representative: Chang, Chen-Deh
General Manager Lee, Chiu-Sheng
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Primax Electronics Ltd. 2016 Annual Report

12.31.2016

Unit: NT$1,000 / 12.31.2016

（ 2 ） ’s operation overview

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Company Name Title Name or representative
Chairman Destiny Technology Holding Co., Ltd.
Representative: Liang, Li-Sheng
Director Destiny Technology Holding Co., Ltd.
Beijing Destiny Electronic Representative: Yang, Hai-Hung
Technology Corp. Ltd.
Director Destiny Technology Holding Co., Ltd.
Representative: Ying, Chung-Wen
General Manager Wei, Hao-San
Director Wei, Hao-San
Destiny Technology Director Pan, Yung-Chung
（Japan）
Corp. Ltd. Director Lee, Yi-Ping
Supervisor Chou, Yen-Chou
Director Yang, Hai-Hung
Polaris Electronics, Inc.
Director Liang, Li-Sheng
Primax Industries （Hong Kong） Director Liang, Li-Sheng
Ltd.
Director Yang, Hai-Hung
Director Liang, Li-Sheng
Primax Technology
（Cayman Holding） Director Yang, Hai-Hung
Ltd.
Director Lee, Yi-Ping
Director Liang, Li-Sheng
Primax Industries
（Cayman Holding） Director Yang, Hai-Hung
Ltd.
Director Lee, Yi-Ping
Destiny Technology Holding Co., Ltd. Director Liang, Li-Sheng
Primax Electronics Ltd.
Diamond （Cayman） Holdings Ltd. Director Representative: Liang, Li-Sheng
Lee, Yi-Ping
Diamond （Cayman） Holdings Ltd.
Representative: Liang, Li-Sheng
Yang, Hai-Hung
Tymphany Worldwide Enterprises Director Pan, Yung-Chung
Ltd. Pan, Yung-Tai
United Industrial Development Limited
Representative: Edward Townsend Boyd III
Thomas Lee Jacoby
Edward Townsend Boyd III
TYP Enterprises, Inc. Director Thomas Lee Jacoby
Representative: Pan, Yung-Chung
Tymphany HK Ltd. Director Edward Townsend Boyd III
Representative: Pan, Yung-Chung
Premium Loudspeakers Executive Director Representative: Pan, Yung-Chung
（Huizhou）
Co., Ltd Supervisor Lee, Yi-Ping
TYMPHANY LOGISTICS, INC Director Liang, Li-Sheng
Executive Director Representative: Pan, Yung-Chung
Dongguan Tymphany Acoustic
Technology Co., Ltd
Supervisor Lee, Yi-Ping
Executive Director Representative: Wu, Chih-Ming
Dongguan Dongcheng Tymphany
Acoustic Technology Co., Ltd
Supervisor Pan, Yen-Jen
Director Liang, Li-Sheng
Gratus Technology Corp.
Director Yang, Hai-Hung
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Earnings per
Company Name amountCapital Total assets liabilitiesTotal Net worth Operating sales Operating income current periodEarnings in （ shareNT$ ）
（ After tax ）
（ After tax ）
Dongguan
&Telecommunication Primax Electronic 2,075,044 18,213,585 13,757,449 4,456,136 45,237,957 413,292 (103,572) －
Products Co., Ltd.
Primax Electronics
（Kunshan ） 908,593 1,272,998 352,407 920,591 1,013,113 34,857 69,114 －
Co., Ltd.
Primax Electronics
－
（Chongqing） 583,149 3,488,733 2,573,537 915,196 5,879,924 170,030 246,273
Corp. Ltd.
Beijing Destiny
Electronic Technology 41,105 56,606 30,290 26,316 109,530 (8,318) (3,452) －
Co., Ltd.
Destiny Technology
（Japan） 6,933 19,228 3,082 16,146 25,704 1,224 242 484.00
Co., Ltd.
Polaris Electronics, Inc. 51,646 1,358,038 963,716 394,322 3,910,475 17,077 11,071 6.92
Primax Industries
（Hong Kong） 2,509,105 4,771,167 337,205 4,433,962 16,363,218 503 213,540 0.35
Ltd.
Primax Technology
（Cayman Holding） 920,167 1,955,366 0 1,955,366 0 (206) (24,669) (0.09)
Ltd.
Primax Industries
（Cayman Holding） 2,629,975 4,501,546 54,393 4,447,153 632,059 (1,538) 211,690 0.03
Ltd.
Destiny Technology 33,893 26,320 0 26,320 0 0 (3,452) (3.29)
Holding Co., Ltd.
Diamond（Cayman） 2,713,050 3,007,259 0 3,007,259 (139) (18,271) 144,863 1.72
Holdings Ltd.
Tymphany Worldwide 550,010 1,634,075 71,029 1,563,046 261,293 11,582 349,720 9.08
Enterprises Ltd.
Tymphany HK Ltd. 601,015 4,514,701 2,974,575 1,540,126 8,605,899 188,644 337,425 2.34
TYP Enterprises, Inc. 16 37,723 32,847 4,876 127,165 4,731 2,692 5,384.00
Premium Loudspeakers
（Huizhou） 146,303 1,816,872 1,230,103 586,768 4,054,479 88,273 125,942 －
Co., Ltd.
Dongguan Tymphany
Acoustic Technology 16,140 2,003,048 1,954,613 48,435 3,878,361 45,143 35,972 －
Co., Ltd
Gratus Technology 9,684 10,141 266 9,875 4,307 244 75 0.25
Corporation
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80 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report

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Unit: NT$1,000 / 12.31.2016
Earnings per
Company Name amountCapital Total assets liabilitiesTotal Net worth Operating sales Operating income current periodEarnings in （ shareNT$ ）
（ After tax ）
（ After tax ）
Tymphany Logistics, Inc. 6,456 1,173,362 1,163,795 9,567 1,986,995 6,268 3,436 17.18
Dongguan Dongcheng
Tymphany Acoustic 93,064 94,402 1,339 93,063 0 0 0 －
Technology Co., Ltd
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（ 2 ） ’

（ 1 ） ’s Consolidated Financial Statements: See Page 88.
（ 2 ） Independent Auditor’ ’ See Page 89 ~ 180.

（ 3 ） Relations Report: Not applicable

2. The process of private placement in the most recent year and as of the printing date of the annual report: None

3. The disposition of the Company’s stock shares by the subsidiaries in the most recent year and as of the printing date of the annual report: None

4. Other supplementary information: None

shareholders’ equity or securities price as defined in Article 36, Paragraph 3 Section 2 of Securities Exchange Act in the most recent year and as of the printing date of the annual report: None

82 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report 83

1. The condensed balance sheet and consolidated income statement of the last five years

（ 1 ） Condensed Consolidated Balance Sheet -

International Financial Reporting Standards

Unit: NT$1,000

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Year Financial Summary for The Last Five years （ Note 1 ）
Item 2012 2013 2014 2015 2016
Current assets 15,384,183 17,385,420 23,078,336 30,413,161 27,799,554
Property, plant and equipment 3,822,324 3,389,048 3,935,145 6,284,023 4,717,422
Intangible assets 54,961 46,479 2,916,644 3,322,191 2,673,670
Other assets 757,256 769,975 1,093,648 1,712,358 1,931,403
Total assets 20,018,724 21,590,922 31,023,773 41,731,733 37,122,049
Before distribution 12,648,580 13,828,775 19,254,757 26,154,964 22,801,219
Current liabilities
After distribution 13,295,599 14,175,880 20,045,864 27,082,897 23,913,105
Non-current liabilities 144,506 220,580 1,460,269 2,660,184 2,076,372
Before distribution 12,793,086 14,049,355 20,715,026 28,815,148 24,877,591
Total liabilities
After distribution 13,440,105 14,396,460 21,506,133 29,743,081 25,989,477
Equity attributable to Shareholders of the Parent 7,224,867 7,541,567 9,150,513 10,430,381 10,999,724
Capital stock 4,292,492 4,339,529 4,385,481 4,427,051 4,424,367
Capital surplus 607,334 648,747 673,543 777,368 791,466
Before distribution 2,462,943 2,485,712 3,686,641 4,660,556 5,665,353
Retained earnings
After distribution 1,815,924 2,138,607 2,895,534 3,732,623 4,553,467
Other equity （137,902） 67,579 404,848 565,406 118,538
Treasury stock －－－－－
Non-controlling Interests 771 － 1,158,234 2,486,204 1,244,734
Total shareholders’ Before distribution 7,225,638 7,541,567 10,308,747 12,916,585 12,244,458
equity After distribution 6,578,619 7,194,462 9,517,640 11,988,652 11,132,572
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（ 2 ） Condensed Proprietary Balance Sheet - International Financial Reporting Standards

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Unit: NT$1,000
Year Financial Summary for The Last Five Years （ Note 1 ）
Item 2012 2013 2014 2015 2016
Current assets 9,913,021 10,459,628 13,197,595 16,329,746 16,123,543
Investments accounted for using equity method 3,778,057 4,745,311 8,596,698 10,088,961 9,317,894
Property, plant and equipment 57,728 63,517 61,287 65,554 68,785
Intangible assets 54,961 46,479 37,997 29,514 22,966
Other assets 432,405 429,204 659,461 1,182,141 1,551,115
Total assets 14,236,172 15,744,139 22,553,038 27,695,916 27,084,303
Before distribution 6,893,386 8,002,029 12,157,266 15,204,972 13,579,780
Current liabilities
After distribution 7,540,405 8,349,134 12,948,373 16,132,905 14,691,666
Non-current liabilities 117,919 200,543 1,245,259 2,060,563 2,504,799
Before distribution 7,011,305 8,202,572 13,402,525 17,265,535 16,084,579
Total liabilities
After distribution 7,658,324 8,549,677 14,193,632 18,193,468 17,196,465
Shareholders’ equity 7,224,867 7,541,567 9,150,513 10,430,381 10,999,724
Capital stock 4,292,492 4,339,529 4,385,481 4,427,051 4,424,367
Capital surplus 607,334 648,747 673,543 777,368 791,466
Before distribution 2,462,943 2,485,712 3,686,641 4,660,556 5,665,353
Retained earnings
After distribution 1,815,924 2,138,607 2,895,534 3,732,623 4,553,467
Other equities （137,902） 67,579 404,848 565,406 118,538
Treasury stock －－－－－
Total shareholders’ Before distribution 7,224,867 7,541,567 9,150,513 10,430,381 10,999,724
equity After distribution 6,577,848 7,194,462 8,359,406 9,502,448 9,887,838
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（ 3 ） Condensed Consolidated Comprehensive Income Statement - International Financial Reporting Standards

Unit: NT$1,000

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Financial Summary for The Last Five Years （ Note 1 ）
Year
Item 2012 2013 2014 2015 2016
（ restated ）
Operating revenue 43,132,771 42,319,988 52,239,777 63,538,187 64,329,462
Gross profit 4,497,277 3,752,695 6,218,799 6,743,265 7,267,187
Net operating income 1,404,096 694,444 1,829,742 2,106,868 2,373,471
Non-operating income and expenses 172,794 216,308 217,839 311,034 390,981
Income before income taxes 1,576,890 910,752 2,047,581 2,417,902 2,764,452
Net income of the continued operations 1,183,698 668,554 1,608,967 1,786,893 1,986,766
Loss from discontinued operations －－－ 30,042 61,896
Net income 1,183,698 668,554 1,608,967 1,816,935 2,048,662
Other comprehensive income （after tax）（137,661） 239,067 342,273 225,310 （547,079）
Total comprehensive income 1,046,037 907,621 1,951,240 2,042,245 1,501,583
Net income attributable to stockholders of
the Parent 1,183,461 668,548 1,544,690 1,773,122 1,934,070
Net income attributable to non-controlling interests 237 6 64,277 43,813 114,592
Total comprehensive income attributable to
stockholders of the Parent 1,045,995 907,589 1,871,224 1,987,738 1,432,480
Total comprehensive income attributable to 42 32 80,016 54,507 69,103
non-controlling interests
Earnings per share （Note 2） 2.91 1.55 3.57 4.06 4.4
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Note 2: Basic earnings per share.

（ 4 ） Condensed Proprietary Comprehensive Income Statement - International Financial Reporting Standards

Unit: NT$1,000

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----- Start of picture text -----

Year Financial Summary for The Last Five Years （ Note 1 ）
Item 2012 2013 2014 2015 2016
Operating revenue 39,129,275 37,257,934 42,356,385 51,638,181 45,739,783
Gross profit 3,200,641 2,471,611 2,665,779 2,934,548 3,633,341
Net operating income 1,323,770 737,781 753,349 926,670 1,549,861
Non-operating income and expenses 100,150 121,510 879,985 1,007,253 797,663
Income before income taxes 1,423,920 859,291 1,633,334 1,933,923 2,347,524
Net income of the continued operations 1,183,461 668,548 1,544,690 1,773,122 1,934,070
Loss from discontinued operations －－－－－
Net income 1,183,461 668,548 1,544,690 1,773,122 1,934,070
Other comprehensive income （after tax）（137,466） 239,041 326,534 214,616 （501,590）
Total comprehensive income 1,045,995 907,589 1,871,224 1,987,738 1,432,480
Earnings per share （Note 2） 2.91 1.55 3.57 4.06 4.4
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Note 2: Basic earnings per share.

（ 5 ） Auditors’ Opinions from 2012 to 2016

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----- Start of picture text -----

Year Accounting Firm CPA Audit Opinion
2012 KPMG Wu, Mei-Pin and Chen, Cheng-Chien Unqualified opinion
2013 KPMG Wu, Mei-Pin and Chen, Cheng-Chien Unqualified opinion
2014 KPMG Wu, Mei-Pin and Chen, Cheng-Chien Modified unqualified opinions
2015 KPMG Huang, Yung-Hua and Yu, Chi-Lung Modified unqualified opinions
2016 KPMG Huang, Yung-Hua and Yu, Chi-Lung Unqualified opinions
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Primax Electronics Ltd. 2016 Annual Report

（ 1 ） Financial Analysis - International Financial Reporting Standards - Consolidated

==> picture [441 x 310] intentionally omitted <==

----- Start of picture text -----

Year The financial analysis of the last five years
Analysis items 2012 2013 2014 2015 2016
（ restated ）
Debit ratio 63.91 65.07 66.77 69.05 67.02
Financial
structure （%） Ratio of long-term fund to property, plant and equipment 192.82 229.04 299.07 247.88 303.57
Current ratio 121.63 125.72 119.86 116.28 121.92
Solvency Quick ratio 79.45 93.98 92.42 86.61 90.80
（%）
Times interest earned （times） 35.43 53.34 31.76 17.52 31.55
Account receivable turnover （times） 7.18 5.65 5.72 5.11 4.59
Days sales outstanding 50.84 64.60 63.81 71.43 79.52
Inventory turnover days （times） 7.13 8.39 10.26 9.34 8.14
Operating Account payable turnover （times） 3.96 3.86 3.99 3.62 3.20
performance Average day in sales 51.19 43.52 35.58 39.08 44.84
Property, plant and equipment turnover 11.23 11.74 14.26 12.44 11.69
（times）
Total assets turnover （times） 2.25 2.03 1.99 1.75 1.89
Return on total assets （%） 6.36 3.28 6.33 5.33 5.39
Return on shareholders’ equity （%） 18.25 9.06 18.03 15.65 16.28
Profitability Pre-tax income to paid-in capital （%） 36.93 21.00 47.11 54.80 62.53
Net margin （%） 2.74 1.58 3.08 2.86 3.18
Earnings per share （NT$） 2.91 1.55 3.57 4.06 4.40
Cash flow ratio （%） 11.02 21.63 17.42 19.20 10.01
Cash flow Cash flow adequacy ratio （%） 114.18 159.46 179.72 132.27 128.21
Cash reinvestment ratio （%） 11.51 19.76 21.34 23.31 7.80
Operating leverage 1.75 2.60 1.65 1.64 1.66
Leverage
Financial leverage 1.03 1.03 1.04 1.07 1.04
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（It is not necessary to analyze the changes for less than 20%）

Ratio of long-term fund to property, plant and equipment: the ratio moved upward mainly due to the decrease of property, plant and equipment in 2016.
Times interest earned: the ratio moved upward mainly because the profit position in 2016 has improved with decrease of interest expense.
from operating activities.
operating activities.

（ 2 ） Financial Analysis - International Financial Reporting Standards - Proprietary

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----- Start of picture text -----

Year The financial analysis of the last five years
Analysis items 2012 2013 2014 2015 2016
Debit ratio 49.25 52.10 59.43 62.34 59.39
Financial
structure （%） Ratio of long-term fund to property, 12,719.63 12,189.04 16,962.44 19,054.43 19,632.95
plant and equipment
Current ratio 143.80 130.71 108.56 107.40 118.73
Solvency Quick ratio 115.09 108.15 96.38 90.46 101.67
（%）
Times interest earned （times） 40.61 52.96 27.92 37.23 74.85
Account receivable turnover （times） 8.18 5.82 5.52 6.11 5.49
Days sales outstanding 44.62 62.71 66.12 59.74 66.48
Inventory turnover days （times） 14.50 18.68 24.45 24.29 17.38
Operating Account payable turnover （times） 6.27 6.11 5.63 5.03 3.92
performance Average day in sales 25.17 19.54 14.93 15.03 21.00
Property, plant and equipment turnover 658.97 614.59 678.77 814.22 680.96
（times）
Total assets turnover （times） 2.86 2.49 2.21 2.06 1.67
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Year The financial analysis of the last five years
Analysis items 2012 2013 2014 2015 2016
Return on total assets （%） 8.86 4.55 8.33 7.23 7.16
Return on shareholders’ equity （%） 18.25 9.05 18.51 18.11 18.05
Profitability Pre-tax income to paid-in capital （%） 33.35 19.82 37.58 43.83 53.10
Net margin （%） 3.02 1.79 3.65 3.43 4.23
Earnings per share （NT$） 2.91 1.55 3.57 4.06 4.40
Cash flow ratio （%） 0.81 12.33 12.46 6.82 29.33
Cash flow Cash flow adequacy ratio （%） 24.91 103.17 192.99 103.65 172.23
Cash reinvestment ratio （%） 3.43 4.31 11.06 2.03 23.82
Operating leverage 1.04 1.06 1.05 1.04 1.02
Leverage
Financial leverage 1.03 1.02 1.09 1.06 1.02
Explain the changes in financial ratios over the last two years.
（It is not necessary to analyze the changes for less than 20%）
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interest expense.
Inventory turnover days: the turnover days moved downward in 2016 mainly because of the growth of gross margin and the decrease of the cost of goods sold.
Account payable turnover: the turnover rate moved downward in 2016 mainly because of the growth of gross margin and the decrease of the cost of goods sold.
Average day in sales: average day in sales moved upward in 2016 mainly because of the decrease of inventory turnover.
Pre-tax income to paid-in capital: the ratio moved upward in 2016 mainly because of the increase of pre-tax income in 2016.
Net margin: the ratio moved upward mainly because of the increase of net income in 2016.
decrease of current liabilities in 2016.
Cash reinvestment ratio: the ratio moved upward mainly perating activities in 2016.

1. Financial structure

（ 1 ） Debit ratio ＝ Total liabilities / Total assets
（ 2 ） Ratio of Long-term fund to property, plant and equipment ＝（ Shareholders ’ equity, net + long-term liabilities ） / Net property, plant and equipment

2. Solvency

（ 1 ） Current ratio ＝ Current assets / Current liabilities
（ 2 ） Quick ratio ＝（ Current assets - Inventories - Prepaid expenses ） / Current liabilities
（ 3 ） Times Interest Earned ＝ Earnings before interest and taxes / Interest expenses

3. Operating performance

（ 1 ） Receivables （ including accounts receivable and notes receivable resulting from business operations ） Turnover ＝ Net sales / Average receivable （ including accounts receivable and notes receivable resulting from business operation ） balance
（ 2 ） Days sales outstanding ＝ 365 / Receivables turnover.
（ 3 ） Inventory turnover ＝ Cost of goods sold / Average inventory
（ 4 ） Payables （ including accounts payable and notes payable resulting from business operations ） turnover ＝ Cost of goods sold / Average payable （ including accounts payable and notes payable resulting from business operations ） balance.
（ 5 ） Average day in sales ＝ 365 / Average inventory turnover.
（ 6 ） Property, plant and equipment turnover ＝ Net sale/Average net property, plant and equipment.
（ 7 ） Total assets turnover ＝ Net sale/Average total assets.

（ 1 ） Return on total assets ＝〔 Net income + Interest expense × （ 1- tax rate ）〕 / Average total assets
（ 2 ） Return on shareholders’ equity ＝ Net Income attributable to shareholders of the parent / Average equity attributable to shareholders of the parent
（ 3 ） Net margin ＝ Net income / Net sales
（ 4 ） Earnings per share ＝（ Net income attributable to shareholders of the parent - preferred stock dividend ） / Weighted average number of shares outstanding

（ 1 ）＝
（ 2 ） Cash flow adequacy ratio ＝ Five-year sum of cash from operations / Five-year sum of capital expenditures, inventory additions, and cash dividend
（ 3 ） Cash reinvestment ratio ＝（ Net cash flow from operating activities - cash dividends ） / （ Gross property, plant and equipment + long-term investments + other noncurrent assets + working capital ）

6. Leverage:

（ 1 ） Operating leverage ＝（ Net sales – variable costs ） / Income from operations
（ 2 ） Financial leverage ＝ Income from operations / （ Income from operations - interest expenses ）

Primax Electronics Ltd. 2016 Annual Report

3. The Audit Committee’s review report on

The Audit Committee’s review report

The Board of Directors has prepared the Company’s 2016 Business Report, Financial Statements, and proposal for allocation of profits. The CPA firm of KPMG was retained to audit Primax’s Financial Statements and has issued an audit report relating to the Financial Statements. The Business Report, Financial Statements, and profit allocation proposal have been reviewed and determined to be correct and accurate by the Audit Committee members of PRIMAX Electronics Limited. According to Article 219 of the Company Law, we hereby submit this report.

PRIMAX Electronics Limited – Shareholders’ Meeting

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Independent Auditors’ Report

To the Board of Directors of PRIMAX ELECTRONICS LTD.:

Opinion

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Chairman of the Audit Committee: Wei, Yong Du March 7 2017

notes had been audited by the CPAs

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

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

Basis for Opinion

Representation Letter

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

==> picture [68 x 67] intentionally omitted <==

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

==> picture [39 x 39] intentionally omitted <==

We conducted our audit in accordance with the “Regulations Governing Auditing and Certification of Financial Statements by Certified Public Accountants” and the auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the Certified Public Accountants Code of Professional Ethics in Republic of China (“the Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained, inclusive of the report from other auditors, is sufficient and appropriate to provide a basis of our opinion.

Other Matter

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

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

88 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report

Key Audit Matters

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

1. Evaluation of inventories

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

Description of key audit matter:

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

How the matter was addressed in our audit:

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

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

2. Impairment assessment of intangible assets

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

Description of key audit matter:

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

How the matter was addressed in our audit:

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

3. Disposal of subsidiaries

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

Description of key audit matter:

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

How the matter was addressed in our audit:

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

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

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with Regulations Governing the Preparation of Financial Reports by Securities Issuers and IFRSs, IASs, interpretations as well as related guidance endorsed by the Financial Supervisory Commission of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

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

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

Primax Electronics Ltd. 2016 Annual Report

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

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

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

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

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

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

KPMG

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

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

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

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

Notes to Readers

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

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

Primax Electronics Ltd. 2016 Annual Report

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

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2016 and 2015

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

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

See accompanying notes to consolidated financial statements.

Primax Electronics Ltd. 2016 Annual Report

								Total equity	10,308,747	1,816,935	225,310	2,042,245		-	(791,107)	-	-	46,477	4,740	32,673	-	1,272,810	12,916,585	2,048,662	(547,079)	1,501,583		-	(927,933)	-	43,182	3,596	19,097	-	(1,311,652)	12,244,458
							Non-controlling	interests	1,158,234	43,813	10,694	54,507		-	-	-	-	-	653	-	-	1,272,810	2,486,204	114,592	(45,489)	69,103		-	-	-	-	1,079	-	-	(1,311,652)	1,244,734
					Total equity	attributable to	owners of	parent	9,150,513	1,773,122	214,616	1,987,738		-	(791,107)	-	-	46,477	4,087	32,673	-	-	10,430,381	1,934,070	(501,590)	1,432,480		-	(927,933)	-	43,182	2,517	19,097	-	-	10,999,724
						Unearned	employee	compensation	(18,241)	-	-	-		-	-	(121,693)	13,058	46,477	-	-	-	-	(80,399)	-	-	-		-	-	10,200	43,182	-	-	-	-	(27,017)
				Unrealized	gains (losses)	on available-	for-sale	financial assets	707	-	294,053	294,053		-	-	-	-	-	-	-	-	-	294,760	-	110,706	110,706		-	-	-	-	-	-	-	-	405,466
Equity attributable to owners of parent	Retained earnings	Exchange	differences on	translation of	foreign	Unappropriated operation’s	Legal Special retained financial	reserve reserve earnings statements	456,853 97,300 3,132,488 422,382	- - 1,773,122 -	- - (8,100) (71,337)	- - 1,765,022 (71,337)		154,469 - (154,469) -	- - (791,107) -	- - - -	- - - -	- - - -	- - - -	- - - -	- - - -	- - - -	611,322 97,300 3,951,934 351,045	- - 1,934,070 -	- - (1,340) (610,956)	- - 1,932,730 (610,956)		177,312 - (177,312) -	- - (927,933) -	- - - -	- - - -	- - - -	- - - -	- - - -	- - - -	788,634 97,300 4,779,419 (259,911)
							Capital	surplus	673,543	-	-	-		-	-	91,693	(10,258)	-	4,087	-	18,303	-	777,368	-	-	-		-	-	(6,350)	-	2,517	-	17,931	-	791,466
	Share capital					Capital	Ordinary collected in	shares advance	4,346,578 38,903	- -	- -	- -		- -	- -	30,000 -	(2,800) -	- -	- -	- 32,673	38,099 (56,402)	- -	4,411,877 15,174	- -	- -	- -		- -	- -	(3,850) -	- -	- -	- 19,097	13,316 (31,247)	- -	4,421,343 3,024
									$																											$
									Balance at January 1, 2015	Profit	Other comprehensive income	Comprehensive income	Appropriation and distribution of retained earnings:	Legal reserved	Cash dividends on ordinary share	Issuance of restricted employee stock	Retirement of restricted employee stock	Amortization expense of restricted employee stock	Compensation cost of share-based payment	Exercise of employee stock option	Issuance of ordinary shares for employee stock option and abandonment	Acquire non-controlling interests in a business combination	Balance at December 31, 2015	Profit	Other comprehensive income	Comprehensive income	Appropriation and distribution of retained earnings:	Legal reserve	Cash dividends on ordinary share	Retirement of restricted employee stock	Amortization expense of restricted employee stock	Compensation cost of share-based payment	Exercise of employee stock option	Issuance of ordinary shares for employee stock option and abandonment	Derecognise non-controlling interests due to dispose subsidiaries	Balance at December 31, 2016

(English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Consolidated Statements of Cash Flows For the years ended December 31, 2016 and 2015 (Expressed in Thousands of New Taiwan Dollars)

Cash flows from (used in) operating activities:
Profit from continuing operations before tax
Profit from discontinued operations before tax
Profit before tax
Adjustments:
Adjustments to reconcile profit (loss):
Depreciation and amortization
Losses related to inventories
Provision (reversal of provision) for bad debt expense and sales returns and discounts
Gain on disposal of subsidiaries
Gain on disposal of available-for-sale financial assets
Impairment losses on property, plant and equipment
Interest expense
Interest income
Compensation cost of share-based payment
Other
Total adjustments to reconcile profit (loss)
Changes in operating assets and liabilities:
Financial assets at fair value through profit or loss－current
Notes and accounts receivable
Accounts receivable from related parties
Other receivable－current and non-current
Inventories
Other current assets
Deferred tax assets
Other operating assets
Changes in operating assets
Notes and accounts payable
Salary payable
Other payables
Other current liabilities
Other operating liabilities
Changes in operating liabilities
Total changes in operating assets and liabilities
Total adjustments
Cash inflow generated from operations
Interest received
Interest paid
Income taxes paid
Net cash flows from operating activities
Cash flows from (used in) investing activities:
Net cash flow from acquisition of subsidiaries
Proceeds from disposal of subsidiaries (minus subsidiaries' cash)
Acquisition of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Acquisition of unamortized expense
Proceeds from disposal of available-for-sale financial assets
Other investint activities
Net cash flows used in investing activities
Cash flows from (used in) financing activities:
Decrease in short-term borrowings
Decrease in long-term borrowings
Increase (decrease) in guarantee deposits
Increase in other payables to related parties
Cash dividends
Exercise of employee share options
Net cash flows used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period

2016
2015
$ 2,764,452
2,417,902
105,225
55,051
2,869,677
2,472,953
1,650,235
1,473,215
947,465
427,434
137,481
(409)
(248,006)
-
(140,969)
-
86,850
-
98,693
160,220
(126,400)
(161,713)
46,778
51,217
14,814
30,339
2,466,941
1,980,303
(53,611)
8,771
(1,165)
(3,355,531)
(47,846)
5,586
(117,856)
(80,280)
(691,918)
(2,536,143)
(185,378)
162,065
(223,244)
(222,248)
(6,288)
47,455
(1,327,306)
(5,970,325)
(1,271,222)
5,698,649
(80,924)
174,267
224,411
1,121,644
104,737
122,026
115,582
(1,732)
(907,416)
7,114,854
(2,234,722)
1,144,529
232,219
3,124,832
3,101,896
5,597,785
126,400
161,713
(98,448)
(160,105)
(846,899)
(577,042)
2,282,949
5,022,351
-
(39,041)
108,980
-
(1,107,108)
(1,964,248)
72,617
66,055
(50,813)
(50,646)
220,270
-
24,063
13,276
(731,991)
(1,974,604)
(974,439)
(1,100,639)
(759,456)
(261,402)
27,566
(46,069)
-
(61,350)
(927,933)
(791,107)
19,097
32,673
(2,615,165)
(2,227,894)
(199,257)
(10,496)
(1,263,464)
809,357
7,623,380
6,814,023
$
6,359,916
7,623,380

See accompanying notes to consolidated financial statements.

Primax Electronics Ltd. 2016 Annual Report

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

Notes to the Consolidated Financial Statements

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

For the years ended December 31, 2016 and 2015

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

(1) Company history

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

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

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

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

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

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

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

(3) New standards, amendments and interpretations adopted

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

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

(Continued)

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

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

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

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

FSC. is listed below. As of the date the Group’s financial statements were issu and IFRS 15, which should be applied starting January 1, 2018, the FSC has effective dates of the other IFRSs.	ed, except for IFRS 9 yet to announce the
	Effective date
New, Revised or Amended Standards and Interpretations	per IASB
IFRS 9 "Financial Instruments"	January 1, 2018
Amendments to IFRS 10 and IAS 28 "Sale or Contribution of Assets Between	Effective date to
an Investor and Its Associate or Joint Venture"	be determined by
	IASB
IFRS 15 "Revenue from Contracts with Customers"	January 1, 2018
IFRS 16 "Leases"	January 1, 2019
Amendment to IFRS 2 "Clarifications of Classification and Measurement of	January 1, 2018
Share-based Payment Transactions"

(Continued)

98 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report

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

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

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

Effective date
per IASB

January 1, 2018
January 1, 2017
January 1, 2017
January 1, 2018
January 1, 2017
January 1, 2018
January 1, 2018
January 1, 2018

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

Issuance / Release

Dates
May 28, 2014
April 12, 2016

Standards or Interpretations
Content of amendment
IFRS 15 "Revenue from
Contracts with Customers"
IFRS 15 establishes a five-step model for
recognizing revenue that applies to all
contracts with customers, and will supersede
IAS 18 "Revenue," IAS 11 "Construction
Contracts," and a number of revenue-related
interpretations.
Final amendments issued on April 12, 2016,
clarify how to (i) identify performance
obligations in a contract; (ii) determine
whether a company is a principal or an agent;
(iii) account for a license for intellectual
property (IP); and (iv) apply transition
requirements.

(Continued)

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

Issuance / Release

Dates Standards or Interpretations Content of amendment November 19, 2013 IFRS 9 "Financial Instruments" The standard will replace IAS 39 "Financial July 24, 2014 Instruments: Recognition and Measurement", and the main amendments are as follows: ‧Classification and measurement: Financial assets are measured at amortized cost, fair value through profit or loss, or fair value through other comprehensive income, based on both the entity’s business model for managing the financial assets and the financial assets’ contractual cash flow characteristics. Financial liabilities are measured at amortized cost or fair value through profit or loss. Furthermore, there is a requirement that "own credit risk" adjustments be measured at fair value through other comprehensive income. ‧Impairment: The expected credit loss model is used to evaluate impairment. ‧Hedge accounting: Hedge accounting is more closely aligned with risk management activities, and hedge effectiveness is measured based on the hedge ratio. January 13, 2016 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. January 29, 2016 Amendments to IAS 7 The amendments will require entities to "Disclosure Initiative" provide disclosures that enable investors to evaluate changes in liabilities arising from financing activities, including changes arising from cash flows and non-cash changes.

(Continued)

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Primax Electronics Ltd. 2016 Annual Report

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

Issuance / Release

Standards or Interpretations

Content of amendment

Dates Standards or Interpretations 2016.6.20 Amendments to IFRS 2 "Clarifications of Classification and Measurement of Share based Payment Transactions"

The amendments, which were developed through the IFRS Interpretations Committee, provide requirements on the accounting for: ‧the effects of vesting and non-vesting conditions on the measurement of cashsettled share-based payments;

‧share-based payment transactions with a net settlement feature for withholding tax obligations; and
‧a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cashsettled to equity-settled.
The IFRIC 22 clarifies the transaction date used to determine the exchange rate. The transaction date is the date on which the Company initially recognizes the prepayment or deferred income arising from the advance consideration.
December 8, 2016 IFRIC 22 "Foreign Currency Transactions and Advance Consideration"

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

(b) Basis of preparation

(i) Basis of measurement

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

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

(ii) Functional and presentation currency

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

(c) Basis of consolidation

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

(4) Summary of significant accounting policies:

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

(a) Statement of compliance

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

(Continued)

(i) Principles of preparation of the consolidated financial statements

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

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

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

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

(Continued)

102 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report 103

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

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

(ii) List of subsidiaries in the consolidated financial statements

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

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

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES

Notes to Consolidated Financial Statements

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

(Continued)

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

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

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

(d) Foreign currencies

(i) Foreign currency transactions

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

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

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

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

(ii) Foreign operations

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

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

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

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

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

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

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

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

(Continued)

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

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

(g) Financial instruments

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

(i) Financial assets

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

1) Financial assets at fair value through profit or loss

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

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

2) Available-for-sale financial assets

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

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

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

3) Loans and receivables

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

4) Impairment of financial assets

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

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

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

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

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

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

(Continued)

108 Primax Electronics Ltd. 2016 Annual Report

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

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

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

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

5) Derecognition of financial assets

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

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

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

(ii) Financial liabilities and equity instruments

1) Classification of debt or equity

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

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

2) Other financial liabilities

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

3) Derecognition of financial liabilities

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

4) Offsetting of financial assets and liabilities

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

(iii) Derivative financial instruments

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

(h) Inventories

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

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

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

(Continued)

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

(i) Discontinued operations

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

(j) Investment property

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

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

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

(k) Property, plant and equipment

(i) Recognition and measurement

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

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

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

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

(iii) Subsequent cost

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

(iv) Depreciation

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

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

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

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

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

(l) Lease

(i) Lessor

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

(ii) Lessee

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

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

(ii) Reclassification to investment property

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

(Continued)

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

(m) Intangible assets

(i) Goodwill

1) Recognition

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

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

2) Subsequent measurement

Goodwill is measured at cost less accumulated impairment losses.

(ii) Other intangible assets

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

(iii) Subsequent expenditure

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

(iv) Amortization

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

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

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

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

(Continued)

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

(n) Impairment of non-financial assets

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

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

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

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

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

(o) Revenue

(i) Goods sold

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

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

(Continued)

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

(ii) Services

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

(p) Deferred grant revenue

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

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

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

(q) Employee benefits

(i) Defined contribution plans

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

(ii) Defined benefit plans

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

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

(Continued)

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

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

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

(iii) Short-term employee benefits

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

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

(r) Share-based payment

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

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

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

(s) Income taxes

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

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

(Continued)

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

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

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

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

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

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

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

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

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

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

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

Earnings per share

(u)

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

(v) Operating segments

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

(t) Business combination

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

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

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

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

(Continued)

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

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

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

(a) Valuation of inventories

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

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

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

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

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

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

Level 3: inputs for the assets or liability that are not based on observable market data.

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

(Continued)

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

(6) Explanation of significant accounts:

(a) Cash and cash equivalents

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

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

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

(i) Details of financial instruments were as follows:

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

(Continued)

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

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

December 31, 2016

Derivative financial instruments	Nominal amount	Maturity date Predetermined rate January 5, 2017~ March 27, 2017 31.157~32.015 January 5, 2017~ March 27, 2017 31.765~32.290 January 5, 2017~ January 19, 2017 31.245~31.920
Forward exchange contracts －buy USD / sell TWD Forward exchange contracts －buy TWD / sell USD Foreign exchange swap contracts －swap in TWD / swap out USD	USD 252,000 thousand USD 189,500 thousand USD 81,000 thousand

December 31, 2015

	December 31, 2015
Derivative financial instruments	Nominal amount	Maturity date Predetermined rate January 7, 2016~ February 26, 2016 32.754~32.892 January 7, 2016~ February 26, 2016 32.802~33.010 January 4, 2016~ January 19, 2016 6.4115~6.5934 January 19, 2016 6.6380 January 25, 2016 120.75~122.40
Forward exchange contracts －buy USD / sell TWD Forward exchange contracts －buy TWD / sell USD Forward exchange contracts －buy USD / sell CNY Forward exchange contracts －buy CNY / sell USD Forward exchange contracts	USD 205,000 thousand USD 205,000 thousand USD 63,500 thousand USD 40,000 thousand USD 516 thousand

  - － buy JPY / sell USD

(iii) Please refer to note 6(y) for the liquidity risk of the Group’s financial instruments.
(iv) The Group did not provide any of the aforementioned financial assets at fair value through profit or loss – current as collateral.
(c) Available-for-sale financial assets – non-current

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

(Continued)

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

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

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

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

(Continued)

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

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

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

Buyer Mega International Commercial Bank HSBC Bank Bank of Taiwan	Amount sold NT$ $ - - - $ -	Credit facilities US$ (expressed in thousand) 25,000 64,400 26,000 115,400	Cash received in advance NT$ Interest rate Guarantee (promissory note) expressed in thousands - US$ 7,000 - US$ 58,000 - NT$ 725,400 -	Amount derecognized NT$ Amount not received NT$ - - - - - - - -

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

(e) Inventories

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

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

(Continued)

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

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

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

(f) Business combination

(i) Global TEK Group

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

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

1) Consideration transferred

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

2) Obtaining control

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

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

(Continued)

124

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Primax Electronics Ltd. 2016 Annual Report

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

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

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

(Continued)

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

5) Intangible assets

a) Goodwill

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

b) Customer relationships

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

c) Technology

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

6) The cost of acquisition

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

7) Simulated operating results

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

(g) Loss of control of subsidiaries

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

(Continued)

126 Primax Electronics Ltd. 2016 Annual Report

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PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES

Notes to Consolidated Financial Statements

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

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

(h) Material non-controlling interests of subsidiaries

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

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

(Continued)

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

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

(i) TWEL and its subsidiaries:

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

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

(Continued)

128 Primax Electronics Ltd. 2016 Annual Report

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

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES

Notes to Consolidated Financial Statements

(ii) Global TEK and its subsidiaries

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

(Continued)

(i) Property, plant and equipment

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

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

(Continued)

130

131

Primax Electronics Ltd. 2016 Annual Report

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

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

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

(Continued)

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

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

(k) Intangible assets

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

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

(Continued)

132 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report 133

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES

Notes to Consolidated Financial Statements

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

(i) Intangible assets were transferred out due to the resolution to dispose parts of shares of Global TEK which were approved during the board of directors’ meeting in 2016. Please refer to note 6(g) for further detail.
(ii) For intangible assets obtained from having control over Global TEK and its subsidiaries on January 5, 2015, please refer to note 6(f) for further detail.
(iii) The Group did not provide any of the aforementioned intangible assets as collateral.
(l) Short-term borrowings

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

(m) Long-term borrowings

Unsecured bank loans Less: current portion Total Unused credit lines Unsecured bank loans 〃 Secured bank loans 〃 Less: current portion Total Unused credit lines		December 31, 2016 Annual interest rate Maturity year Amount 0.95~1.56% 2017~2020 $ 601,111 (382,222) $ 218,889 $ - December 31, 2015 Annual interest rate Maturity year Amount 0.95~2.78% 2016~2020 $ 1,374,282 2.66% 2018 41,037 1.73%~2.13% 2016~2026 215,963 3.2404%~3.3% 2018~2030 46,205 (622,347) $ 1,055,140 $ 228,086
	Currency	Annual interest rate
	TWD
	Currency	Annual interest rate
	TWD USD TWD USD	0.95~2.78% 2.66% 1.73%~2.13% 3.2404%~3.3%

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

The details were as follows:

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

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

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

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

(Continued)

134 Primax Electronics Ltd. 2016 Annual Report

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

(n) Operating lease

(i) Lessee

Non-cancellable operating lease rentals are payable as follows:

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

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

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

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

1) Composition of plan assets

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

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

(ii) Lessor

2) Movements in present value of defined benefit obligations

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

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

(o) Employee benefits

(i) Defined benefit plans

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

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

(Continued)

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

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

(Continued)

136 Primax Electronics Ltd. 2016 Annual Report

137

Primax Electronics Ltd. 2016 Annual Report

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

3) Movements of defined benefit plan assets

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

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

4) Expenses recognized in profit or loss

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

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

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

6) Sensitivity analysis

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

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

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

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

5) Actuarial assumptions

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

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

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

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

(ii) Defined contribution plans

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

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

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

(Continued)

138 Primax Electronics Ltd. 2016 Annual Report

139

Primax Electronics Ltd. 2016 Annual Report

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

(p) Income taxes from continuing operations

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

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

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

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

(iii) Deferred tax assets and liabilities

1) Unrecognized deferred tax liabilities

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

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

2) Unrecognized deferred tax assets

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

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

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

3) Recognized deferred tax assets and liabilities

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

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

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

(Continued)

140 Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd. 2016 Annual Report 141

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

Unrealized Bad debt Unfunded sales returns Loss on Deferred Unrealized in excess Loss pension fund and inventory granted exchange of tax limit carryforward contribution allowances valuation revenue losses Others Total Deferred tax assets: Balance on January 1, 2016 $ 33,566 22,328 14,473 44,241 9,446 189,223 19,653 57,484 390,414 Disposal of subsidiary - (8,300) - - (3,852) - (2,314) (28,987) (43,453) Recognized in profit or loss (1,930) (14,028) (175) 13,374 173,979 31,547 (17,290) 37,767 223,244 Balance on December 31, 2016 $ 31,636 - 14,298 57,615 179,573 220,770 49 66,264 570,205 Balance on January 1, 2015 $ 11,653 38,914 14,875 29,977 19,860 15,595 - 23,817 154,691 Acquisition from business combination - - 463 - 2,842 - 2,581 7,589 13,475 Recognized in profit or loss 21,913 (16,586) (994) 14,264 (13,256) 173,628 17,072 26,078 222,119 Recognized in other comprehensive income - - 129 - - - - - 129 Balance on December 31, 2015 $ 33,566 22,328 14,473 44,241 9,446 189,223 19,653 57,484 390,414

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

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

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

(q) Capital and other equity

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

(Continued)

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

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

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

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

December 31, 2016

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

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

(ii) Capital surplus

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

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

(Continued)

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

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

(iii) Retained earnings

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

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

1) Legal reserve

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

2) Special reserve

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

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

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

3) Earnings distribution

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

(r) Share-based payment

(i) Employee stock options and share-based payment

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

a) Exercise period:

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

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

b) Procedure for fulfilling obligation: Primax Holdings fulfills its obligation by issuing new ordinary shares.

(Continued)

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

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

(Continued)

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

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

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

Note 1: Stock options under Plan 1 included those granted by Primax in May 2005, June and December 2006, and February and March 2007; those granted by Primax Holdings in January, May and November 2008; and those granted by the Company in November 2009.
Note 2: Stock options under Plan 2 included those granted by Primax Holdings in January and May 2008, and those granted by the Company in November 2009.
Note 3: Stock options under Plan 3 included those granted by the Company in November 2011 and October 2012.

(Continued)

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

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

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

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

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

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

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

(Continued)

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

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

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

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

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

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

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

(Continued)

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

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

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

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

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

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

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

(Continued)

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

(ii) Restricted stock

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

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

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

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

(Continued)

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

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

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

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

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

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

(s) Earnings per share

(i) Basic earnings per share

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

(Continued)

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

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

Weighted-average number of ordinary shares (thousand shares)

		2016	2015
Ordinary shares at January 1		437,818	433,348
Exercise of employee stock options		760	2,818
Vesting of restricted stock		591	206
Ordinary shares at December 31		439,169	436,372
Diluted earnings per share
The calculation of diluted earnings per share for the years ended December 31, 2016 and 2015,
based on the profit attributable to owners of parent of the Company and the			weighted-average
number of ordinary shares outstanding after adjustment for the effects of all			dilutive potential
ordinary shares was as follows:
		2016	2015
Profit attributable to owners of parent
Continuing operations	$	1,915,501	1,764,109
Discontinued operations		18,569	9,013
Total	$	1,934,070	1,773,122
Weighted-average number of ordinary shares (diluted)
(thousand shares)		443,212	441,810
Diluted earnings per share
Continuing operations	$	4.32	3.99
Discontinued operations		0.04	0.02
Total	$	4.36	4.01

(ii) Diluted earnings per share

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

(Continued)

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

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

(t) Operating revenue

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

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

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

(u) Employee and directors’ and supervisors’ remuneration

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

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

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

(Continued)

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

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

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

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

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

(v) Other income

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

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

(Continued)

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

(w) Other gains and losses

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

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

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

(x) Reclassification adjustments of components of other comprehensive income

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

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

(Continued)

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

(y) Financial instruments

(i) Credit risk

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

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

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

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

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

(Continued)

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

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

(ii) Liquidity risk

The following table shows the contractual maturities of financial liabilities:

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

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

(Continued)

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

(iii) Currency risk

1) Exposure to foreign currency risk

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

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

2) Sensitivity analysis

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

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

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

(iv) Interest rate analysis

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

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

(Continued)

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

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

(v) Other price risk:

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

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

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

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

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

(Continued)

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

	December 31, 2016	December 31, 2016	December 31, 2016
Carrying amounts $ 150,430 $ 601,111 16,892,918 3,878,606 1,146,183 143,237 $ 22,662,055		Fair Value
	Level 1 Level 2 Level 3 - - 150,430 December 31, 2015			Total 150,430

		Fair Value
	Level 1 969 551,600 -	Level 2 - - -	Level 3 87,748 32,830 60,105	Total 88,717
				584,430
				60,105

(Continued)

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

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

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

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

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

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

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

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

4) Reconciliation of Level 3 fair values

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

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

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

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

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

(Continued)

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

(z) Financial risk management

(i) Briefings

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

1) Credit risk
2) Liquidity risk

3) Market risk

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

(ii) Structure of risk management

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

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

(iii) Credit risk

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

1) Cash and cash equivalents

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

(Continued)

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

2) Notes and accounts receivable

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

3) Derivative instruments

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

(iv) Liquidity risk

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

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

(v) Market risk

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

1) Currency risk

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

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

(Continued)

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

2) Interest rate risk

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

3) Other market price risk

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

(aa) Capital management

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

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

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

(7) Related-party transactions:

(a) Parent company and ultimate controlling company

The Company is the ultimate controlling party of the Group.

(b) Other related-party transactions

(i) Sales

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

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

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

(ii) Loans from related parties

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


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

－ (iii) Property transaction disposal of equity securities

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

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

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

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

(c) Key management personnel compensation

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

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

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

(Continued)

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

(8) Pledged assets:

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

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

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

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

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

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

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

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

(Continued)

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

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

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

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

(10) Losses due to major disasters:None

(11) Subsequent events:None

(12) Other:

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

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

(b) Discontinued operations

(Continued)

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

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

(13) Other disclosures:

(a) Information on significant transactions:

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

(i) Loans to other parties:

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

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

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

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

(Continued)

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

(ii) Guarantees and endorsements for other parties:

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

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

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

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

(Continued)

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					PRIMAX ELECTRONICS	PRIMAX ELECTRONICS	PRIMAX ELECTRONICS	PRIMAX ELECTRONICS	LTD. AND	LTD. AND	LTD. AND	LTD. AND	LTD. AND	ITS	ITS	ITS	SUBSIDIARIES	SUBSIDIARIES	SUBSIDIARIES	SUBSIDIARIES	SUBSIDIARIES	SUBSIDIARIES											PRIMAX ELECTRONICS	PRIMAX ELECTRONICS	PRIMAX ELECTRONICS	PRIMAX ELECTRONICS	LTD. AND ITS SUBSIDIARIES	LTD. AND ITS SUBSIDIARIES	LTD. AND ITS SUBSIDIARIES	LTD. AND ITS SUBSIDIARIES	LTD. AND ITS SUBSIDIARIES	LTD. AND ITS SUBSIDIARIES
						Notes	to Consolidated Financial								Statements																			Notes to Consolidated Financial Statements
	(iv)			Individual securities			acquired or disposed			of		with accumulated amount exceeding													the lower of											Transaction details				Transactions with terms different from others			Notes/Accounts receivable (payable)
				NT$300 million or 20% of the Company’s issued										capital:																														Percentage of total
																																					Percentage of							notes/accounts
					Category																										Name of			Nature of	Purchase/		total		Payment				Ending	receivable
					and	Name of Relationship		Beginning Balance			Purchases								Sales								Ending	Balance			company		Related party	relationship	Sale	Amount	purchases/sales		terms	Unit price Payment terms			balance	(payable)	Note
		Name of			name of	Account counter- with the		Shares		Shares							Shares							Gain (loss)		Shares					The Company		Polaris	The subsidiary of	(Sale)	(3,804,963)	(8)	%	90 days		〃	The same as	226,050	3%
		company The			security Shares:	name party company		(thousands) Amount (thousands)					Amount				(thousands)		Price		Cost			on disposal		(thousands)			Amount					Primax Tech								general selling
		Company																														〃	TYM HK	The subsidiary of	(Sale)	(400,149)	(1)	%	60 days		〃	〃	165,384	2%
					Global TEK	Available- Related Other related		16,530 555,091			-				-			11,020	549,347		384,562			248,004			5,510			275,500				TWEL
						for-sale financial parties parties																		(note 1)								〃	Tymphany	The subsidiary of	(Sale)	(239,956)	(1)	%	〃		〃	〃	-	-%
						assets																											Dongguan	TYM HK
		PCH2			Financial	Held-for- Initial	None	-	-		-		7,308,498					-	7,315,451	7,308,498				6,953			-			-	Primax		The Company	Parent	(Sale)	(429,806)	(100)	%	〃		〃	〃	49,873	100%
					instruments	trading offerings																		(note 1)							Cayman
					of floating income and	financial assets																									Primax HK		The Company	Parent	(Sale)	(16,357,886)	(100)	%	〃		〃	〃	-	-%
					capital																											〃	PCH2	Subsidiary	Purchase	16,272,682	100	%	30 days		〃	The same as	(305,434)	(100)%
					guaranteed																																					general purchasing
		PCH2			Money market fund	〃〃	〃	-	-		-			667,960				-	667,774		666,565			(186) (note 1)			-			-	PCH2		Primax HK	Parent	(Sale)	(16,272,682)	(36)	%	〃		〃	The same as	305,434	3%
					of RMB																																					general selling
		PCQ1			Money	〃〃	〃	-	-		-			559,312				-	558,388		557,754			(924)			-			-		〃	The Company	The parent of	(Sale)	(18,234,471)	(40)	%	60 days		〃	〃	6,971,192	65%
					market fund																			(note 1)										Primax Cayman
					of RMB
		Premium Huizhou			Money market fund	〃〃	〃	-	-		-			534,061				-	527,401		526,428			(6,660) (note 1)			-			-	PKS1		The Company	The parent of Primax Cayman	(Sale)	(1,012,723)	(100)	%	〃		〃	〃	409,294	34%
					of RMB																										PCQ1		The Company	The parent of	(Sale)	(5,189,828)	(88)	%	〃		〃	〃	1,922,281	89%
				Note 1: Gains of disposal include valuation and exchange differences on translation.																														Primax Cayman
	(v)			Acquisition of individual				real estate with amount							exceeding				the lower			of	NT$300				million or				Polaris		The Company	The parent of Primax Tech	Purchase	3,804,963	99	%	90 days		〃	The same as general purchasing	(226,050)	(24)%
				20% of		the Company’s issued capital:None																									TYM	HK	Premium Hui	Subsidiary	Purchase	3,825,446	49	%	60 days		〃	〃	(986,123)	(40)%
																																	Zhou
	(vi)			Disposal of individual real estate with amount exceeding														the lower of			NT$300 million or								20%			〃	The Company	The parent of	Purchase	400,149	5	%	〃		〃	〃	(165,384)	(7)%
				of the Company’s issued capital:None																														Diamond
																																〃	Tymphany	Subsidiary	Purchase	3,871,980	48	%	〃		〃	〃	(1,191,888)	(49)%
	(vii)			Related-party transactions for purchases and sales with amounts NT$100 million or 20% of the Company’s issued capital:																	exceeding the						lower of				Premium Hui Zhou		Dongguan TYM HK	Parent	(Sale)	(3,825,446)	(94)	%	〃		〃	The same as general selling	986,123	98%
								Transaction details								Transactions with terms different from others						Notes/Accounts receivable (payable)									Tymphany Dongguan		The Company	Parent	Purchase	239,956	6	%	〃		〃	The same as general purchasing	-	-%
									Percentage		of													Percentage of total notes/accounts								〃	TYM HK	Parent	(Sale)	(3,871,980)	(100)	%	〃		〃	The same as general selling	1,191,888	99%
Name of company Related party Nature of relationship The Company Primax Cayman Subsidiary							Purchase/ Sale Amount Purchase 429,806		total purchases/sales % 1			Payment terms 60 days				Unit price Price agreed by			Payment terms The same as			Ending balance receivable (payable) (49,873) -%								Note	Global TEK		Global TEK XI'AN	The subsidiary of GTS	Purchase	122,441	32	%	〃		〃	The same as general purchasing	(35,080)	(27)%
																both	side		general purchasing												GT		Global TEK	The subsidiary of	Purchase	393,728	63	%	90 days		〃	〃	(236,385)	(42)%
																																	WUXI	GTS and WUXI
			〃		Primax HK The subsidiary of		Purchase	16,357,886	39	%			〃				〃		〃					-			-%							Global TEK
						Primax Cayman
			〃		PCH2	The subsidiary of Primax HK	Purchase	18,234,471	45	%			〃				〃		〃			(6,971,192)				(69)%					Global TEK XI'AN		Global TEK	The parent of GTF-HK	(Sale)	(122,441)	(71)	%	〃		〃	The same as general selling	35,080	58%
			〃		PKS1	The subsidiary of	Purchase	1,012,723	2	%			〃				〃		〃			(409,294)				(4)%					Global TEK WUXI		GT	The subsidiary of Global TEK	(Sale)	(393,728)	(37)	%	〃		〃	〃	236,385	40%
						Primax HK
			〃		PCQ1	The subsidiary of Primax HK	Purchase	5,189,828	13	%			〃				〃		〃			(1,922,281)				(19)%						Note 1: Accounts receivables over payment terms has been classified as other receivables-non-current. Note 2: The Company has lost control over Global TEK in October 2016. The information on Global TEK group was disclosed as of September 30, 2016. Note 3: Related transactions have been eliminated during the preparation of the consolidated financial statements.
																								(Continued)																				(Continued)
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PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements

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

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

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

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

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

(x) Business relationships and significant intercompany transactions:

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

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

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

Note 1: Disclosure of the amounts exceeding the lower of NT$100 million. Note 2: Related transactions have been eliminated during the preparation of the consolidated financial statements. Note 3: The Company has lost control over Global TEK in October 2016. The information on Global TEK group was disclosed as of September 30, 2016.

(b) Information on investees:

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

Name of investor	Name of investee	Location	Main businesses and products	Original i am	nvestment ount	De	Balance as of cember 31, 201	6	Highest bal the	ance during year	Net income (losses) of investee	Share of profits/losses of investee	Note
				December 31, 2016	December 31, 2015	Shares (thousands)	Percentage of ownership	Carrying value	Shares (thousands)	Percentage of ownership
The Company 〃〃〃〃〃	Primax Cayman Primax Tech. Destiny BVI. Destiny Japan Primax Korea Diamond	Cayman Island Cayman Island Virgin Island Japan Korea Cayman Island	s Holding company s Holding company Holding company Market development and customer service Market development and customer service s Holding company	2,540,588 897,421 30,939 7,032 - 2,517,298	2,540,588 897,421 30,939 7,032 9,101 - 2,517,298	8,147,636 285,067 1,050 0.50 84,050	100.00 100.00 100.00 100.00 - 100.00	4,336,069 1,922,225 26,320 16,146 - 3,007,259	8,147,636 285,067 1,050 0.5 67 84,050	100.00 100.00 100.00 100.00 100.00 100.00	211,690 (24,669) (3,452) 242 - 144,863	251,896 11,354 (3,452) 242 - 145,891	(note 3)

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

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

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

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

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

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

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES

Notes to Consolidated Financial Statements

(c) Information on investments in mainland China:

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

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

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

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

Note 3: The amount is the initial investment costs from the original stockholders prior to the acquisition of the Company through Diamond. Note 4: The amount is the initial investment costs from the original stockholders prior to the acquisition of the Company through Global TEK. Note 5: The Company has lost control over Global TEK in October 2016.

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

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

(ii) Limitation on investment in Mainland China:

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

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

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

(iii) Significant transactions:

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

(14) Segment information:

(a) General information

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

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

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

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

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

(Continued)

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

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

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

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

(c) Geographic information

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

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

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

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

(d) Major customer information

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

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

notes had been audited by the CPAs.

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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, 2016 and 2015, the statements of comprehensive income, changes in equity and cash flows for the years ended December 31, 2016 and 2015, 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, 2016 and 2015, 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 under the 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 4% of the total assets, as of December 31, 2016 and 2015. The related share of profit of associates accounted for using the equity method amounted constituting 11% and 9% of the profit before tax, for the years ended December 31, 2016 and 2015, 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.

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In our professional judgments, key audit matters to be communicated in the independent auditors’ report are listed below:

1. Evaluation of inventories

Please refer to Note 4(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 analyse the changes of the aging of inventories; inspecting the reasonability for allowance provided on inventory valuation in the past and compare it to the current year to ensure that the measurements and assumptions are reasonable; sampling the inventories sold in subsequent period to assess whether the allowance for inventories are reasonable.

2. 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 imapirment 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 invetories”. 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.

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.

3. Disposal of subsidiaries

Please refer to Note 4(h) “Investments in subsidiaries”, Note 6(c) “Available-for-sale financial assetsnoncurrent of the financial statements”, and Note 6(f) “Investments accounted for using equity method” of the consolidated financial statements.

Description of key audit matter:

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

How the matter was addressed in our audit:

The principal audit procedures on the disposal of its subsidiary included: assessing whether the transactions complies with the Regulations Governing the Acquisition and Disposal of Assets by Public Companies and the Regulations of Internal Control System of PRIMAX ELECTRONICS LTD.; reading the contracts to fully understand the trading parties involved, prices, and other agreements; inspecting the external materials of cash proceeds and amendment of shares register; obtaining the audit report from other auditors on the date the Company lost its control over the subsidiary to be the base to recognize its profit (loss) using equity method accordingly; 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.

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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.

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 YUNG-HUA HUANG and CHI-LUNG YU.

KPMG

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

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.
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.

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.

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.

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Primax Electronics Ltd. 2016 Annual Report

==> picture [339 x 675] intentionally omitted <==

----- Start of picture text -----

% 4 - 41 - 6 1 1 2 55 - 3 3 1 7 62 16 - 3 2 - 15 2 38 100
1,120,518 264 11,340,202 52,765 1,583,478 411,680 147,176 548,889 15,204,972 - 767,778 1,018,732 274,053 2,060,563 17,265,535 4,411,877 15,174 777,368 611,322 97,300 3,951,934 565,406 10,430,381 27,695,916
Amount
December 31, 2015
% - 3 35 1 8 1 1 1 50 3 1 4 1 9 59 16 - 3 3 - 18 1 41 100
- 783,593 9,352,640 150,430 2,331,760 359,279 219,856 382,222 13,579,780 781,263 218,889 1,159,073 345,574 2,504,799 16,084,579 4,421,343 3,024 791,466 788,634 97,300 4,779,419 118,538 10,999,724 27,084,303
Amount
December 31, 2016
$ $
)
Total liabilities Total equity
Liabilities and Equity Short-term borrowings (note 6(j)) Notes and accounts payable Accounts payable to related parties (note 7) Current financial liabilities at fair value through profit or loss (note 6(b)) Other payables (note 7) Salary payable (note 6(p)) Other current liabilities Long-term borrowings, current portion (note 6(k)) Long-term accounts payable to related parties (note 7) Long-term borrowings (note 6(k)) Long-term deferred revenue (note 6(g)) Other non-current liabilities (notes 6(m) and (n)) Ordinary shares (note 6(o)) Capital collected in advance (note 6(o)) Capital surplus (note 6(o)) Legal reserve (note 6(o)) Special reserve (note 6(o)) Unappropriated retained earnings (note 6(o)) Other equity interest
Current liabilities: Non-Current liabilities: Total liabilities and equity
2100 2170 2180 2120 2200 2201 2300 2320 2622 2540 2630 2600 3110 3140 3200 3310 3320 3350 3400
% 8 - 34 8 - 9 - 59 2 37 - 1 - 1 - 41 100
Balance Sheets
Thousands of New Taiwan Dollars
79,052 28,841 28,453 65,554 29,514 62,016
PRIMAX ELECTRONICS LTD. December 31, 2016 and 2015 Amount 2,267,560 9,321,764 2,052,505 2,551,571 16,329,746 567,897 10,088,961 258,709 293,519 11,366,170 27,695,916
December 31, 2015
(Expressed in % 18 1 27 2 4 8 - 60 3 35 - 1 - 1 - 40 100
(English Translation of Financial Statements and Report Originally Issued in Chinese) Amount 4,751,198 141,317 7,339,708 513,446 1,050,923 2,293,419 33,532 16,123,543 873,921 9,317,894 68,785 255,149 22,966 348,269 73,776 10,960,760 27,084,303
December 31, 2016
$ $
Assets Cash and cash equivalents (note 6(a)) Current financial assets at fair value through profit or loss (note 6(b)) Accounts receivable, net (note 6(d)) Accounts receivable from related parties, net (notes 6(d) and 7) Other receivables, net (notes 6(d) and 7) Inventories (note 6(e)) Other current assets Available-for-sale financial assets-non-current (note 6(c)) Investments accounted for using equity method (note 6(f)) Property, plant and equipment (note 6(g)) Investment property (note 6(h)) Intangible assets (note 6(i)) Deferred tax assets (note 6(n)) Other non-current assets
Current assets: Non-current assets: Total assets
1100 1110 1170 1180 1200 1310 1470 1523 1550 1600 1760 1780 1840 1990
----- End of picture text -----

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

Statements of Comprehensive Income

For the years ended December 31, 2016 and 2015

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

4000 Operating revenue (notes 6(r) and 7) 5000 Operating costs (notes 6(e), (m), (o), (p), (s), 7 and 12) Gross profit Operating expenses (notes 6(m), (o), (p), (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 Unrealised gains on available-for-sale financial assets (notes 6(c) and (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)	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	2015
		Amount % 51,638,181 100 48,703,633 94 2,934,548 6 610,013 1 414,570 1 983,295 2 2,007,878 4 926,670 2 22,053 - 283,488 - 755,092 1 (53,380) - 1,007,253 1 1,933,923 3 160,801 - 1,773,122 3 (8,100) - (8,100) - (71,337) - 294,053 - 222,716 - 214,616 - 1,987,738 3 4.06
		4.01

See accompanying notes to financial statements.

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Share capital Retained earnings	Exchange Unrealized	differences on gains (losses)	Unappropri translation of on available-	Capital ated foreign for-sale Unearned	Ordinary collected Capital Legal Special retained financial financial employee Total	shares in advance surplus reserve reserve earnings statements assets compensation equity	Balance at January 1, 2015 $ 4,346,578 38,903 673,543 456,853 97,300 3,132,488 422,382 707 (18,241) 9,150,513	Profit - - - - - 1,773,122 - - - 1,773,122	Other comprehensive income - - - - - (8,100) (71,337) 294,053 - 214,616	Comprehensive income - - - - - 1,765,022 (71,337) 294,053 - 1,987,738	Appropriation and distribution of retained earnings:	Legal reserve - - - 154,469 - (154,469) - - - -	Cash dividends on ordinary share - - - - - (791,107) - - - (791,107)	Issuance of restricted employee stock 30,000 - 91,693 - - - - - (121,693) -	Retirement of restricted employee stock (2,800) - (10,258) - - - - - 13,058 -	Amortization expense of restricted employee stock - - - - - - - - 46,477 46,477	Compensation cost of share-based payment - - 4,087 - - - - - - 4,087	Exercise of employee stock option - 32,673 - - - - - - - 32,673	Issuance of ordinary shares for employee stock options and abandonment 38,099 (56,402) 18,303 - - - - - - -	Balance at December 31, 2015 4,411,877 15,174 777,368 611,322 97,300 3,951,934 351,045 294,760 (80,399) 10,430,381	Profit - - - - - 1,934,070 - - - 1,934,070	Other comprehensive income - - - - - (1,340) (610,956) 110,706 - (501,590)	Comprehensive income - - - - - 1,932,730 (610,956) 110,706 - 1,432,480	Appropriation and distribution of retained earnings:	Legal reserve - - - 177,312 - (177,312) - - - -	Cash dividends on ordinary share - - - - - (927,933) - - - (927,933)	Retirement of restricted employee stock (3,850) - (6,350) - - - - - 10,200 -	Amortization expense of restricted employee stock - - - - - - - - 43,182 43,182	Compensation cost of share-based payment - - 2,517 - - - - - - 2,517	Exercise of employee stock option - 19,097 - - - - - - - 19,097	Issuance of ordinary shares for employee stock option and abandonment 13,316 (31,247) 17,931 - - - - - - -	Balance at December 31, 2016 $ 4,421,343 3,024 791,466 788,634 97,300 4,779,419 (259,911) 405,466 (27,017) 10,999,724		Note1：For the years ended December 31, 2016 and 2015, the Directors’remuneration amounted to 36,803 and 31,907, and the employee remuneration amounted to 74,000 and 78,269, respectively. The amounts were deducted	from the statements of comprehensive income in 2016 and 2015, respectively.

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

Statements of Cash Flows

For the years ended December 31, 2016 and 2015 (Expressed in Thousands of New Taiwan Dollars)

Cash flows from (used in) operating activities:
Profit 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 from disposal of property, plan and equipment
Gain on disposal of available-for-sale financial assets
Impairment losses on 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 using equity method
Acquisition of share of subsidiaries using equity method
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
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
Increase (decrease) in guarantee deposits
Cash dividends
Exercise of employee stock options
Net cash flows used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period

2016
2015
$ 2,347,524
1,933,923
41,765
36,999
32,516
175,361
(336,211)
(121,262)
43,345
(4,603)
31,383
53,380
(11,599)
(13,235)
43,182
49,041
(424,575)
(755,092)
(248,006)
-
474
269
(140,969)
-
-
939
(968,695)
(578,203)
3,477,770
(2,686,191)
(1,022,082)
(19,177)
225,636
(1,268,443)
(5,079)
(4,688)
(54,750)
(229,498)
(62,265)
(58,729)
2,559,230
(4,266,726)
(422,970)
3,306,055
(52,401)
23,768
569,820
679,328
72,680
86,321
132,613
51,366
299,742
4,146,838
2,858,972
(119,888)
1,890,277
(698,091)
4,237,801
1,235,832
11,599
13,235
(31,315)
(53,265)
(234,992)
(159,152)
3,983,093
1,036,650
559,498
-
-
(808,020)
1,280
1,600
220,270
-
(23,062)
(23,292)
476,552
1,076,851
(23,710)
(9,862)
(441)
(684)
91
(35)
1,210,478
236,558
(1,120,518)
(1,028,282)
(715,556)
(183,333)
34,977
(37,478)
(927,933)
(791,107)
19,097
32,673
(2,709,933)
(2,007,527)
2,483,638
(734,319)
2,267,560
3,001,879
$
4,751,198
2,267,560

See accompanying notes to financial statements.

188

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

Notes to the Financial Statements

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

For the years ended December 31, 2016 and 2015

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

(1) Company history

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 7, 2017.

(3) New standards, amendments and interpretations adopted:

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

Board (IASB) before January 1, 2016, and were endorsed by the FSC on preparing their financial statements. The related new standards, interpretations as follows:	January 1, 2017 in and amendments are
	Effective date per
New, Revised or Amended Standards and Interpretations	IASB
Amendments to IFRS 10, IFRS 12 and IAS 28 "Investment Entities: Applying	January 1, 2016
the Consolidation Exception"
Amendments to IFRS 11 "Accounting for Acquisitions of Interests in Joint	January 1, 2016
Operations"

(Continued)

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

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

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

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

effective dates of the other IFRSs.
	Effective date
New, Revised or Amended Standards and Interpretations	per IASB
IFRS 9 "Financial Instruments"	January 1, 2018
Amendments to IFRS 10 and IAS 28 "Sale or Contribution of Assets Between	Effective date to
an Investor and Its Associate or Joint Venture"	be determined by
	IASB
IFRS 15 "Revenue from Contracts with Customers"	January 1, 2018
IFRS 16 "Leases"	January 1, 2019
Amendment to IFRS 2 "Clarifications of Classification and Measurement of	January 1, 2018
Share-based Payment Transactions"
Amendment to IFRS 15 "Clarifications of IFRS 15"	January 1, 2018
Amendment to IAS 7 "Disclosure Initiative"	January 1, 2017
Amendment to IAS 12 "Recognition of Deferred Tax Assets for Unrealized	January 1, 2017
Losses"
Amendments to IFRS 4 "Insurance Contracts"	January 1, 2018

(Continued)

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Primax Electronics Ltd. 2016 Annual Report

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

	Effective date
New, Revised or Amended Standards and Interpretations	per IASB
Annual Improvements to IFRSs 2014 - 2016 Cycle :
IFRS 12 "Disclosure of Interests in Other Entities"	January 1, 2017
IFRS 1 "First-time Adoption of International Financial Reporting Standards"	January 1, 2018
and IAS 28 "Investments in Associates and Joint Ventures"
IFRIC 22 "Foreign Currency Transactions and Advance Consideration"	January 1, 2018
IAS 40 "Transfers of Investment Property"	January 1, 2018

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

Issuance / Release
Dates
May 28, 2014
April 12, 2016
November 19, 2013
July 24, 2014

Standards or
Interpretations
Content of amendment
IFRS 15 "Revenue from
Contracts with Customers"
IFRS 15 establishes a five-step model for
recognizing revenue that applies to all contracts
with customers, and will supersede IAS 18
"Revenue," IAS 11 "Construction Contracts," and
a number of revenue-related interpretations.
Final amendments issued on April 12, 2016,
clarify how to (i) identify performance obligations
in a contract; (ii) determine whether a company is
a principal or an agent; (iii) account for a license
for intellectual property (IP); and (iv) apply
transition requirements.
IFRS 9 "Financial
Instruments"
The standard will replace IAS 39 "Financial
Instruments: Recognition and Measurement", and
the main amendments are as follows:
Classification
and
measurement:
Financial
‧
assets are measured at amortized cost, fair
value through profit or loss, or fair value
through other comprehensive income, based on
both the entity’s business model for managing
the financial assets and the financial assets’
contractual cash flow characteristics. Financial
liabilities are measured at amortized cost or fair
value through profit or loss. Furthermore, there
is a requirement that "own credit risk"
adjustments be measured at fair value through
other comprehensive income.

‧Impairment: The expected credit loss model is used to evaluate impairment. ‧Hedge accounting: Hedge accounting is more closely aligned with risk management activities, and hedge effectiveness is measured based on the hedge ratio.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

Issuance / Release Dates January 13, 2016	Standards or Interpretations Content of amendment IFRS 16 "Leases" The new standard of accounting for lease is

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. January 29, 2016 Amendments to IAS 7 The amendments will require entities to provide "Disclosure Initiative" disclosures that enable investors to evaluate changes in liabilities arising from financing activities, including changes arising from cash flows and non-cash changes. June 20, 2016 Amendments to IFRS 2 The amendments, which were developed through "Clarifications of the IFRS Interpretations Committee, provide Classification and requirements on the accounting for: Measurement of Share ‧the effects of vesting and non-vesting based Payment conditions on the measurement of cash-settled Transactions" share-based payments; ‧share-based payment transactions with a net settlement feature for withholding tax obligations; and ‧a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cashsettled to equity-settled. December 8, 2016 IFRIC 22 "Foreign IFRIC 22 clarifies the transaction date used to Currency Transactions and determine the exchange rate. The transaction date Advance Consideration" is the date on which the Company initially recognizes the prepayment or deferred income arising from the advance consideration.

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

(Continued)

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Primax Electronics Ltd. 2016 Annual Report

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

(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.

(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.

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

(ii) Foreign operations

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

(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

(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.

(Continued)

(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.

(Continued)

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PRIMAX ELECTRONICS LTD. Notes to Financial Statements

(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.

(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.

1) Available-for-sale financial assets

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.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

3) Impairment of financial assets

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.

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 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.

(Continued)

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PRIMAX ELECTRONICS LTD. Notes to Financial Statements

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.

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.

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.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

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.

(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

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.

(Continued)

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PRIMAX ELECTRONICS LTD. Notes to Financial Statements

(i) Investment property

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.

(j) Property, plant and equipment

(i) Recognition and measurement

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.

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

(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

(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.

(ii) Reclassification to investment property

(l) Intangible assets

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

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

(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.

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:

(Continued)

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PRIMAX ELECTRONICS LTD. Notes to Financial Statements

(i) Trademarks 10 years

(ii) Patents 2.5~10 years

(iii) Copyrights 15 years

(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.

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

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

(Continued)

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

(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.

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.

(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.

(Continued)

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PRIMAX ELECTRONICS LTD. Notes to Financial Statements

(p) Share-based payment

(q) Income taxes

(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 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.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

Earnings per share

(r)

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.

(s) Operating segments

Please refer to the Company’s consolidated financial statements for the years ended December 31, 2016 and 2015, 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.

(Continued)

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PRIMAX ELECTRONICS LTD. Notes to Financial Statements

(b) Valuation of inventories and assessment of impairment of intangible assets of investments 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 imapirment 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.

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:

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

(b) Financial assets and liabilities at fair value through profit or loss
(i) The derivative financial instruments was as follows:

Financial assets at fair value through profit or loss – current: Forward exchange contracts Foreign exchange swap contracts Financial liabilities at fair value through profit or loss – current: Forward exchange contracts Foreign exchange swap contracts	December 31, 2016 December 31, 2015 $ 141,317 79,052 - - $ 141,317 79,052 $ (72,909) (52,765) (77,521) - $ (150,430) (52,765)

(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, 2016 and 2015:
(i) Level 1: quoted prices (unadjusted) in active markets for identifiable assets or liabilities.

December 31, 2016

(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 on hand Checking accounts and demand deposits Time deposits	December 31, 2016 December 31, 2015 $ 543 625 931,183 1,075,455 3,819,472 1,191,480 $ 4,751,198 2,267,560

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

(Continued)

	December 31, 2016
Derivative financial instruments	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
Forward exchange contracts – buy USD / sell TWD Forward exchange contracts – buy TWD/sell USD Forward exchange contracts – swap in TWD/swap out USD

December 31, 2015

	December 31, 2015
Derivative financial instruments	Nominal amount Maturity date Predetermined rate USD 205,000 January 7, 2016~ February 26, 2016 32.754~32.892 USD 40,000 January 19, 2016 6.6380 USD 205,000 January 7, 2016~ February 26, 2016 32.802~33.010
Forward exchange contracts – buy USD / sell TWD Forward exchange contracts – buy CNY / sell USD Forward exchange contracts – buy TWD/sell USD

(Continued)

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PRIMAX ELECTRONICS LTD. Notes to Financial Statements

(iii) Please refer to note 6(w) for the liquidity risk of the Company’s financial instruments.
(iv) The Company did not provide any of the aforementioned financial assets at fair value through profit or loss – current as collateral.
(c) Available-for-sale financial assets – non-current

Stocks listed in domestic markets Stocks unlisted in domestic markets	December 31, 2016 December 31, 2015 $ 586,404 551,600 287,517 16,297 $ 873,921 567,897

(i) WK Technology Fund IV Ltd. refunded $1,600 and $1,280 to the Company due to capital reduction in July, 2015 and April, 2016, respectively.
(ii) Titan 1 Venture Capital Co., Ltd. and Neosonica Technologies Inc. were closed and finished the liquidation process in August and March 2015, respectively. The Company received $175 due to the liquidation and recorded it as other gains and losses.
(iii) The impairment loss was $939 for the years ended December 31, 2015 and was recognized as other gains and losses.
(iv) 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 for further information on losing control of subsidiaries.
(v) In the second quarter of 2016, the Company sold 841 thousand shares of Nien Made Enterprise Co., Ltd. for $220,270. The gain on disposal which was recognized as other gains and losses, amounted to $140,969, deducting the cost of $79,301.
(vi) The unrealized gains were $111,105 and $294,900 for the years ended December 31, 2016 and 2015, respectively, and were recognized as unrealized gains on available-for-sale financial assets.
(vii) The Company did not provide any of the aforementioned available-for-sale financial assets as collateral.

(Continued)

PRIMAX ELECTRONICS LTD.

Notes to Financial Statements

(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, 2016 December 31, 2015 $ 7,437,179 9,376,338 513,446 2,052,505 1,050,923 28,841 (76,977) (19,647) (20,494) (34,927) $ 8,904,077 11,403,110

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

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

Buyer Mega International Commercial Bank HSBC Bank Bank of Taiwan	Amount sold NT$ $ - - - $ -	Credit facilities US$ (expressed in thousand) 25,000 64,400 26,000 115,400	Cash received in advance NT$ Interest rate Guarantee (promissory note) expressed in thousands - US 7,000 - US 58,000 - NT 725,400 -	Amount derecognized NT$ Amount not received NT$ - - - - - - - -

(Continued)

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PRIMAX ELECTRONICS LTD. Notes to Financial Statements

(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, 2016 December 31, 2015 $ 102,684 1,188 2,190,735 2,550,383 $ 2,293,419 2,551,571

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

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

Gains (losses) on inventory valuation Loss on disposal of inventories Losses on physical inventories, net	2016 2015 $ (10,601) 9,500 (19,737) (184,276 (2,178) (585 $ (32,516) (175,361

(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, 2016 December 31, 2015 $ 9,317,894 10,088,961

(i) Please refer to the Company’s consolidated financial statements for the years ended December 31, 2016, for details of subsidiaries.

(ii) The Company did not provide investments accounted for using the equity method as collateral.

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

(g) Property, plant and equipment

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

Land	Buildings and additional equipment	Other equipment
$ 22,879 - - - $ 22,879 $ 22,879 - - - $ 22,879 $ - - - $ - $ - - - $ - $ 22,879 $ 22,879 $ 22,879	141,789 - - -	44,743 4,580 (3,059) - 46,264 44,152 2,756 (2,469) 304 44,743 35,445 4,995 (2,584) 37,856 32,271 5,374 (2,200) 35,445 8,408 9,298 11,881
	141,789
	141,789 - - -
	141,789
	131,577 358 -
	131,935
	131,218 359 -
	131,577
	9,854
	10,212
	10,571

(i) The unamortized deferred revenue of equipment subsidy amounted to $1,159,073 and $1,018,732 for the years ended December 31, 2016 and 2015, respectively.
(ii) The Company did not provide property, plant and equipment as collateral.

(Continued)

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PRIMAX ELECTRONICS LTD. Notes to Financial Statements

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

(h) Investment property

Cost or deemed cost: Balance on January 1, 2016 Additions Balance on December 31, 2016 Balance on January 1, 2015 Additions Balance on December 31, 2015 Depreciation and impairment losses: Balance on January 1, 2016 Depreciation Balance on December 31, 2016 Balance on January 1, 2015 Depreciation Balance on December 31, 2015 Carrying amounts: Balance on December 31, 2016 Balance on December 31, 2015 Balance on January 1, 2015 Fair value: Balance on December 31, 2016 Balance on December 31, 2015 Balance on January 1, 2015	Land $ 162,012 - $ 162,012 $ 162,012 - $ 162,012 $ 33,941 - $ 33,941 $ 33,941 - $ 33,941 $ 128,071 $ 128,071 $ 128,071	Buildings and other equipment Total 172,167 334,179 - - 172,167 334,179 172,167 334,179 - - 172,167 334,179 41,529 75,470 3,560 3,560 45,089 79,030 37,969 71,910 3,560 3,560 41,529 75,470 127,078 255,149 130,638 258,709 134,198 262,269 $ 629,690 $ 592,092 $ 561,338

(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.

(i) Intangible assets

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

Cost: Balance at January 1, 2016 Acquisition Balance at December 31, 2016 Balance at January 1, 2015 Acquisition Balance at December 31, 2015 Amortization: Balance at January 1, 2016 Amortization Balance at December 31, 2016 Balance at January 1, 2015 Amortization Balance at December 31, 2015 Carrying amount: Balance at December 31, 2016 Balance at December 31, 2015 Balance at January 1, 2015	Trademarks		Patents 64,271 - 64,271 64,271 - 64,271 62,337 1,934 64,271 58,468 3,869 62,337 - 1,934 5,803	Copyrights Total 30,832 120,687 - - 30,832 120,687 30,832 120,687 - - 30,832 120,687 12,846 91,173 2,056 6,548 14,902 97,721 10,791 82,690 2,055 8,483 12,846 91,173 15,930 22,966 17,986 29,514 20,041 37,997
	$ 25,584 - $ 25,584 $ 25,584 - $ 25,584 $ 15,990 2,558 $ 18,548 $ 13,431 2,559 $ 15,990 $ 7,036 $ 9,594 $ 12,153

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, 2016 December 31, 2015 $ - 1,120,518 $ 10,044,220 6,960,042 0.93%~1.27% 0.85%~1.38%

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

(Continued)

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PRIMAX ELECTRONICS LTD. Notes to Financial Statements

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

(k) Long-term borrowings

	December 31, 2016	December 31, 2016	December 31, 2016
Currency	Annual interest rate
TWD
			-

Currency	Annual interest rate	Maturity year Amount 2017~2020 $ 1,316,667 (548,889) $ 767,778 $ 150,000	Amount
TWD	0.95%~1.56%

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

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

(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 are receivable as follows:

Less than one year between two and five years More than five years	December 31, 2016 December 31, 2015 $ 10,957 1,060 37,775 - 84,857 - $ 133,589 1,060

(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, 2016 December 31, 2015 160,593 160,913 96,865 97,683 63,728 63,230 - - 63,728 63,230

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.

(l) Operating lease

1) Composition of plan assets

(i) Lessee

Non-cancellable operating lease rentals are payable as follows:

Less than one year Between one and five years	December 31, 2016 December 31, 2015 $ 90,708 90,708 93,430 184,138 $ 184,138 274,846

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

(Continued)

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 $96,865 at the end of the reporting period. For information on the utilization of the labor pension fund assets, including the asset allocation and yield of the fund, please refer to the website of the Bureau of Labor Funds, Ministry of Labor.

(Continued)

214 Primax Electronics Ltd. 2016 Annual Report

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PRIMAX ELECTRONICS LTD.

Notes to Financial Statements

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, 2016 and 2015, were as follows:

		2016	2015
Defined benefit obligation on January 1	$	160,913	162,598
Business combinations
Benefits paid		(4,995)	(14,885)
Current service costs and interest cost		3,417	4,685
Remeasurement of net defined benefit liabilities		1,258	8,515
Defined benefit obligation on December 31	$	160,593	160,913

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

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, 2016 and 2015, was as follows:

Balance on January 1 Recognized during the period Balance on December 31	2016 2015 $ 2,892 (5,020) 1,529 7,912 $ 4,421 2,892

6) Actuarial assumptions

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

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, 2016 and 2015, 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	2016 2015 $ 97,683 104,919 942 2,167 (271) 603 3,506 4,879 (4,995) (14,885) $ 96,865 97,683

4) Expenses recognized in profit or loss

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

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

(Continued)

Discount rate Future salary increase rate	December 31, 2016 December 31, 2015 % 1.375 % 1.750 % 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 $3,336. The weighted-average lifetime of the defined benefit plans is 12 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.

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

December 31, 2016 Discount rate Future salary increase rate December 31, 2015 Discount rate Future salary increase rate	Influences of defined benefit obligations
	Increased 0.25% Decreased 0.25% $ (3,586) 3,708 $ 3,545 (3,447) $ (3,835) 3,971 $ 3,811 (3,701)

(Continued)

216 Primax Electronics Ltd. 2016 Annual Report

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PRIMAX ELECTRONICS LTD. Notes to Financial Statements

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

(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 allocates 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 $41,230 and $39,743 for the years ended December 31, 2016 and 2015, 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, 2016 and 2015, were as follows:

Current tax expense Deferred tax expense Income tax expense	2016 2015 $ 432,225 366,500 (18,771) (205,699) $ 413,454 160,801

(ii) The Company had no income tax recognized directly in equity or other comprehensive income for the years ended December 31, 2016 and 2015.
(iii) Reconciliation of income tax expenses and profit before tax for the years ended December 31, 2016 and 2015, were as follows:

2016 and 2015, were as follows:
		2016	2015
Profit before tax	$	2,347,524	1,933,923
Income tax calculated based on the Company’s
domestic tax rate		399,079	328,767
Overseas investment gains recognized under the
equity method		(47,655)	(105,331)
Investment tax credits accrued		(41,196)	(83,224)
Prior year’s income tax adjustment		7,106	157
10% surtax on unappropriated earnings		65,978	60,246
Gains on disposal of stocks		(50,023)	-
Others		80,165	(39,814)
Income taxes expense	$	413,454	160,801

(Continued)

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

(iv) Deferred tax assets and liabilities

1) Unrecognized deferred tax liabilities

		December 31,	December 31,
		2016	2015
Aggregate amount of temporary differences related
to investments in subsidiaries	$	422,133	475,399
Unrecognized deferred tax assets
Deferred tax assets have not been recognized in respect of the following			items:
		December 31,	December 31,
		2016	2015
Deductible temporary differences	$	109,500	60,300

2) Unrecognized deferred tax assets

The deductible temporary differences cannot be realized. Therefore, they were not recognized as deferred tax assets.

3) Recognized deferred tax assets and liabilities

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

Deferred tax liabilities: Balance on January 1, 2016 Recognized in profit or loss Balance on December 31, 2016 Balance on January 1, 2015 Recognized in profit or loss Balance on December 31, 2015	Investment income recognized under the equity method (overseas)	Unrealized foreign exchange gains	Unrealized foreign exchange gains		Others Total
	$ 112,054 24,523 $ 136,577 $ 89,222 22,832 $ 112,054		- -		5,528 117,582 11,456 35,979 16,984 153,561 1,061 93,783 4,467 23,799 5,528 117,582
			-

(Continued)

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PRIMAX ELECTRONICS LTD. Notes to Financial Statements

Unrealized

			Unrealized
Deferred tax assets: Balance on January 1, 2016 Recognized in profit or loss Balance on December 31, 2016 Balance on January 1, 2015 Recognized in profit or loss Balance on December 31, 2015	Bad debt in excess of tax limit $ 20,939 4,515 $ 25,454 $ 11,521 9,418 $ 20,939	Unfunded pension fund contribution 14,473 (175) 14,298 14,875 (402) 14,473	sales returns and allowances 44,241 13,374 57,615 29,977 14,264 44,241	Loss on inventory valuation 3,267 1,303 4,570 4,382 (1,115) 3,267	Deferred granted revenue 173,185 23,857 197,042 - 173,185 173,185	Unrealized exchange losses 17,339 (17,290) 49 - 17,339 17,339	Others 20,075 29,166 49,241 3,266 16,809 20,075	Total
								293,519 54,750
								348,269
								64,021 229,498
								293,519

(v) The Company’s income tax returns have been examined by the tax authority through the years up to 2013. However, the Company disagreed with the examination of the income tax returns for 2008 and requested an administrative remedy. The tax effect of the administrative remedy has been recognized by the Company.
(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, 2016 December 31, 2015 $ 4,779,419 3,951,934 $ 508,028 420,838 2016 (estimated) 2015 (actual) 19.06 % 13.69 %

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

(o) Capital and other equity

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

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

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

(i) Ordinary shares

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

December 31, 2016

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

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

(ii) Capital surplus

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

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

(Continued)

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PRIMAX ELECTRONICS LTD. Notes to Financial Statements

According to the ROC Company Act, capital surplus can only be used to offset a deficit, and only the realized capital surplus can be used to increase the 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

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.

2) Special reserve

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

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

3) Earnings distribution

(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:

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.

(Continued)

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PRIMAX ELECTRONICS LTD. Notes to Financial Statements

2) Based on the resolution approved in the board of directors’ meeting of Primax Holdings held on December 31, 2007, Primax Holdings declared an incentive plan to grant the right to some employees of the Company to participate in the subscription of the nonvoting ordinary shares of Primax Holdings. The transaction is a kind of equity-settled share-based payment agreement, and the equity instruments under this agreement were vested at the date of grant. Primax Holdings recognized the compensation cost by using the fair value method. The difference in value between the net value per share of Primax Holdings determined at the grant date and the exercise price per share was recognized as cost of long-term investment in the Company by Primax Holdings in 2007, and was recognized as compensation cost and capital surplus by the Company. Based on the resolution approved in the board of directors’ meeting of Primax Holdings held in April 2008, Primax Holdings amended the share-based payment agreement mentioned above, and consequently, the non-voting ordinary shares were replaced by options to purchase them. The amendment had no impact on the accompanying 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.
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.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

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

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

Note 1: Stock options under Plan 1 included those granted by Primax in May 2005, June and December 2006, and February and March 2007; those granted by Primax Holdings in January, May and November 2008; and those granted by the Company in November 2009.
Note 2: Stock options under Plan 2 included those granted by Primax Holdings in January and May 2008, and those granted by the Company in November 2009.
Note 3: Stock options under Plan 3 included those granted by the Company in November 2011 and October 2012.

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 34.78%~44.59% 38.98%~48.44% - - 2.439%~2.665% 2.509%~2.538% (Continued)
Exercise price of Primax Holdings’s stock options (USD) Expected time until expiration (years) Stock price per share of Primax Holdings (USD) Expected volatility of stock price Expected cash dividend rate Risk-free interest rate

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PRIMAX ELECTRONICS LTD. Notes to Financial Statements

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

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	Before the modification After the modification USD0.20 NT$11.42 (dollars) 3.51~5.85 3.51~5.85 USD1.12 NT$11.42 (dollars) 39.30%~45.36% 39.30%~45.36% - - 1.5%~1.95% 1.5%~1.95%
	USD0.20 0.39~3.89 USD1.12 33.56%~45.36% - 1.005%~1.5%

(Continued)

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

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

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

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

(ii) Restricted stock

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

		Plan 1 (note 1)	Plan 1 (note 1)		Plan 2	(note 1)
Grant date	October 1, 2013	November 20, 2013 February 10, 2014		July 17, 2014	February 24, 2015	August 18, 2015
Fair value on grant date (per share)	22.80	25.15	27.30	52.00	43.70	38.40
Exercise price	Free grants	Free grants	Free grants	Free grants	Free grants	Free grants
Granted units (thousand shares)	1,450	186	135	220	1,225	1,775
Vesting period	1~3 years	1~2 years	1~2 years	1~2 years	1~3years	1~3 years
	(notes 2 and 3)	(notes 3 and 4)	(notes 3 and 4)	(note 3)	(notes 2 and 3)	(note 2)

(Continued)

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PRIMAX ELECTRONICS LTD. Notes to 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.
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.

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

follows:
(Thousand shares) Outstanding at January 1 Granted during the year Forfeited during the year Vesting during the year Expired during the year Outstanding at December 31		2016 2015 3,270 1,310 - 3,000 - - (1,214) (660) (285) (380) 1771 3270

(Continued)

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

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

Expenses attributable to employee stock options Restricted stock Total Salary payable: Current	2016 2015 $ - 2,564 43,182 46,477 $ 43,182 49,041 $ 1,938 4,092

(q) Earnings per share

(i) Basic earnings per share

The calculation of basic earnings per share for the years ended December 31, 2016 and 2015, based on the profit 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)	2016 2015 $ 1,934,070 1,773,122 439,169 436,372 $ 4.40 4.06

Weighted-average number of ordinary shares (thousand shares)

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

(ii) Diluted earnings per share

The calculation of diluted earnings per share for the years ended December 31, 2016 and 2015, based on the profit 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) $	2016 2015 1,934,070 1,773,122 443,212 441,810 4.36 4.01

(Continued)

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PRIMAX ELECTRONICS LTD.

Notes to Financial Statements

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

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

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

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

(r) Operating revenue

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

Goods sold Services rendered Total	2016 2015 $ 44,778,842 50,323,410 960,941 1,314,771 $ 45,739,783 51,638,181

(s) Employee’s, directors’ and supervisors’ remuneration

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

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

(Continued)

(t) Other income

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

Interest revenue of cash in banks Rent revenue Cash dividend revenue	2016 2015 $ 11,599 13,235 7,177 8,555 14,692 263 $ 33,468 22,053

(u) Other gains and losses

The details of other gains and losses for the years ended December 31, 2016 and 2015, were as follows:

Net gains (losses) on financial assets/liabilities measured at fair value through profit or loss Foreign currency exchange gains, net Impairment loss on available-for-sale financial assets Gain on sale of or liquidate of available-for-sale financial assets Gain on disposal of subsidiaries Compensation loss Other	2016 2015 $ (9,113) 26,287 160,646 263,893 - (939) 140,969 175 248,006 - (180,000) - 10,898 (5,928) $ 371,406 283,488

(Continued)

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PRIMAX ELECTRONICS LTD. Notes to Financial Statements

(v) Reclassification adjustments of components of other comprehensive income

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

Unrealized gains 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	2016 2015 $ 251,675 294,053 (140,969) - $ 110,706 294,053

(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	December 31, 2016 December 31, 2015 $ 505,192 989,857 208,462 8,870 10,926 7,107 4,028 855 $ 728,608 1,006,689

The Company assesses the uncollectible amount of accounts and other receivables (including related parties) based on the aging analysis, the collection history, and the customers’ current financial status, and recognizes an allowance for doubtful debts accordingly. After the 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 year ended December 31, 2016 and 2015, were as follows:

Balance on January 1, 2016 Impairment loss recognized Amounts written off Exchange differences on translation of foreign currency Balance on December 31, 2016	Individually assessed impairment $ - - - - $ -	Collectively assessed impairment Total 19,647 19,647 57,778 57,778 - - (448) (448) 76,977 76,977

(Continued)

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

Balance on January 1, 2015 Impairment loss recognized Amounts written off Exchange differences on translation of foreign currency Balance on December 31, 2015	Individually assessed impairment $ - - - - $ -	Collectively assessed impairment Total 19,430 19,430 - - (625) (625) 842 842 19,647 19,647

(ii) Liquidity risk

The following table shows the contractual maturities of financial liabilities:

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 December 31, 2015 Non-derivative financial liabilities: Short-term borrowings Notes and accounts payable Accounts payable - related parties Other payables 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 $ 1,120,518 264 11,340,202 1,025,313 1,316,667 90,726 52,765 - - $ 14,946,455	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 1,120,518 264 11,340,202 1,025,313 1,342,525 90,726 - 52,765 - 14,972,313	Within 6 months 783,593 9,352,640 1,520,893 - 277,546 - - 2,766,941 (2,615,359) 12,086,254 1,120,518 264 11,340,202 1,025,313 282,503 - - 52,765 - 13,821,565	6~12 months - - - - 110,096 - - - - 110,096 - - - - 280,977 - - - - 280,977	1~2 years - - - - 137,431 - - - - 137,431 - - - - 555,552 - - - - 555,552	2~5 years Over 5 years - - - - - - 781,263 - 84,580 - - 125,703 - - - - - - 865,843 125,703 - - - - - - - - 223,493 - - 90,726 - - - - - - 223,493 90,726

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

(Continued)

232 Primax Electronics Ltd. 2016 Annual Report

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PRIMAX ELECTRONICS LTD. Notes to Financial Statements

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

(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, 2016 Foreign currency Exchange rate TWD $ 416,943 32.279 13,458,517 376,297 32.279 12,146,505	December 31, 2016 Foreign currency Exchange rate TWD $ 416,943 32.279 13,458,517 376,297 32.279 12,146,505	December 31, 2015	December 31, 2015
	Foreign currency $ 416,943 376,297	Exchange rate 32.279 32.279	Foreign currency 411,446 392,674	Exchange rat TWD 33.066 13,604,883 33.066 12,984,166

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, 2016 and 2015, would have increased or decreased the net profit after tax by $54,449 and $25,760, respectively. The analysis is performed on the same basis for both periods.

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:


		Exchange	Average		Exchange	Average
		gains	exchange		gains	exchange
		and losses	rate		and losses	rate
TWD	$	160,646		1	263,893		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.

(Continued)

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 $6,678 and decreased or increased by $2,585 for the years ended December 31, 2016 and 2015, respectively. This is mainly due to bank savings and borrowings with variable interest rates.

(v)

Other price risk

If the market price had changed of the equity securities 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 variables remain constant):

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

(vi) Fair value

1) Kinds of financial instruments and fair value

The carrying amount and fair value of the 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		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		Fair Value
		Level 1 - 586,404 -	Level 2 - - -	Level 3 Total 141,317 141,317 287,517 873,921 150,430 150,430

(Continued)

234 Primax Electronics Ltd. 2016 Annual Report

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PRIMAX ELECTRONICS LTD. Notes to Financial Statements

	December 31, 2016	December 31, 2016	December 31, 2016
Carrying amounts $ 601,111 10,136,233 2,331,760 781,263 359,279 125,703 $ 14,335,349		Fair Value
	Level 1 Level 2 Level 3 Total December 31, 2015
		Fair Value
	Level 1 - 551,600 -	Level 2 - - -	Level 3 Total 79,052 79,052 16,297 567,897 52,765 52,765

(Continued)

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

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

If a financial instrument has a quoted price in an active market, the quoted price is used as fair value. The quoted price of a financial instrument obtained from major stock 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.

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 stocks. The fair value is based on a valuation technique in the emerging market of stocks, the estimated fair value is adjusted for the lack of liquidity. When prices listed in the emerging market are unavailable, the fair value is estimated on the basis of unadjusted prior trade prices.
3) Transfers between Level 1 and 3

4) Reconciliation of Level 3 fair values

Balance on January 1 Recognized in profit or loss Recognized in other comprehensive income Transfer out of Level 3 Acquisition / disposal Balance on December 31		2016	Total 42,584 (9,113) (3,000) - 247,933 278,404		2015 Available for sale Total 275,536 273,799 (939) 25,348 294,900 294,900 (551,600) (551,600) (1,600) 137 16,297 42,584
	Fair value through profit or loss $ 26,287 (9,113) - - (26,287) $ (9,113)	Available for sale 16,297 - (3,000) - 274,220 287,517		Fair value through profit or loss (1,737) 26,287 - - 1,737 26,287

(Continued)

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PRIMAX ELECTRONICS LTD. Notes to Financial Statements

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

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

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

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

(i) Briefings

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

1) Credit risk
2) Liquidity risk

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

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 $4,634,282 (including restricted deposits) in DBS Bank and 7 other financial institutions, and $1,909,353 (including restricted deposits) in CTBC Bank and 3 other financial institutions, representing 17% and 7% of total assets, as of December 31, 2016 and 2015, 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, 2016 and 2015, totaled 21% and 26%, respectively. As of December 31, 2016 and 2015, 7% and 15%, 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

3) Market risk

(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.

(Continued)

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.

(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.

(Continued)

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PRIMAX ELECTRONICS LTD. Notes to Financial Statements

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 $10,044,220 and $7,110,042 as of December 31, 2016 and 2015, respectively.

(v) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates, and equity prices, will affect the 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.

(y) Capital management

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, 2016 and 2015, was 59% and 62%, respectively.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

(7) Related-party transactions:

(a) The Company and its subsidiaries

Name of investor	Name of subsidiary	Principal activities	Percentage of shareholding December 31, 2016 December 31, 2015 Description	Percentage of shareholding December 31, 2016 December 31, 2015 Description
			December 31, 2016
The Company Primax Industries (Cayman Holding) Ltd. (Primax Cayman) Holding company The Company Primax Technology (Cayman Holding) Ltd. (Primax Tech.) Holding company The Company Destiny Technology Holding Co., Ltd. (Destiny BVI.) Holding company The Company Primax Destiny Co., Ltd. (Destiny Japan) Market development and customer service The Company Primax Electronics Korea Co., Ltd. (Primax Korea) Market development and customer service The Company Diamond (Cayman) Holdings Ltd. (Diamond) Holding company The Company Gratus Technology Corp. (Gratus Tech.) Market development and customer service The Company Global TEK Fabrication Co., Ltd. (Global TEK) Manufacture and sale of sophisticated machinery components, automotive parts, industrial automation parts, communication parts and aerospace components Primax Cayman Primax Industries (Hong Kong) Ltd. (Primax HK) Export and import trading Diamond Tymphany Worldwide Enterprises Ltd. (TWEL) Holding company Global TEK Global TEK Co., Ltd. (GT) Manufacture of sophisticated machinery components and automotive parts Global TEK Global TEK Fabrication Co., Ltd. (Samoa) (GTF-S) Holding company Primax HK and Primax Tech. Dongguan Primax Electronic & Telecommunication Products Ltd. (PCH2) Manufacture of multifunctional peripherals, computer mice, mobile phone accessories, consumer electronics products, and shredders Primax HK Primax Electronics (KS) Corp., Ltd. (PKS1) Manufacture of computer, peripherals and keyboards Primax HK Primax Electronics (Chongqing) Corp., Ltd. (PCQ1) Manufacture of computer peripherals and keyboards			% 100.00 % 100.00 % 100.00 % 100.00 % - % 100.00 % 100.00 % - % 100.00 % 70.00 % - % - % 100.00 % 100.00 % 100.00	% 100.00 % 100.00 % 100.00 % 100.00 % 100.00 Primax Korea was closed and finished the liquidation process in March 2016 % 100.00 % 100.00 % 30.00 (notes 2 & 3) % 100.00 % 70.00 (note 1) % 100.00 (notes 2 & 3) % 100.00 (notes 2 & 3) % 100.00 % 100.00 % 100.00

(Continued)

240 Primax Electronics Ltd. 2016 Annual Report

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PRIMAX ELECTRONICS LTD.

Notes to Financial Statements

Name of investor	Name of subsidiary	Principal activities	Percentage of shareholding December 31, 2016 December 31, 2015 Description	Percentage of shareholding December 31, 2016 December 31, 2015 Description
			December 31, 2016
Primax Tech. Destiny BVI. TWEL TWEL TYM HK TYM HK TYM HK Tymphany Dongguan GT GTF-S GTF-S GTF-HK GTS GTS and WUXI GLOBAL TEK	Polaris Electronics Inc. (Polaris) Destiny Electronic Corp. (Destiny Beijing) Tymphany HK Ltd. (TYM HK) TYP Enterprises, Inc. (TYP) Premium Loudspeakers (Hui Zhou) Co., Ltd. (Premium Hui Zhou) TYMPHANY LOGISITCS, INC. (TYML) Dongguan Tymphany Acoustic Technology Co., Ltd. (Tymphany Dongguan) Dongguan Dongcheng Tymphany Acoustic Technology Co., Ltd. (TYDC) GP Tech, Inc. (GP) Global TEK Fabrication Co., Ltd. (HK) (GTF-HK) Global TEK Co., Ltd. (Samoa) (GTS) WUXI GLOBAL TEK FABRICATION CO., LTD. (WUXI GLOBAL TEK) GLOBAL TEK (XI’ AN) CO., LTD. (GLOBAL TEK XI’ AN) GLOBAL TEK CO. (WUXI), LTD. (GLOBAL TEK WUXI)	Sale of multi-function printers and computer peripheral devices Research and development of computer peripheral devices and software Sale of audio accessories, amplifiers and their components Market development and customer service of amplifiers and their components Manufacture, research and development, design, and sale of audio accessories, amplifiers and their components Sale of audio accessories, amplifiers and their components Manufacture, research and development, design, and sale of audio accessories, amplifiers and their components Research and development, design, and sale of audio accessories, amplifiers and their components Sale of automotive parts, industrial automation parts, communication parts and aerospace components Holding company Holding company Manufacture of sophisticated machinery components Manufacture of industrial automation parts, communication parts and aerospace components Manufacture of sophisticated machinery components and automotive parts	% 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % - % - % - % - % - % -	% 100.00 % 100.00 % 100.00 (note 1) % 100.00 (note 1) % 100.00 (note 1) % 100.00 TYML was incorporated in May 2015 % 100.00 Tymphany Dongguan was incorporated in September 2015 % - TYDC was incorporated in October 2016 % 100.00 (notes 2 & 3) % 100.00 (notes 2 & 3) % 100.00 (notes 2 & 3) % 100.00 (notes 2 & 3) % 100.00 (notes 2 & 3) % 100.00 (notes 2 & 3)

(Continued)

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

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

(b) Parent company and ultimate controlling company

The Company is the ultimate controlling party of the Company and its subsidiaries.

(c) Significant transactions with related-party

(i) Sales

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

Subsidiaries	Sales 2016 2015 $ 4,445,229 6,264,761	Accounts receivable – related parties
	2016	December 31, 2016 December 31, 2015 513,446 2,052,505
	$ 4,445,229

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 significant purchases by the Company from related parties and the outstanding balances were as follows:

Subsidiaries	Purchases 2016 2015 $ 41,258,401 49,233,250	Accounts payable – related parties
	2016	December 31, 2016 December 31, 2015 9,352,640 11,340,202
	$ 41,258,401

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 and 45 or 90 days, respectively.

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

The Company’s sales of products to subsidiaries’ customers on behalf of its subsidiaries amounted to $883,662 and $1,209,503 for the years ended December 31, 2016 and 2015, respectively. Related sales and purchases were eliminated and recorded on a net basis.

(Continued)

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PRIMAX ELECTRONICS LTD. Notes to Financial Statements

(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 2016 2015 $ 28,448 45,293	Other payables
	2016 $ 28,448	December 31, 2016 December 31, 2015 1,540 3,490

(iv) Receivable and payable on behalf of related parties

The other payables arising from receiving the equipment subsidy on behalf of subsidiaries amounted to $9,828 and 60,958 for the years ended December 31, 2016 and 2015.

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

(d) Key management personnel compensation

Short-term employee benefits Post-employment benefits Termination benefits Other long-term benefits Share-based payments	2016 2015 $ 121,107 123,092 1,129 721 - - - - 17,088 15,124 $ 139,324 138,937

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

The other receivables arising from the materials purchased on behalf of the subsidiaries amounted to $854,518 and 17,018 for the years ended December 31, 2016 and 2015.

(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:

2016 2015 Proceeds Gains or Gains or from losses Proceeds losses Trading Trading disposal from Trading Trading from from Relationship Account quantities targets (note) disposal quantities targets disposal disposal Other related Investment using 11,020 Shares 549,347 164,785 - - - - parties equity method (thousand)

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.

(8) Pledged assets:None

(9) Commitments and contingencies:

(a) Please refer to notes 7 and 13 for guarantees and endorsements provided to subsidiaries.
(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, 2016 December 31, 2015 $ 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:

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

(vi) Guarantees and endorsements

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

		December 31,	December 31,
		2016	2015
	$	338,930	384,227

Purchasing of raw materials

(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 2016 amounted to $8,640 and there were no receivables on December 31, 2016. Please refer to note 6(l) for non-cancellable receivable.

(Continued)

Sales of accounts receivable Long-term borrowings	December 31, 2016 December 31, 2015 $ 2,805,777 2,874,690 $ 2,160,000 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:None

(Continued)

244 Primax Electronics Ltd. 2016 Annual Report

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PRIMAX ELECTRONICS LTD. Notes to Financial Statements

(12) Other:

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

By function By item	2016	2016	2016	2015	2015	2015
	Operating cost	Operating expenses	Total	Operating cost	Operating expenses	Total
Employee benefits Salaries Labor and health insurance Pension Others Depreciation Amortization	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	121,905 6,190 3,415 4,040 10 -	1,209,513 66,821 38,846 57,451 15,801 17,628	1,331,418 73,011 42,261 61,491 15,811 17,628

The average number of the Company’s employees for the years ended December 31, 2016 and 2015, was 783 and 752, respectively.

(13) Other disclosures:

(a) Information on significant transactions:

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

(i) Loans to other parties:

No.	Name of lender	Name of borrower	Account name	Highest balance of financing to other parties during the period	Ending balance	Actual usage amount during the period	Range of interest rates during the period	Purposes of fund financing for the borrower	Transaction amount for business between two parties	Reasons for short-term financing	Allowance for bad debt	Coll	ateral	Individual funding loan limits	Maximum limit of fund financing
												Item	Value
1 2 〃〃	PKS1 Global TEK 〃〃	The Company GLOBAL TEK WUXI GT GTS	Other accounts receivable Other accounts receivable Other accounts receivable Other accounts receivable	781,263 96,846 101,353 30,000	781,263 47,049 30,000 -	781,263 47,049 30,000 -	- 0%~2% 2.896% 2.000%	Necessary to loan to other parties 〃〃〃	- - - -	Operating capital 〃〃〃	- - - -		- - - -	920,598 217,391 217,391 217,391	920,598 434,782 434,782 434,782

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

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

(ii) Guarantees and endorsements for other parties:

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

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

Name of holder	Category and name of security	Relationship with company	Account title		Ending balance	Ending balance	Ending balance
				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. Nien Made Enterprise Co., Ltd. Global TEK Shares: Echo. Bahn. WK Global Investment III Ltd.	- - - - - - - - - -	Available-for-sale financial asset-non- current 〃〃〃〃〃〃〃 Available-for-sale financial asset-non- current 〃	359 512 179 53 6 917 1,764 5,510 400 630	4,000 3,820 2,802 646 749 - 586,404 275,500	3.59 0.38 1.66 0.76 0.02 2.04 0.60 10.00 11.90 1.32	4,000 3,820 2,802 646 749 - 586,404 275,500 - 13,880
					873,921
					- 13,880
					13,880

(Continued)

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PRIMAX ELECTRONICS LTD. Notes to Financial Statements

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

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

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

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

Name of company	Related party	Nature of relationship		Transact	ion details		Transactions wi from	th terms different others	Notes/Acc (p	ounts receivable ayable)	Note
			Purchase/ Sale	Amount	Percentage of total purchases/sales	Payment terms	Unit price	Payment terms	Ending balance	Percentage of total notes/accounts receivable (payable)
The Company 〃〃〃〃〃〃〃	Primax Cayman Primax HK PCH2 PKS1 PCQ1 Polaris TYM HK Tymphany Dongguan	Subsidiary The subsidiary of Primax Cayman The subsidiary of Primax HK The subsidiary of Primax HK The subsidiary of Primax HK The subsidiary of Primax Tech The subsidiary of TWEL The subsidiary of TYM HK	Purchase Purchase Purchase Purchase Purchase (Sale) (Sale) (Sale)	429,806 16,357,886 18,234,471 1,012,723 5,189,828 (3,804,963) (400,149) (239,956)	% 1 % 39 % 45 % 2 % 13 % (8) % (1) % (1)	60 days 〃〃〃〃 90 days 60 days 〃	Price agreed by both side 〃〃〃〃〃〃〃	The same as general purchasing 〃〃〃〃 The same as general selling 〃〃	(49,873) - (6,971,192) (409,294) (1,922,281) 226,050 165,384 -	-% -% (69)% (4)% (19)% 3% 2% -%

(Continued)

PRIMAX ELECTRONICS LTD.

Notes to Financial Statements

Name of company	Related party	Nature of relationship	Transaction details	Transaction details	Transaction details	Transaction details	Transactions with terms different from others	Transactions with terms different from others	Notes/Accounts receivable (payable)	Notes/Accounts receivable (payable)	Note
			Purchase/ Sale	Amount	Percentage of total purchases/sales	Payment terms	Unit price	Payment terms	Ending balance	Percentage of total notes/accounts receivable (payable)
Primax Cayman Primax HK 〃 PCH2 〃 PKS1 PCQ1 Polaris TYM HK 〃〃 Premium Hui Zhou Tymphany Dongguan 〃 Global TEK GT Global TEK XI'AN Global TEK WUXI	The Company The Company PCH2 Primax HK The Company The Company The Company The Company Premium Hui Zhou The Company Tymphany Dongguan TYM HK The Company TYM HK Global TEK XI'AN Global TEK WUXI Global TEK GT	Parent Parent Subsidiary Parent The parent of Primax Cayman The parent of Primax Cayman The parent of Primax Cayman The parent of Primax Tech Subsidiary The parent of Diamond Subsidiary Parent Parent Parent The subsidiary of GTS The subsidiary of GTS and WUXI Global TEK The parent of GTF-HK The subsidiary of Global TEK	(Sale) (Sale) Purchase (Sale) (Sale) (Sale) (Sale) Purchase Purchase Purchase Purchase (Sale) Purchase (Sale) Purchase Purchase (Sale) (Sale)	(429,806) (16,357,886) 16,272,682 (16,272,682) (18,234,471) (1,012,723) (5,189,828) 3,804,963 3,825,446 400,149 3,871,980 (3,825,446) 239,956 (3,871,980) 122,441 393,728 (122,441) (393,728)	% (100) % (100) % 100 % (36) % (40) % (100) % (88) % 99 % 47 % 5 % 48 % (94) % 6 % (100) % 32 % 63 % (71) % (37)	〃〃 30 days 〃 60 days 〃〃 90 days 60 days 〃〃〃〃〃〃 90 days 〃〃	〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃〃	〃〃 The same as general purchasing The same as general selling 〃〃〃 The same as general purchasing 〃〃〃 The same as general selling The same as general purchasing The same as general selling The same as general purchasing 〃 The same as general selling 〃	49,873 - (305,434) 305,434 6,971,192 409,294 1,922,281 (226,050) (986,123) (165,384) (1,191,888) 986,123 - 1,191,888 (35,080) (236,385) 35,080 236,385	100% -% (100)% 3% 65% 34% 89% (24)% (40)% (7)% (49)% 98% -% 99% (27)% (42)% 58% 40%

Note 1: Accounts receivables over payment terms has been classified as other receivables-non-current. Note 2: The Company has lost control over Global TEK in October, 2016. The information for Global TEK group are disclosed as of September 30, 2016.

(Continued)

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PRIMAX ELECTRONICS LTD. Notes to Financial Statements

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

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

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

Note 2: The Company has lost control over Global TEK in October, 2016. The information for Global TEK group are disclosed as of September 30, 2016.

(ix) Trading in derivative instruments: Please refer to note 6(b) in the consolidated financial statements for the year ened December 31, 2016.

(b) Information on investees:

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

Name of investor	Name of investee	Location	Main businesses and products	Original i amo	nvestment unt	Balance as of Decembe	Balance as of Decembe	r 31, 2016	Net income (losses) of investee	Share of profits/losses of investee	Note
				December 31, 2016	December 31, 2015	Shares (thousands)	Percentage of wnership	Carrying value
The Company 〃〃〃〃〃〃〃	Primax Cayman Primax Tech. Destiny BVI. Destiny Japan Primax Korea Diamond Global TEK Gratus Tech. Total	Cayman Islands Cayman Islands Virgin Island Japan Korea Cayman Islands Taiwan USA	Holding company Holding company Holding company Market development and customer service Market development and customer service Holding company Manufacture and sale of sophisticated machinery components, automotive parts, industrial automation parts, communication parts, and aerospace components Market development and customer service	2,540,588 897,421 30,939 7,032 - 2,517,298 - 9,330	2,540,588 897,421 30,939 7,032 9,101 2,517,298 545,490 9,330 6,557,199	8,147,636 285,067 1,050 0.50 - 84,050 - 300	100.00 100.00 100.00 100.00 - 100.00 - 100.00	4,336,069 1,922,225 26,320 16,146 - 3,007,259 - 9,875 9,317,894	211,690 (24,669) (3,452) 242 - 144,863 79,912 75	251,896 11,354 (3,452) 242 - 145,891 18,569 75 424,575	(note 3) (note 4)
				6,002,608					408,661

(Continued)

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

Name of investor	Name of investee	Location	Main businesses and products	Original investment amount	Original investment amount	Balance as of December 31, 2016	Balance as of December 31, 2016	Balance as of December 31, 2016	Net income (losses) of investee	Share of profits/losses of investee	Note
				December 31, 2016	December 31, 2015	Shares (thousands)	Percentage of wnership	Carrying value
Primax Cayman	Primax HK	Hong Kong	Sale of multi-function printers and computer peripheral devices	2,375,164	2,375,164	602,817	100.00	4,433,962	213,540	213,540
Primax Tech.	Polaris	USA	Sale of multi-function printers and computer peripheral devices	52,680	52,680	1,600	100.00	394,322	11,071	11,071
Diamond	TWEL	Cayman Islands	Holding company	2,515,800	2,515,800	38,501	70.00	2,904,380	349,720	166,285
TWEL 〃	TYM HK TYP	Hong Kong USA	Holding company and sale of audio accessories, amplifiers and their components Market development and customer service of amplifiers and their components	76,280 (note 1) 15 (note 1)	76,280 (note 1) 15 (note 1)	144,395 0.50	100.00 100.00	1,540,112 4,876	337,425 2,692	337,425 2,692
TYM HK	TYML	USA	Sales audio accessories, amplifiers and their components	6,628	6,628	200	100.00	(10,786)	3,436	4,674
Global TEK 〃	GT GTF-S	Taiwan Samoa Islands	Manufacture of sophisticated machinery components and automotive parts Holding company	- -	166,000 (note 2) 360,029 (note 2)	- -	- -	- -	(31,844) 116,707	(31,844) 116,543	(note 4) (note 4)
GT	GP	USA	Sale of automotive parts, industrial automation parts, communication parts and aerospace components	-	641 (note 2)	-	-	-	(110)	(110)	(note 4)
GTF-S 〃	GTS GTF-HK	Samoa Islands Hong Kong	Holding company Holding company	- -	330,650 (note 2) 123,916 (note 2)	- -	- -	- -	94,849 22,001	94,849 22,001	(note 4) (note 4)

Note 1: The amount is the initial investment costs from the original stockholders prior to the acquisition of the Company through Diamond. Note 2: The amount is the initial investment costs from the original stockholders prior to the acquisition of the Company through Global TEK. Note 3: The liquidation of Primax Korea was completed in March 2016. Note 4: The Company has lost control over Global TEK in October 2016.

(c) Information on investments in mainland China:

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

	information:
				Accumulated			Accumulated	Net				Accumu-lated
	Main	Total		outflow of	Investment flows		outflow of	income				remittance of
	businesses	amount	Method	investment from			investment from	(losses)	Percentage	Investment		earnings in
Name of	and	of paid-in	of	Taiwan as of			Taiwan as of	of the	of	income	Book	current
investee	products	capital	investment	January 1, 2016	Outflow	Inflow	December 31, 2016	investee	ownership	(losses)	value	period
PCH2	Manufacture of multifunctional	2,075,044	Indirect	1,817,427	-	-	1,773,902	(103,572)	100%	(103,572)	4,456,136	-
	peripherals, computer mice, mobile phone accessories,		investment through Primax Cayman and	(note 2)			(note 2)
	consumer electronics products,		Primax Tech.
	and shredders
Destiny Bejing	Research and development of computer peripheral devices and software	41,105	Indirect investment through Destiny BVI.	34,719 (note 2)	-	-	33,893 (note 2)	(3,452)	100%	(3,452)	26,316	-
PKS1	Manufacture of computer, peripherals and keyboards	908,593	Indirect investment through Primax	727,452 (note 2)	-	-	710,138 (note 2)	69,114	100%	69,114	920,591	-
			Cayman

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PRIMAX ELECTRONICS LTD.

Notes to Financial Statements

Name of investee	Main businesses and products	Total amount of paid-in capital	Method of investment	Accumulated outflow of investment from Taiwan as of January 1, 2016	Investm	ent flows	Accumulated outflow of investment from Taiwan as of December 31, 2016	Net income (losses) of the investee	Percentage of ownership	Investment income (losses)	Book value	Accumu-lated remittance of earnings in current period
					Outflow	Inflow
PCQ1 Premiurn Hui Zhou Tymphany Dongguan TYDC WUXI Global TEK Global TEK XI'AN Global TEK WUXI	Manufacture of computer, peripherals and keyboards Research and development, design, and sale of audio accessories, amplifiers and their components Research and development, design, and sale of audio accessories, amplifiers and their components 〃 Manufacture of sophisticated machinery components Manufacture of industrial automation parts, communication parts and aerospace components Manufacture of sophisticated machinery components and automotive parts	583,149 146,303 (note 3) 16,140 93,064 - - -	Indirect investment through Primax Cayman Indirect investment through Diamond Indirect investment through Diamond 〃 Indirect investment through Global TEK Indirect investment through Global TEK Indirect investment through Global TEK	661,320 (note 2) 2,777,544 16,533 - 102,306 (note 4) 21,245 (note 4) 286,467 (note 4)	- - - - - - -	- - - - 102,306 21,245 286,467	645,580 (note 2) 2,711,436 16,140 - - - -	246,273 125,942 35,972 - 24,478 7,238 124,651	100% 70% 70% 70% 30% 30% 30%	246,273 88,159 25,180 - 7,343 2,171 37,395	915,196 410,738 33,904 65,144 - - -	- - - - - - -

PRIMAX ELECTRONICS LTD.

Notes to Financial Statements

(iii) Significant transactions:

The significant inter-company transactions with the subsidiary 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 years ended December 31, 2016 and 2015, for details.

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

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

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

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

(ii) Limitation on investment in Mainland China:

Name of Company	Accumulated Investment in Mainland China as of December 31, 2016	Investment Amounts Authorized by Investment Commission, MOEA	Upper Limit on Investment
The Company	5,980,672	6,797,921	None(Note 1)

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.

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PRIMAX ELECTRONICS LTD.

Statement of cash and cash equivalents

December 31, 2016

(Expressed in thousands of New Taiwan Dollars)

Item	Description		Amount
Cash on hand		$	543
Checking accounts and demand deposits			931,183
Time deposits	USD118,327 thousand ; Exchange rate32.279		3,819,472
		$	4,751,198

PRIMAX ELECTRONICS LTD.

Statement of other receivables

December 31, 2016

(Expressed in thousands of New Taiwan Dollars)

Item Other receivables－related parties Other receivables－other Taxes receivables Other (individual amount not exceeding 5%) Total	Description Amount Payable on behalf of related parties $ 854,518 Remaining receivable due to sale of accounts receivable 141,551 Income and sales tax refund receivable 48,272 6,582 $ 1,050,923

Statement of accounts receivable

Statement of inventories

Item Accounts receivable: Corporation A Corporation S Corporation P Corporation T Corporation Q 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 $ 567,098 〃 509,727 〃 477,199 〃 439,073 〃 419,081 〃 5,025,001 7,437,179 (76,977) (20,494) $ 7,339,708

Item		Cost	Net realizable value
Finished goods and merchandises	$	2,228,739	2,424,891
Less: Provision for finished goods and merchandises		(38,004)
Subtotal		2,190,735
Raw material		102,736	98,207
Less: Provision for raw material		(52)	2,523,098
Subtotal		102,684
Net amount	$	2,293,419

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Other adjustments	Beginning Balance Additions Disposal (note) Ending Balance Pledged	Number of Number of Number of Number of Number of or	Name of investee shares Amount shares Amount shares Amount shares Amount shares Amount guaranteed	Green Rich Technology Co., Ltd. 1,680 $ 7,000 - - - - (1,321) (3,000) 359 4,000 None	WK Technology Fund IV Ltd. 640 5,100 - - - - (128) (1,280) 512 3,820 〃	Changing Information Technology Inc. 179 2,802 - - - - - - 179 2,802 〃	Formosoft International Inc. 53 646 - - - - - - 53 646 〃	Syntronix Corp. 6 749 - - - - - - 6 749 〃	Global TEK Co., Ltd. - - - - - - 5,510 275,500 5,510 275,500 〃	Nien Made Enterprise Co., Ltd. 2,605 551,600 - - (841) (79,301) - 114,105 1,764 586,404 〃	Ricavision International Inc. 917 - - - - - - - 917 - 〃	$ 567,897 - (79,301) 385,325 873,921	Note: Other adjustments comprise capital reduction for covering accumulated deficits, capital reduction to refund, reclassification from using equity method, and unrealized gains or	losses on available-for-sale financial assets.

					Pledged of	guaranteed		None	〃	〃	〃	〃	〃	〃	〃
				Market	value or	book value		4,447,153	1,955,366	26,320	16,146	-	3,007,259	-	9,875		9,462,119
Statement of changes in investment accounted for using equity method	From January 1 to December 31, 2016	(Expressed in thousands of New Taiwan Dollars)	Beginning Balance Additions Disposal Other adjustments Ending Balance	Percentage	Number Number Number Number Amount Number of holding	Name of investee of shares Amount of shares Amount of shares Amount of shares (Note1) of shares shares Amount		Primax Industries (Cayman Holding) Ltd. 8,147,636 $ 4,504,851 - - - - - (168,782) 8,147,636 % 100.00 4,336,069	Primax Technology (Cayman Holding) Ltd. 285,067 2,057,568 - - - - - (135,343) 285,067 % 100.00 1,922,225	Destiny Technology Holding Co., Ltd 1,050 32,943 - - - - - (6,623) 1,050 % 100.00 26,320	Primax Destiny Co., Ltd. 0.5 15,746 - - - - - 400 0.5 % 100.00 16,146	Primax Electronics Korea Co.,Ltd 67 10,468 - - (67) (10,149) - (319) - % - -	Diamond (Cayman) Holdings Ltd. 84,050 2,902,254 - - - - - 105,005 84,050 % 100.00 3,007,259	Global TEK Co., Ltd. 16,530 555,091 - - (16,530) (576,843) - 21,752 - % - -	Gratus Technolgy Corp. 300 10,040 - - - - - (165) 300 % 100.00 9,875		$10,088,961 - (586,992) (184,075) 9,317,894		Note 1: Adjustments under equity method valuation.

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PRIMAX ELECTRONICS LTD.

Statement of changes in property, plant and equipment From January 1 to December 31, 2016

PRIMAX ELECTRONICS LTD.

Statement of other payables December 31, 2016

(Expressed in thousands of New Taiwan Dollars)

(Expressed in thousands of New Taiwan Dollars)

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

Statement of change in investment property

Item Expense payables Others (note) Total Note : individual amount	Description Amount Payables for allowance for sales return and discount $ 681,917 Taxes related to income and tariff 524,832 Research and development expense for projects and inspection 413,887 Employee and director remuneration 274,666 Compensation payment 180,000 Accounts payable for maintenance and equipment, labor and health insurance and employee benefits 256,458 $ 2,331,760 not exceeding 5%	Description Amount Payables for allowance for sales return and discount $ 681,917 Taxes related to income and tariff 524,832 Research and development expense for projects and inspection 413,887 Employee and director remuneration 274,666 Compensation payment 180,000 Accounts payable for maintenance and equipment, labor and health insurance and employee benefits 256,458 $ 2,331,760 not exceeding 5%

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

Statement of notes and accounts payable

Item Corporation甲 Corporation乙 Corporation丙 Other (individual amount not exceeding 5%)	Description Amount Operating cost $ 652,922 〃 86,961 〃 41,655 2,055 $ 783,593

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PRIMAX ELECTRONICS LTD.

Statement of other current liabilities

December 31, 2016

(Expressed in thousands of New Taiwan Dollars)

Item	Description		Amount
Sales revenue received in advance	Advance sales receipts－non-related parties	$	212,326
Other (note)			7,530
Total		$	219,856

Note : (individual amount not exceeding	5%)

PRIMAX ELECTRONICS LTD.

Statement of long-term borrowings December 31, 2016

(Expressed in thousands of New Taiwan Dollars)

Creditor Industrial Bank of Taiwan CTBC Bank The Export-Import Bank of the Republic of China Total	Description Long-term borrowings 〃〃 Less: Current portion	Amount $ 166,667 240,000 194,444 (382,222) $ 218,889	Term of contract 2014.1~2017.1 2015.1~2018.1 2015.2~2020.2	Interest rate Pledged on guaranteed Note 1 None Note 1 〃 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.

Statement of other non-current liabilities

Item		Amount
Deferred tax liabilities－non-current	$	153,561
Gurantee deposits		125,703
Accured pension liabilities		63,728
Other (note)		2,582
	$	345,574

Note : (individual amount not exceeding 5%)

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Statement of operating revenue

PRIMAX ELECTRONICS LTD.

Statement of operating costs

From January 1 to December 31, 2016

(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 86,962 $ 24,692,372 209,586 20,750,838 45,443,210 (113,753) (550,615) 44,778,842 960,941 $ 45,739,783

From January 1 to December 31, 2016

(Expressed in thousands of New Taiwan Dollars)

Item		Amount
Raw material On January 1, 2016	$	1,240
Add: Purchases		101,496
Less: Raw material on December 31, 2016		(102,736)
Raw material used		-
Manufacturing overhead		184,676
Manufacturing cost		184,676
Add: Finished goods and merchandises on January 1, 2016		2,577,786
Purchases from triangular trade		40,783,089
Less: Finished goods and merchandises on December 31, 2016		(2,228,739)
Losses on physical inventories		(2,178)
Loss on disposal of inventories		(19,737)
Cost of finished goods and merchandises		41,294,897
Service costs		779,029
Loss on inventory valuation, obsolescence and physical inventories		12,779
Loss on disposal of inventories		19,737
Operating costs	$	42,106,442

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PRIMAX ELECTRONICS LTD.

Statement of selling, administrative, research and development expenses

From January 1 to December 31, 2016

(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 Note : individual amount not exceeding 5%	Selling expenses $ 278,763 17,084 37,934 31,765 57,848 57,778 46,083 143,220 $ 670,475	Administrative expenses Research and development expenses 251,619 648,062 23,207 49,095 12,717 59,100 86,955 7,223 - - - - 49 872 67,598 206,508 442,145 970,860

Company and the affiliated companies, if any, on the Company’ s financial position in the most
recent year and as of the printing date of the annual report: None

致伸科技股份有限公司

董事長：梁立省

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AI assistant

Primax — Annual Report 2016

52436_rns_2017-09-27_1260d960-4a93-4858-81ec-19fc34fa03e5.pdf

Primax Electronics Ltd. 2016 Annual Report

Primax Electronics Ltd.

2. Registered address and telephone of corporate headquarters

3. Name, address, website, and telephone number of share registration and transfer agent

I. Letter to Shareholders

03

III. Corporate Governance Report

04

1. Organizational system

6. CPAs replacem ~~ent~~

IV. Capital Overview

status and financial performance, and risk management 69

Dear shareholders,

1. 2016 Financial Performance

（ 1 ） Financial Results

（ 2 ） Budget Execution

（ 3 ） Cash Flow Analysis

（ 4 ）

（ 5 ） R&D Investments

2. 2017 Business Strategy and Technology Developments

1. Establishment date: March 20, 2006

2. Company background:

1. Organizational system

（ 2 ） The business operations of each main department

（ 1 ） Directors and Supervisors

（ 1 ） Remuneration to Directors in the most recent year （ 2016 ）

（ 2 ） Remuneration to General Manager and Vice General Manager in the most recent year （ 2016 ）

（ 3 ） Name of the managers receiving remuneration to employees in the most recent year （ 2016 ） and the distribution implemented.

4. Corporate governance operation

（ 1 ） Board of Directors operation:

（ 2 ） The operation of the Audit Committee or the Supervisors ’ participating in the Board of Directors operation:

Other mandatory notes:

（ 4 ） If the Company has a Remuneration Committee setup, the composition, mandate, and operation of the Committee should be disclosed accordingly:

1. Information of the Remuneration Committee members

2. The operation of the Remuneration Committee

Other mandatory notes:

Note:

VI. Other important information that helps understand the operation of corporate social responsibility

（ 6 ） Substantiating ethical corporate management and policies:

1. Internal Control Declaration

PRIMAX Electronics Limited

Statement of Internal Control System

2. Important resolutions of the Board of Directors

5. CPAs fees

6. CPAs replacement

（ 1 ） Information of former CPAs:

（ 2 ） About the successor CPAs

8. The change in equity transfer and equity pledge of the directors, supervisors, managers, and shareholders with over 10% shareholding in the most recent year and as of the printing date of the annual report.

（ 1 ） Changes in equity transfer and equity pledge

（ 2 ） The counterparty of equity transfer is a related party: None

9. The Top-Ten shareholders who are related party mutually, or spouse, and relatives within the second degree of kinship 03.27.2017 / Unit: Shares

1. Capitalization

03.27.2017 / Unit: Shares

03.27.2017 / Unit: NT$1,000 / 1,000 shares

2. Composition of Shareholders

4. List of Major Shareholders

5. Market price, net worth, earnings, and dividends per share within two （ 2 ） years and the related information

6. The Company’s dividend policy and its implementation

（ 1 ） Dividend policy enacted in the Company’s Articles of Association:

（ 2 ） The distribution of dividend proposed in current year:

8. Remuneration to employees, directors and supervisors

9. The Company’s buying back shares: None

10. The process of corporate bonds, preferred stock, and GDR: None

11. Employee stock warrant status

12. The process of new restricted employee shares

13. Stock acquisition or transfer from other companies with new shares issued

14. Fund plan and its execution

（ 1 ） Project content:

（ 2 ） Project execution:

1. Business content:

（ 1 ） Business Scope

1. The main business operations of the Company

2. Business ratio

3. The Company’s current products （ services ）

PC peripheral products

Non-PC peripheral products

① Mobile device components products

Primax Annual Report 2016

6. CPAs replacem ent