Primax - Annual Report 2017 | FinancialReports.eu

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: MEI-PIN WU, YUNG-HUA HUANG / 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

1 2 3 Letter to Company Corporate Governance Report Shareholders 1. Organizational system Profile 1. Business Operation 1. Establishment 2. Profiles of the Directors, Supervisors, General Manager, in 2017 02 date 07

Organizational system 09
Vice General Manager, Assistant General Manager, department heads, and branch officers 11
1. Profiles of the Remuneration to Directors, Supervisors, General Manager, and Vice General Managers in the most recent year 15
1. Corporate governance operation 19 5. CPAs fees 37 38
2018 Business 2. Company Strategy and background 07 Technology Developments 05

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6. CPAs replacement

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 38
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 39 9. The Top-Ten shareholders who are related party mutually, or spouse, and relatives within the second degree of kinship 40 10. 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 41

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4
Capital Overview
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5
Operation Overview
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43 45
Business content 55 2. Market and production and sales overview 71
Capitalization
Composition of Shareholders

service years, average age and educational distribution ratio in the last two years and as of the printing date of the annual report 79
1. Environmental protection expenses information 79
1. Labor relations 80 6. Material Contracts 81
46
List of Major Shareholders
Market price, net worth, earnings, and dividends per share within two（2） years and the related informatio ~~n~~

47 48 48
The Company's dividend policy and its implementation
The impact of the stock dividend proposed in the shareholders' meeting on the Company's business performance and the earnings per share
Remuneration to employees, directors, and supervisors

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49
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The Company's buying back shares

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49
The process of corporate bonds, preferred stock, and GDR

49 51

Employee stock warrant status
The process of new restricted employee share ~~s~~
Stock acquisition or transfer from other companies with new shares issued

Fund plan and its execution

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6 7 8
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Review and analysis Special Notes Financial Review 90 1. The condensed balance sheet 1. Affiliated company's information of the financial 2. The process of private and consolidated income status and financial placement in the most recent statement of the last five years performance, and year and as of the printing date 2. The financial analysis of the last risk management of the annual report 95 five years

  1.  The condensed balance sheet and consolidated income statement of the last five years 97

  2.  The financial analysis of the last five years 99

The disposition of the 3. The Audit Committee's review Company's stock shares by the report on the 2017 financial subsidiaries in the most recent statements 101 year and as of the printing date of the annual reportof the annual report 95 4. The impact of the financial
Financial st ~~atus~~ 83 2. Financial performance 83 84
year and as of the printing date of the annual reportof the annual report 95 difficulties of the Company and
1. Other supplementary the affiliated companies, if any, information 95 on the Company's financial
1. The occurrence of the events position in the most recent year affecting shareholders' equity or securities price as defined in and as of the printing date of the annual report 101 Article 36, Paragraph 3 Section 5. The 2017 consolidated financial 2 of Securities Exchange Act in statements and notes（A）had the most recent year and as of been audited by the CPAs 102 the printing date of the annual report 95 6. The 2017 proprietary financial statements and notes（B）had statements and notes（B）had （B）had B）had ）had had
The impact of major capital expenditures on financial business in the most recent year 84
Investment policy in the most recent year, main reason for its profits or losses, improvement plan and the investment plans within the year 85
Risk analysis and evaluation 86
Other important events 88
The 2017 proprietary financial statements and notes（B）had statements and notes（B）had （B）had B）had ）had had been audited by the CPAs 103

Letter to Shareholders

Dear shareholders,

As an export-oriented industry, the electronic manufacturing industry of Taiwan was conditioned by global economic performance in 2017, which hampered its speed of recovery. The foreign exchange rate on the market was also unfavorable such that business performance and revenues were under strong pressure. Despite the severe challenges of the external operating environment, PRIMAX continued its conservative business strategy and sought stable growth and optimization of its profit position. Through cautious investment and joint ventures, PRIMAX preserved resources for growth in the next stage.

1 、 Letter to Shareholders

The continued expansion and growth in demand for the application of consumer electronics like the introduction of the twin-lens to smart phones and other smart devices and the launch of smart speakers contributed to the thriving of the non-PC peripherals business of PRIMAX. This is the operation that PRIMAX has been working on for years and allowed the Company to successfully join the development and manufacturing of products of major firms in 2017, with customer orders and revenue moving upward at a significant level. In the wake of the thriving gaming market, PRIMAX has continued its competitive advantage in PC peripherals after years of hard work. This has helped to strengthen the bond between the Company and other leading firms in gaming joint ventures. PRIMAX has continued to launch new gaming products, and can incrementally achieve successful transformation in the business of PC peripherals with a solid foundation of revenue and profits.

As always, PRIMAX is persistent in high standards for product quality and yield rate, and has furthered its investment in fortifying the automated production process. PRIMAX will continue to control manufacturing costs for higher efficiency. With a steady stream of revenue, PRIMAX has achieved a higher level of gross margin in 2017 as compared with the same period of the previous year. PRIMAX also sees the importance of the research and development of new technologies and new products in the future, and will exercise proper control of its spending by aiming at only precise objectives so that its business performance will yield a larger share of profits in 2017.

The company's 2017 business operations is reported as follows:

1. Business Operation in 2017

（ 1 ） Financial Results

The global economy hasn't recovered significantly as expected. The overall growth of smartphones and mobile devices has been slow, and the significant appreciation of the Taiwan currency against the U.S. dollar, so PRIMAX consolidated operating revenue for 2017 is NT$ 60,741,692 thousand, which is slightly decreased by 5.58% compared with that in 2016 which is NT$64,329,462 thousand. However, because of continued efforts to improve product technology, and actively investing in automation manufacturing processes and efforts to strengthen research and development resources, the consolidated net income for 2017 is NT$2,168,981 thousand, which was an increase of approximately 5.87% compared with that of 2016 which is NT$2,048,662 thousand.

Trend chart of consolidated operating revenue and net income

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Consolidated operating revenue Net income
（Unit: NTD in million）（Unit: NTD in million）
3,500
70,000 3,000
60,000 2,500
50,000 2,000
40,000 1,500
30,000 1,000
20,000 500
10,000 0
0
2,169
2,049
1,817
1,609
669
63,538 64,329 60,742
52,240
42,320
2016 2017
2014 2015
2013 （Restated）
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Primax Electronics Ltd. 2017 Annual Report 02

Letter to Shareholders

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Trend chart of net income and
Trend chart of gross profit and
net operating income percentage
gross profit percentage
Gross profit Gross profit Net operating Net operating
（Unit: NTD in million） percentage income income percentage
（Unit: %）（Unit: NTD in million）（Unit: %）
2013 2014 2015 2016 2017 2013 2014 2015 2016 2017
2,373
2,200
2,107
1,830
20.0% 5.00%
8,000 2,500
17.5%
7,000 4.00%
15.0%
2,000
6,000
12.5%
3.00%
5,000
10.0% 1,500
4,000 2.00%
7.5%
1,000
3,000
5.0%
1.00%
2,000
2.5% 500
1,000
0% 0%
0 0
7,480
7,267
6,743
6,219 3.69
12.31 3.32
3.62
11.90 11.30
3.50
3,753 10.61
8.87 1.64
694
%
% %
%
% %
%
%
% %
（Restated ）（Restated ）
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（ 2 ） Budget Execution

It is not applicable, since no financial forecast was published in 2017.

（ 3 ） Cash Flow Analysis

3）Cash Flow Analsis	3）Cash Flow Analsis	3）Cash Flow Analsis	3）Cash Flow Analsis
y Unit: NT$1,000
Item	2017	2016	Net change
Net cash infow from operating activities	3,412,165	2,268,257	1,143,908
Net cash outfow from investing activities	（1,452,394）	（717,299）	（735,095）
Net cash outfow from fnancing activities	（451,649）	（2,615,165）	2,163,516

Operating funds and its distribution diagram

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Cash inflow from operating activities

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Capital expenditure
Cash dividends
Acquisition of subsidiaries
2017
2016
2015
2014
2013
6,000
5,000
4,000
3,000
2,000
1,000
0
5,022
(3,772) 3,412 (2,961)
3,354
2,991 (1,095) (2,728) 2,268 (1,202)
(1,962)
(347)
(1,898) (1,034) (1,112)
(1,348)
( 2,330 )
(701) (791) (928) (647)
(647) (39)
（Unit: NTD in million）
（Restated ）
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（ 4 ）

Trend chart of net cash position and current ratio

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current ratio
Item 2017 2016
Return on shareholders'
equity 17.20 16.28
（%）
Operating income to paid-in
capital 49.33 53.65
（%）
Pre-tax income to paid-in
capital 63.85 62.48
（%）
Net margin
3.57 3.18
（%）
Earnings per share
4.67 4.40
（NT$）
（ 5 ） R&D Investments
Primax group spent NT$ 2,364,974
thousand on research and development in
Net cash position Current ratio 2017. These investments were mainly for new
（Unit: NTD in million）（Unit: %）
2013 2014 2015 2016 2017
200
175
150
125
100
75
50
25
0
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
126.07
125.72
116.28
12 1. 92
4,787 11 9. 86
7,821
7,623
6,814
6,360
%
%
%
%
%
（Restated ）
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Primax group spent NT$ 2,364,974 thousand on research and development in 2017. These investments were mainly for new products and new technology developments, as well as manufacturing process improvements, mainly automation.

Trend chart of earnings per share, dividends per share, and dividend payout ratio

Trend chart of R&D expenses and its proportion to operating revenue

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Earnings per Dividends
share of current distributed in the
period subsequent period
（Unit:NTD）（Unit:NTD）
Dividend payout ratio
（Unit: %） R&D expenses R&D expenses and
（Unit: NTD in million） its proportion to
operating revenue
Note: The earnings distribution proposal for 2017
will be implemented after resolved by the （Unit: %）
5
5
4 4
3
3
2
2
1
1
2016 2017
0 2014 2015
2013
0
2013 2014 2015 2016 2017
4.67
4.40
4.06
3.57 3.20
2.50
2.10
1.80
1.55
0.80
2,500
2,000
1,500
1,000
500
0
68.52
3.89
56.82
51. 9261 51.72 3.16 3.62 3.43
3.22
50.42
2,365
2,204
2,044
1,893
1,338
100
80
60
40
20
0
%
%
%
% % % % %
%
%
（Restated ）
（Restated ）
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*Note: The earnings distribution proposal for 2017 will be implemented after resolved by the shareholders' meeting which will be held on May 30, 2018.

03 Primax Electronics Ltd. 2017 Annual Report

Primax Electronics Ltd. 2017 Annual Report

Letter to Shareholders

2. 2018 Business Strategy and Technology Developments

The Group will continue to focus on the stable growth of total revenue in the development of strategy and product planning for the future, and will match this with good quality products in development. In the wake of Industry 4.0, the Group will further introduce related applications in smart manufacturing so as to upgrade core competence in overall manufacturing capacity.

Strengthen the cornerstones of PC peripheral products, expand audio products domains, purpose automotive electronics

In business development, Tymphany's audio products of the non-PC peripheral business for the year 2017 performed soundly in revenue and gradually emerged as a revenue and profit center of the Group. It is expected that demand for highend applications such as audio electronic items including smart speakers and wireless earphones, as well as lens modules will continue to grow in 2018. The Group will stabilize the manufacturing and development of related products for further growth in revenue. PRIMAX will also keep abreast the development trends in the market particularly its persistence in the research and development of applications deriving from cloud technology, portable devices, AI, digital home and IoT development for

Trend chart of the development of PC and Non-PC peripheral products

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PC peripherals products
Operating Income before
revenue income taxes
（Unit: NTD in million）（Unit: NTD in million）
2017
2016
2015
40,114
38,599
32,952
30,586
25,730 1,223 1,450
20,628
726
2,250
45,000 2,000
40,000 1,750
35,000 1,500
30,000
1,250
25,000
1,000
20,000 750
15,000 500
10,000 250
5,000 0
0
1,692 1,541
1,398
（Restated ）
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Non-PC peripherals products Operating Income before revenue income taxes （Unit: NTD in million）（Unit: NTD in million）

better business opportunities in the high-end audio electronic product and lens related product markets.

In the domains of automotive electronics in the non-PC peripheral products, by the end of the year 2017, PRIMAX made a significant step in the deployment of vehicles peripherals by investing in a shareholding of 37% in Belfast Limited, a Tier1 automotive electronic system supplier. The Company's primary products include EPS （ Electric Power Steering System ） and ADF （ Adaptive FrontLighting System ） , which are the critical technologies for the future development of electric vehicles and driverless/autopilot. With the investment and cooperation, the technology, vertical integration, and market development will be integrated and synergized, and provide PRIMAX with new energy for the growth in the future.

In PC peripherals, PRIMAX successfully entered the production of gaming products with the return of a steady stream of income, and will make the best use of technologies and design capacity accumulated over the years to develop new applications for technology to align with the trend of development in the market and customer needs. In a well-developed and saturated market, the search for the specific new techniques and new application,as well as transformation and growth in the PC peripherals business will hopefully bring in profits.

Enhance the advantages of the automation manufacturing process and move toward to the smart manufacturing and industry 4.0.

Finally, the development of smart manufacturing and Industry 4.0 compels the Group to introduce a more in-depth automated production process, and make the best use of information technology to bolster the transmission of information on manufacturing so as to reduce the cost of manufacturing, upgrade yield rate, and enhance the utility of production capacity.

In sum, PRIMAX will continue to gain a larger share of all related products on the market, extend the products and technologies on hand to different areas of application and platforms, and conduct more efficient assessment and control of all its investments to respond to global macroeconomic changes and tackle challenges from competitors, which will be necessary for achieving stable growth in business performance and profit in the mid to long run.

2 、

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

05 Primax Electronics Ltd. 2017 Annual Report

Primax Electronics Ltd. 2017 Annual Report 06

1. Establishment date ： March 20, 2006

2. Company background

The company was renamed as Primax Electronics Ltd.

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March 2006
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October 2007
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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.

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The company renamed as PRIMAX Electronics Limited with Mr. Liang, Li-Sheng acted as the Chairman.

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December 2007
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February 2008
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December 2009
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The company acquired PRIMAX Technology Co., Ltd. （ hereinafter, former “PRIMAX” ） . The company remained the acquirer and former PRIMAX was the acquiree.

IPO of the company shares.

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The company listed it stock for trading in the emerging stock market of Taiwan.

The Board of Investment, MOEA, approved PRIMAX to invest for the establishment of PRIMAX Chongqing Plant via a third place.

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December 2009
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December 2009
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February 2011
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October 2012
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The Board of Investment, MOEA, approved PRIMAX to invest for the establishment of PRIMAX Kunshan Plant via a third place.

PRIMAX successfully listed its stock for trading at TWSE.

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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 30% of the equity shares issued by automobile and aerospace precision machinery manufacturer, GLOBALTEK.

The Company successfully acquired of 100% of the equity shares of Bang & Olufsen s.r.o. through Tymphany Worldwide Enterprise Limited.

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October 2012
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January 2014
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January 2015
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October 2016
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June 2017
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November 2017
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PRIMAX successfully acquired 70% of the equity shares issued by speaker manufacturer Tymphany Group and made registration of change in shareholding.

PRIMAX disposed 20% of the equity shares of GLOBALTEK, which ended the power of control over GLOBALTEK.

The Company setup Primax AE （ Cayman ） Holdings Ltd.

3 、 Corporate Governance Report

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The Company acquired 37% shares of Belfast Limited through Primax AE

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January 2018
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（ Cayman ） Holdings Ltd.

07 Primax Electronics Ltd. 2017 Annual Report

Corporate Governance Report

1. Organizational system

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（ 1 ） Organizational Structure
Shareholders
Meeting
Remuneration
Committee
Audit
Committee Board of
Directors
Nomination
Committee
CSR Office
Chairman
Audit Office
Investor Relations
CEO
Global Non-PC Finance
deployment Peripheral Technology Quality and
R&D Assurance
products Administration
Unit Center Department Division
China
Japan PeripheralPC Legal Affairsand IT ResourcesHuman
Products Intellectual Department
USA Unit Property Department
Rights Division
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（ 2 ） The business operations of each main department

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Department Main job responsibilities
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Department	Main job responsibilities
Remuneration Committee	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, and has it reviewed as required. 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.
Audit Committee	1. Supervising the adequate presentation of the Company's fnancial statements. 2. Supervising the commission（discharge）of the CPAs and their independence and performance. 3. Supervising the efective implementation of the Company's internal control. 4. 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.

Department

Main job responsibilities

Remuneration Committee

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, and has it reviewed as required.
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.

Audit Committee

1. Supervising the adequate presentation of the Company's fnancial statements.
2. Supervising the commission（discharge）of the CPAs and their independence
and performance.
3. Supervising the efective implementation of the Company's internal control.
4. 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.

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Department Main job responsibilities
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Department	Mainjob responsibilities

Nomination Committee	1. Locate the right persons to the seats of Directors and Senior Managers and propose a list of qualifed candidates to the Board. 2. Review the list of candidates recommended by the Shareholders or the Board, and give recommendations to the Board to determine if it is necessary for a replacement.
CSR Ofce	The CSR Ofce is established by the Chairman with the authorization of the Board of Directors: 1. Responsible for enacting CSR policies, systems or related management approach 2. Assist each department to promote and implement corporate social responsibility projects in response to the Company's economic, environmental and social issues 3. Study domestic and foreign benchmark enterprises' 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
Audit Ofce	Review and audit the implementation of the internal control system, and regularly report it to the Board of Directors and management, and measure operational efciency with recommendations for improvement suggested in a timely manner in order to ensure efective implementation of the internal control system and to improve the efectiveness 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
Quality Assurance Department	1. Quality system planning and supervision 2. Design quality and technology upgrade 3. Product quality upgrade 4. Customer complaints process and improvement 5. Employee quality training plan and implementation
Legal Afairs and Intellectual Property Rights Division	Intellectual property rights management and legal afairs handling
Finance and Administration Division	1. Dealing with accounting, fnance, tax and shareholder service matters 2. Supporting project implementation and promotion
Human Resources Department	1. Employees and Human Resource Management 2. Salary and benefts management 3. Education and Training and Development 4. General Afairs Services 5. Health and Safety Management
Product Business Group	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: New product research, design and development New product project assessment, analysis and planning New product manufacturing technology and document and data transfer Marketing: Product planning, marketing and market development
Technology R&D Center	Be responsible for the research, design and development of the core technology of all products.
IT Department	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 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

Primax Electronics Ltd. 2017 Annual Report 10

Primax Electronics Ltd. 2017 Annual Report

Corporate Governance Report			Corporate Governance 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）			April 1, 2018／Unit: Shares／%
Title Nationality or Place of Registration Name Gender Date Elected Term （Years） Date First Elected Shareholding when elected Current shareholding Spouse & Minor Shareholding Shares % Shares % Shares %			Shareholding by Nominee Arrangement Main experience （education and degree） Currently hold a position with the Company and others Other ofcers, directors, or supervisors who are a spouse or a relative within the second degree of kinship Shares % Title Name Relationship
Chairman Republic of China Liang, Li-Sheng Male 06.29.2015 3 years 10.23.2009 （Note 9） 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 9） 1,962,465 0.45 1,962,465 0.44 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 7,455,046 1.67 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 General Republic of China Pan, Yung-Tai Male 06.29.2015 3 years 09.05.2014 4,617,987 1.05 4,764,599 1.07 815,517 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
Manager
Director 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 Note 6 －－－
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 7 －－－
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 8 －－－
Note 1: Primax Tech.（Cayman Holding）Ltd. Director;Polaris Electronics,Inc. Director; Destiny Tech Holding Co.,Ltd.			Directors and Supervisors（2） April 1, 2018
Director; Primax Ind.（Cayman Holding）Ltd. Director; Primax Ind（HK）Ltd. Director; Beijing Destiny Electronic Technology Corporation, Chairman; Diamond（Cayman）Holdings Ltd. Representative of Institutional Director; Tymphany Worldwide Enterprises Ltd. Representative of Institutional Director; Alpine Asia Investment Limited Director; Gratus Technology Corp. Director; Tymphany Logistics, Inc. Director; Tymphany Acoustic Technology Ltd. Director; Premium Loudspeakers（Huizhou）Co., Ltd. Representative of Institutional Director; Primax AE（Cayman） Holdings Ltd. Director. Note 2: Primax Ind.（Cayman Holding）Ltd. Director; Polaris Electronics, Inc. Director; Primax Tech.（Cayman Holding） Ltd. Director; Primax Ind（HK）Ltd. Director; Primax Electronics（KunShan）Co., Ltd. Legal Representative and Executive Director; Primax Electronics（Chongqing）Corp., Ltd. Legal Representative and Executive Director; Beijing Destiny Electronic Technology Co., Ltd. Director; Tymphany Worldwide Enterprises Ltd. Representative of Institutional Director; GLOBAL-TEK, Representative of Institutional Director; Campbell Technology Corporation Director; Gratus Technology Corp. Director; Primax Destiny Co. Ltd. Director.			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 Conditions Name
Note 3: Chailease Auto Rental Co., Ltd Chairman and General Manager, Apex Credit Chairman and General Manager, and Fina Finance & Trading Co., Ltd. Supervisor.			Pan,Yung-Tai －－ＶＶＶＶＶＶ 0 Pan,Yung-Chung －－ＶＶＶＶＶＶ 0
Note 4: Tymphany Worldwide Enterprises Ltd. Representative of Institutional Director; TYP Enterprises, Inc. Director; Tymphany HK Ltd. Director; Premium Loudspeakers（Huizhou）Co., Ltd. Representative of Institutional Director			Tsao,Chung-Feng －－ＶＶＶＶＶＶＶＶＶＶ 0 Ku,Tai-Chao －－ＶＶＶＶＶＶＶＶＶＶＶ 0
and General Marager; Dongguan Tymphany Acoustic Technology Co., Ltd. Executive Director and General Manager;			Wei,Yung-Tu －ＶＶＶＶＶＶＶＶＶＶＶＶ 3
Dongguan Dongcheng Tymphany Acoustic Technology Co., Ltd. Executive Director and General Manager; Tymphany			Cheng,Chih-Kai －－ＶＶＶＶＶＶＶＶＶＶＶ 0
Acoustic Technology HK Ltd. Director; Tymphany Acoustic Technology Ltd., Director. Note 5: Tymphany Worldwide Enterprises Ltd. Representative of Institutional Director, Tymphany Acoustic Technology Ltd. Director. Note 6: Belfast Limited Group Vice General Manager of Operation. Note 7: Cathay Financial Holdings Co., Ltd. Independent Director; Cathay United Bank Independent Director; Synnex Technology International Corp. Independent Director; Far Eastern Department Store, Independent Director; MiTAC Holding Corporation, representative of Institutional Director; Vanguard International Semiconductors Corp., Director; Chilisin Electronics Corporation, Representative of the Institutional Supervisor; Iron Force Industrial Co., Ltd. Director; Yong Qin Co., Ltd Chairman; Kaimei Electronics Corporation Representative of the Institutional Supervisor. Note 8: Crown Bioscience Director; Ureka Therapeutics（California）, Director; B Current Impact Investment Inc., Chairman; Social Enterprise Insights, Director; Gaatu Holding, Director; H3 Platform, Director; B Current Impact Investment Inc. II Chairman; Acorn Pacifc Ventures Partner. Note 9: Based on the date of election after the acquisition date of PRIMAX.			Note: Please tickＶthe corresponding boxes if directors or supervisors have qualifed any of the following conditions during the two years prior to being elected or during the term of ofce. （1）Not an employee of the Company or any of its afliates. （2）Not a director or supervisor of the Company or any of its afliates（The same does not apply, however, if the person is an independent director of the Company, its parent company, or its subsidiary and established in accordance with 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. （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 fve in holdings. （6）Not a director, supervisor, ofcer, or shareholder holding 5% or more of the shares of a specifed company or institution that has a fnancial or business relationship with the Company. （7）Not a professional individual or an owner, partner, director, supervisor, or ofcer of a sole proprietorship, partnership, company, or institution that provides commercial, legal afairs, fnancial, accounting services, or consultation to the Company or to any afliate 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. （8）Not having a marital relationship, or a relative within the second degree of kinship to any other director of the Company. （9）Not been a person of any conditions defned in Article 30 of the Company Law. （10）Not a governmental, juridical person, or its representative as defned in Article 27 of the Company Law.
Primax Electronics Ltd.2017 Annual Report 11			Primax Electronics Ltd.2017 Annual Report 12

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Corporate Governance Report Corporate Governance Report
（ 2 ）
Profiles of the General Manager, Vice General Manager, Assistant
General Manager, department heads, and branch officers April 1, 2018 ／ Unit: Shares ／ %
Spouse & Minor Shareholding Currently Manager who is the spouse or a
Title Nationality Name Gender ElectedDate Shareholding Shareholding Arranby Nominee gement Main experience （ education and degree ） serving duties relative within the second degree of kinship
at other
Shares % Shares % Shares % company Title Name Relationship
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Title	Nationality	Name	Gender	Date Elected	Shareholding	Shareholding	Spouse & Minor Shareholding	Spouse & Minor Shareholding	Shareholding by Nominee Arrangement	Shareholding by Nominee Arrangement	Main experience（education and degree）	Currently serving duties at other company	Manager who is the spouse or a relative within the second degree of kinship	Manager who is the spouse or a relative within the second degree of kinship	Manager who is the spouse or a relative within the second degree of kinship
					Shares	%	Shares	%	Shares	%			Title	Name	Relationship

Director/General Manager	Republic of China	Yang, Hai-Hung	Male	07.02.2010	1,962,465	0.44	0	0	0	0	．Master of Mechanical Engineering, University of Texas, USA ．General Manager of Products Division of PRIMAX	Note 1	－	－	－
Director / General Manager of Business Department	Republic of China	Pan, Yung-Tai	Male	12.28.2007 （Note 7）	4,764,599	1.07	815,517	0.18	0	0	．Department of Mechanical Engineering, Chung Yuan Christian University ．General Manager of Business Department of PRIMAX	Note 2	－	－	－
General Manager of Operations	Republic of China	Kuo, You-Min	Male	01.15.2018	0	0	0	0	0	0	．Industrial Marketing, MBA, University of North Carolina at Chapel Hill ．Senior Vice President, Hon Hai Group	None	－	－	－
Senior Vice General Manager	Republic of China	Hsiao, Ying-Yee	Male	09.19.2016	60,000	0.01	0	0	0	0	．Swiss Business School EMBA ．CFO of CMC Magnetics co., Ltd.	Note 3	－	－	－
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 4	－	－	－
Vice General Manager	Republic of China	Lee, Chiu-Sheng	Male	10.01.2014	510,000	0.11	24,000	0.01	0	0	．Department of Industrial Engineering, National Tsing Hua University ．FOXCONN VP Operations	Note 5	－	－	－
Vice General Manager	Republic of China	Chiang, Yan-Ying	Female	04.01.2015	590,106	0.13	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	762,703	0.17	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	233,000	0.05	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	446,732	0.10	10,000	0.002	0	0	．Electrical Engineering Institute, California State University, Long Beach（USA）．PRIMAX Senior Assistant General Manager	Note 6	－	－	－
Vice General Manager	Republic of China	Chuo, Yu-Shan	Male	01.01.2017	30,000	0.01	0	0	0	0	．EMBA, NCCU ．General Manger, Automotive Electronics Division, Quanta Storage Inc.	None	－	－	－
Vice General Manager	Republic of China	Tseng, Chien-Yu	Male	09.18.2017	0	0	0	0	0	0	．Institute of Applied Chemistry, National Chiao Tung University ．Senior Vice General Manager, Hon Hai Group	None	－	－	－
Assistant General Manager	Republic of China	Chang, Shu-Chuen	Female	11.15.2017	0	0	0	0	0	0	．Institute of Accounting, National Cheng Kung University ．Assistant General Manager, Finance Department, Lian Hwa Foods Corp.	None	－	－	－

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Title	Name	Remuneration to Directors								Ratio of total remuneration			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）		（A+B+C+D） to net income （%）（Note 1）			Salary, Bonuses and Allowances （E）		Pension （F）		Proft Sharing- Employee Bonus（G）（Note 3）
		The Coman	All Consolidated	The Coman	All Consolidated	The Coman	All Consolidated	The Coman	All Consolidated	The Coman		All Consolidated	The Coman	All Consolidated	The Coman	All Consolidated	The Company			All Consolidated Entities			The Company	All Consolidated Entities
		py	Entities	py	Entities	py	Entities	py	Entities	py		Entities	py	Entities	py	Entities	Cash		Stock	Cash	Stock
Chairman	Liang, Li-Sheng	14,452	14,452	0	0	3,611	3,611	0	0	0.88		0.88	0	0	0	0	0		0	0	0		0.88	0.88		0
Director / General Manager	Yang, Hai-Hung	0	0	0	0	30,389	30,389	796	796	1.52		1.52	29,767	29,767	0	0	7,950		0	7,950	0		3.35	3.35		0
Director	Yang, Chi-Ting
Director	Pan, Yung-Chung
Director / General Manager of Business Department	Pan, Yung-Tai
Director	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 Ku, Tai-Chao Cheng, Chih-Kai			Yang, Hai-Hung Pan, Yung-Tai Pan, Yung-Chung Tsao, Chung-Feng Yang, Chi-Ting Wei, Yung-Tu Ku, Tai-Chao Cheng, Chih-Kai				Yang, Chi-Ting Wei, Yung-Tu Pan, Yung-Chung Ku, Tai-Chao Cheng, Chih-Kai			Yang, Chi-Ting Wei, Yung-Tu Pan, Yung-Chung Ku, Tai-Chao Cheng, Chih-Kai
											NT$5,000,000（inclusive）~ NT$10,000,000（exclusive）				－			－				Tsao, Chung-Feng			Tsao, Chung-Feng
											NT$10,000,000（inclusive）~ NT$15,000,000（exclusive）				－			－				Pan, Yung-Tai			Pan, Yung-Tai
											NT$15,000,000（inclusive）~ NT$30,000,000（exclusive）				Liang, Li-Sheng			Liang, Li-Sheng				Liang, Li-Sheng Yang, Hai-Hung			Liang, Li-Sheng Yang, Hai-Hung
											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

Corporate Governance Report					Corporate Governance Report
（2）Remuneration to General Manager and Vice General Manager in the most recent year（2017） Unit: NT$1,000／1,000 shares					Range of remuneration paid to each General Manager and Vice General Manager of the Company Name of General Manager and Vice General Manager The Company All Consolidated Entities
Title Name Salary （A） Pension （B） Bonuses and Allowances （C） Proft Sharing- Employee Bonus （D）（Note 1） The Company All Consolidated Entities The Company All Consolidated Entities The Company All Consolidated Entities The Company All Consolidated Entities Cash Stock Cash Stock		Ratio of total remuneration （A+B+C+D） to net income （%）（Note 2） The Company All Consolidated Entities		Compensation Paid to Directors from an Invested Company Other than the Company's Subsidiary	Less than NT$2,000,000 Tseng, Chien-Yu Tseng, Chien-Yu NT$2,000,000（inclusive）~ NT$5,000,000（exclusive） Tsao, Chung-Feng Chang, Yao-Han Chuo, Yu-Shan Tsao, Chung-Feng Chang, Yao-Han Chuo, Yu-Shan NT$5,000,000（inclusive）~ NT$10,000,000（exclusive） Lee, Chiu-Sheng Chiang, Yan-Ying Chang, Ching-Kai Chou, Yen-Chou Pan, Yung-Tai Hsiao, Ying-Yee Lee, Chiu-Sheng Chiang, Yan-Ying Chang, Ching-Kai Chou, Yen-Chou Pan, Yung-Tai Hsiao, Ying-Yee NT$10,000,000（inclusive）~ NT$15,000,000（exclusive） Wei, Hao-San Wei, Hao-San NT$15,000,000（inclusive）~ NT$30,000,000（exclusive） Yang, Hai-Hung Yang, Hai-Hung NT$30,000,000（inclusive）~ NT$50,000,000（exclusive）－－ NT$50,000,000（inclusive）~ NT$100,000,000（exclusive）－－
Director / General Manager Yang, Hai-Hung					NT$100,000,000 and more －－ Total 12 12
Vice General Manager （Note 3） Chuo, Yu-Shan					（3）Names of the managers receiving remuneration to employee in the most recent year（2017）and the distribution implemented Unit: NT$1,000／1,000 shares
Director / General Manager of Business Pan, Yung-Tai					Title Name Stock amount （Note 1） Cash amount （Note 1） Total Ratio of total amount to net income（%）（Note 2）
Department					Director / General Manager Yang, Hai-Hung
Vice General Manager （Note 4） Tseng, Chien-Yu					Vice General Manager（Note 3） Chuo, Yu-Shan Director/General Manager of the Business Department Pan, Yung-Tai
30,746 31,884 0 0 49,661 49,661 16,520 0 16,520 Director and Vice General Manager （Note 5） Tsao, Chung-Feng Vice General Chou,	0	4.71%	4.77%	None	Managers － 16,650 16,650 0.81% Vice General Manager（Note 4） Tseng, Chien-Yu Director and Vice General Manger（Note 5）Tsao, Chung-Feng Vice General Manager Chou, Yen-Chou Vice General Manager Lee, Chiu-Sheng Vice General Manager Chiang, Yan-Ying
Manager Yen-Chou					Vice General Manager Chang, Ching-Kai
Vice General Lee,					Vice General Manager Wei, Hao-San
Manager Chiu-Sheng					Vice General Manager Chang, Yao-Han

Vice General Manager Chiang, Yan-Ying					Senior Vice General Manager Hsiao. Ying-Yee Assistant General Manager（Note 6） Chang, Shu-Chuen
					Note 1: Refers to the earnings distribution proposal in the most recent year（2017）resolved by the Board（03.13.2018）for
Vice General Manager Chang, Ching-Kai					an amount of NT$68,260 thousand to be distributed as remuneration to employees. The remuneration 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 remuneration amount to be distributed in current year will proportionally
Vice General Wei,					refer to the amount distributed last year.
Manager Hao-San					Note 2: The net income of the Company in 2017 amounted to NT$2,057,415 thousand.
Note 1: Refers to the earnings distribution proposal in the most recent year（2017）resolved by the Board（03.13.2018）for an amount of NT$68,260 thousand to be distributed as remuneration to employees. The remuneration 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 remuneration amount to be distributed in current year will proportionally refer to the amount distributed last year. Note 2: The net income of the Company in 2017 amounted to NT$2,057,415 thousand. Note 3: Chuo, Yu-Shan was transferred to Vice General Manager on 01.01.2017. Vice General Manager Chang, Yao-Han Senior Vice General Manager Hsiao, Ying-Yee					Note 3: Chuo, Yu-Shan was transferred to Vice General Manager on 01.01.2017. Note 4: Tseng, Chien-Yu assumed ofce on 09.18.2017. Note 5: Tsao, Chung-Feng resigned as Vice General Manager on 02.28.2018. Note 6: Chang, Shu-Chuen assumed ofce on 11.15.2017. （4）The ratio analysis of total remuneration paid by the Company and by all companies included in the consolidated fnancial statements for the most recent two fscal years to directors, supervisors, general manager, and vice general manager of the Company to the net income in the proprietary or independent fnancial 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.
Note 4: Tseng, Chien-Yu assumed ofce on 09.18.2017.					1. The ratio analysis of total remuneration paid by the Company and by all companies included in
Note 5: Tsao, Chung-Feng resigned as Vice General Manager on 02.28.2018.					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:
Primax Electronics Ltd.2017 Annual Report 17					Primax Electronics Ltd.2017 Annual Report 18

Corporate Governance Report

Identity	Ratio of total remuneration to net income（loss）	Ratio of total remuneration to net income（loss）	Ratio of total remuneration to net income（loss）	Ratio of total remuneration to net income（loss）
	2016		2017
	The Company	Consolidation	The Company	Consolidation
Director	4.81%	4.81%	4.23%	4.23%
Supervisors	N/A	N/A	N/A	N/A
General Manager / Vice General Manager	4.84%	4.90%	4.71%	4.77%

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 and resolved by the Board of Directors and reported to the shareholders' meeting. Also, reasonable remuneration distributed by taking the Company's operating results, performance contributed by Directors, and performance evaluation of the Board into consideration. 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.
（ 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 operating performance, and individual performance about goal achievement, and proposed by Human Resource Department complying with the the Company's policy of remuneration to managers and bonus plan, approved by the Remuneration Committee assessing the performance of chairman, and resolved by the Board. Related reasonableness of performance evaluation and remuneration is reviewed by the Remuneration Committee and the Board, and reviewd the remuneration policy based on actual operation and related regulations at all times.

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 （ 7 meetings in 2017 and 3 meetings in 2018 ） as follows:

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Title Name Attendance in Actual number of meeting Attendance Rate Remark
Person B attended by proxies （ % ） [B/A]
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Title	Name	Attendance in Person B	Actual number of meeting attended by proxies	Attendance Rate （%）[B/A]	Remark
Chairman	Liang, Li-Sheng	10	0	100	—
Director	Yang, Hai-Hung	9	1	90	—
Director	Yang, Chi-Ting	10	0	100	—
Director	Pan, Yung-Tai	9	1	90	—
Director	Pan, Yung-Chung	9	1	90	—
Director	Tsao, Chung-Feng	9	1	90	—
Independent Director	Ku, Tai-Chao	9	1	90	—
Independent Director	Wei, Yung-Tu	10	0	100	—
Independent Director	Cheng, Chih-Kai	10	0	100	—

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 were approved by all the attendees.
（2） Further to the aforementioned issues, other resolutions of the Board with opposite or qualified opinions with record or written statement from the independent directors: None.
Ⅱ . In circumstances where Directors should be excused from participation from the proposal with a conflict of interest, specify the names of the Directors, the content of the motions, the reasons for avoiding the conflict of interests, and the voting. Attendance of the Directors high and they participated in voting in line with their assigned duties. The following are in circumstances showing their act of avoidance of the conflict of interests:
（1） In the session held on January 23, 2017, the Board was in discussion of Motion No. 1 pertaining to the annual bonus for senior managers of the Company in 2016. Directors Yang Hai-Hung, Pan Yung-Tai, Pan Yung-Chung, and Tsao Chung-Feng were parties concerned and were excused from the discussion and voting of this motion to avoid the conflict of interest; Motion No. 2 in the session was pertinent to the annual bonus for the Chairman in 2016. The Chairman was the party concerned and was excused from the discussion and voting on the motion to avoid the conflict of interest; Motion No. 3 in the session was pertinent to the remuneration to employees in 2016. Directors Yang Hai-Hung and Pan Yung-Tai were parties concerned and were excused from the discussion and voting to avoid a conflict of interest; Motion No. 4 in the session was pertinent to the 1st issuance of RSA in 2016. Directors Yang Hai-Hung and Pan Yung-Tai were parties concerned, and were excused from the discussion and voting to avoid a
（2） In the session held on March 7, 2017, the Board was in discussion of Motion No. 4 was pertinent to the salary adjustment of senior managers of the Company in 2017, and Motion No. 5 was pertinent to bonus plan for senior management and key officers in 2017. Directors Yang Hai-Hung, Pan Yung-Tai, and Tsao Chung-Feng were parties concerned in the two motions and were excused from the discussion and voting on the motions to avoid a conflict of interest; Motion No. 6 was pertinent to the standard of performance and bonus plan for the Chairman in 2017. The Chairman was the party concerned and was excused from the discussion and voting on the motion to avoid a
（3） In the session held on May 11, 2017, the Board was in discussion of Motion No. 1 in Point 2 was pertinent to the amendment to the bonus plan for the Chairman in 2016. The Chairman was the party concerned and was excused from the discussion and voting on the motion to avoid a conflict of interest. Motion No. 2 was pertinent to the amendment to the bonus plan for senior managers in 2016. Director Yang Hai-Hung was the party concerned and was excused from the discussion and voting on the motion to avoid a conflict of interest.
（4） In the session held on August 10, 2017, the Board was in discussion of Motion No. 1 was pertinent to the 2nd issuance of RSA in 2016. Directors Pan Yung-Tai, Pan Yung-Chung, and Tsao Chung-Feng were parties concerned in the motion and were excused from the discussion and voting on the motion to avoid a conflict of interest.
（5） In the session held on January 31, 2018, the Board was in discussion of Motion No. 9 was pertinent to annual bonus for senior managers of the Company in 2017, Motion No. 11 was pertinent to remuneration to employees in 2017, and Motion No. 12 was pertinent to the 1st issuance of RSA in 2017. Directors Yang Hai-Hung, Pan Yung-Tai, and Tsao Chung-Feng were parties concerned in these motions and were excused from the discussion and voting on the motions to avoid a conflict of interest. Director Pan Yung-Chung was also excused from the discussion and voting on the motions to avoid the conflict of interest. Motion No. 10 was pertinent to the annual bonus for the Chairman in 2017. The Chairman was the party concerned and was excused from the discussion and voting on the motion to
（6） In the session held on March 13, 2018, the Board was in discussion of Motion No. 13 was pertinent to reviewing the competitiveness for remuneration and benefit of managers in 2017 and salary adjustment for the year 2018. Directors Yang Hai-Hung and Pan Yung-Tai were parties concerned in these motions and were excused from the discussion and voting on the motions to avoid a conflict of interest. Director Pan Yung-Chung and Tsao Chung-Feng were also excused from the discussion and voting on the motions to avoid the conflict of interest.
（7） In the session held on April 13, 2018, the Board was in discussion of Motion No. 5 was pertinent to bonus plan for senior management and key officers in 2018. Directors Yang Hai-Hung and Pan Yung-Tai were parties concerned in the motion and were excused from the discussion and voting on the motions to avoid a conflict of interest. Director Pan Yung-Chung and Tsao Chung-Feng were also excused from the discussion and voting on the motions to avoid the conflict of interest; Motion No. 6 in the session was pertinent to remuneration adjustment for the Chairman in 2018 and Motion No. 7 was pertinent to the standard of performance and bonus plan for the Chairman in 2018. The Chairman was the party concerned and was excused from the discussion and voting on the motion to avoid a
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.

1. 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） The Company established the Nomination Committee with the resolution by the Board of the Directors on March 7, 2017. The Nomination Committee members were appointed in accordance with Article 4 of the Company's “ Nomination Committee Charter ” . The Nomination Committee under the Board of Directors is aimed to strengthen the function of the Board of Directors.
（4） 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.
（5） 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.

2. 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.

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Corporate Governance Report

（ 2 ） The operation of the Audit Committee or the Supervisors' participating in the operation of the Board:
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.
The attendance of the independent directors for the 6 Audit Committee meetings （ A ） held by the Company as of the printing date of the annual report （ 5 meetings in 2017 and 1 meeting in 2018 ） as follows:

Title	Name	Actual number of meeting attended in person（B）	Actual attendance rate （%）（B/A）	Remark
Independent Director	Ku,Tai-Chao	6	100	—
Independent Director	Wei,Yung-Tu	6	100	—
Independent Director	Cheng,Chih-Kai	6	100	—

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.
Ⅱ interest, specify the names of the Independent Directors, the content of the motions, the reasons for avoiding the conflict of interests, and the voting: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 audit or review result and other mandatory communicating matters in the Audit Committee meeting on a quarterly basis; in addition, the contracted CPAs already explained and discussed about new type audit report and key audit matters with the Audit Committee before the contracted CPAs audited financial statements in 2017. The Audit Committee has a good communication with the contracted CPAs.
（ 3 ） “ Corporate Governance Best-Practice Principles for TWSE/GTSM Listed Companies ” and its root cause?

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How does the Company's
Assessment items Operation the corporate governance differ from “ Corporate Governance Best-
Practice Principles for TWSE/
Yes No Summary GTSM Listed Companies ” and its
root cause?
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Assessment items	Assessment items	Operation	Operation	Operation	How does the Company's corporate governance difer from the“Corporate Governance Best- Practice Principles for TWSE/ GTSM Listed Companies” and its root cause?
		Yes	No	Summary
I	Does the Company have the Corporate Governance Best-Practice Principles enacted and disclosed in accordance with the“Corporate Governance Best-Practice Principles for TWSE/ GTSM Listed Companies?”	Ｖ		The Company has enacted and disclosed its Corporate Governance Best Practice Principles on the ofcial website and MOPS.	No signifcant diference
II. The Company's equity structure and shareholders' equity	Has the Company enacted internal operating procedures for handling shareholders' suggestions, doubts, disputes, and litigation matters, and has it handled in accordance with the procedures accordingly?	Ｖ		The Company has the spokesperson and acting spokesperson designated; moreover, there are the Shareholder Services and Legal Afairs Services to handle the suggestions or disputes of the shareholders.	No signifcant diference
	Has the Company had the list of the major shareholders who actually controlled the Company and the ultimate controllers of the major shareholders?	Ｖ		The Company has commissioned the Stock Afairs Agency to understand the shareholding of the directors, managers, and major shareholders.
	Has the Company established and implemented the risk control and frewall mechanisms between the Company and the afliated companies?	Ｖ		The Company has adequate risk control mechanism and frewall enacted in accordance with the related rules of the Internal Control System.
	Has the Company enacted internal standards to prohibit insiders from using undisclosed information to trade marketable securities?	Ｖ		The Company has enacted Rule Governing the Prevention of Insider Trading to prohibit insiders from using undisclosed information to trade marketable securities.

	Assessment items			Operation	How does the Company's corporate governance difer from the“Corporate Governance Best- Practice Principles for TWSE/ GTSM Listed Companies” and its root cause?
		Yes	No	Summary
III. Composition of the Board of Directors and its duties	Has the Board of Directors had the diversifcation policy defned and implemented for the sake of the directors?	Ｖ		The Company enacted Corporate Governance Best Practice Principles, and has disclosed on the ofcial website and the MOPS. The diversifcation of the members of the Board is stated in Article 20: The Board of Directors should be diversifed and have diferent professional backgrounds, work felds, genders, the knowledge, skills, and features necessary to perform their duties. To achieve the ideal goal of corporate governance, the Board of Directors should have the following capabilities: （1）Operational judgment capability. （2）Accounting and fnancial analysis capability. （3）Operational and management capability. （4）Crisis management capability. （5）Industry knowledge. （6）International market perspective. （7）Leadership capability. （8）Decision-making capability. There are no female directors in the Board of Directors of the Company currently. However, one female independent director candidate had been nominated at the shareholders meeting in 2018. The candidates for the Board of Directors to substantiate diversifcation are as follows:（1 to 8 identical to the eight capabilities above）董事候選人 Gender (1) (2) (3) (4) (5) (6) (7) (8) Liang, Li-Sheng Male ＶＶＶＶＶＶＶＶ Yang, Hai-Hung Male ＶＶＶＶＶＶＶＶ Yang, Chi-Ting Male ＶＶＶＶＶＶＶＶ Pan, Yung-Tai Male ＶＶＶＶＶＶＶＶ Pan, Yung-Chung Male ＶＶＶＶＶＶＶＶ Representative of Sunshine Coast Services Limited: Chen,Jie Chi Male ＶＶＶＶＶＶＶＶ Ku, Tai-Chao Male ＶＶＶＶＶＶＶＶ Cheng, Chih-Kai Male ＶＶＶＶＶＶＶＶ Chen, Su-Zhen Female ＶＶＶＶＶＶＶＶ	No signifcant diference
	Has the Company, in addition to the Remuneration Committee and Audit Committee, voluntarily setup other functional committee?	Ｖ		The Company established the Nomination Committee on March 7, 2017. In the future, the Company will establish various functional committees where necessary. Regarding”Nomination Committee Charter”, please refer to the website or MOPS.
	Has the Company enacted the“Rules Governing the Performance Evaluation of the Board of Directors”and the assessment methods, and has the performance evaluation performed regularly every year?	Ｖ		The Company has enacted the“Rules Governing the Performance Evaluation of the Board of Directors” on November 10, 2016, and was disclosed on the website and MOPS. It stipulates that the Company has to conduct an internal performance evaluation of the Board of Directors at least once a year, and an external independent institution or experts to conduct an evaluation at least once every three years and has to conduct an annual performance evaluation at the end of the year. The result of the performance evaluation of the Board of Directors will be completed prior to the date of the nearest meeting of the Board in the subsequent year. The scope of the evaluation includes the performance evaluation of the Board of Directors as a whole, individual board member and functional committees. The methods of evaluation include internal self-evaluation of the Board of Directors, self-evaluation of directors, or other adequate methods of performance evaluation. The performance evaluation of the Board of Directors and the Directors and functional committees like the Audit Committee, and the Remuneration Committee in 2017 has been conducted by the CPAs of KPMG, Lin, Pao-Chu. The evaluation consisted of an questionnaire survey, data analysis and interviews.

21 Primax Electronics Ltd. 2017 Annual Report

Primax Electronics Ltd. 2017 Annual Report

Corporate Governance Report	Corporate Governance Report	Corporate Governance Report	Corporate Governance Report	Corporate Governance Report	Corporate Governance Report			Corporate Governance Report	Corporate Governance Report	Corporate Governance Report	Corporate Governance Report
				Operation How does the Company's corporate governance difer from the“Corporate Governance Best-
Assessment items				Operation	How does the Company's corporate governance difer from the“Corporate Governance Best-			Operation			How does the Company's corporate governance difer from the“Corporate Governance Best- Practice Principles for TWSE/ GTSM Listed Companies” and its root cause?
		Yes	No	Summary	Practice Principles for TWSE/ GTSM Listed Companies” and its root cause?	Assessment items		Yes	No	Summary
III. Composition of the Board of Directors and its duties	Has the Company enacted the “Rules Governing the Performance Evaluation of the Board of Directors” and the assessment methods, and has the performance evaluation performed regularly every year?	Ｖ		The evaluation result and the issues requiring further improvement in 2018 were presented to the Board Meeting held in January 2018. KMPG classifed the result of the evaluation into fve levels. Comprehensive evaluation result: The performance evaluation result of the Board, the Directors, the Audit Committee, and the Remuneration Committee ranged from good to excellent. Note on the levels of scoring: The content for the performance evaluation of the Board of Directors includes 9 dimensions in 89 topics, which are specifed below: （1）Establishment of a competent Board. （2）Efective operation of the Board of Directors. （3）Professional development and continuing education. （4）Foresight in corporate management. （5）Execution of assigned duties. （6）The function of the management. （7）Creation of corporate culture. （8）Communication with stakeholders. （9）Performance evaluation. The content of the performance evaluation of the Directors includes 6 dimensions in 27 topics, which are specifed below: （1）Control of the objectives and mission of the Company. （2）Recognition of the authority and responsibility of the Directors. （3）Professional development and continuing education. （4）Execution of assigned duties. （5）Level of participation in the operation of the Company. （6）Cultivation of internal relations and communication. The content of performance evaluation of the Audit Committee includes 7 dimensions in 88 topics, which are specifed below: （1）Establishment of a competent Audit Committee. （2）Efective operation of the Audit Committee. （3）Professional development and continuing education. （4）Execution of assigned duties. （5）Establishment of channels for complaints. （6）Relationship with the Board of Directors. （7）Performance evaluation. The content of performance evaluation of the Remuneration Committee includes 6 dimensions in 54 topics, which are specifed below: （1）Establishment of a competent Remuneration Committee. （2）Efective operation of the Remuneration Committee. （3）Professional development and continuing education. （4）Execution of assigned duties. （5）Relationship with the Board of Directors. （6）Performance evaluation. According to the performance evaluation conclusions of the Board of Directors in 2017, three recommendations for optimization are proposed: （1）Increasing the number of female board members could be considered. （2）The succession plan for directors and the management team can be included in the work plan of the Nomination Committee to meet the talent requirements of the company in the mid-term to long-term development. （3）According to the overall requirements of the company, arrange advanced courses on specifc subjects to assist the individual director in performing the director's functions. Signifcant Improvement Required Improvement Required Fair Good Excellent N/A 1 2 3 4 5 Not included in scoring Excellent In compliance with Best Practices at an international standard of corporate governance. Good In compliance with Best Practices at a domestic standard of corporate governance. Fair In compliance with domestic law or general standards. Improvement Required Does not comply with applicable legal rules and general standards, but not at signifcant level. Signifcant Improvement Required Severe shortcomings.	No signifcant diference	III. Composition of the Board of Directors and its duties	Has the Company assessed the independence of the contracted CPAs regularly?	Ｖ		The Audit Committee has the contracted CPA's independence and performance assessed regularly every year in accordance with the“Corporate Governance Best Practice Principles for TWSE/GTSM Listed Companies”and“Audit Committee Charter”, which are specifed follows: （1）Review CPA's resume. （2）He/she is not a director, supervisor, manager, or does not hold a position with other companies that may afect job responsibility or cause a confict of interest. （3）The same CPA is not contracted as the auditor for seven consecutive years. （4）The declaration of independence is obtained from the commissioned CPA annually. （5）Auditing and tax service quality and timeliness is reviewed. （6）No litigation or any disciplinary action is received from the competent authorities. （7）The scale of operation and reputation of the CPA Firm is reviewed. （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.	No signifcant diference
						IV	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 corporate governance （including but not limiting to providing information to the Directors and Supervisors for the execution of their assigned duties, handling afairs about Board meeting and Shareholders Meeting, company registration and registration of change, and preparation for Board meetings minutes and Shareholders Meetings minutes）?	Ｖ		The CSR Ofce is the unit responsible for the advocacy of corporate governance. The Finance and Administration Division is the executive unit. There is a designated personnel responsible for the implementation of the corporate governance and is supervised by the Chief Financial Ofcer. The major function is: （1）Establishment of an efective framework for corporate governance. （2）Provide information required by the directors to execute their business, organize and retain relevant information of the Board of Directors and meeting minutes. （3）Organize the shareholders' meeting and relevant issues. （4）Processing company registration changes and relevant issues. The implementation in 2017 is as follows: ．Organize and plan the annual schedule for the Board of Directors and each functional committee to assure compliance with relevant laws and regulations. ．Organize regular communication meetings for independent directors, CPAs, and internal audit supervisors. ．Support in coordinating adequate training courses for directors to guarantee that they reach the annual training hours required. ．Negotiated with the external experts on the performance evaluation of the Board of Directors for 2017,completed the evaluation and proposed to the Board of Directors in January, 2018. ．Register the date of the shareholders' meeting in 2017 to comply with the statutory requirements and prepare the relevant information and annual reports both in Chinese and English for the meetings. ．The company performance of corporate governance in the previous year proposed to the Board of Directors on May 11, 2017.	No signifcant diference

Corporate Governance Report

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How does the Company's
Assessment items Operation corporate governance differ from the “ Corporate Governance Best-
Practice Principles for TWSE/
Yes No Summary GTSM Listed Companies ” and its
root cause?
Through various tools and channels, the Company recruits all stakeholders and
identifies six stakeholders according to the principle of AA1000 SES, including
employees, non-profit organizations, shareholders, customers, suppliers, and
the government and their valuable feedback. Communicate critical corporate
responsibility issues and potential business opportunities. The main concerns and
communication channels of the six stakeholders are as follows:
Stakeholders Concerned issues Communication channels
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Assessment items	Assessment items	Operation	Operation	Operation	Operation	Operation	How does the Company's corporate governance difer from the“Corporate Governance Best- Practice Principles for TWSE/ GTSM Listed Companies” and its root cause?
		Yes	No	Summary Through various tools and channels, the Company recruits all stakeholders and identifes six stakeholders according to the principle of AA1000 SES, including employees, non-proft organizations, shareholders, customers, suppliers, and the government and their valuable feedback. Communicate critical corporate responsibility issues and potential business opportunities. The main concerns and communication channels of the six stakeholders are as follows: Stakeholders Concerned issues Communication channels
				Stakeholders	Concerned issues	Communication channels

V	Has the Company established channels for communications with the stakeholders （including but not limiting to shareholders, employees, customers and suppliers）, and “Stakeholders” section page for stakeholder relation on the ofcial website of the Company with proper responses to the issues of corporate social responsibility of high concern to the stakeholders?	Ｖ		Employees	Labor relations	Contact person: Li, Hong-Da, Senior Assistant General Manager （TEL: 02-2798-9008#1020）．Labor-Management Meeting ．Employee performance interview ．Employee Welfare Committee meeting ．Satisfaction survey ．Internal promotional channels（E-mail, digital bulletin boards, posters and bulletin boards）	No signifcant diference
					Relations between employee and employer
					Training and education
					Occupational safety and health
					Employee diversifed and equal opportunities
				Non-proft organizations	Regulations compliance of environmental protection	Contact person： Li, Hong-Da, Senior Assistant General Manager （TEL: 02-2798-9008#1020）．Phone interview ．Face to face interview ．Email contact
					Wastewater and scrap Efuents
					Indirect economic impacts
				Shareholders	Anti-corruption	Contact person： Lin, Chun-Hsien, Spokesman （TEL: 02-2798-9008#1988）．Annual shareholders' meeting ．Quarterly operation performance presentation and conference call ．Monthly revenue announcement ．Domestic interview conference ．Overseas investor forum
					Economic performance
					Regulations compliance of social and economic
				Customer	Customer privacy	Contact person： Li, Hong-Da, Senior Assistant General Manager （TEL: 02-2798-9008#1020）．GP, CSR, EICC, QPA/QSA audit ．Customer environmental/GP requirements ．Customer satisfaction survey ．Customer and supplier conference ．Product RFQ
					Child laborer
					Customer health and safety
					Forced and compulsory labor
				Supplier	Supplier environment assessment	Contact person： Li, Hong-Da, Senior Assistant General Manager （TEL: 02-2798-9008#1020）．New AVL assessment/ declaration ．Environment requirements of PRIMAX and its customers ．Annual audit ．Suppliers training（GHG/CFP/GP）．Suppliers Conference
					Regulations compliance of environmental protection
					Regulations compliance of social and economic
					Wastewater and scrap
				Government	Regulations compliance of social and economic	Contact person： Li, Hong-Da, Senior Assistant General Manager （TEL: 02-2798-9008#1020）．Ofcial documents back and forth ．Market Observation Post System （MOPS）
					Employee diversifed and equal opportunities
					Anti-corruption
					Marketposition

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Assessment items	Assessment items	Operation	Operation	Operation	How does the Company's corporate governance difer from the“Corporate Governance Best- Practice Principles for TWSE/ GTSM Listed Companies” and its root cause?
		Yes	No	Summary
VI	Has the Company commissioned a professional stock afairs agency to handle the afairs related to shareholders meeting?	Ｖ		The Company has“SinoPac Securities Stock Afairs Agency” commissioned to handle the related matters.	No signifcant diference
VII. Information disclosure	Has the Company setup website to disclose fnancial operations and corporate governance information?	Ｖ		The Company has setup the websites with the“Investment” section for full disclosure about fnancial business and corporate governance.	No signifcant diference
	Does the Company have other information disclosure methods adopted （such as, setting up an English website, designating specifc individuals to be responsible for the Company's information collection and disclosure, substantiating a spokesperson system, record about conferences of institutional investors uploaded to the company's website, etc.）?	Ｖ		The Company has set up an ofcial website in both Chinese and English, and has appointed designated personnel to disclose material information on MOPS in Chinese and in English simultaneously, including information on the fnancial position, business, and corporate governance. The Company has a spokesman in place, which will be responsible for communication with the outside on corporate information, and call for conferences of institutional investors.	No signifcant diference
VIII	Does the Company have any other important information that can help understand the Company's corporate governance operation（including but not limited to the interests of employees, employee care, investor relations, supplier relations, the rights of stakeholders, the continuing education of the directors and supervisors, the implementation of risk management policy and risk measurement standard, the implementation of customer policy, the liability insurance acquired by the Company for the directors and supervisors, etc.）?	Ｖ		1. The Company has committed based on the Labor Standards Law to protect the basic rights of employees and has set up 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 fnancial 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 employees' rights and benefts, employees can perform a two-way communication for the Company's systems and work environmental issues through department meetings, staf seminars, labor relation meetings, employee suggestion boxes, etc.; also, regularly inspect and maintain the safety and health of the working environment in order to ensure employees' work safety and health. 3. The Company has a smooth communication channel constructed with the employees, bankers, customers, vendors, and other stakeholders of the Company in order to protect the legitimate interests of all parties. 4. The Company has established the procedures for customer management service, customer satisfaction surveys, and handling customer complaint. Regarding customer grievance, 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 ofce will have the implementation of internal control system audited periodically and occasionally. 6. Continuing education of Directors: Please refer to the Annual Report“2017 the Directors' Continuing Education”（page. 27）. 7. The Company has purchased liability insurance for the directors and supervisors every year.	No signifcant diference
IX	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 corporate governance evaluation results of the Company were ranked at 21%-35% in 2015; ranking was improved to top 5% in 2016. In 2017, the company continued to make eforts on the unsatisfed projects in corporate governance evaluations, including arranging the regular shareholders' meeting of 2017 earlier in May. And shortening the period between ex-dividend date and payable date when distributing cash dividends in order to protect shareholders' equity. Also, the Nomination Committee was established in March 7, 2017 by the Company responsible for the nomination and review of Directors and senior managers to have a more efcient implementation of the Board diversifcation policy.

Primax Electronics Ltd. 2017 Annual Report 26

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Corporate Governance Report

Continuing education / Training of the Directors in 2017:

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Total hours
Hours
Title Name Date Host by Course Title of of continuing education in
study 2017
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Title	Name	Date	Host by	Course Title	Hours of study	Total hours of continuing education in 2017
Director	Liang, Li-Sheng	09.28.2017	TWSE	2017 Economic Forum for the Remembrance of Mr. Hsu Yuan-Tung	3	6
		10.25.2017	Taiwan Corporate Governance Association	The 13th International Summit of Corporate Governance: Enhance the Competence of Directors for the Creation of Corporate Value	3
Director	Yang, Hai-Hung	04.07.2017	Securities and Futures Institute	2017 Insider Trading and Corporate Social Responsibility Conference	3	6
		07.13.2017	Securities and Futures Institute	The Civil Liability of Insiders Under Corporate Governance and the Securities and Exchange Act	3
Director	Pan, Yung-Tai	07.14.2017	TWSE	2017 Conference of Law and Compliance of Insider Trading in Equity for Listed Companies and Public Companies	3	6
		10.25.2017	Taiwan Corporate Governance Association	The 13th International Summit on Corporate Governance: Enhance the Competence of Directors for the Creation of Corporate Value	3
Director	Pan, Yung-Chung	04.07.2017	Securities and Futures Institute	2017 Insider Trading and Corporate Social Responsibility Conference	3	6
		10.25.2017	Taiwan Corporate Governance Association	The 13th International Summit on Corporate Governance: Enhance the Competence of Directors for the Creation of Corporate Value	3
Director	Tsao, Chung-Feng	07.28.2017	Taiwan Corporate Governance Association	The Rapidly Changing Technological Environment, the Path Directors Led Companies Should Take	3	6
		08.18.2017	Taiwan Corporate Governance Association	Topics of Strategy, Competitive Power, Risk and Crisis Concerning the Board	3
Director	Yang, Chi-Ting	07.07.2017	TWSE	2017 Conference of Law and Compliance of Insider Trading in Equity for Listed Companies and Public Companies	3	6
		08.10.2017	Taiwan Corporate Governance Association	The Law and Case Studies on Third Party Payments	3
Independent Director	Ku, Tai-Chao	07.28.2017	Taiwan Corporate Governance Association	The Rapidly Changing Technological Environment, the Path Directors Led Companies Should Take	3	6
		08.29.2017	Taiwan Corporate Governance Association	The Irreversible Trend of CSR and Sustainability Governance	3
Independent Director	Wei, Yung-Tu	01.24.2017	Taiwan Corporate Governance Association	Focus on the Amendment to the Company Act Related to Corporate Governance for TWSE/GTSM-listed Companies	3	16
		04.07.2017	Securities and Futures Institute	2017 Insider Trading and Corporate Social Responsibility Conference	3
		08.29.2017	Taiwan Corporate Governance Association	The Unseen Hand Behind Corporate Governance – Unveiling the Secrets of the “Company Secretary”	1
		09.06.2017	Taiwan Corporate Governance Association	Supervision of Directors and Supervisors on the Management of Information Risk	3
		11.15.2017	Taiwan Institute of Banking and Finance	Lecture on Corporate Governance	3
		12.26.2017	Taiwan Institute of Banking and Finance	Seminar on Practice of the Board and Corporate Governance	3
Independent Director	Cheng, Chih-Kai	06.15.2017	Securities and Futures Institute	Study on the Legal Issues Related to Insider Trading	3	6
		11.16.2017	Securities and Futures Institute	An Analysis of Early Warning and Types of Corporate Financial Crises	3

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

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 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 4 meetings convened in the most recent year.

1. Information of the Remuneration Committee members

Identity	Conditions	Whether with more than fve years of work experience or not? And the following professional qualifcations	Whether with more than fve years of work experience or not? And the following professional qualifcations	Whether with more than fve years of work experience or not? And the following professional qualifcations	Meet the independence criteria（Note）	Meet the independence criteria（Note）	Meet the independence criteria（Note）	Meet the independence criteria（Note）	Meet the independence criteria（Note）	Meet the independence criteria（Note）	Meet the independence criteria（Note）	Meet the independence criteria（Note）	Number of other pulicc ompanies in which the individual is concurrently serving as an Independent Director	Remark
	Name	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, Finance, or Accounting, or otherwise necessary for the business of the Company	1	2	3	4	5	6	7	8
Independent Director	Ku, Tai-Chao	－	－	Ｖ	Ｖ	Ｖ	Ｖ	Ｖ	Ｖ	Ｖ	Ｖ	Ｖ	0	－
Independent Director	Cheng, Chi-Kai	－	－	Ｖ	Ｖ	Ｖ	Ｖ	Ｖ	Ｖ	Ｖ	Ｖ	Ｖ	0	－
Others	Yao, Heng-Shan	－	－	Ｖ	Ｖ	Ｖ	Ｖ	Ｖ	Ｖ	Ｖ	Ｖ	Ｖ	0	－

Note: Please tick the corresponding boxes Ｖ prior to being elected or during the term of office.
（1）
（2） Not a director or supervisor of the Company or any of its affiliates. However, the same does not apply if the person is an independent director of the Company, its parent company, or its subsidiary and established in accordance with 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.
（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 four Remuneration Committee meetings （ A ） held in the most recent year with the attendance of the members as follows:

27 Primax Electronics Ltd. 2017 Annual Report

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Corporate Governance Report

How does the Company's differ from the corporate social responsibility “ Corporate Social Responsibility Best-Practice Principles for TWSE/GTSM Listed CompaniesCompanies ” and its root cause?

Title Convenor	Name Ku, Tai-Chao	Actual number of meeting attended in person（B） 4	Actual number of meeting attended by proxies 0	Actual attendance rate（%）（B/A） 100%	Remark －
Member	Cheng, Chih-Kai	4	0	100%	－
Member	Yao, Heng-Shan	4	0	100%	－

Other mandatory notes:

If the Board of Directors has decided not to accept or amend the proposal of the Remuneration Committee, specify 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（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 specified）: None.
statement, specify 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 specified: None.
（ 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.

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Assessment items Operation differ from the corporate social responsibility “ Corporate Social
Responsibility Best-Practice
Yes No Summary Principles for TWSE/GTSM Listed Companies ” and its root cause?
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Assessment items	Assessment items	Operation	Operation	Operation	How does the Company's corporate social responsibility difer from the“Corporate Social Responsibility Best-Practice Principles for TWSE/GTSM Listed Companies” and its root cause?
		Yes	No	Summary
I. Substantiating and promoting corporate governance	Has the Company setup the corporate social responsibility（CSR） policies or systems, and reviewed the efectiveness of the implementation?	Ｖ		The Company's“Primax Corporate Social Responsibility Best Practice Principles”were enacted and approved by the Board of Directors for publication. The result of the implementation for 2017 was disclosed in the CSR Report in detail.	No signifcant diference
	Has the Company held the CSR education and training programs regularly?	Ｖ		The Company follows the“Corporate Social Responsibility Best Practice Principles for TWSE/GTSM-listed Companies”thereby holds training regularly to reinforce their knowledge in this regard. A meeting for charity was held in 2017, as well as a ceremony about the carbon- reduction label and the presentation of corporate social responsibility.
	Has the Company designated a specifc（part-time）unit to promote corporate social responsibility with the management authorized by the Board of Director to handle the process and report the result to the Board of Directors?	Ｖ		The CSR ofce was established by the Chairman with the authorization of the Board of Directors. Designated personnel are in charge of proposing, formulation, executing and reviewing the policy, system, relevant guidelines and solid promotional plan of the corporate social responsibility; also, to report it to the Board of Directors regularly at least once a year. Under the CSR Ofce there are groups of corporate governance, green operations, and social care to implement the diferent dimensions of the corporate social responsibility.
	Has the Company setup a reasonable remuneration policy, had the employee performance evaluation system and corporate social responsibility policies combined, and established a clear and efective reward and discipline system?	Ｖ		The Company has regularly participated in external remuneration survey to ensure the competitiveness of remuneration and to be referred for the making of internal remuneration policies. Moreover, in addition to the security of a fxed annual salary, performance bonus will be distributed according to the annual achievement of the Company and personal performance and contribution of each employee, without discrimination against gender, religion, race, and nationality.
II. The development of sustainable environment	Is the Company committed to enhance the utilization efciency of resources and the use of renewable materials with low environmental impact?	Ｖ		The Company has the concept of environmental protection 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 standards and customer requirements. Mouse products were granted a carbon-reduction label by the Environmental Protection Administration in 2017.	No signifcant diference
	Has the Company based on the characteristics of the industry to establish an appropriate environmental management system?	Ｖ		The Company has established a green procurement management system and the control in manufacturing process and materials to ensure the products in line with environmental requirements; moreover, a dedicated unit is assigned to maintain the production plant environment quality in China and to strengthen the 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 gas inventory, and enacted corporate energy-saving and carbon reduction strategies and greenhouse gases reduction strategies?	Ｖ		The Company has enacted the“Greenhouse Gas Inventory and Voluntary Reduction Declaration”, and is committed to greenhouse gas inventory in order to actually grasp the situation of gas emissions and initiate further greenhouse gas reductions voluntary plan according to the inventory result.

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Operation corporate social responsibility “
Assessment items differ from the corporate social responsibility
Responsibility Best-Practice
Yes No Summary ”
Principles for TWSE/GTSM Listed CompaniesCompanies
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Assessment items	Assessment items	Operation	Operation	Operation	How does the Company's corporate social responsibility difer from the“Corporate Social Responsibility Best-Practice Principles for TWSE/GTSM Listed Companies” and its root cause? No signifcant diference
		Yes	No	Summary
III. Maintaining social welfare	Has the Company enacted the relevant management policies and procedures in accordance with the relevant regulations and international bill of human rights?	Ｖ		The“Regulations Governing the Recruitment and Employment of Personnel” established by the Company are duly in compliance with applicable labor laws, the internationally recognized principles of basic human right such as EICC, and has regularly reviewed and revised the internal code of the Company governing human resources. The Company also seeks to protect the rights of the employees provided by law and adopted the non-discriminatory and equity policy in employment so as to develop an atmosphere of“friendly workplace” and the realization of the corporate philosophy of the“Best Employer”.	No signifcant diference
	Has the Company established an employee grievance mechanism and channel, and has employee complaints handled properly?	Ｖ		The Company has established the“Procedures for Ethical Management and Guidelines for Conduct”with proper regulation of the reporting system and operation. The Company has established a mail box for listening to the opinions of the employees and conducted surveys on employee opinions, held labor- management meetings, and established channels for employees in fling complaints directly with the supervisor/HR Department for better understanding between the management and the employees. Through the handling of complaints, the Company shows its concern and value for every opinion of the employees.
	Has the Company ofered employees a safe and healthy working environment, and provided employees with safety and health education on a regular basis?	Ｖ		Primax factories are located in China while the R&D Ofce 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 frst aid, mechanical safety, ESH risk identifcation, occupational health, emergency response, etc., also, the health education seminar for health improvement. 2. Risk Control:Fire alarm and chemical spill drills. 3. Health Check:In addition to regular health checks, provide specifc physical check service to the position holders with higher risks, such as, serum ALT, hearing tests, ECG, etc., especially those employees who are associated with the operation of X-ray; also, additional full body check service of the skin, liver, kidney, and lymph nodes. 4. Medical care:Primax has clinic/medical center setup in the factory and ofce area with medical staf stationed regularly to serve. Each department is also equipped with medical kits to provide staf with emergency medical treatment, disease prevention, medical information and other services. 5. The Company's plants in China were accredited with OHSAS 18001 in the Occupational Safety and Health Management System.
	Has the Company established a regular communication mechanism with the staf, and reasonably given employees a notice of operating change that may have a signifcant impact on the Company?	Ｖ		The Company provides employees with a regular communication mechanism. The CEO holds a meeting with employees every six months to communicate the Company's overall business plans and prospects, achievements and corporate culture focus. The Business Unit Head convenes a meeting on a quarterly basis to ensure that the department colleagues grasp the business overview. The labor-management meeting is held on a quarterly basis to communicate important corporate matters and measures. The Company also encourages the executives and colleagues to conduct an one-on-one interview occasionally in order to maintain good interaction.
	Has the Company established an efective career-training program for employees?	Ｖ		The Company's learning and development is based on the core structure of occupational function to be tightly integrated with the Company's future development strategies and objectives. The training system is divided into three categories: Professional occupational function training, supervisor talent training, and general occupational function training.
	Has the Company enacted relevant consumer protection policy and grievance procedure regarding R&D, procurement, production, operation, and service process?	Ｖ		The Company has established the procedures for 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.
	Has the Company handled the marketing and labeling of products and services in compliance with relevant regulations and international norms?	Ｖ		The Company has the concept of environmental protection substantiated in the green design and green management proactively while providing products and services in order to comply with laws, meet customer requirements, and fulfll responsibilities as global citizens. In addition to meeting green product- related laws and regulations（such as, RoHS, REACH, ErP ....）and customer requirements, establish response capabilities of the staf within the organization and suppliers, and conduct related training and integration with information management systems（PLM）to substantiate the green product policy.

29 Primax Electronics Ltd. 2017 Annual Report

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Corporate Governance Report

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Assessment items	Assessment items	Operation	Operation	Operation	How does the Company's corporate social responsibility difer from the“Corporate Social Responsibility Best-Practice Principles for TWSE/GTSM Listed Companies” and its root cause?
		Yes	No	Summary

III. Maintaining social welfare	Has the Company assessed whether the suppliers have a record of impacting the environment and society before conducting businesses with such suppliers?	Ｖ		All suppliers of the company must pass a strict evaluation procedure before qualifed as a supplier to the Company（including review, contract review, two- way communication, channels of complaints and claims）in the management of environment, health and safety. These include the conduct of environmental tests, observation of domestic labor laws and the EICC. At the same time, the Company also conducts on-site evaluation mainly on all suppliers on the management of hazardous substances. The content of evaluation includes: the organizational structure of the suppliers in the management of green product production, education and training of personnel, production control, product design, IQC inspection and the prevention of contamination by hazardous substances.	No signifcant diference
	Are the contracts signed with the Company's major suppliers containing the clause allowing the Company to have the contracts terminated or canceled at any time when the suppliers violate their corporate social responsibility policy that have signifcant impact on the environment and society?	Ｖ		The“Supplier Declaration”to be signed by the suppliers upon the request of the Company contains the contents of environmental statement and statement of confict minerals. If a supplier is involved in a breach of the relevant requirements, the Company directly have the trading relationship canceled or terminated. The Company commissioned third party institutions for risk assessment and audit on major suppliers,including occupational safety and health in the workplace, and human rights of the workers. Any shortcomings detected in the audits are required to be corrected within a stipulated time.
IV. Strengthening information disclosure	Has the Company disclosed the relevant and reliable information about corporate social responsibility on its website and MOPS?	Ｖ		The Company's website is designed with a“Corporate Social Responsibility” section; also, the information regarding corporate social responsibility is disclosed in the annual report. The CSR report has been issued since the year 2014 in response to the important issues concerning the stakeholders, and provides the CSR mailbox as one of the communication channels to the stakeholders.	No signifcant diference

V. If the Company has established the corporate social responsibility best practice principles in accordance with the Practice Principles for TWSE/GTSM-listed Companies ” , elaborate the difference between the practice and the documented principles: “ Corporate Social Responsibility Best

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 information about corporate governance, refer to the section of “ Corporate Governance Operation ” . For information on concern for the employees, safeguarding 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
The Company has employee management in accordance with the Labor Standards Law and other relevant labor laws and regulations, and has designated personnel to handle various matters in order to protect the interests of employees.
The Company has arranged the safety and health tasks, the necessary health and safety, training, the disaster prevention measures training, and health check for employees to perform job responsibility 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.
of the employees by organizing ball games, development of different types of social clubs, subsidies for extreme sports such as road running race and mounting the Yushan, challenging human limits, calorific value indicators in the employee cafeteria, disease prevention, stress control, and lectures on withdrawal from smoking, and also a service hotline for the assistance of EAP employees.
as follows:

（ 1 ） Corporate governance:

．�To schedule the shareholders' meeting of the year 2017 earlier in May.
．�When distributing cash dividends, shorten the period between ex-dividend date and payable date within thirty days.
．�The Nomination Committee was established on March 7, 2017 by the company which is responsible for the nomination and review of directors and senior managers to have a more efficient implementation of the Board diversity policy.

（ 2 ） Green operations:

．�Greenhouse Gas Emissions and Emission Intensity: The total greenhouse gas emitted by the PRIMAX in 2017 was 89,784.313 tons of CO2e/year, compared with 92,169.231 tons CO2e/year in 2016, a decrease of 2.59%. In 2017, the emission intensity of greenhouse gas was 14.78 kg CO2e/ NT10,000, and was 3.17% higher than the 14.32kg CO2e/ NT10,000 in 2016. The main reason is that the effect of exchange rate fluctuations on operating revenue in 2017 is less than in 2016.
．�The total energy consumed by PRIMAX in 2017 was 364,774,583,852 KJ, which was 2.86% lower than the 375,499,191,256 KJ in2016. The energy consumption intensity in 2017 was 60,053.4 KJ/NT10,000 revenue which was 2.88% higher than 58,371.3 KJ/NT10,000 revenue in 2016. The main reason is that the effect of exchange rate fluctuations on operating revenue in 2017 is less than in 2016.
．� Carbon Emissions Calculator announced by International Civil Aviation Organization（ICAO）. The total CO2e generated because of the Company's employee flight travel is 872.316 tons of CO2e in 2017 and obtained a verification statement from a third-party inspector.
．�In December 2016, the Company won the carbon-label certificate granted by Taiwan's Environmental Protection Administration（EPA） of the wireless mouse, and further obtained the carbon-reduction label certificate in December 2017 of the wireless mouse from EPA. The greenhouse gas emission reduction of the entire wireless mouse reached 19%. It's the first carbon-reduction label certificate of wireless mouse, and also the first carbon-reduction label certificate for electronic products.
．�In 2017, the subsidiary Dongguan Primax Electronic & Telecommunication Products Ltd. was awarded the blue label of Eco-Friendly Enterprise in Environmental Protection Credit Rating, the green supply chain certification for Dongguan City with a four-star rating, and was awarded the Manufacturing Enterprise in My Heart ” medal by China Quality Management Association for Electronics Industry. “ Green
．�In 2017, there are six major expenditure categories for environmental protection expenses, including environmental protection equipment and engineering, management systems, human resources, inspection equipment, energy saving investment, and information management system expenses. Total environmental protection expenses for the year 2017 are NT$56,239,529 is higher than that for 2016 are NT$12,952,107.
．� Risk survey was conducted for 73 suppliers through an online questionnaire, 11 suppliers were identified with potential risk, and performed an on-site assessment by a third party authentic surveyor. Also, three sessions of supplier social responsibility training were conducted, and 96 partners from 138 suppliers joined the training. The main topics of the training are to communicate and promote the management of corporate social responsibility and execution of particular requirements.

（ 3 ） Social care team:

．�The Volunteer Club was established in 2017. A total of 189 volunteers participated in volunteer activities.
．�Primax signed Memorandum of Understanding with the House of Dreams Youth Development Association in April 2017. NTD 10 million will be donated within five years to support it for the education and life requirement of disadvantaged teenagers.
．�In July 2017, to support the Cheng-Zhi Education Foundation, KIST Taitung Taoyuan Elementary School project, Primax will donate NTD 10 million within six years in rural education.
．�The Volunteer Club was established in 2017. A total of 189 people participated in volunteer activity during the year, including the activities of the grandparents walking organized by the Hondao Senior Citizen's Welfare Foundation, the one-day tour to Nangang, the shopping with the elders in the cold winter, and the combination of the volunteers from Taiwan and China to build cattle sheds in the mountains area of Yunnan Province.
（ 4 ） promotion plans.

The Company compiled its CSR Report of 2017 in accordance with the GRI Standards version, and be certified by SGS in accordance with the AA1000 Class I High Assurance Verification.

（ 6 ） Substantiating ethical corporate management and policies:

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How does the Company's ethical
Assessment items Operation corporate management differ from the “ Ethical Corporate Management Best-
Yes No Summary Listed CompaniesPractice Principles for TWSE/GTSM ” and its root cause?
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Assessment items	Assessment items	Operation	Operation	Operation	How does the Company's ethical corporate management difer from the “Ethical Corporate Management Best- Practice Principles for TWSE/GTSM Listed Companies” and its root cause?
		Yes	No	Summary

I. Enacting ethical corporate management policies and programs	Has the Company explicitly expressed the ethical corporate management policies and approaches in the Articles of Association and external documents, and the commitment of having the management policies substantiated by the Board of Directors and the management?	Ｖ		1. The Company has enacted the“Procedures for Ethical Management and Guidelines for Conduct”to ensure the management in compliance with the related regulations for the TWSE/GTSM listed companies or other behavioral guidelines. 2. The Company's“Rules of Procedure for Board of Directors Meetings”is with the Director's“avoiding confict of interest” clause included. For the Directors or their representatives of institution with a confict of interest against the motion to be resolved in the board meeting that is detrimental to the Company's best interest, the conficting directors or representatives may state their opinions and inquiries but may not participate in discussion and voting. In addition, they should be excused from the discussion and voting in the meeting, and may not vote on behalf of other directors. 3. The Company has enacted the“Rule Governing the Prevention of Insider Trading”to explicitly defne that directors, supervisors, managers, and employees should exercise due diligence as a good administrator, loyalty, and good faith to conduct business, and to sign a confdentiality agreement not to disclose any material information to any third party.	It is in conformity with the ethical corporate management code without any signifcant nonconformity identifed.
	Has the Company setup the program to prevent unethical conduct, and has the operating procedures, guidelines for conduct, and disciplinary act and grievance system enacted in each program and executed accordingly?	Ｖ		In addition to enacting the“Procedures for Ethical Management and Guidelines for Conduct”, the Company's“Work Rules”and“Code of Conduct”are also introduced to require employees comply with the laws and ethics. In addition, the Company requires suppliers and subcontractors to sign the“Supplier Declaration”in order to establish 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 Best- Practice Principles for TWSE/GTSM Listed Companies”or other operating activities with a higher risk of unethical conduct within the business scope?	Ｖ		It is clearly defned in the Company's“Procedures for Ethical Management and Guidelines for Conduct”not to provide or accept illegal gains, prohibiting facilitation payments, and other prevention program and operating procedures; moreover, regulating the procedures for political contributions, charitable donations, and sponsorship program.

Primax Electronics Ltd. 2017 Annual Report

Corporate Governance Report

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Assessment items	Assessment items	Operation	Operation	Operation	How does the Company's ethical corporate management difer from the “Ethical Corporate Management Best- Practice Principles for TWSE/GTSM Listed Companies” and its root cause?
		Yes	No	Summary
II. Substantiating ethical corporate management	Has the Company assessed the ethical conduct record of the counterparty, and has the ethical corporate management clauses included in the contracts signed with the counterparty?	Ｖ		The Company has the ethical corporate management evaluation procedure, prior to establishing a business relation, clearly defned in the“Procedures for Ethical Management and Guidelines for Conduct”. It prohibits the Company from dealing with any unethical companies and requires having the ethical corporate management clauses included in the contracts to be signed by the Company and the counterparty.	It is in conformity with the ethical corporate management code without any signifcant nonconformity identifed.
	Has the Company designated a specifc（part- time）unit to promote ethical corporate management and to report the result to the Board of Directors periodically?	Ｖ		The Company has designated the Human Resources Department to promote the ethical corporate management and to report the execution status to the Board of Directors. For any unethical conduct occurred, the designated unit will have the process and subsequent discussion and corrective action reported to the Board of Directors.
	Has the Company enacted a policy to prevent conficts of interest, provided an appropriate communication channel, and substantiated its implementation?	Ｖ		1. The Company's“Rules of Procedure for Board of Directors Meetings”and“Procedures for Ethical Management and Guidelines for Conduct”are with the Director's“avoiding confict of interest”clause included. For the Directors or their representatives of institution with a confict of interest against the motion to be resolved in the board meeting that is detrimental to the Company's best interest, the conficting directors or representatives may state their opinions and inquiries but may not participate in discussion and voting. In addition, they should be excused from the discussion and voting in the meeting, and may not vote on behalf of other directors. 2. Employees with conficts of interest against the business executed by them should have it reported to the direct supervisor and the designated unit.
	Has the Company established an efective accounting system and internal control system to substantiate ethical corporate management, and delegated the internal audit ofce to inspect periodically or commissioned CPAs to perform an audit?	Ｖ		The Company has an accounting system and internal control system enacted in accordance with the relevant laws and regulations. The Audit Ofce has regularly checked the compliance of the accounting system and internal control system and has the result reported to the Board of Directors.
	Has the Company held internal and external education and training on ethical corporate management periodically?	Ｖ		The Company regularly holds various types of communication meetings, advocacy videos, and carnival games every year to convey the value of integrity in a straightforward manner. Each newcomer must take an 8-hour orientation within one month after on-board date, and an hour of ethics and integrity training should be included. There were a total of 10,767 newcomers in 2017. The total training hours were 10,767 hours. The training rate was 100%. In the year 2017, Tymphany Group conducted an hour of RBA basic training. A total of 1,590 employees participated the training, including 587 indirect employees and 1,003 direct employees, which accounted for 50% of all employees stated in the CSR report, total training hours were 1,590 hours.

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Assessment items	Assessment items	Operation	Operation	Operation	How does the Company's ethical corporate management difer from the “Ethical Corporate Management Best- Practice Principles for TWSE/GTSM Listed Companies” and its root cause?
		Yes	No	Summary

III. The operation of the Company's whistleblowing system	Has the Company enacted a specifc whistleblowing and incentive system, established a convenient whistleblowing channel, and assigned a designatd personnel to deal with the reported party?	Ｖ		The Company has the award and punishment, grievance system, and disciplinary action stipulated in the“Procedures for Ethical Management and Guidelines for Conduct”, and has ethical corporate management included in the Code of Conduct and human resources policies.	It is in conformity with the ethical corporate management code without any signifcant nonconformity identifed.
	Has the Company enacted the investigation standard, operating procedure, and the related confdentiality mechanism to handle the reported nonconformities?	Ｖ		The Company has established a system for fling complaints synonymously. In addition, a designated unit for handling business secret has also been established for the management of the business secret, retention of secrets and confdentiality procedure. The performance will be reviewed regularly to ensure sustainability and efectiveness.
	Has the Company taken measures to protect whistleblowers from improper treatment?	Ｖ		The Company has the relevant norms included in the“Procedures for Ethical Management and Guidelines for Conduct”to ensure that whistleblowers will not be treated improperly.
IV. Strengthening information disclosure	Has the Company disclosed the content of its“Ethical Corporate Management Best Practice Principles” and the performance on the Company's website and MOPS?	Ｖ		Please refer to the MOPS（http://newmops. twse.com.tw/） or the Company's website （http://www.primax.com.tw/）for the ethical corporate management best practice principles. Please also refer to the annual CSR report for the relevant information of activity promotion.	It is in conformity with the ethical corporate management code without any signifcant nonconformity identifed.

V. If the Company has the ethical corporate management best practice principles enacted in accordance with the Corporate Management Best-Practice Principles for TWSE/GTSM Listed Companies ” , please state the difference “ Ethical between its operations and the enacted Principles: No significant difference.

The Human Resources Department is the designated 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 whistleblowing 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 Company's “ Procedures for Ethical Management and Guidelines for Conduct ” that colleagues should explain the Company's ethical corporate management policy and the relevant regulations to the counterparty throughout the business process, 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 newcomers.

（ 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

33 Primax Electronics Ltd. 2017 Annual Report

Primax Electronics Ltd. 2017 Annual Report 34

Corporate Governance Report

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

1. Internal Control Statement

PRIMAX Electronics Limited Statement of Internal Control System

Date :March 13, 2018

The Company's self-examination of internal control system in 2017 is declared as follows:

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 objective is to achieve effectiveness and efficiency of operation （including profitability, performance, assets security, etc.）, reliability, timeliness, and transparency of reporting and in compliance with the relevant laws, regulations, and bylaws, 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 deficiencies corrected upon identification.
The Company is based on the effectiveness criteria of internal control system in the “ Regulations Governing Establishment of Internal Control Systems by Public Companies ” （hereinafter referred to as “ Regulations ” ） to determine whether the design and implementation of internal control system is effective or not. According to the effectiveness criteria of internal control system in the “ Regulations Governing Establishment of Internal Control Systems by Public Companies ” , the internal control system is classified into five constituent elements in accordance with the management and control process, including: 1. control environment, 2. risk assessment, 3. control activities, 4. information and communication, and 5. monitoring activities. Each composing element contains a number of projects. Aformentioned elements 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 design and implementation of internal control system.
The Company based on the assessment result in the preceding paragraph, believes that the Company's internal control system on December 31, 2017（including the supervision and management of subsidiaries）, including understanding the results of effectiveness and efficiency of operation, reliability, timeliness, and transparency of reporting and in compliance with the relevant laws, regulations, and bylaws, and the design and implementation of internal control system is effective and can provide reasonable assurance of achieving the above objectives.
This Statement 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 Statement has been resolved by the Board of Directors on March 13, 2018 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.

（ 10 ） disciplinary action had been brought against the internal staff for violating internal control system, major deficiencies, and the corrective action in the most recent year and as of the printing date of the annual reports: None.
（ 11 ） Important resolutions of the shareholders' meeting and board meeting in the most recent year and as of the printing date of the annual report.

1. Important resolution of the shareholders' meeting and its implementation.

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Time Important Issues
1. Passed the motion on Business Report and Financial Statements in 2016.
Status: Resolved by the shareholders' meeting.
2. Passed the motion on the earnings distribution in 2016.
Status: July 2, 2017 was the ex-dividend date and July 28, 2017 was the payable date with cash
dividend at NT$2.5 per share.
“ ”
05.25.2017 3. Passed the motion on issuing RSA .
Status: Approved by FSC on October 31, 2017 and became effective within 1 year thereafter.
4. Passed the motion on the removal of the non-compete restriction on the Directors.
Status: The non-compete restriction on the Directors was removed.
“ ”
5. Passed the amendment to the Regulations of the Shareholders' Meeting Proceedings .
Status: Subsequent action will be taken in accordance with the amended version.
2. Important resolutions of the Board of Directors
Time Important issues
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Time	Important issues
01.23.2017	1. Passed the motion on the annual bonus for senior managers in 2016. 2. Passed the motion on the annual bonus for the Chairman in 2016. 3. Passed the motion on remuneration to employees in 2016. 4. Passed the motion on the 1st issuance of RSA in 2016. 5. Passed the motion on the establishment of the Nomination Committee and“Nomination Committee Charter”. 6. Passed the motion on the budget for operation plan in 2017.
03.07.2017	1. Passed the motion on Business Report and Financial Statements in 2016. 2. Passed the motion on the earnings distribution in 2016. 3. Passed the motion on salary adjustment of senior managers in 2017. 4. Passed the motion on bonus plan for senior management and key ofcers in 2017. 5. Passed the motion on the standard of performance and bonus plan for the Chairman in 2017. 6. Passed the motion on the issuance of RSA 2017. 7. Passed the motion on the new issuance of RSA in 2017. 8. Passed the motion on the remuneration to Directors and employees in 2016. 9. Passed the motion on the nomination of members for the 1st term of the Nomination Committee. 10. Passed the motion on the removal of the non-compete restriction on the Directors. 11. Passed the amendment to the“Regulations of the Shareholders' Meeting Proceedings”. 12. Passed the motion on the date, time, place, and content of major motions for the Shareholders' Meeting in 2017.
05.11.2017	1. Passed the motion on replacing the contracted CPAs to Wu Mei-Pin CPA, and Huang Yung-Hua, CPA due to the internal adjustment of the CPA frm. 2. Passed the motion on 1st quarter of 2017 Financial Statements. 3. Passed the motion on the amendment to the bonus plan for the Chairman in 2016. 4. Passed the motion on the amendment to to the bonus plan for senior managers in 2016. 5. Passed the motion on the amendment to the“Audit Committee Charter”. 6. Passed the motion on the disposal of long-term equity investments.
06.06.2017	1. Passed the motion on the ex-dividend date and the payable date with cash dividend for the earnings distribution for 2016.
08.10.2017	1. Passed the motion on 2nd quarter of 2017 Financial Statements. 2. Passed the motion on the 2nd issuance of RSA in 2016.
11.10.2017	1. Passed the motion on investment in Belfast Group.
11.14.2017	1. Passed the motion on 3rd quarter of 2017 Financial Statements. 2. Passed the motion on assessing the independence of the contracted CPAs regularly 3. Passed the motion on the change in the accounting ofcer in charge of the Company. 4. Passed the motion on the amendment to the“Rules of Procedure for Board of Directors Meetings”. 5. Passed the motion on the amendment to the“Regulations of Governing the Duties of Independent Directors”. 6. Passed the motion on the“Audit Committee Charter”. 7. Passed the motion on the disposal of long-term equity investments.

35 Primax Electronics Ltd. 2017 Annual Report

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Corporate Governance Report

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Time Important issues
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Time	Important issues
01.31.2018	1. Passed the motion on the budget for operation plan in 2018. 2. Passed the motion on the annual bonus for senior managers in 2017. 3. Passed the motion on the annual bonus for the Chairman in 2017. 4. Passed the motion on the remuneration to employees in 2017. 5. Passed the motion for the 1st issuance of RSA in 2017.
03.13.2018	1. Passed the motion on Business Report and Financial Statements in 2017. 2. Passed the motion on the assessment of IFRS 16:“Leasing” 3. Passed the motion on the earnings distribution in 2017. 4. Passed the motion on the amendment to the“Regulations Governing Acquisition or Disposal of Assets”. 5. Passed the motion on the amendment to the“Articles of Association”. 6. Passed the motion on re-elect all directors. 7. Passed the motion on the removal of the non-compete restriction on the Directors. 8. Passed the motion on the date, time, place, and content of major motions for the Shareholders' Meeting in 2018. 9. Passed the motion on the formulation of the procedures for nomination of candidates for the directors（including independent directors）about the agenda of electing directors in the shareholders' meeting of 2018. 10. Passed the motion on the candidates of Directors. 11. Passed the motion on the amendment to the“Nomination Committee Charter”. 12. Passed the motion on reviewing the competitiveness for remuneration and beneft of managers and salary adjustment for the year 2018. 13. Passed the motion on the remuneration to Directors and employees in 2017. 14. Passed the motion on the increasing capital of Premium Loudspeakers（Huizhou）Co. Ltd.
04.13.2018	1. Passed the motion on increasing the candidates of Directors. 2. Passed the motion on bonus plan for senior management and key ofcers in 2018. 3. Passed the motion on remuneration adjustment for the Chairman in 2018. 4. Passed the motion on the standard of performance and bonus plan for the Chairman in 2018.

（ 12 ） opinions with record or written statement from the Directors or supervisors in the most recent year and as of the printing date of the annual report, please specify the content: 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 Officer in the most recent year and as of the printing date of the annual report:

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April 15, 2018
Title Name Date of office Date of departure Reason for resignation or discharge
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Title	Name	Date of ofce	Date of departure	Reason for resignation or discharge
Vice General Manager	Tsao, Chung-Feng	Feburary 1, 2001	Feburary 28, 2018	Resign and Transfer to Belfast Limited Group as Vice General Manger of Operation
Assistant General Manager	Pan, Yen-Jen	July 15, 2013	November 14, 2017	Resign and Transfer to Tymphany Group as Chief Financial Ofcer

5. CPAs fees

Name of CPA frm	Name of CPA frm	Name of CPAs	Name of CPAs	Name of CPAs	Name of CPAs	Audit period	Audit period	Remark
KPMG		Wu, Mei-Pin		Huang, Yung-Hua		2017		—
Unit: NT$1,000
Range of Amount Audit fees classifcation			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		9,320		—		9,320
6	10,000 and more		—		—		—

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.

shold	disclosed	disclosed
u	.		Unit: NT$1,000
Accounting Firm		Audit	Non-audit fee					CPA's Audit period	Remark
	Name of CPA	fee	System design	Industrial and commercial registration	Human Resources	Others	Subtotal
KPMG	Wu, Mei-Pin	9,320	0	0	0	0	0	2017 The full year	—
	Huang, Yung-Hua

（ 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
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Item	Explanation
Date of replacement	02.21.2017
Reason for replacement and explanation	KPMG internal work adjustment
Please indicate whether the termination or rejection of the commission is initiated by the consigner or the CPAs.	None
Please state the opinions other than an unqualifed opinion were rendered in the Auditor's Report within the last two years and the root causes.	None
Whether diferent from the opinion of the issuer or not?	None
Other disclosures（Article 10, Part 1-（4）~（7）of Section 6, of this standard should be disclosed）	None

（ 2 ） About the successor CPAs

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Item Explanation
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Item	Explanation	Explanation
Accounting Firm	KPMG
CPA	Wu, Mei-Pin	Huang, Yung-Hua
Date of Engagement	02.21.2017
The advisory matters and results prior to the commission regarding the accounting treatment or accounting principle of specifc transactions and the possible audit opinion on the fnancial report.	None
The written opinion of the successor CPAs regarding the oppositions to the opinions of the former CPA's.	None

（ 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 None.

affiliated enterprise should be disclosed:

Primax Electronics Ltd. 2017 Annual Report 38

Primax Electronics Ltd. 2017 Annual Report

Corporate Governance Report

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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2017 2018 to March 31
Change in Change in
Title Name Change in quantity of Change in quantity of
quantity of shares under quantity of shares under
shareholding lien shareholding lien
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Title	Name	2017	2017	2018 to March 31	2018 to March 31
		Change in quantity of shareholding	Change in quantity of shares under lien	Change in quantity of shareholding	Change in quantity of shares under lien
Chairman	Liang, Li-Sheng	0	0	0	0
Director / General Manager	Yang, Hai-Hung	0	0	150,000	0
Director	Yang, Chi-Ting	0	0	0	0
Director	Pan, Yung-Chung	（809,000）	（2,334,000）	0	2,800,000
Director / General Manager of Business Department	Pan, Yung-Tai	36,000	0	60,000	0
Director	Tsao, Chung-Feng	0	0	0	0
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
General Manager of Operations	Kuo, You-Min（Note 1）	0	0	0	0
Senior Vice General Manager	Hsiao, Ying-Yee	0	0	60,000	0
Vice General Manager	Chou, Yen-Chou	（420,000）	0	15,000	0
Vice General Manager	Lee, Chiu-Sheng	51,000	0	75,000	0
Vice General Manager	Chiang, Yan-Ying	（80,500）	0	25,000	0
Vice General Manager	Chang, Ching-Kai	96,500	0	35,000	0
Vice General Manager	Chang, Yao-Han	74,000	0	35,000	0
Vice General Manager	Wei, Hao-San	（23,000）	0	60,000	0
Vice General Manager	Chuo, Yu-Shan	0	0	30,000	0
Vice General Manager	Tseng, Chien-Yu（Note 2）	0	0	0	0
Assistant General Manager	Chang, Shu-Chuen （Note 3）	0	0	0	0
Assistant General Manager	Pan, Yen-Jen （Note 4）	0	0	0	0

Note 2: Assumed office on 09.18.2017. Note 3: Assumed office on 11.15.2017.

（ 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

April 1, 2018 ／ Unit: Shares

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Name and Relationship Between
Current & Minor Spouse Shareholding by Nominee the Company's Top Ten
Shareholding Shareholders, or Spouses or
Shareholding Arrangement
Name Relatives Within Two Degrees. Remark
Shares % Shares % Shares % Name Relationship
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Name	Current Shareholding	Current Shareholding	Spouse & Minor Shareholding	Spouse & Minor Shareholding	Shareholding by Nominee Arrangement	Shareholding by Nominee Arrangement	Name and Relationship Between the Company's Top Ten Shareholders, or Spouses or Relatives Within Two Degrees.	Name and Relationship Between the Company's Top Ten Shareholders, or Spouses or Relatives Within Two Degrees.	Remark
	Shares	%	Shares	%	Shares	%	Name	Relationship
Alpine Asia Investments Limited	27,751,062	6.21%	0	0	0	0	Campbell Technology Corporation （Director; Yang, Hai- Hung）	Kindred within the 2nd tier	—
JPMorgan Chase Bank N.A. Taipei Branch in custody for Franklin Templeton Investment Funds - Templeton Asian Smaller Companies Fund	11,219,000	2.51%	0	0	0	0	None	None	—
Campbell Technology Corporation	10,204,909	2.28%	0	0	0	0	Alpine Asia Investments Limited （Director: Liang, Li- Sheng）	Kindred within the 2nd tier	—
Pictet Global Selection Fund – Global High Yield Emerging Equities Fund	9,757,000	2.18%	0	0	0	0	None	None	—
Fidelity Select Portfolios: Technology Portfolio	9,076,000	2.03%	0	0	0	0	None	None	—
JPMorgan Chase Bank N.A. Taipei Branch in custody for Schroder International Selection Fund Emerging Asia	8,999,000	2.01%	0	0	0	0	None	None	—
JPMorgan Chase Bank N.A., Taipei Branch in custody for Franklin Templeton Investment Funds-Templeton Emerging Markets Smaller Companies Fund	8,462,700	1.89%	0	0	0	0	None	None	—
Lazard Emerging Markets Small Cap Equity Trust	8,068,000	1.81%	0	0	0	0	None	None	—
Pan, Yung-Chung	7,455,046	1.67%	0	0	0	0	None	None	—
Yeh, Yu-Fen	7,380,227	1.65%	0	0	0	0	None	None	—

39 Primax Electronics Ltd. 2017 Annual Report

Primax Electronics Ltd. 2017 Annual Report 40

Corporate Governance Report

10. 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 December 31, 2017 ／／ Unit: 1,000 shares ／

December 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 %
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Long-term Investment	Ownership by PRIMAX	Ownership by PRIMAX	Ownership by Directors, Managers and Directly/ Indirectly Owned Subsidiaries	Ownership by Directors, Managers and Directly/ Indirectly Owned Subsidiaries	Total Ownership	Total Ownership
	Shares	%	Shares	%	Shares	%
Dongguan Primax Electronic Telecommunication Products Co., Ltd.	－（Note 1）	100.00	－	－	－（Note 1）	100.00
Primax Electronics（KunShan）Co., Ltd.	－（Note 1）	100.00	－	－	－（Note 1）	100.00
Primax Electronics（Chongqing）Co., Ltd.	－（Note 1）	100.00	－	－	－（Note 1）	100.00
Beijing Destiny Electronic Technology Co., Ltd.	－（Note 1）	100.00	－	－	－（Note 1）	100.00
Primax Destiny Co.,Ltd.	0.5	100.00	－	－	0.5	100.00
Polaris Electronics Inc.	1,600	100.00	－	－	1,600	100.00
Primax Industries（Hong Kong）Ltd.	602,817	100.00	－	－	602,817	100.00
Primax Technology（Cayman Holding）Ltd.	285,067	100.00	－	－	285,067	100.00
Primax Industries（Cayman Holding）Ltd.	8,147,636	100.00	－	－	8,147,636	100.00
Destiny Technology Holding Co., Ltd.	1,050	100.00	－	－	1,050	100.00
Diamond（Cayman）Holdings Ltd.	84,050	100.00	－	－	84,050	100.00
Gratus Technology Corp.	300	100.00	－	－	300	100.00
Tymphany Worldwide Enterprises Ltd.	55,001	100.00	－	－	55,001	100.00
TYP Enterprises, Inc.（Note 2）	0.50	66.44	－	－	0.50	66.44
Tymphany HK Ltd.（Note 2）	144,395	66.44	－	－	144,395	66.44
Tymphany Logistics,Inc.（Note 2）	200	66.44	－	－	200	66.44
Premium Loudspeakers（Huizhou）Co., Ltd. （Note 2）	－（Note 1）	66.44	－	－	－（Note 1）	66.44
Dongguan Tymphany Acoustic Technology Co., Ltd.（Note 2）	－（Note 1）	66.44	－	－	－（Note 1）	66.44
Dongguan Dongcheng Tymphany Acoustic Technology Co., Ltd.（Note 2）	－（Note 1）	66.44	－	－	－（Note 1）	66.44
Tymphany Acoustic Technology HK Ltd. （Note 2）	5,000	66.44	－	－	5,000	66.44
Tymphany Acoustic Technology（UK）Ltd. （Note 2）	400	66.44	－	－	400	66.44
Tymphany Acoustic Technology Europe, s.r.o.（Note 2）	187,800	66.44	－	－	187,800	66.44
Tymphany Acoustic Technology Ltd. （Note 2）	－（Note 1）	66.44	－	－	－（Note 1）	66.44
Primax AE (Cayman) Holdings Ltd. （Note3）	－	－	－	－	－	－

4 、 Capital Overview

Note 1: It is a company with limited liability; therefore, no stock shares issued. Note 2: Indirectly holding of 66.44% of the shares through Tymphany Worldwide Enterprises Ltd. Note 3: The Company remitted funds into Primax AE (Cayman) Holdings Ltd. in January 2018.

41 Primax Electronics Ltd. 2017 Annual Report

Capital Overview

1. Capitalization

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March 8, 2018 ／ Unit: share
Authorized capital stock
Type of stock Remark
shares
Outstanding stock shares Unissued stock shares Total
Common stock 446,916,324 53,083,676 500,000,000 Listed in TWSE
March 8, 2018 ／ Unit:NT$1,000 ／ thousand shares
Authorized capital stock Paid-in capital Remark
Year / Issuing Capital
Month price Shares Amount Shares Amount Sources of Capital Assets other increase by Others
than cash
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Year / Month	Issuing price	Authorized capital stock	Authorized capital stock	Paid-in capital	Paid-in capital	Remark	Remark	Remark
		Shares	Amount	Shares	Amount	Sources of Capital	Capital increase by Assets other than cash	Others
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 NT$9,349 thousand	None	Note 5
2010.04	10	500,000	5,000,000	383,079	3,830,791	Conversion of employee stock warrant for NT$31,442 thousand	None	Note 6
2010.09	10	500,000	5,000,000	385,336	3,853,364	Conversion of employee stock warrant for NT$22,573 thousand	None	Note 7
2011.01	10	500,000	5,000,000	386,397	3,863,965	Conversion of employee stock warrant for NT$10,601 thousand	None	Note 8
2011.03	10	500,000	5,000,000	397,475	3,974,746	Conversion of employee stock warrant for NT$110,781 thousand	None	Note 9
2011.12	10	500,000	5,000,000	398,439	3,984,399	Conversion of employee stock warrant for NT$9,653 thousand	None	Note 10
2012.04	10	500,000	5,000,000	401,080	4,010,798	Conversion of employee stock warrant for NT$26,399 thousand	None	Note 11
2012.05	10	500,000	5,000,000	401,458	4,014,582	Conversion of employee stock warrant for NT$3,785 thousand	None	Note 12
2012.10	10	500,000	5,000,000	403,441	4,034,408	Conversion of employee stock warrant for NT$19,826 thousand	None	Note 13
2012.10	10	500,000	5,000,000	426,970	4,269,698	Capital increase in cash for NT$235,290 thousand	None	Note 13
2013.03	10	500,000	5,000,000	428,966	4,289,658	Conversion of employee stock warrant for NT$19,960 thousand	None	Note 14
2013.05	10	500,000	5,000,000	431,346	4,313,457	Conversion of employee stock warrant for NT$23,799 thousand	None	Note 15
2013.10	10	500,000	5,000,000	432,796	4,327,957	New shares of restricted employee shares at NT$ 14,500 thousand as stock dividend	None	Note 16

Note 1: Fu-Jian-Shang-Zi No. 09574650700 Letter dated 03.20.2006. Note 9: Jing-Shou-Shang-Zi No. 10001060980 Letter dated 03.31.2011. Note 2: Jing-Shou-Shang-Zi No. 09601140030 Letter dated 06.26.2007. Note 10: Jing-Shou-Shang-Zi No. 10001275550 Letter dated 12.05.2011. Note 3: Jing-Shou-Shang-Zi No. 09601235870 Letter dated 09.27.2007. Note 11: Jing-Shou-Shang-Zi No. 10101059950 Letter dated 04.09.2012. Note 4: Jing-Shou-Shang-Zi No. 09601273090 Letter dated 11.07.2007. Note 12: Jing-Shou-Shang-Zi No. 10101091810 Letter dated 05.22.2012. Note 5: Jing-Shou-Shang-Zi No. 09801254590 Letter dated 11.04.2009. Note 13: Jing-Shou-Shang-Zi No. 10101211370 Letter dated 10.12.2012. Note 6: Jing-Shou-Shang-Zi No. 09901076470 Letter dated 04.16.2010. Note 14: Jing-Shou-Shang-Zi No. 10201041250 Letter dated 03.07.2013. 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.

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Authorized capital stock Paid-in capital Remark
Year / Issuing Capital
Month price Shares Amount Shares Amount Sources of Capital Assets other increase by Others
than cash
----- End of picture text -----

Year / Month	Issuing price	Authorized capital stock	Authorized capital stock	Paid-in capital	Paid-in capital	Remark	Remark	Remark
		Shares	Amount	Shares	Amount	Sources of Capital	Capital increase by Assets other than cash	Others
2013.12	10	500,000	5,000,000	433,573	4,335,733	1. Conversion of employee stock warrant for NT$5,916 thousand 2. New shares of restricted employee shares at NT$ 1,860 thousand as stock dividend	None	Note 17
2014.03	10	500,000	5,000,000	433,981	4,339,813	1. Conversion of employee stock warrant for NT$2,730 thousand 2. New shares of restricted employee shares at NT$ 1,350 thousand as stock dividend	None	Note 18
2014.06	10	500,000	5,000,000	433,831	4,338,313	1. Conversion of employee stock warrant for NT$750 thousand 2. Cancellation of new restricted employee shares for NT$2,250 thousand	None	Note 19
2014.08	10	500,000	5,000,000	434,051	4,340,513	1. New shares of restricted employee shares at NT$2,200 thousand as stock dividend	None	Note 20
2014.12	10	500,000	5,000,000	434,658	4,346,578	1. Conversion of employee stock warrant for NT$7,015 thousand 2. Cancellation of new restricted employee shares for NT$950 thousand	None	Note 21
2015.03	10	500,000	5,000,000	438,649	4,386,487	1. Conversion of employee stock warrant for NT$27,659 thousand 2. New shares of restricted employee shares at NT$ 12,250 thousand as stock dividend	None	Note 22
2015.06	10	500,000	5,000,000	439,529	4,395,287	1. Conversion of employee stock warrant for NT$8,800 thousand	None	Note 23
2015.09	10	500,000	5,000,000	441,214	4,412,137	1. New shares of restricted employee shares at NT$ 17,750 thousand as stock dividend 2. Cancellation of new restricted employee shares for NT$900 thousand	None	Note 24
2016.01	10	500,000	5,000,000	441,188	4,411,877	1. Conversion of employee stock warrant for NT$1,640 thousand 2. Cancellation of new restricted employee shares for NT$1,900 thousand	None	Note 25
2016.03	10	500,000	5,000,000	441,794	4,417,938	1. Conversion of employee stock warrant for NT$7,061 thousand 2. Cancellation of new restricted employee shares for NT$1,000 thousand	None	Note 26
2016.06	10	500,000	5,000,000	441,903	4,419,028	1. Conversion of employee stock warrant for NT$2,390 thousand 2. Cancellation of new restricted employee shares for NT$1,300 thousand	None	Note 27
2016.09	10	500,000	5,000,000	441,748	4,417,478	Cancellation of new restricted employee shares for NT$1,550 thousand	None	Note 28
Note 17: Jing-Shou-Shang-Zi No. 10201247440 Letter dated 12.11.2013. Note 18: Jing-Shou-Shang-Zi No. 10301032580 Letter dated 12.11.2013. Note 19: Jing-Shou-Shang-Zi No. 10301102920 Letter dated 06.12.2014. Note 20: Jing-Shou-Shang-Zi No. 10301160910 Letter dated 08.14.2014. Note 21: Jing-Shou-Shang-Zi No. 10301251420 Letter dated 12.12.2014. Note 22: Jing-Shou-Shang-Zi No. 10401045290 Letter dated 03.24.2015. 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.

43 Primax Electronics Ltd. 2017 Annual Report

Primax Electronics Ltd. 2017 Annual Report 44

Capital Overview

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Year / Month	Issuing price	Authorized capital stock	Authorized capital stock	Paid-in capital	Paid-in capital	Remark	Remark	Remark
		Shares	Amount	Shares	Amount	Sources of Capital	Capital increase by Assets other than cash	Others
2016.12	10	500,000	5,000,000	442,134	4,421,343	Conversion of employee stock warrant for NT$3,865 thousand	None	Note 29
2017.02	10	500,000	5,000,000	444,704	4,447,043	1. Conversion of employee stock warrant for NT$1,200 thousand 2. Stock dividend – new restricted employee shares for NT$24,500 thousand	None	Note 30
2017.03	10	500,000	5,000,000	444,754	4,447,543	Conversion of employee stock warrant for NT$500 thousand	None	Note 31
2017.06	10	500,000	5,000,000	444,779	4,447,793	Conversion of employee stock warrant for NT$250 thousand	None	Note 32
2017.08	10	500,000	5,000,000	444,697	4,446,973	Cancellation of new restricted employee shares for NT$820 thousand	None	Note 33
2017.10	10	500,000	5,000,000	445,247	4,452,473	New shares of restricted employee shares at NT$ 5,500 thousand as stock dividend	None	Note 34
2017.12	10	500,000	5,000,000	445,688	4,456,883	1. Conversion of employee stock warrant for NT$4,530 thousand 2. Cancellation of new restricted employee shares shares at NT$ 120 thousand	None	Note 35
2018.02	10	500,000	5,000,000	446,788	4,467,883	New shares of restricted employee shares at NT$ 11,000 thousand as stock dividend	None	Note 36
2018.03	10	500,000	5,000,000	446,916	4,469,163	Conversion of employee stock warrant for NT$1,280 thousand	None	Note 37

Note 29: Jing-Shou-Shang-Zi No. 10501279810 Letter dated 12.02.2016. Note 34: Jing-Shou-Shang-Zi No. 10601143730 Letter dated 10.13.2017. Note 30: Jing-Shou-Shang-Zi No. 10601026170 Letter dated 02.24.2017. Note 35: Jing-Shou-Shang-Zi No. 10601167890 Letter dated 12.19.2017. Note 31: Jing-Shou-Shang-Zi No. 10601038880 Letter dated 03.27.2017. Note 36: Jing-Shou-Shang-Zi No. 10701019540 Letter dated 02.23.2018. Note 32: Jing-Shou-Shang-Zi No. 10601071370 Letter dated 06.03.2017. Note 37: Jing-Shou-Shang-Zi No. 10701024500 Letter dated 03.08.2018. Note 33: Jing-Shou-Shang-Zi No. 10601125590 Letter dated 08.30.2017.

2. Composition of Shareholders

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

%
Shareholders GovernmentalAgencies 2.23
Number of Shareholders: 5 person
%
Domestic
Shareholding: 9,971,000
Natural Persons19.55
Number of Shareholders: 8,633 person
Shareholding: 87,363,718
Financial %
April 1, 2018 Institutions0.34
Composition ofShareholders Number of Shareholders: 29 person
Shareholding: 1,499,446
Shareholding Total
Foreign Institutions 446,916,324
and Natural Persons Number of Shareholders Total
% 9,055 Other Juridical %
76.28 Persons 1.6
person
Number of Shareholders: 352 person Number of Shareholders: 36 person
Shareholding: 340,923,155 Shareholding: 7,159,005
----- End of picture text -----

Share Ownership

April 1, 2018 ／ Unit: person ／ shares

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

Shareholder Ownership （ Unit: Share ） ShareholdersNumber of Shareholding Holding Percentage （ % ）
----- End of picture text -----

Shareholder Ownership （Unit: Share）	Number of Shareholders	Shareholding	Holding Percentage（%）
1 to 999	290	37,812	0.0085%
1,000 to 5,000	6,772	13,545,215	3.0308%
5,001 to 10,000	877	7,119,387	1.5930%
10,001 to 15,000	255	3,362,401	0.7524%
15,001 to 20,000	172	3,225,779	0.7218%
20,001 to 30,000	139	3,660,929	0.8192%
30,001 to 50,000	120	4,939,910	1.1053%
50,001 to 100,000	114	8,350,107	1.8684%
100,001 to 200,000	66	9,801,079	2.1930%
200,001 to 400,000	73	20,253,877	4.5319%
400,001 to 600,000	39	18,877,282	4.2239%
600,001 to 800,000	22	15,201,635	3.4014%
800,001 to 1,000,000	20	18,258,463	4.0854%
Over 1,000,001	96	320,282,447	71.6650%
Total	9,055	446,916,324	100.00%

4. List of Major Shareholders

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April 1, 2018 ／ Unit: Shares
Shares Holding
Shareholding Percentage
Name of Major Shareholders （ % ）
----- End of picture text -----

Name of Major Shareholders Shares	Shareholding	Holding Percentage （%）
Alpine Asia Investments Limited	27,751,062	6.21%
JPMorgan Chase Bank N.A. Taipei Branch in custody for Franklin Templeton Investment Funds - Templeton Asian Smaller Companies Fund	11,219,000	2.51%
Campbell Technology Corporation	10,204,909	2.28%
Pictet Global Selection Fund – Global High Yield Emerging Equities Fund	9,757,000	2.18%
Fidelity Select Portfolios: Technology Portfolio	9,076,000	2.03%
JPMorgan Chase Bank N.A. Taipei Branch in custody for Schroder International Selection Fund Emerging Asia	8,999,000	2.01%
JPMorgan Chase Bank N.A., Taipei Branch in custody for Franklin Templeton Investment Funds-Templeton Emerging Markets Smaller Companies Fund	8,462,700	1.89%
Lazard Emerging Markets Small Cap Equity Trust	8,068,000	1.81%
Pan, Yung-Chung	7,455,046	1.67%
Yeh, Yu-Fen	7,380,227	1.65%

Primax Electronics Ltd. 2017 Annual Report

Capital Overview

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

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Item Year 2016 2017
----- End of picture text -----

Item Year	Item Year	Item Year	2016	2017
Market price per share	Highest Market Price		51.5	90
	Lowest Market Price		34.2	41.9
	Average Market Price（Note 1）		42.45	63.67
Net worth per share	Before Distribution		25.05	25.82
	After Distribution		22.55	22.62
Earnings per share	Weighted average shares（thousand shares）		439,169	440,907
	Earnings per share		4.4	4.67
Dividend per share （note 2）	Cash dividend（Note 4）		2.5	3.2
	Stock dividend	From retained earnings	0	0
		From capital reserve	0	0
	Accumulated Undistributed Dividends		0	0
Analysis of ROI （Note 3）	Price/Earning（P/E）ratio		9.65	13.63
	Price/Dividend（P/D）ratio		16.98	19.90
	Cash dividendyield rate（%）		5.89％	5.03％

Note 1: The annual average market price is calculated according to the annual sales value and volume.
Note 2: The proposal for distribution of income for 2017 was passed by the Board on March 13,2018 ,but not yet presented in the shareholder's meeting for resolutions.

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

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 according to the ratio referred to above.

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 for distribution of earnings in 2015 and 2016 were 51.72% and 56.82%, respectively. The expected dividend payout ratio for the distribution of income in 2017 is 68.52%.

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.

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 divided 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 proposal of the distribution of income in 2017 was passed by the Board of Directors in a session dated on March 13, 2018 whereby cash dividend to the shareholders will amount to NT$1,430,068,237. （ The divident payout ratio of approximately 68.52%. ） The proposal will be resolved in the Shareholders ’ Meeting dated on May 30, 2018 and then processed accordingly.

The remuneration to employees and remuneration to directors 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 13, 2018 to have remuneration to employees in cash and remuneration to directors distributed for an amount of NT$68,260,000 and NT$34,000,000, respectively, which was different from the estimated amount of NT$68,181,524 and NT$34,094,258

47 Primax Electronics Ltd. 2017 Annual Report

Primax Electronics Ltd. 2017 Annual Report

Capital Overview

by an amount of NT$78,476 and- NT$94,258 due to a change in accounting estimates. Once 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 distributed in 2016 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 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.

9. The Company's buying back shares: None

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

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April 15, 2018
Type of Stock Option 1st tranche ESOP in 2008 （ Note 1 ） ESOP issued in 2011 （ Note 2 ）
The effective date of 12.1.2009 10.26.2011
declaration
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		April 15, 2018
Type of Stock Option The efective date of declaration	1st tranche ESOP in 2008（Note 1） 12.1.2009	ESOP issued in 2011（Note 2） 10.26.2011

Issuance date（Note 3）	11.12.2009	10.22.2012
Duration	8 years	5 years
Number of stock warrant issued（Note 4）	370,440	3,500
Ratio of number of stock option to the total number of outstanding shares（%）	0.08	0.79
Subscription period	A 43% stock option can be exercised starting from the 4th year to the end of the 6th year and the remaining 57% stock option can be exercised starting from the 6thyear to the end of the 8thyear.	A 50% stock option can be exercised at the end of the 2nd year; also, a 100% stock option can be exercised at the end of the 3rd year till the expiry date.
Mode of exercise	Exchange for new shares	Exchange for new shares
Period and ratio restricted for subscription（%）	Note 1	Note 2
Quantity of shares acquired through exercise of ESOP	159,289	2,495,500
Amount of stock option exercised	1,819,081	64,650,600
Quantity of shares not being subscribed under ESOP （Note 5）	211,151	1,004,500
Subscription price per share for the unexercised options	11.42	24.1
Quantity of shares not being subscription under the exercise of options in proportion to total outstanding shares（%）	0.05	0.23
The impact on shareholders' equity	The stock warrant will be executed annually after three years and fve years from the issuing date; also, the former shareholding's equity will be diluted year after year with a limited dilution efect.	The stock warrant will be executed annually after two years and three years from the issuing date; also, the former shareholding's equity will be diluted year after year with a limited dilution efect.

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.

11. Employee stock warrant status

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

The Company merged the former Primax on December 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 on December 1,2009. 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:

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 canceled. It was issued on November 12, 2009 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 canceled. 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 October 22, 2012 had expired.

Note 3: Except for the stock warrant issued on November 12, 2009, November 24, 2011, and October 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 December 30, 2008 by the Company as the business entity.

Note 4: That was the units issued on December 1, 2009 and October 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 net balance of the issued unit deducting the unit executed, invalid, and cancelled unit（excluding the forgone unit）.

49 Primax Electronics Ltd. 2017 Annual Report

Primax Electronics Ltd. 2017 Annual Report 50

Capital Overview

（ 2 ） The names of the managers who have acquired ESOP and the top 10 employees acquiring ESOP, and the status of subscription of shares. April 15, 2018 ／

April 15, 2018 ／ Unit: NT$1,000／1,000 shares ／%

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The quantity of Exercised Unexercised
Title Name GrantedNumber Options of subscription subscription to the total proportion units in GrantedNumber Options of SharePrice Per Value of Shares in proportion to the subscription units total subscription The quantity of GrantedNumber Options of SharePrice Per Value of Shares in proportion to the subscription units total subscription The quantity of
quantity quantity quantity
----- End of picture text -----

Title	Title	Name	Number of Options Granted	The quantity of subscription units in proportion to the total subscription quantity	Exercised	Exercised	Exercised	Exercised	Unexercised	Unexercised	Unexercised	Unexercised
					Number of Options Granted	Price Per Share	Value of Shares	The quantity of subscription units in proportion to the total subscription quantity	Number of Options Granted	Price Per Share	Value of Shares	The quantity of subscription units in proportion to the total subscription quantity
Managers	Director / General Manager	Yang, Hai-Hung	620	0.14	159 125 100	11.42 26.5 24.1	1,819 3,313 2,410	0.17	211 25	11.42 24.10	3,014	0.07
	Vice General Manager	Chou, Yen-Chou
	Vice General Manager	Chang, Ching-Kai
	Vice General Manager	Wei, Hao-San
	Vice General Manager	Chang, Yao-Han
	Vice General Manager	Tseng, Chien-Yu
Employee ︵ Note 1 ︶	Senior Assistant General Manager （Note 2）	Luo, Ming-Deh	500	0.11	125 75 200 100	27.70 26.50 25.20 24.10	3,462 1,988 5,040 2,410	0.11	-	-	-	-
	Senior Assistant General Manager	Chen, Ying- Shou
	Assistant General Manager	Lin, Chun-Hsien
	Assistant General Manager	Chen, Kuang-Tzer
	Assistant General Manager	Chen, Wei-Wu
	Senior Manager	Ma,Yu-Cheng
	Senior Manager （Note 3）	Tseng, Mei-Hui
	Senior Manager	Huang,Xi-Xiang
	Senior Manager	Liu,Sen-Xiang
	Manager	Ling,Rai-Yuan

Note 1: The top-ten employee stock warrant subscribers refer to the employees other than the managers.

Note 2: Resigned on May 15, 2017.
Note 3: Resigned on January 25, 2018.

Note 4: The un-exercise stock warrants were expired.

Note 5: A total of 446,916,324 shares were issued on April 15, 2018.

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

12. The process of new restricted employee shares

（ 1 ） conditions completely and its impact on shareholders:

April 15, 2018

Type of new restricted employee shares	The second issue in 2014	The frst issue in 2016	The second issue in 2016	The frst issue in 2017
The efective date of declaration	10.6.2014	10.18.2016	10.18.2016	10.31.2017
Issuing date	08.18.2015	02.13.2017	09.07.2017	02.08.2018

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

The second The second
Type of new restricted employee shares issue in 2014 The first issue in 2016 issue in 2016 The first issue in 2017
----- End of picture text -----

Type of new restricted employee shares	The second issue in 2014	The frst issue in 2016	The second issue in 2016	The frst issue in 2017
Number of new restricted employee shares issued （shares）	1,775,000	2,450,000	550,000	1,100,000
Issuing price	0	0	0	0
Ratio of the number of new restricted employee shares issued to total outstanding shares（%）	0.40	0.55	0.12	0.25
Vested conditions of the new restricted employee shares	Shall comply with the Company's operating results and individual performance as defned in the Rules.
The limitation of rights of the new restricted employee shares	1. Employees may not have the new restricted employee shares sold, mortgaged, transferred, gifted, pledged, or disposed in any form before fulflling the vested conditions. 2. The attendance, motion, speech, and voting right of the shareholders' meeting should be implemented in accordance with the trust and depository contracts. 3. Except for the limitations in the preceding paragraph, the other rights of the new restricted employee shares received according to the Rules, including but not limited to stock dividends, bonuses and rights to additional paid-in capital, stock subscription from cash capital increase, voting right, etc., before fulfllingthe vested conditions, are without anylimitation same as the Company's common stock issued.
The custody of new restricted employee shares	It is handled in accordance with the trust depository method.
The process of new restricted employee shares received or subscribed before fulflling the vested conditions	The new restricted employee shares received but not yet fulflling the vested conditions will be called back without compensation by the Company and it will then be canceled.
Number of new restricted employee shares called or buyback（shares）	254,000	21,000	20,000	0
Number of new restricted employee shares derestricted （shares）	939,000	735,000	0	0
Number of new restricted employee shares（shares）	582,000	1,694,000	530,000	1,100,000
Ratio of the number of new restricted employee shares to the total outstanding shares（%）	0.13	0.38	0.12	0.25
The impact on shareholders' equity	No signifcant impact.	No signifcant impact.	No signifcant impact.	No signifcant impact.

Note: A total of 446,916,324 shares were issued on April 15, 2018.

（ 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:

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

April 15, 2018
Ratio of the Released Unreleased
number of
Number
new restricted Released Unreleased
of new
Title Name restricted employee Number Amount Restricted Amount Restricted
employee shares outstanding shares to the total sharesof Issuing price issuanceof Percentage Shares as a of Shares of sharesNumber Issuing price issuanceof Percentage Shares as of Shares
shares Issued Issued
General Manager Yang, Hai-Hung
General Manager
of Business Pan,
Department Yung-Tai
General Manager Kuo,
of Operations You-Min
Senior Vice Hsiao,
General Manager Ying-Yee
Vice General Chou,
Manager Yen-Chou
Vice General Tseng,
Manager Chien-Yu 2,760,000 0.62% 753,000 0 0 0.17% 2,007,000 0 0 0.45%
Vice General Chuo,
Manager Yu-Shan
Vice General Lee,
Manager Chiu-Sheng
Vice General Chiang,
Manager Yan-Ying
Vice General Chang,
Manager Ching-Kai
Vice General Chang,
Manager Yao-Han
Vice General Wei,
Manager Hao-San
Managers
----- End of picture text -----

51 Primax Electronics Ltd. 2017 Annual Report

Primax Electronics Ltd. 2017 Annual Report

Capital Overview

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

Ratio of the Released Unreleased
number of
Number
new restricted Released Unreleased
of new
Title Name restricted employee Number Amount Restricted Amount Restricted
employee shares outstanding shares to the total sharesof Issuing price issuanceof Percentage Shares as a of Shares of sharesNumber Issuing price issuanceof Percentage Shares as of Shares
shares Issued Issued
----- End of picture text -----

Title	Title	Name	Number of new restricted employee shares	Ratio of the number of new restricted employee shares to the total outstanding shares	Released	Released	Released	Released	Unreleased	Unreleased	Unreleased	Unreleased
					Number of shares	Issuing price	Amount of issuance	Released Restricted Shares as a Percentage of Shares Issued	Number of shares	Issuing price	Amount of issuance	Unreleased Restricted Shares as Percentage of Shares Issued
Employee	Senior Assistant General Manager	Chang, Chen-Deh	1,615,000	0.36%	552,000	0	0	0.12%	1,063,000	0	0	0.24%
	Senior Assistant General Manager	Huang, Chien-Nan
	Senior Assistant General Manager	Zhou, Yi-De
	Senior Assistant General Manager	Shan, Yi-Kuang
	Senior Assistant General Manager	Chen, Ying-Shou
	Senior Assistant General Manager	Chang, Shi-Peng
	Assistant General Manager	Liou, Rai-Ming
	Assistant General Manager	Fu, Yan-Zong
	Assistant General Manager	Hu, Ching-Yuan
	Assistant General Manager	Hung, Chi-Ming
	Assistant General Manager	Lu, Yu-Hung
	Assistant General Manager	Chih, Chao-Hsi

Note: A total of 446,916,324 shares were issued on April 15, 2018.

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.

5 、 Operation Overview

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.

（ 1 ） 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.

Primax Electronics Ltd. 2017 Annual Report

Operation Overview

1. Business content

（ 1 ） Business Scope

1. The main business operations of the Company

． CB01020 Business equipment manufacturing industry
． F113050 Computer and multifunction products wholesale industry
． F118010 Information software wholesale industry
． F213030 Computers and multifunction product retail 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
． F218010 Information software retail industry
． C805050 Industrial plastic products manufacturing industry
． CA02010 Metal structures and architectural

components manufacturing industry

． CC01101 Controlled telecommunications radio frequency equipment manufacturing industry

． CC01110 Computer and peripheral equipment manufacturing industry

． CE01030 Optical instrument 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

． F401021 Controlled telecommunications radio frequency equipment importing industry

． ZZ99999 In addition to the chartered business, the business not-prohibited or nonrestricted by law is also permitted for operation.
． I301010 Information software services industry

2. Business ratio

Unit: NT$1,000 ／ %

Item Year	2017	2017
	Total Sales	（%）of Total Sales
PCperipheralsproducts	20,628,258	33.96
Non-PCperipheralsproducts	40,113,434	66.04
Total	60,741,692	100.00

3. The Company's current products （ services ）

PC peripherals products Non-PC peripherals products

① Computer input device ① Mobile device components products Traditional optical mouse Advanced Laser mouse ．24-megapixel OIS camera module ．13-megapixel + 13-megapixel dual-camera module Wireless radio frequency optical and laser mouse ．5/8-megapixel prime lens camera module5/8-megapixel prime lens camera module（front lens） Bluetooth mouse ．13/16/20–megapixel close-loop fast automatic focus camera module. Wireless Bluetooth dual-mode ．13/16/20/24-megapixel OIS + automatic focus camera module mouseWireless presenterMini Mouse ．． Wired keyboard ．．20-megapixel + 12-megapixel dual-lens Wireless keyboard ．8-20-megapixel small camera module8-20-megapixel small camera module Bluetooth keyboard ．3D/2.5D facial recognition module Mechanical keyboardGame mouse and keyboard ．．3D depth sensor module Backlit keyboard Optical fingerprint reading module Notebook computer ．Capacitive fingerprint identification module keyboards ．Ultrasonic fingerprint identification module Ultra-thin tablet PC keyboard ．Smart lock fingerprint reading moduleSmart lock fingerprint reading module Keyboard module Smart TV remote control Communications peripheral equipment Living room input device ．�Bluetooth headphones / Bluetooth stereo headphones / Bluetooth MFi（Made for iPod, Made for iPhone） Wired Keyboard USB audio frequency signal receiver Bluetooth wireless game ．Bluetooth GPS receiver / Bluetooth USB data transmission receiver joystick ．�Desktop charging cradle / car charger / USB charging cable / Portable Games peripherals

．13-megapixel + 13-megapixel dual-camera module

．5/8-megapixel prime lens camera module5/8-megapixel prime lens camera module（front lens）

．13/16/20–megapixel close-loop fast automatic focus camera module.

．13/16/20/24-megapixel OIS + automatic focus camera module

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

20-megapixel + 12-megapixel dual-lens zoom lens module

．20-megapixel + 12-megapixel dual-lens20-megapixel + 12-megapixel dual-lens

．8-20-megapixel small camera module8-20-megapixel small camera module

．Smart lock fingerprint reading moduleSmart lock fingerprint reading module

Communications peripheral equipment

．�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

．�Desktop charging cradle / car charger / USB charging cable / Portable power supply unit / wireless charger / wireless charging module

．MP3 charging dock / radio wired control device / remote control ．Phone data transmission lines / USB Card Receiver

② Notebook computer touch panel

Non-PC peripherals products

② Business equipment products

Image Scanner

．�Flatbed scanner

．�Automatic document feeder（ADF）

．�Automatic reversing document feeder （ARDF）

．�Double-sided automatic document feeder（DADF）

．�

．� development

Printer

．�Black and white and color laser printer control panel development

．�Black and white and color laser printer software and firmware development

．�Dot matrix business printer

．�Thermal printer

．�Portable thermal photograph printer

Multifunction Printers

．�Black and white and color laser Multifunction Printers

．�Multifunction Printers control panel development ．�Multifunction Printers software and firmware development

Fax machine

．�Black and white fax machine

Information processing device

．�Computer terminals

．�Mobile Internet devices

．�Point of sales（POS）

．�Cash register（CR）

．�Lottery Machines

．�Shredder

．�Laminator

．�Binding machine

．�Paper cutter

Smart network camera

．�Surveillance camera

．�Conference camera

③ Digital home and audio products Portable wireless networks storage device Bluetooth portable speaker

One-piece sound bar（2.1, 5.1 sound track）

bar

Computers / audio speakers Headphones

In-ear wireless headphones Speaker driver

④ Automotive Electronics and related products

Automotive lens modules

．�Car reverse camera module

．�Unmanned vehicle camera module

．�Motion detection camera module

4. New products （ service ） development plan

PC peripherals products Computer input device Tablet phone game mouse and keyboard controller Backlit keyboard Living room input device Keyboard module Thin mechanical keyboard Bluetooth and wireless Thin film keyboard controller and presenter Tablet PC high-speed Game mouse and keyboard transmission expansion port Game console peripherals Audio conference keyboard Multi-point touch panel The first 30W high power Smart TV remote control NB-PC wireless charging device Ultra-thin tablet PC keyboard Rechargeable wireless and leather keyboard mouse Capacitive stylus pen Portable rechargeable Bluetooth stylus pen wireless mouse pad

Non-PC peripherals products

① Mobile device components products Full HD slim NB camera module 360 ° panorama / Sports camera Surveillance camera Phone fingerprint identification module Credit card fingerprint identification module Smart lock fingerprint reading module Automotive ADAS 3-phase camera module Driving recorder Wearable camera

② Business equipment products

Commercial double-sided automatic document feeder （DADF） scanner Commercial network scanner

High-speed multifunction printer scanner module High-speed color laser printer control panel development Barcode label black and white / color printer

High-speed B & W / Color Laser multifunction product control panel development Mobile Internet devices

Point of Sales（POS） service machine control board development Portable photo printer and Internet of Things（IoT） interface development

③ Digital home and audio products Home Network Attached Storage（NAS） device Portable Wireless Network Attached Storage hard drive Digital home entertainment media server Digital home wireless audio system Digital home-related applied software Portable Wireless Speaker Voice control sound system Noise resistance earphones

Sports earphones with health status measurement function

In-ear separate receiver wireless headphones

④ Automotive Electronics and related products Car reverse camera module Unmanned megapixel vehicle camera module Motion detection camera module

⑤ Wireless charging products

1~15W headsets, wearables, smart shoe wireless charger module

15W iPhone wireless quick charging module 15W iPhone wireless quick charging panels, charging set 15W iPhone wireless quick charging automotive phone holder 15W iPhone wireless quick smart charging automotive phone holder 60W~120W high power wireless charging device

Primax Electronics Ltd. 2017 Annual Report 56

55 Primax Electronics Ltd. 2017 Annual Report

Operation Overview

（ 2 ） Industry Overview

1. Industry current status and development

（ 1 ） PC peripherals products

PRIMAX's PC peripheral products are mainly the keyboard and mouse of the desktop and notebook computer; also, the market change of such product line is closely related to the development of personal computers. The shipment volume of desktop PCs and NB PCs in the global market and Taiwan has slowed down over the years. Tablet PCs and detachable tablet PCs did not bring about new momentum. The PC industry is moving towards the direction of “the big is getting bigger”. Currently, the top 6 PC brands monopolize almost 80% of the market share worldwide. After years of development with the top 6 brands, the Group was not affected in the PC market as a whole. There is one point that worth mentioning. The recent mushrooming of the Gaming market is just like the eruption of a volcano that has triggered demand in the PC industry. As a result, there are a number of Gaming PC brands that have emerged stimulating the demand for peripherals as input for Gaming. The Group has successfully secured a number of Gaming Brand and Gaming PC brand customers. It is expected that there will be sustainable growth in 2018.

（ 2 ） Non-PC peripherals products

① Mobile device components products

According to the figures released by IDC, the global shipment of smart phones in 2017 was about 1.49 billion units, which was almost the same as the previous year. This figure also indicated the decline of major markets of the world. However, the markets in the newly emerging economies showed significant growth, which implies that the cycle for replacement of new phones in the well-developed market tended to be deferred. According to the forecasts of the analysts, the market in 2018 will be on the decline or just the same as the previous year particularly the main market. For this reason, most famous brands in the world will tend to reach out to the newly emerging markets of India and Indonesia in particular. Localized manufacturing will emerge as the primary mission of major cell phone makers. Accordingly, major peripheral components firms are planning to respond to the change. Pushed by the continued innovation of mobile apps, the integrated application of the ecology chain has started to ferment, including mobile payment, the IoT of many things, providing endless space for people to make improvements to our way of life. As such, the

demand for related parts and components for mobile devices, such as camera lens modules, fingerprint recognition, wireless chargers, and even different kinds of sensors will be on the rise. In 2018, the demand for high-end camera lenses will continue to grow. Optical shake-proof, quick focusing, slim and small and double-lenses will be the main stream of development. This will be echoed by the challenge of encapsulation technology and production capacity planning for camera lens makers. Mobile payment appears to be the order of the day, which entails a considerable proportion of demand for the functions of fingerprint recognition and facial recognition.

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 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

==> picture [440 x 253] intentionally omitted <==

MIMO ） has better met consumer's expectations and led to the development of related products and services.

to the management of the printer market. The rapid growth of smart phone and tablet PC drove the firms 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 black and white and color printers.

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 （ e.g. NAS, DLNA wireless storage, etc. ） , audio and video entertainment servers （ such as, Xbox One and PS4 ） , wireless audio systems （ e.g. Sound bar ） ... 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.

③ Digital home and audio products

The home network environment is maturing along with the increasing popularity of the broadband network and transmission speed, and the increase of 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-

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,

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57 Primax Electronics Ltd. 2017 Annual Report

Operation Overview

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.

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.

2017 was a glamorous year for smart sound systems. Smart sound systems help to integrate a variety of services and smart devices and emerged as a vital part of our daily lives. Practical and feasible modes of business emerged in the areas of shopping, education, security, and home control. The leader of the industry, Amazon, has sold millions units of the product, and opened to all sound system makers to connect to the services. The smart sound system of Google has the record of selling 1 unit per minute, which closely follows the footprint of Amazon. These imply that we have made the right investment in the right products. We are moving forward at a high speed.

④ Wireless chargeing products

After the price war and technology advancement of wireless chargers over the last 10 years, WPC specifications （ known as Qi in the market ） appears to be the winner with the backing of major phone makers （ such as Apple, Samsung ） in 2017 and will trigger another wave of demand.

According to the Q2 2017 Report of HIS, the shipment volume of wireless charging and receiving devices was 205 million units in 2016 of which 38% were wireless charging transmitting devices. The two will achieve compound growth of more than 30% in the next 5 years. It is estimated that the shipment volume in 2020 will be as many as 2 billion units. This great success will no less be the contribution of its application to mobile communication devices and consumer electronics. The new generation of iPhone will be designed for built-in wireless charging, which will prompt further growth.

There are two categories of popular devices in market for the time being. One is the low to mid power wireless charging devices for consumer electronics or portable communication devices while the other is ultra-high power vehicle use wireless charging devices. Currently, the former is at a larger quantity and accounts for more than 90% of the demand in market. Manufacturers tend to focus on this category of products.

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

==> picture [453 x 286] intentionally omitted <==

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

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

（ 2 ） Non-PC peripherals products:

① Mobile device components products:

==> picture [440 x 341] intentionally omitted <==

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

Upstream Midstream Downstream
Photonics CMOS, Lens
Industry
Product
Cell phone
manufacturing
Electronic PCB, Flex-PCB Module plant system
materials Passive components, manufacturing Camera module
Connector plant Product
Notebook
manufacturing
computer
IC industry ISP, Memory, USB plant
② Business equipment products:
Multifunctional printers （ office machine ） industry supply chain
Upstream Midstream Downstream
Photonics
CCD, lens
Industry
Electronic
materials PCB, POWER
System （ SI / ODM ）
integrators
IC industry SOC, DRAM
Image
input / output CIS, Inkjet Bead,
Plastic Chassis, gear Module Laser engine, Hardware
materials manufacturers Controller Manufacturers [（] [OEM / EMS] [）]
Metal
material Screws, washers Brand
manufacturers [（] [Brand] [）]
Operating system,
Software drivers,
design
image processing
----- End of picture text -----

59 Primax Electronics Ltd. 2017 Annual Report

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Operation Overview

③ Digital home and audio products:

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 document feeder （ ADF ） that is combined with the scanner to perform continuous scanning function.

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.

④ Wireless charging products

The Company focused its design of wireless charging devices on module and product development, design, and assembly, from choosing the MCU/chip platform to the design of circuit boards, coils, cooling material and module, to the design and manufacturing of products for commercialization, calibration and testing. The Company can provide a full-range of design, manufacturing and service, and can provide accreditation service for customers in related charging devices such as Qi, improvement of efficiency and performance, and adjustment of product customization. The Company is a professional supplier for the full-range service solution of products.

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 mid-end and low-end black and white laser printers and multifunction printers with very competitive quality and cost.

⑤ Automotive camera modules:

The use of the Advanced Driver Assistance System, also known as ADAS in motor vehicles to achieve unmanned driving will be an irreversible trend of development in the future. Machine vision has emerged as one of the standard sensor systems of motor vehicles in the future, among other things. This includes the investment of massive resources by key players like SONY, On-Semi, OmniVision and ST in the development of automotive image

==> picture [441 x 208] intentionally omitted <==

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

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

sensor solutions. It is estimated that automotive electronics will exceed 50% of the cost of a motor vehicle by 2020, and the market size worldwide will be USD$ 500 billion. In the wake of the development of unmanned driving, ADAS will be integrated with vehicle-mounted data communication products to further achieve the safety function of voluntary control. The sale of optical cameras that play the role of sensors in ADAS devices （ Camera Module ） will be as high as USD$ 5.5 billion in 2018, and will enjoy annual compound growth of 23.6% in the next 5 years. Automotive camera modules will be in high demand in the future. This is one of the markets that the automotive electronics function of the Group will focus on.

3. Product development trends

（ 1 ） PC peripherals 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 a wide array of market needs such as responding to the peripherals of Gaming, 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, mobile devices, etc. in order to improve the added value of products and increase the technology gap from competitors; therefore, working towards high value-added products R&D is the future trend of the industry.

（ 2 ） Non-PC peripherals products

① Mobile device components products

The camera modules of PRIMAX will mainly be applied to high-end smart phones. Over the years, cell phones have moved towards “a large screen in overall proportion”. This is just like the iPhone X with a big screen or a full screen. Under this trend, there is no room for the fingerprint recognition module dictating use of the Under Display Fingerprint ID Module, or Face ID instead. Likewise, the space for housing the camera module is also narrowed. The HoC （ Holder on Chip ） encapsulation

technology, a patented product of PRIMAX, could help to downsize the dimension of camera modules significantly while maintaining the optical function of the camera.

The trend of housing fingerprint recognition modules for optical cell phone. There is little space for housing optical fingerprint recognition modules underneath the screen and extremely high precision in encapsulation is required. PRIMAX possesses the best precision encapsulation technology in the industry and is among the few enterprises that can provide optical fingerprint recognition modules underneath the screen.

Industry peers have proposed the MoC （ Molding on Chip ） production process in the encapsulation of micro camera modules. This helps to effectively condense the dimension of micro camera modules, but the price is high, the delivery lead-time is long, the yield rate is low, and the investment for the equipment is high, which makes it not a preferable option for the cell phone industry. The patented HoC （ Holder on Chip ） encapsulation technology of PRIMAX is based on the equipment in service and is the same size as the MoC. It can be available at the price, delivery, and yield rate approximating conventional encapsulation. This will emerge as the mainstream encapsulation technology for micro camera modules in the future.

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, HewlettPackard, 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

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Operation Overview

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 middleand 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 and increasing transmission speed, and the increase of 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.

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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. The matrix type microphone, full-range voice detector with identification of the sources of voices in precision, 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 Automotive camera module :

Enhancement of the sensor power and judgment of the external environment: the advancement of hardware, the optimization of the capacity of camera modules in the collection of the actual road situation data and algorithm methods mean many actual driving situations could be incrementally controlled by the vehicle system. Examples are the identification of other vehicles and lanes, pedestrians and traffic signals, and the combined use of dimensional vision and navigation.

The miniaturization of automotive camera modules: the application of automotive camera modules to sense the external environment of the vehicle is moving towards the inclusion of functioning inside the vehicle for detecting fatigue, the calibration of HUD, and real-time monitoring. Users are highly sensitive to the existence of this type of camera.

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.

For this reason, automotive plants highly value the dimension and concealment of this type of camera module. This will be the direction for development in the future.

（ 2 ） Non-PC peripherals products

megapixels means more detail and more data. The conventional megapixel camera module will no long satisfy needs in providing sufficient information for the judgment of the back-end system in the era of unmanned driving. The upcoming 2M/5M or higher camera module will be the basic requirement of the ADAS system L3 and above.

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 20 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.

4. Product competition

（ 1 ） PC peripherals 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

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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

Further to the quest for stable development of the product lines being carried, PRIMIX also proactively develops new product lines with strong market potential. Currently, digital home and related application is the gravity of development and the products are Network Attached Storage （ NAS ） , portable wireless HDD, home digital audiovisual multimedia servers, digital home wireless sound system, and personal portable wireless speakers.

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 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 user-friendly 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 problem 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 highend 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 people. 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 capacity that can match good sound quality. This will bring account great change in market.

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

customers in wireless charging devices and the development of related new technologies so that wireless charging will become a part of our daily lives in modern society and to help change the power consumption habits of people.

④ Wireless charging products

⑤ Automotive camera module:

PRIMAX began to invest in the research and development of related products in 2007, and provided design, manufacturing, and OEM production service for world renowned cell phone brands, consumer electronic products, PCs, peripherals, and even sporting goods brands and manufacturers on wireless charging products. PRIMAX has a track of record of millions of units of production and has breakthroughs in the development and extensive application of various types of critical advanced technologies. An example is the 15W quick charging device for Samsung products in 2017, the 30W mid to high power PC wireless charging devices, and the 1st Qi wireless charging and power supply mouse/mouse pad with mass production launched in 2018, as well as the 15W iPhone wireless quick charging device.

Currently, the shipment market of OE automotive camera modules is still monopolized by Tier One suppliers. The reason is simple. The OE automotive camera is a standardized item that cannot be purchased or used independently. Related specifications and requirements must be matched with the system end controlled by Tier One. As such, Autoliv/Continental/Mcnex/Bosch/ Delphi are the principal suppliers of OE for the time being. Because of the high precision and stability requirements for automobile lenses, the utilization of the AA （ Active Alignment ） manufacturing process has become the trend of the industry. The Group has had more than a decade of experience in AA manufacturing processes on consumer lens modules already, based on this, we will expand our products to the automobile industry, and this is where the current niche is.

In the future, PRIMAX will take advantage of its experience and technological know-how accumulated over the last 10 years to design different types of high performance, low energy consumption, and high power output wireless charging devices to satisfy the needs of big

Tier One does not make all automotive camera modules. Currently, a fair quantity of well-developed products are purchased through the supply from Tier Two. These include Panasonic/Truly/Jabil/Liteon.

（ 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 revenue
2017	2,364,974	3.89%

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2. The technologies and products successfully developed in the most recent year
and as of the printing date of the annual report.
Year R&D achievements
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Year	R&D achievements
2010	．Designed and developed Bluetooth wireless keyboard for Tablet PC. ．Designed and developed 3-megapixel OIS automatic focusing camera module. ．Designed and developed high-efciency multifunction wireless charging platform. ．Designed and developed Bluetooth low energy-consumption equipment. ．Designed and developed Thermal Printer and color management technology.
2011	．Designed and developed 8-megapixel OIS automatic focusing camera module. ．Design and developed touch screen multimedia PC peripherals. ．Design and developed backlit keyboard. ．Designed and developed Wi-Fi mouse. ．Designed and developed Wi-Fi Keyboard.

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Operation Overview Operation Overview
Year R&D achievements Year R&D achievements
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Year	Year	R&D achievements	Year R&D achievements	Year R&D achievements
2012		．Designed and developed 13-megapixel OIS automatic focusing camera module. ．Designed and developed Smart TV remote control. ．Designed and developed multi-point touch panel and automatic stylus pen. ．Designed and developed NFC（Near Field Communication technology）paired with Bluetooth Keyboard Mouse.	．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 network multimedia storage device.	．Designed and developed 180-degree remote control Surveillance Camera.
		．Designed and developed compound real document scanner.	．Designed and developed multiple-lens 360-degree wireless and real-time transmission 4K Video camera system.
2013		．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 identifcation keyboard. ．Designed and developed Smart TV remote control with voice input. ．Designed and developed 13 megapixel OIS + automatic focusing camera module. ．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 identifcation dual-lens camera module.	2017 ．Designed and developed double-optical components paper feeding scanning module. ．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. ．Design and development of the 1st 30W NB PC wireless charging device in the world. ．Design and development of the 1st 5W smart shoe wireless charging device of the world. ．Design and development of 15W Qi accredited wireless charging automotive phone holder. ．Design and development of the 5-15W wireless charging panel and related products. ．Design and development of matrix loud speakers combining a variety of speakers.
			．Design and development of matrix loud speakers.
2014		．Designed and developed new style thin multicolor backlit keyboard. ．Designed and developed new generation wearable devices. ．Designed and developed mobile device game peripherals. ．Designed and developed integrated keyboard protection set. ．Designed and developed mechanical game keyboard. ．Designed and developed Smart TV remote control with voice commands. ．Designed and developed 16-megapixel, 20-megapixel, and 26-megapixel OIS + fast focusing camera module.	2018 ．Design and development of the structural optical facial recognition module. ．Design and development of the depth recognition module. ．Design and development of the ultra-small encapsulation module. ．Design and development of the 3-phase camera focusing module. ．Design and development of the automotive 3-phase camera module. ．Design and development of a new generation of A3 DADF scanners. ．Design and development of a keyboard using the Mini LED multiple color backlight module. ．Design and development of the composite mechanical keyboard.
		．Designed and developed 24-megapixel OIS automatic focusing camera modules. ．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.	．Design and development of the new generation of high speed wireless signal input design, development of the 15W Qi accredited quick charger for Samsung, and iPhone quick wireless charging panel. ．Design and development of the 1-15W headphones, wearables, and smart shoe wireless charging set. ．Design and development of the 15W iPhone wireless quick charging module. ．Design and development of the 15W iPhone wireless quick charging panel, charging stand.
			．Design and development of the 15W iPhone	wireless quick charging automotive phone holder.
		．Designed and developed IoT device platform, gateways, and terminal device.	．Design and development of the 15W iPhone	wireless quick charging smart automotive phone holder.
		．Designed and developed automatic noise-cancelling headphones.	．Design and development of 60W-120W high	power wireless charging devices.
		．Designed and developed headphone and wearable device containing bio-sensing function. ．Designed and developed array microphone with voice identifcation feature.	Note: the above includes technologies and products successfully developed by PRIMAX.
		．Designed and developed wireless audio and headphone that can play network streaming music synchronously.	（4）Long-term and short-term business development plan
		．Designed and developed new generation wireless storage and access device with high-speed communications capabilities.	1. Short-term business development	（2）Non-PC peripherals products
2015		．Designed and developed 21-megapixel +5-megapixel double lens module, the highest standard of the industry. ．Designed and developed 3-megapixel vehicle use double-lens camera module. ．Designed and developed multilayer thin flm multicolor backlight module for keyboard.	a. Grasped the technological development trend （1）PC peripherals products plan	①Mobile device components products With the advantage of accreditation by a few big European and American brands, we committed the
		．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.	of mouse, keyboard, Multiple-color backlight keyboard module, Gaming peripherals,	best of our effort in the market of China. Positioned on the basis of our success in the past, PRIMAX
		．Designed and developed USB Type-C keyboard and mouse.	and smart remote control, and continue to	has successfully made the four major cell phone
		．Designed and developed high-power wireless charging module. ．Designed and developed low-profle loudspeaker transducer. ．Designed and developed battery modules positioning structure and battery module.	research and develop new products in order to facilitate business promotion.	makers its customers. The primary strategy in the short run is the proper deployment of the entire
			b. Established a key components supply	group on the basis of existing customer relation. In
		．Designed and developed 13-megapixel +13-megapixel double lens module, the highest standard of the	chain and establish the VMI / JIT system	the area of camera module, PRIMAX will introduce
2016		industry. ．Designed and developed 24-megapixel optical anti-shake camera module. ．Designed and developed 3-megapixel vehicle use double-lens camera module. ．Designed and developed capacitive fngerprint identifcation module（spray-on and Porcelain Veneer）. ．Designed and developed ultrasonic fngerprint identifcation module. ．Designed and developed thin mechanical game keyboard. ．Designed and developed a keyboard with voice input.	to effectively reduce inventory stock and to resolve material shortage problems. c. Improved plant productivity, reduce costs, and continue to strengthen OEM/EMS business in order to increase turnover stably	double-lens in full effort and regain the advantage of leadership in technology. In the area of fngerprint module, PRIMAX seeks to satisfy the needs of the customers and maintain its leading position. The keen and irrational competition compelled PRIMAX
			and improve gross profit rate. Grasped	to go for devices of high added value in full effort and
			mobile application and related technology	reinforce its partnership strategy with the suppliers
			development trend.	in order to maintain its advantageous position.
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Operation Overview

In the cultivation of customer relation, PRIMAX develop new product lines in order to secure a takes the upgrade of gross margin from customers leading position on the next wave of digitalization as a key indicator. Further to the emerging market, in the sense of product design and key technology. PRIMAX seeks to target strategic customers in The digital home-related products that are currently depth and in scope of operation. In addition to under active development are expected to create the share of existing product line, PRIMAX also new profit momentum and generate profits. introduce the new related product line of cell phone Currently, in addition to mastering the network for a larger share. storage device and digital home multimedia streaming related technology trends, we will continue Autonomous automated production, high speed to develop new platforms and software to facilitate high-end production process with high profile 5S business promotion and to actively establish a management will be the gravity of production in this supply chain of key components. In terms of internal year. In addition, the growth in sales orders drives R&D programs, continue to strengthen software for the expansion of production capacity for high-end development ability and establish a long-term products, which will be the mission for sustainable relationship with the software solutions providers in growth. order to grasp the development trends of the related technologies. PRIMAX seeks to further cultivate its ② Business equipment products relations with major customers both in depth and PRIMAX actively developed a high-speed in scope with a wider array of products. Currently, low-cost scanner module with mass production the major customers of PRIMAX are the leaders initiated successfully. Advanced commercial in market and they are congruent with the growth scanner and module products will soon be ready strategy of the Company. PRIMAX will gain a larger for mass production with the global business share in market and surpass its competitors.

② Business equipment products

PRIMAX actively developed a high-speed low-cost 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 terms of office automation products, along with the continuous improvement of inhouse 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.

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 peripherals products

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

③ Digital home and audio products

PRIMAX, in addition to continuing the in-depth development of the existing product line, will actively

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 markets other than cell phone application that will soon flourish with remarkable results expected next year.

② Business equipment products

PRIMA X will continue to expand the technology and business of scanners and multifunction 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 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 user-

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friendly 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 assistance 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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Operation Overview

2. Market and production and sales overview

（ 1 ） Market analysis

1. Sales area of major commodities

By area Year	2016	2016	2017	2017
	Amount（NT$1,000）	%	Amount（NT$1,000）	%
China	35,009,994	54.42	32,911,250	54.18
USA	14,221,870	22.11	13,508,587	22.24
Others	15,097,598	23.47	14,321,855	23.58
Total	64,329,462	100.00	60,741,692	100.00

（ 2 ） Non-PC peripherals products

2. Market share

① Mobile device components

PRIMAX is a professional manufacturer for PC peripheral products, mobile devices components, 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 audio 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.

PRIMAX's mobile devices components include 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.

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. Tablet PC has its heyday in 2012~2013 but started to decline in 2014 （ except Apple, which still enjoyed stable growth ） . The estimation for the year 2018 will keep the same. The sales of mobile phones have slowed down but the multi-camera modules on mobile phones have become a trend （ front camera, dual main camera, face recognition ） . Therefore, it is expected that the demand for mobile phone camera still has some growth. 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 built-in sub camera for mobile phone （ which is the visual lens ） will increase in

3. Future market supply and demand and growth

（ 1 ） PC peripherals 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.

In general, the overall performance of the PC market in 2017 was better than the anticipation of analysts with further marginal growth. Despite the optimism of the PC market in the analysis, the rise of the global Gaming market triggered the demand for high-end PCs. According to the analysis of JPR, the peripherals of Gaming will have a market size of approximately USD$ 5 billion with anticipated annual growth of 13% until 2020. As early as 2015, PRIMAX started to reach out to the few world renowned Gaming brands and has performed ideally. The outcome is positive so far. In contrast, the unit price of gaming product shipments is high such that it can help to fill the gap left behind by PCs and tablet PCs, and has contributed to revenue growth.

③ Digital home and audio products

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.

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.

② Business equipment products

Due to intense market competition, multifunction 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 lowend laser MFP and communication products.

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 Wireless charging products

The popularity of smart phones, tablet PCs, and wearable devices, wireless products have become an indispensable part of our daily lives. With the introduction of the Samsung flagship models and all models of Apple in 2017, the growth of wireless charging will be an irreversible trend. Indeed, most

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Operation Overview

cell phone makers have geared up for the market. Currently, the high-tag flagship models are still the major items for introduction.

In addition, suppliers of other consumer electronics and PC products also hope to introduce functions helpful to the consumers within their limited scope of function. Wireless charging will be helpful for consumers and is a function with differentiation and high added-value. For this reason, most big firms followed the footsteps of Apple and prepared to introduce wireless charging functions to some of their products.

According to IHS, the demand in 2024 will be as many as 2 billion units. This is a lucrative business opportunity mostly coming from the built in wireless charging function of cell phone. What could be inferred is that the models for wireless charging currently available, ranging from highend flagship models to mid to low-end market, will bring about business opportunities much as the camera module, Bluetooth, WiFi, touch panel, and fingerprint recognition did in the past, and make wireless charging devices another key component and vital peripheral product among other electronic items.

4. Competitive niches

economies of scale

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

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 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.

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10 years ago, and has continued to introduce products of famous brands in wireless charging. The models include a variety of receiving devices （ cell phone case, smart sound speakers, NB PC, headsets, and mouse ） , transmission devices （ charging panel, charging stand, automotive charging phone holder, wearable charging base unit, and mouse pad ） . PRIMAX is at international standard in design, manufacturing, testing, and quality assurance requirements, which outperformed other competitors in wireless charging devices in the short run. Currently, PRIMAX continues to attract the attention of famous brands with inquiries about wireless charging devices and even proposals for joint ventures.

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

PRIMAX has experienced and qualified software 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 ：

E. More than 10 years of experience in wireless charging hardware and software design and mass production capacity

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

Wireless charging involves wireless and electromagnetic theories. Industry specifications and the advantage of the economy of scale are yet to be unified so there is no principal specification or leadership to follow. For this reason, many small firms have entered into this market. Most famous brands require a diversity of product designs, and are capable of controlling the design and optimization of products and even the accreditation and mass production of finished products. They expect firms of a fair size with design and development capacities at the same level. This gives an edge to PRIMAX.

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 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 began to attract the attention of famous cell phone and consumer electronic brands

73 Primax Electronics Ltd. 2017 Annual Report

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Operation Overview

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 peripherals 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 products

① Mobile device components products

PRIMAX's mobile device components include notebook computers, smartphones, builtin camera module in tablet PCs, 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 built-in 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 wellknown 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 products have driven market demand for PC peripheral products, mobile devices components 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.

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☉ Responsive measures ：

PRIMA X 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 value-added products, and separate from competitors by creating market segment, while maintaining close relationship with existing customers in order to secure existing markets.

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 of labor's interests, also 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 ：

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.

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75 Primax Electronics Ltd. 2017 Annual Report

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（ 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
----- End of picture text -----

Main products and services	Intended use or function
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.
Digital Writing Tablet and stylus pen	Control computer cursors and graphics by a stylus pen. The pressure sensing device of a stylus pen can communicate with the capacitive touch panel to transmit the actual strokes interactively.
Wireless charging device	Suitable for mobile phones, tablet PCs, NB PCs, consumer electronics, and industrial use items for power supply and charging.
Micro-camera module	It is applicable to mobile phones, tablet PCs, commercial and home monitoring, smart TV, game consoles, trafc recorders and GPS built-in camera modules.
Network camera module	It is applicable to notebook computers, LCD monitors, built-in network camera modules and externally attached network cameras.
Fingerprint identifcation module	It is applicable to mobile phones and tablet PCs.
Communications peripheral equipment	It is applicable to mobile phones or MP3 players, built-in images, externally attached 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.
Ofce automation products	It is applicable to individuals, homes, offices, shops, hotels, digital data centers, photo/ document destruction, lamination and other processes.
Wireless storage devices	It is applicable to personal and home audio/video entertainment and data storage, and ofce data storage.
Wireless sound system	Suitable for individuals and families for appreciation of music, audiovisual integration, and mobile phone communication.
Smart sound system	Suitable for individuals and families, smart home control, voice data search, APP link and related service links, and appreciation of music.

2. Production process

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

Artificial
plug-in
Automatic Loading Finished Loading Warehousing Dispatching
Materials plug-in process goods process Packaging inspection Warehousing inspection Shipments
inspection assembly inspection
Outsourced
processing
----- End of picture text -----

（ 3 ） Supply of main raw materials

a supply shortage. For the main raw materials of the subsidiaries and sub-subsidiaries, PRIMA X has acquired through long-term 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 Dongguan Primax, Kunshan Primax and Chongqing Primax. Since they are 100% owned subsidiaries and sub-subsidiaries of PRIMAX, the delivery lead-time and sources of supply can be fully controlled without the possibility of

（ 4 ） 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.
The information of the suppliers that were identified accounted for more than 10% of the total purchase 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

Year	2016	2016	2016	2016	2017	2017	2017	2017
Item	Name	Amount	Ratio to net sales （%）	Relation to issuer	Name	Amount	Ratio to net sales （%）	Relation to issuer
1	Company A	9,525	14.81	None	Company A	5,218	8.59	None
－	Others	54,804	85.19	－	Others	55,524	91.41	－
－	Net sales	64,329	100.00	－	Net Sales	60,742	100.00	－

also with diversify and high stability. In 2016 and 2017, The net sale from the top 10 customers accounted for 50.04% and 40.53% of the total revenue. There is no customer accounted for more than 30% of the total sale among the top 10, which implied that there is no 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.

（ 5 ） The production value and volume in the last two-year:

Unit: NT$1,000 ／ 1,000 pcs

Main products Production Year	2016	2016	2016	2017	2017	2017
	Capacity	Output	Amount	Capacity	Output	Amount
PC peripherals products	217,258	88,041	21,562,052	189,015	76,034	18,589,454
Non-PC peripherals products	999,890	309,369	34,169,840	1,085,444	219,888	35,074,932
Total	1,217,148	397,410	55,731,892	1,274,459	295,922	53,664,386

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

the last two-yea	r: Unit: NT$1,000／1,000 pcs	r: Unit: NT$1,000／1,000 pcs	r: Unit: NT$1,000／1,000 pcs	r: Unit: NT$1,000／1,000 pcs	r: Unit: NT$1,000／1,000 pcs	r: Unit: NT$1,000／1,000 pcs	r: Unit: NT$1,000／1,000 pcs	r: Unit: NT$1,000／1,000 pcs
Main Products Sales Year	2016				2017
	Domestic sales		Exporting sales		Domestic Sales		Exporting Sales
	Quantity	Amount	Quantity	Amount	Quantity	Amount	Quantity	Amount
PCperipheralsproducts	1,526	242,656	94,216	25,053,772	2,718	131,063	105,037	20,306,095
Non-PCperipheralsproducts	14,662	2,696,179	257,747	34,980,538	2,570	638,989	173,350	38,332,998
Service income	0	0	0	1,356,317	0	0	0	1,332,547
Total	16,188	2,938,835	351,963	61,390,627	5,288	770,052	278,387	59,971,640

average age and educational distribution ratio in the last two years and as of the printing date of the annual report

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

Year 2016 2017 01/01/2018~04/15/2018
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Year	Year	2016	2017	01/01/2018~04/15/2018
Number of employees	Technician（Engineering）	1,419	2,941	2,992
	Management and businesspersonnel	2,694	2,346	2,172
	Total	4,113	5,287	5,164
	Average age	35	34.5	35
	Average serviceyears	5	4.7	4.8
Educational distribution ratio （%）	Ph.D.	0.3	0.2	0.3
	Master's	9.7	8.2	9.0
	Bachelor's	66.0	52.8	54.9
	Senior Higher School Education	15.4	17.3	13.8
	Below Senior Higher School Education	8.6	21.6	22.0

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 2017 enviromental protection expenses for each plant statistics

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

Unit: NT$
Classification Description Expense
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1. Direct Costs for ReducingEnvironmental Impact	1. Direct Costs for ReducingEnvironmental Impact	1. Direct Costs for ReducingEnvironmental Impact
（1）Pollution control cost	Fees for airpollution control, waterpollution control, and others	11,504,050
（2）Resource Conservation Cost	Costs for resource（e.g. water）conservation	11,427,728
（3）Waste Disposal and Recycling	Costs for waste treatment（including recycling, incineration and landfll）	2,750,287
2. Indirect Cost for Reducing Environmental Impact （Environmental Managerial Cost）	（1）Cost of training （2）Environmental management system and certifcation expenditures （3）Environmental impact measurement and monitoring fees （4）Environmental protection product costs （5）Environmental protection organization fees	30,557,465
3. Other Environmental Costs	（1）Costs for decontamination and remediation （2）Environmental damage insurance fees and environmental taxes and expenses （3）Costs related to environmental settlement, compensations, penalties and lawsuits	0
Total		56,239,530

5. Labor relations

（ 1 ） The Company employee's welfare measures, education, training, retirement system and its implementation, as well as agreement between the employers and employees and the employees' interest protection measures

1. Employee's welfare measures and its implementation

． 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.

The Company has an Employee Welfare Committee set-up in accordance with the Employee Welfare Act to handle the appropriation and distribution of welfare fund. 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, employees and their families scholarships and financial aid, employee hospitalization condolence money, employees recreational activities, domestic and international travel allowance, emergency assistance loans to employees, year-end party and lotteries, and other community activities.

． Self-learning: Promote lifelong learning of jobrelated knowledge and skills; also, may apply for flexible working hours in order to initiate on-thejob training; in addition, in order to cope with the Company'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

3. Retirement system 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.

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 ） .

． 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.

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 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.

． 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 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 shortterm overseas professional training or meetings in order to enrich their international vision.

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

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:

（ 1 ） Hold departmental meetings regularly, communicate the Company's and departmental business plans, business overview and market conditions to colleagues.
（ 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.
（ 3 ） Establish labor-management meeting, organize labor-management meetings for communication and consultation regularly, and promote harmonious labor relations.
（ 4 ） Establish the employee welfare committee to organize group recreational activities and handle welfare matters regularly.
（ 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.
（ 8 ） Organize employee physical check-ups and health and safety checks regularly to ensure employee's physical and mental health and safety of the working environment.
（ 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 responsive 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 、 Review and analysis of the financial status and financial performance, and risk management

6. Material Contracts

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

Nature of
contract Contracting Party Term of Agreement Main contents Restrictions
OEM product Customer E 8.1.2014 ~ project ended OEM camera modules and mouse Classified
----- End of picture text -----

Nature of contract OEM product	Contracting Party Customer E	Term of Agreement 8.1.2014 ~ project ended	Main contents OEM camera modules and mouse	Restrictions Classifed
OEM product	Customer G	2.20.2006 ~ project ended	OEM consumer electronic products	Classifed
OEM product	Customer B	5.22.2007 ~ project ended	OEM MFP	Classifed
OEM product	Customer V	6.30.2008 ~ 6.30.2018	OEM consumer electronic products	Classifed
OEM product	Customer U	8.2007 ~ project ended	OEM mouse	Classifed
OEM product	Customer T	2.20.2008 ~ project ended	OEM consumer electronic products	Classifed
OEM product	Customer H	6.1.2008 ~ project ended	OEM MFP	Classifed
OEM product	Customer O	1.2006 ~ project ended	OEM consumer electronic products	Classifed
Trade and lease	Shin Kong Life Insurance	12.2008 ~ 12.2023	Sale and lease of Primax building	None
Loan Agreement	Export-Import Bank of the ROC	2.12.2015 ~ 2.12.2020	Bank mid-term and long - term loan	None

81 Primax Electronics Ltd. 2017 Annual Report

financial performance, and risk management

1. Financial status

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

Unit: NT$1,000
Year 2017 2016 Difference
Item Amount %
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Item Year	2017	2016	Diference	Diference
			Amount	%
Current assets	29,141,420	27,799,554	1,341,866	4.83%
Investment
Fixed assets	4,437,684	4,717,422	（279,738）	-5.93%
Intangible assets	2,730,188	2,673,670	56,518	2.11%
Other assets	1,465,851	1,931,403	（465,552）	-24.10%
Total assets	37,775,143	37,122,049	653,094	1.76%
Current liabilities	23,114,653	22,801,219	313,434	1.37%
Long-term liabilities	1,678,688	2,076,372	（397,684）	-19.15%
Total liabilities	24,793,341	24,877,591	（84,250）	-0.34%
Capital stock	4,459,968	4,424,367	35,601	0.80%
Capital surplus	1,232,490	791,466	441,024	55.72%
Retained earnings	6,087,685	5,665,353	422,332	7.45%
Other equity	（394,871）	118,538	（513,409）	-433.12%
Non-controllingInterests	1,596,530	1,244,734	351,796	28.26%
Total shareholders' equity	12,981,802	12,244,458	737,344	6.02%

（I） Other assets decreased from the previous year: This is mainly caused by the disposition of the shares issued by Nien Made Enterprise, a TWSE/GTSM-listed company, which resulted in the decrease of available-for-sale financial assets.
（II） Long-term liabilities decreased from the previous period: Mainly because of the reimbursement of long-term loans.
（III） Capital surplus increased from the previous year: Mainly because of the issuance of new ESOP and the Tymphany Group restruction.
（IV）
（V） Non-controlling Interests increased from the previous year: Mainly because of the Tymphany Group restruction, which resulted in the increase of non-controlling interests..

income and stable cash inflows that make the financial structure of the company healthy.

2. Financial performance

（ 1 ）

Unit: NT$1,000

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Year Amount of Increase
Item 2017 2016 or Decrease （ % ）
Net Sales 60,741,692 64,329,462 （3,587,770） -5.58%
----- End of picture text -----

Net Sales Item Year	2017 60,741,692	2016 64,329,462	Amount of Increase or Decrease （3,587,770）	（%） -5.58%
Operatingcosts	53,261,685	57,062,275	（3,800,590）	-6.66%
Grossproft	7,480,007	7,267,187	212,820	2.93%
Operatingexpense	5,280,102	4,893,716	386,386	7.90%
Operatingincome	2,199,905	2,373,471	（173,566）	-7.31%
Non-operating income and expenses	647,675	390,981	256,694	65.65%
Income before tax from continuing operations	2,847,580	2,764,452	83,128	3.01%
Income tax expense （beneft）	678,599	777,686	（99,087）	-12.74%
Loss from discontinued operations （after tax）	0	61,896	（61,896）	-100.00%
Net income （including the loss from discontinued operations）	2,168,981	2,048,662	120,319	5.87%

（changes for more than 20% from the previous period and the amount exceeding NT$10 million）:
Non-operating income and expense increased from the previous year: Mainly because of proceeds from disposal of
Loss from discontinued operations（after tax） decreased from the previous year: Mainly because of the disposal of Global TEK during the previous year.

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

grow steadily due to the effect of global information and communications commodity and mobile phone market development and market demand for audio 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.

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 2018, 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

（ 1 ） recent year （ 2017 ）

（1）The changes in cash fow analysis in the most t（2017）	（1）The changes in cash fow analysis in the most t（2017）	（1）The changes in cash fow analysis in the most t（2017）	（1）The changes in cash fow analysis in the most t（2017）
recen year				Unit: NT$1,000
Cash balance	Net cash provided	Net cash provided from	Cash balance	Remedy for liquidity shortage
	from operating activities in 2017	investing and fnancing activities in 2017	12.31.2017	Investment plan	Financing plan
6,359,916	3,412,165	1,461,095	7,821,011	－	－
Analysis of changes in cash fow in the most recent period: （1）From operating: Net cash infow from operating activities amounted to NT$ 3,412,165 thousand mainly because of the decrease of proft and note receivable and account receivable.

（2） From investing: Net cash outflow from investing activities amounted to NT$ 1,452,394 thousand mainly because of the increase of acquisition of property, plant and equipment.
（3） From financing: Net cash outflow from financing activities amounted to NT$ 451,649 thousand mainly because of the reimbursement of long-term loans and payment of cash dividend.
（ 2 ） Plan for improvement of inadequate liquidity: PRIMAX has no inadequacy of liquidity in cash flow in the most recent year.

（ 3 ）（ 2018 ）

3）Ch f li ithi th（2018）	3）Ch f li ithi th（2018）	3）Ch f li ithi th（2018）	3）Ch f li ithi th（2018）
as ow anayss wn e year				Unit: NT$1,000
Cash balance	Net cash provided	Net cash used from	Cash balance	Remedy for liquidity shortage
	from operating activities in 2018	investing and fnancing activities in 2018	12.31.2018	Investment plan	Financing plan
7,821,011	3,209,057	（2,000,041）	5,820,970	－	－
1. Analysis of change in cash fow in the year ahead: （1）From operating: Net cash infow from operating activities is expected at NT$ 3,209,057 thousand mainly because of increase in proft in current period.

（2） From investing: Net cash outflow from investing activities is expected at NT$ 3,818,280 thousand mainly because of the increase of acquisition of plants and equipment.
（3） From financing: Net cash outflow from financing activities is expected at NT$ 1,390,818 thousand mainly because of the reimbursement of short-term loans, long-term loans and payment of cash dividend.
applicable.

Note （2018） is a consolidated amount.

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

83 Primax Electronics Ltd. 2017 Annual Report

Primax Electronics Ltd. 2017 Annual Report 84

financial performance, and risk management

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

PRIMAX's management team for the operational requirements and future strategic development has professional information provided by the responsible units. The Finance and Administration Division 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.

（ 2 ） losses and the improvement plans in the most recent year

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

December 31, 2017 ／ Unit: NT$1,000
Remarks Amount of Profit The main reason for the The main profit or loss Improvement
Item （ loss ） in 2017 profit or loss plan
----- End of picture text -----

Item Remarks	Amount of Proft （loss）in 2017	The main proft or loss The main reason for the proft or loss	Improvement plan
Primax Industries（Cayman Holding）Ltd.	853,625	Normal operation	—
Primax Technology（Cayman Holding）Ltd.	154,146	Normal operation	—
DestinyTechnologyHoldingCo.,Ltd	（10,972）	Normal operation	—
Primax DestinyCo.,Ltd	1,025	Normal operation	—
Diamond（Cayman）Holdings Ltd.	293,587	Normal operation	—
Gratus TechnologyCorp.	523	Normal operation	—
Primax Industries（HongKong）Ltd.	967,397	Normal operation	—
Polaris Electronics Inc.	8,712	Normal operation	—
Tymphany Worldwide Enterprises Ltd	298,734 （Note 2）	Normal operation	—
Tymphany HK Ltd	20,869 （Note 1）	Normal operation	—
TYP Enterprises Ltd	892 （Note 1）	Normal operation	—
TymphanyLogistics,Inc.	3,447	Normal operation	—
Dongguan Primax Electronic Telecommunication Products Ltd.	613,116	Normal operation	—
BeijingDestinyElectronic TechnologyLtd	（10,972）	Normal operation	—
Primax Electronics（Kunshan）Corp., Ltd.	（35,216）	Normal operation	—
Primax Electronics（Chongqing）Corp., Ltd.	176,309	Normal operation	—
Premium Loudspeakers（Huizhou）Co., Ltd.	194,561	Normal operation	—
Dongguan TymphanyAcoustic TechnologyCo., Ltd.	129,391	Normal operation	—
Dongguan Dongcheng Tymphany Acoustic TechnologyCo., Ltd.	3,432	Normal operation	—
Tymphany Acoustic Technology HK Ltd.	（22,017）（Note 1）	Normal operation	—
TymphanyAcoustic Technology（UK）Ltd.	563	Normal operation	—
TymphanyAcoustic TechnologyEurope, s.r.o.	29,907	Normal operation	—
TymphanyAcoustic TechnologyLtd.	—	Normal operation	—
Primax AE（Cayman）Holdings Ltd.（Note 3）	—	—	—

Note 1: The information is represented after the restructuring in the third quarter of 2017.

Note 2: The information is represented after the acquiring 30% of the capital from minority interest in the fourth quarter of 2017. Note 3: The Company remitted funds into Primax AE (Cayman) Holdings Ltd. in January 2018.

（ 3 ） Investment Plan for the Year Ahead

The Board of PRIMAX resolved on November 10, 2017 to establish Primax AE （ Cayman ） Holdings Ltd. with USD$ 48,100,000 for acquiring 37% of the equity share of Belfast Limited.Primax AE （ Cayman ） Holdings Ltd. completed the shareholdings settlement on January 25, 2018.

6. Risk analysis and evaluation

（ 1 ） Company's profit or loss and future responsive measures

1. Changes in exchange rate

2. Changes in interest rate

The consolidated Group's 2017 interest expense accounted for 0.05% of the 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 favorable interest rates and to reduce interest expenses.

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 2017 net foreign exchange loss amounted to NT$20,520 thousand, accounted for 0.03% 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 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 company's profit and loss.

According to the data released by the Directorate-General of Budget, Accounting and Statistics （ DGBAS ） , Executive Yuan in December 2017, the CPI rosed by 1.21% and WPI annual growth rate was 0.24%, which implied that significant inflation is unlikely. These figures did not have significant impact on the income of PRIMAX in 2017. PRIMAX always pays attention to fluctuations in market prices and will have sales price and raw materials and inventory adjusted accordingly; however, there was no significant impact that occurred as a

（ 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 responsive measures

1. Engaged in high-risk and highly leveraged investments

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 of endorsement and guarantee

3. Derivative products trading

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 “Regulations Governing 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 according to the policies and responsive

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

1. Research and development plans in the future

business equipment and digital home products. In the future, PRIMAX will continue to work in conjunction with large international firms and

The principal items for PRIMAX in development are PC peripherals, mobile device components,

Primax Electronics Ltd. 2017 Annual Report 86

Primax Electronics Ltd. 2017 Annual Report

financial performance, and risk management

and to make the products of PRIMAX even more competitive in the international market.

engage in strategic partnerships with new business entities with a focus on Gaming mouse, keyboard, and keyboard modules, multiple-color keyboard backlight modules, double-lens cell phone camera modules, 3D sensor modules, PC built –in camera modules, bio recognition modules, Bluetooth and network smart sound systems and related products, Bluetooth and wireless headphones and related items, multiple-function business machine scanners, Jet printing and laser multi-purpose business machines, automotive electronics, automated production lines, artificial smart home appliances, smart health and smart home technology products, for further upgrade of our capacity in research and development, a larger share of the product market,

2. Projected investment in research and development

P R I M A X ' s p r o j e c t e d r e s e a r c h a n d 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 PRIMA X's competitive advantage. In 2018, the estimated investment in research and development will be approximately NT$2.6 billion.

（ 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 operations and responsive measures:

In response to the ongoing development of advanced technology, PRIMAX will continue to commit resources to research and development, and keep abreast of the changes in the market and technology in specific areas of PC peripherals, mobile device components, business equipment and digital home products with the collection and analysis of related information to mitigate the impact brought forth by changes in technology. At the same time, PRIMAX will also intensify its research and development of products of high

more diversified and stable and to secure sources of profits. With outstanding process technologies, PRIMAX continues to expand its strategic alliance system in depth and width with existing customers from product design, production, logistics support, distribution and after-sales service in order to strengthen mutual long-term co-existence and common prosperity. Technological and industrial changes have not had 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:

PRIMAX highly treasures its corporate image. As one of the leaders in PC peripherals, mobile device components, business equipment, and digital home products in the world, PRIMAX has a friendly human resources development and training program in place. The management is also people-oriented helping to attract good people and technology to the Company. These have contributed to the buildup of a solid professional team. The results of operation will be rewarded to the Shareholders. PRIMAX performs its corporate

social responsibility to its entirety and spares no effort in making improvements to the environment through energy saving and carbon reduction. PRIMAX also heavily commits to social charity to achieve the goal of sustainable development. PRIMAX has appointed a designated team for managing its corporate image in preventing, handling and responding to possible problems. Nothing has affected the corporate image of PRIMAX in the most recent year and as of the printing date of the annual report.

（ 7 ） measures:

The Board of PRIMAX resolved on November through this transaction, like the competitive 10, 2017 to establish Primax AE （ Cayman ） Holdings capability and business capability in power steering Ltd. with USD$ 48,100,000 for acquiring 37% of of motor vehicles and smart head lamps. Primax the equity share of Belfast Limited. PRIMAX could AE （ Cayman ） Holdings Ltd. completed the further expand in the area of automotive electronics shareholdings settlement on January 25, 2018.

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

1. The risks of centralized purchase and

2. The risks of centralized sales and the

responsive measures

The customers of PRIMA X are mainly international well-known technology firms,and also with diversity and stability. In 2017, the net sale with the top 10 customers accounted for approximately 40.53% of the total. There is no customer among the top 10 that accounted for more than 30% of the sale, which implied that there is no 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.

P R I M A X , e x c e p t f o r t h e finished product procurement, has retained two or more qualified suppliers for procurement in order to maintain purchase

==> picture [117 x 99] intentionally omitted <==

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.

（ 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

with the Hong Kong High Court claim for an overdue account of USD 5,811,362.27 in June 2017. The law suit is still in process in the Hong Kong High Court.

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:

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 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: None.

As per the request of Euler Hermes Insurance, action has been taken on Comtech International （ Hong Kong ） Limited and its Guarantor Cogobuy Group

（ 13 ） Other important risks and responsive measures: None.

7. Other important events: None

Primax Electronics Ltd. 2017 Annual Report

Special Notes

（ 1 ）

（ 1 ） Affiliated company's overview

（ December 31, 2017 ）

7 、 Special Notes

==> picture [157 x 57] intentionally omitted <==

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

Primax Electronics Ltd.
TW
----- End of picture text -----

==> picture [483 x 525] intentionally omitted <==

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

Diamond Primax AE
Primax Destiny Primax Technology （Cayman）（Cayman）
Co., Ltd. （Cayman Holding）
Holdings Ltd. Holdings Ltd.
Ltd.
（Note）
Japan Cayman
Cayman Cayman
Destiny Primax Industries Polaris Gratus
Technology （Cayman Holding） Electronics
Technology
Holding Co.,Ltd. Ltd. Inc. Corp.
BVI Cayman US US
Beijing Destiny 32.84 Tymphany
Technology Co., Electronic Primax Industries（Hong Kong） % Enterprises Ltd.Worldwide
Ltd.
Ltd. Cayman
PRC HK
Dongguan
Primax Electronic &. 66.44
67.16
Telecommu nication %
%
Products Ltd
PRC
Primax Electronics Primax Electronics Premium
（KunShan）（ChongQing） Loudspeakers
Corp., Ltd. Corp., Ltd. （Huizhou）
Co., Ltd.
PRC PRC
PRC
Tymphany
Dongguan Tymphany
Acoustic Technology
Acoustic Technology
HK Ltd.
Co. Ltd.
HK
PRC
Tymphany Tymphany Tymphany TYP Tymphany
Acoustic Acoustic HK Enterprises, Acoustic Technology
Technology Technology Ltd. Inc. Limited
（UK） Ltd. Europe, s.r.o. HK US TW
UK CZ
Dongguan Dongcheng
Tymphany Acoustic
Tymphany Logistics.
Inc. Technology Co., Ltd.
US PRC
----- End of picture text -----

Note: The Company remitted funds into Primax AE (Cayman) Holdings Ltd. in January 2018.

Primax Electronics Ltd. 2017 Annual Report

Special Notes	Special Notes	Special Notes	Special Notes	Special Notes	Special Notes	Special Notes

Company Name	Establishment Date	Address			Paid-in capital	Principal businesses or productionprojects
Tymphany Acoustic Technology HK Ltd.	01.05.2017	RM 803 Tung Hip Comm Bldg 248 Des Voeux Rd Central, Hong Kong			19,092	Research, development, design, and sale of sound system accessories, loud speakers and components, and holdings.
Tymphany Acoustic Technology （UK）Ltd.	01.20.2017	C/O Broomfeld & Alexander Ltd Ty Derw, Lime Tree Court, Cardif Gate Business Park, Cardif, United Kingdom, CF23 8AB			16,044	Research, development, and design of sound system accessories, loud speakers and parts and components.
Tymphany Acoustic Technology Europe, s.r.o.	08.18.2004	Průmyslový park 305, 742 21 Kopřivnice- Vlčovice, Czech Republic			261,644	Manufacturing, installation, and maintenance sound system accessories and parts and components.
Tymphany Acoustic Technology Limited	12.14.2017	10F, No. 19-2 and 19-3, Sanchong Rd., Nangang Dist., Taipei City			50,000	Research, development and design of sound system accessories, loud speakers and parts and components.
Gratus Technology Corp	04.01.2015	356 S. Milpitas Blvd, Milpitas, CA95035, USA			8,954	Market development and customer service in PC peripherals, mobile device components, and business equipment.
Primax AE （Cayman） Holdings Ltd. （Note）	11.14.2017	The Grand Pavilion Commercial Centre, Oleander Way, 802 West Bay Road, P.O. Box 32052, Grand Cayman KY1-1208, Cayman Island			—	Holding company
5. Information of all afliated company's directors, supervisors and managers December 31, 2017 3. A control and afliation relationship according to Article 369.3 of the Company Law:None 4. The business scope of the overall afliated companies and the interaction and division of work: The primary business operations of the Company and its affliated companies include PC peripherals and non-PC peripheral product design, manufacturing, processing, and sales. In general, the interaction and job division among the affliated companies is to create maximum synergy through the mutual support of technology, production, marketing and services. Note: The Company remitted funds into Primax AE (Cayman) Holdings Ltd. in January 2018.
Company Name			Title	Name or representative
Dongguan Primax Electronic Telecommunication Products Co., Ltd.			Chairman	Primax Industries（Hong Kong）Ltd. & Primax Technology（Cayman Holding）Ltd. Representative: Lee, Chiu-Sheng
			Director	Primax Industries（Hong Kong）Ltd. & Primax Technology（Cayman Holding）Ltd. Representative: Ying, Chung-Wen
			Director	Primax Industries（Hong Kong）Ltd. & Primax Technology（Cayman Holding）Ltd. Representative: Chang, Chen-Deh
			General Manager	Lee, Chiu-Sheng
Primax Electronics（KunShan）Co., Ltd.			Executive Director	Primax Industries（Hong Kong）Ltd. Representative: Yang, Hai-Hung
			Supervisors	Primax Industries（Hong Kong）Ltd. Representative: Chang, Chen-Deh
			General Manager	Lee, Chiu-Sheng
Primax Electronics（Chongqing）Corp., Ltd.			Executive Director	Primax Industries（Hong Kong）Ltd. Representative: Yang, Hai-Hung
			Supervisors	Primax Industries（Hong Kong）Ltd. Representative: Chang, Chen-Deh
			General Manager	Lee, Chiu-Sheng
Beijing Destiny Electronic Technology Corp., Ltd.			Chairman	Destiny Technology Holding Co., Ltd. Representative: Liang, Li-Sheng
			Director	Destiny Technology Holding Co., Ltd. Representative: Yang, Hai-Hung
			Director	Destiny Technology Holding Co., Ltd. Representative: Ying, Chung-Wen
			General Manager	Wei, Hao-San

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.

==> picture [1051 x 160] intentionally omitted <==

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Special Notes Special Notes
December 31, 2017 （ 2 ） Affiliated company's operation overview
Unit: NT$1,000 ／ December 31, 2017
Company Name Title Name or representative
Earnings in Earnings per
Director Wei, Hao-San Company Name amountCapital assetsTotal liabilitiesTotal Net worth Operating revenue Operating income current period （ After tax ）（ ShareNT$ ）
Director Yang, Hai-Hung （ After tax ）
Primax Destiny Co.,Ltd.
Director Hsiao, Ying-Yee Dongguan Primax Electronic
----- End of picture text -----

Primax Destiny Co.,Ltd.	recor Director	ang, a-ung Hsiao, Ying-Yee	Dongguan Primax Electronic								（Af	ter tax）
	Supervisors	Chou, Yen-Chou	& Telecommunication	2,037,050	13,918,072	8,914,102	5,003,970	32,033,587	1,044,714	613,116		－
Polaris Electronics, Inc. Primax Industries（Hong Kong）Ltd.	Director Director Director Director Director	Yang, Hai-Hung Liang, Li-Sheng Liang, Li-Sheng Yang, Hai-Hung Liang, Li-Sheng	Products Co., Ltd. Primax Electronics （KunShan）Co., Ltd. Primax Electronics （Chongqing）Corp., Ltd.	891,956 572,472	1,229,778 3,546,380	362,156 2,470,219	867,622 1,076,161	1,079,793 5,838,051	（8,402） 173,814	（35,216） 176,309		－－
Primax Technology（Cayman Holding） Ltd.	Director Director	Yang, Hai-Hung Hsiao, Ying-Yee	Beijing Destiny Electronic Technology Co., Ltd.	40,353	49,170	34,623	14,547	103,346	（11,063）	（10,972）		－
	Director	Liang, Li-Sheng	Primax Destiny Co.,Ltd.	6,610	20,783	4,397	16,386	12,696	803	1,025	2,050.00
Primax Industries（Cayman Holding）Ltd.	Director Director	Yang, Hai-Hung Hsiao, Ying-Yee	Polaris Electronics, Inc.	47,757	940,233	567,040	373,193	2,949,865	15,214	8,712		5.45
DestinyTechnologyHoldingCo., Ltd.	Director	Liang, Li-Sheng Primax Electronics Ltd.	Primax Industries （Hong Kong）Ltd.	2,301,736	5,360,434	13,348	5,347,086	12,777	25,242	967,397		1.60
Diamond（Cayman）Holdings Ltd.	Director	Representative: Liang, Li-Sheng Hsiao,Ying-Yee Diamond（Cayman）Holdings Ltd.	Primax Technology （Cayman Holding）Ltd.	850,867	2,105,188	0	2,105,188	0	（215）	204,489		0.72
Tymphany Worldwide Enterprises Ltd.	Director	Representative: Liang, Li-Sheng Yang, Hai-Hung	Primax Industries （Cayman Holding）Ltd.	2,431,906	5,413,454	56,946	5,356,508	315,126	（2,613）	963,666		0.12
		Pan, Yung-Chung Pan,Yung-Tai Edward Townsend Boyd III	Destiny Technology Holding Co., Ltd.	31,340	14,551	0	14,551	0	0	（10,972）		-10.45
TYP Enterprises, Inc.	Director	Thomas Lee Jacoby Representative: Pan,Yung-Chung	Diamond（Cayman） Holdings Ltd.	2,508,724	3,193,840	104,468	3,089,372	0	1,141	293,587		3.49
Tymphany HK Ltd.	Director	Edward Townsend Boyd III Representative: Pan, Yung-Chung	Tymphany Worldwide Enterprises Ltd.	550,010	1,758,529	217,493	1,541,036	748,412	24,789	500,879		13.01
	Director	Representative: Pan, Yung-Chung Liang, Li-Sheng	Tymphany HK Ltd.	551,343	8,757,405	8,010,213	747,192	19,841,424	313,524	376,600		2.61
Premiam Loudspeakers （Huizhou） Co., Ltd.	General Manager Supervisor	Liu,Hsiao-Tung Pan, Yung-Chung Fan, Chi-Liang	TYP Enterprises, Inc. Premium Loudspeakers （Huizhou）	15 1,311,036	29,404 4,763,679	21,204 2,484,243	8,200 2,279,436	125,586 5,506,184	5,215 322,893	3,748 265,156	7,496.00 －
	Supervisors	Hsiao, Ying-Yee	Co., Ltd.
TymphanyLogistics,Inc.	Director	Liang, Li-Sheng	Dongguan Tymphany
Dongguan Tymphany Acoustic Technology Co., Ltd.	Executive Director General Manager Supervisors Executive Director	Representative: Pan, Yung-Chung Pan, Yung-Chung Hsiao, Ying-Yee Representative: Pan, Yung-Chung	Acoustic Technology Co., Ltd. Gratus Technology Corporation	149,240 8,954	6,440,402 10,782	6,075,425 1,135	364,977 9,647	11,458,970 15,306	228,347 866	197,738 523		－ 1.74
Dongguan Dongcheng Tymphany Acoustic Technology Co., Ltd. TymphanyAcoustic TechnologyHK Ltd.	General Manager Supervisors Director	Pan, Yung-Chung Hsiao, Ying-Yee Pan, Yung-Chung	Tymphany Logistics,Inc. Dongguan Dongcheng Tymphany Acoustic Technology Co., Ltd.	5,970 91,360	412,298 437,508	402,241 340,087	10,057 97,421	819,982 1,264,187	4,354 8,484	1,219 5,320		6.10 －
TymphanyAcoustic Technology（UK）Ltd. Tymphany Acoustic Technology Europe,	Director Director	PhilipScott Mcphee Pavel Merhout	Tymphany Acoustic Technology HK Ltd.	19,092	2,066,008	1,918,983	147,025	1,275,781	（57,441）	（14,475）		-2.90
s.r.o. Tymphany Acoustic Technology Limited	Director Director Supervisors	PhilipScott Mcphee Liang, Li-Sheng Pan, Yung-Tai Pan, Yung-Chung Hsiao, Ying-Yee	Tymphany Acoustic Technology（UK）Ltd. Tymphany Acoustic Technology Europe, s.r.o.	16,044 261,644	31,631 1,029,658	15,005 483,598	16,626 546,060	19,671 1,383,133	697 37,123	563 29,907		2.82 0.16
Gratus Technology Corp.	Director Director	Liang, Li-Sheng Yang, Hai-Hung	Tymphany Acoustic Technology Ltd.	50,000	0	0	0	0	0	0		－
Primax AE (Cayman) Holdings Ltd. （Note）	Director	Primax Electronics Ltd. Representative: Liang, Li-Sheng Hsiao, Ying-Yee	Primax AE（Cayman） Holdings Ltd. （Note）	0	0	0	0	0	0	0		－
Note: The Company remitted funds into Primax AE (Cayman) Holdings Ltd. in January 2018.			Note: The Company remitted funds into Primax AE (Cayman) Holdings Ltd. in January						2018.
Primax Electronics Ltd.2017 Annual 93	Report						Primax Electronics Ltd.2017			Annual Report		94

Special Notes

（ 2 ）

（ 1 ） Declaration of the affiliated company's consolidated financial statements: refer to “ The 2017 consolidated financial statements and notes （ A ） had been audited by the CPAs ” under Financial Review.
（ 2 ） Independent Auditor's Report on the affiliated company's consolidated financial statements: refer to “ The 2017 consolidated financial statements and notes （ A ） had been audited by the CPAs ” under Financial Review.

（ 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

8 、 Financial Review

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

95 Primax Electronics Ltd. 2017 Annual Report

Financial Review

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 2013 2014 2015 2016 2017
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Item Year	Item Year	Financial Summary for The Last Fiveyears（Note 1）	Financial Summary for The Last Fiveyears（Note 1）	Financial Summary for The Last Fiveyears（Note 1）	Financial Summary for The Last Fiveyears（Note 1）	Financial Summary for The Last Fiveyears（Note 1）
		2013	2014	2015	2016	2017
Current assets		17,385,420	23,078,336	30,413,161	27,799,554	29,141,420
Property, plant and equipment		3,389,048	3,935,145	6,284,023	4,717,422	4,437,684
Intangible assets		46,479	2,916,644	3,322,191	2,673,670	2,730,188
Other assets		769,975	1,093,648	1,712,358	1,931,403	1,465,851
Total assets		21,590,922	31,023,773	41,731,733	37,122,049	37,775,143
Current liabilities	Before distribution	13,828,775	19,254,757	26,154,964	22,801,219	23,114,653
	After distribution	14,175,880	20,045,864	27,082,897	23,913,105	24,544,721
Non-current liabilities		220,580	1,460,269	2,660,184	2,076,372	1,678,688
Total liabilities	Before distribution	14,049,355	20,715,026	28,815,148	24,877,591	24,793,341
	After distribution	14,396,460	21,506,133	29,743,081	25,989,477	26,223,409
Equity attributable to Shareholders of the Parent		7,541,567	9,150,513	10,430,381	10,999,724	11,385,272
Capital stock		4,339,529	4,385,481	4,427,051	4,424,367	4,459,968
Capital	surplus	648,747	673,543	777,368	791,466	1,232,490
Retained earnings	Before distribution	2,485,712	3,686,641	4,660,556	5,665,353	6,087,685
	After distribution	2,138,607	2,895,534	3,732,623	4,553,467	4,657,617
Other equity		67,579	404,848	565,406	118,538	（394,871）
Treasurystock		－	－	－	－	－
Non-controllingInterests		－	1,158,234	2,486,204	1,244,734	1,596,530
Total shareholders' equity	Before distribution	7,541,567	10,308,747	12,916,585	12,244,458	12,981,802
	After distribution	7,194,462	9,517,640	11,988,652	11,132,572	11,551,734

Note 1: The information from 2013 to 2017 has been audited.

（ 2 ） Condensed Proprietary Balance Sheet - International Financial Reporting Standards

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

Unit: NT$1,000
Year Financial Summary for The Last Five years （ Note 1 ）
Item
2013 2014 2015 2016 2017
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Item Year	Item Year	Financial Summary for The Last Fiveyears（Note 1）	Financial Summary for The Last Fiveyears（Note 1）	Financial Summary for The Last Fiveyears（Note 1）	Financial Summary for The Last Fiveyears（Note 1）	Financial Summary for The Last Fiveyears（Note 1）
		2013	2014	2015	2016	2017
Current assets		10,459,628	13,197,595	16,329,746	16,123,543	12,698,756
Investments accounted for using equity method		4,745,311	8,596,698	10,088,961	9,317,894	10,287,105
Property, plant and equipment		63,517	61,287	65,554	68,785	69,036
Intangible assets		46,479	37,997	29,514	22,966	18,351
Other assets		429,204	659,461	1,182,141	1,551,115	1,055,636
Total assets		15,744,139	22,553,038	27,695,916	27,084,303	24,128,884
Current liabilities	Before distribution	8,002,029	12,157,266	15,204,972	13,579,780	10,889,520
	After distribution	8,349,134	12,948,373	16,132,905	14,691,666	12,319,588
Non-current liabilities		200,543	1,245,259	2,060,563	2,504,799	1,854,092
Total liabilities	Before distribution	8,202,572	13,402,525	17,265,535	16,084,579	12,743,612
	After distribution	8,549,677	14,193,632	18,193,468	17,196,465	14,173,680
Shareholders' equity		7,541,567	9,150,513	10,430,381	10,999,724	11,385,272
Capital stock		4,339,529	4,385,481	4,427,051	4,424,367	4,459,968
Capital	surplus	648,747	673,543	777,368	791,466	1,232,490
Retained earnings	Before distribution	2,485,712	3,686,641	4,660,556	5,665,353	6,087,685
	After distribution	2,138,607	2,895,534	3,732,623	4,553,467	4,657,617
Other equities		67,579	404,848	565,406	118,538	（394,871）
Treasurystock		－	－	－	－	－
Total shareholders' equity	Before distribution	7,541,567	9,150,513	10,430,381	10,999,724	11,385,272
	After distribution	7,194,462	8,359,406	9,502,448	9,887,838	9,955,204

Note 1: The information from 2013 to 2017 has been audited.

（ 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 2015
2013 2014 2016 2017
（ restated ）
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Item Year	Financial Summary for The Last Five years（Note 1）	Financial Summary for The Last Five years（Note 1）	Financial Summary for The Last Five years（Note 1）	Financial Summary for The Last Five years（Note 1）	Financial Summary for The Last Five years（Note 1）
	2013	2014	2015 （restated）	2016	2017
Operatingrevenue	42,319,988	52,239,777	63,538,187	64,329,462	60,741,692
Grossproft	3,752,695	6,218,799	6,743,265	7,267,187	7,480,007
Net operatingincome	694,444	1,829,742	2,106,868	2,373,471	2,199,905
Non-operatingincome and expenses	216,308	217,839	311,034	390,981	647,675
Income before income taxes	910,752	2,047,581	2,417,902	2,764,452	2,847,580
Net income from continuingoperations	668,554	1,608,967	1,786,893	1,986,766	2,168,981
Loss from discontinued operations	－	－	30,042	61,896	－
Net income	668,554	1,608,967	1,816,935	2,048,662	2,168,981
Other comprehensive income（after tax）	239,067	342,273	225,310	（547,079）	（445,910）
Total comprehensive income	907,621	1,951,240	2,042,245	1,501,583	1,723,071
Net income attributable to stockholders of the Parent	668,548	1,544,690	1,773,122	1,934,070	2,057,415
Net income attributable to non-controlling interests	6	64,277	43,813	114,592	111,566
Total comprehensive income attributable to stockholders of the Parent	907,589	1,871,224	1,987,738	1,432,480	1,606,886
Total comprehensive income attributable to non-controllinginterests	32	80,016	54,507	69,103	116,185
Earningsper share（Note 2）	1.55	3.57	4.06	4.4	4.67

Note 1: The information from 2013 to 2017 has been audited. Note 2: Basic earnings per share.

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

Unit: NT$1,000

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Year Financial Summary for The Last Five years （ Note 1 ）
Item
2013 2014 2015 2016 2017
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Item Year	Financial Summary for The Last Fiveyears（Note 1）	Financial Summary for The Last Fiveyears（Note 1）	Financial Summary for The Last Fiveyears（Note 1）	Financial Summary for The Last Fiveyears（Note 1）	Financial Summary for The Last Fiveyears（Note 1）
	2013	2014	2015	2016	2017
Operatingrevenue	37,257,934	42,356,385	51,638,181	45,739,783	35,023,563
Grossproft	2,471,611	2,665,779	2,934,548	3,633,341	2,237,909
Net operatingincome	737,781	753,349	926,670	1,549,861	226,352
Non-operatingincome and expenses	121,510	879,985	1,007,253	797,663	1,952,481
Income before income taxes	859,291	1,633,334	1,933,923	2,347,524	2,178,833
Net income from continuingoperations	668,548	1,544,690	1,773,122	1,934,070	2,057,415
Loss from discontinued operations	－	－	－	－	－
Net income	668,548	1,544,690	1,773,122	1,934,070	2,057,415
Other comprehensive income（after tax）	239,041	326,534	214,616	（501,590）	（450,529）
Total comprehensive income	907,589	1,871,224	1,987,738	1,432,480	1,606,886
Earningsper share（Note 2）	1.55	3.57	4.06	4.4	4.67

Note 1: The information from 2013 to 2017 has been audited. Note 2: Basic earnings per share.

（ 5 ） Auditors' Opinions from 2013 to 2017

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Year Accounting Firm CPA Audit Opinion
2013 KPMG Wu, Mei-Pin and Chen, Cheng-Chien Unqualified opinion
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Year 2013	Accounting Firm KPMG	CPA Wu, Mei-Pin and Chen, Cheng-Chien	Audit Opinion Unqualifed opinion
2014	KPMG	Wu, Mei-Pin and Chen, Cheng-Chien	Modifed unqualifed opinion
2015	KPMG	Huang, Yung-Hua and Yu, Chi-Lung	Modifed unqualifed opinions
2016	KPMG	Huang, Yung-Hua and Yu, Chi-Lung	Unqualifed opinion
2017	KPMG	Wu, Mei-Pin and Huang, Yung-Hua	Unqualifed opinion

97 Primax Electronics Ltd. 2017 Annual Report

Primax Electronics Ltd. 2017 Annual Report

Financial Review

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

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

The financial analysis of the last five years
Year
Analysis items 2013 2014 2015 2016 2017
（ restated ）
----- End of picture text -----

Analysis items Year	Analysis items Year	The fnancial analysis of the last fve years	The fnancial analysis of the last fve years	The fnancial analysis of the last fve years	The fnancial analysis of the last fve years	The fnancial analysis of the last fve years
		2013	2014	2015 （restated）	2016	2017
Financial structure （%）	Debit ratio	65.07	66.77	69.05	67.02	65.63
	Ratio of long-term fund to property, plant and equipment	229.04	299.07	247.88	303.57	330.36
Solvency （%）	Current ratio	125.72	119.86	116.28	121.92	126.07
	Quick ratio	93.98	92.42	86.61	90.80	94.40
	Times interest earned（times）	53.34	31.76	17.52	31.55	88.06
Operating Performance	Account receivable turnover（times）	5.65	5.72	5.11	4.59	4.56
	Days sales outstanding	64.60	63.81	71.43	79.52	80.04
	Inventory turnover days（times）	8.39	10.26	9.34	8.14	7.91
	Account payable turnover（times）	3.86	3.99	3.62	3.20	3.20
	Average day in sales	43.52	35.58	39.08	44.84	46.14
	Property, plant and equipment turnover（times）	11.74	14.26	12.44	11.69	13.27
	Total assets turnover（times）	2.03	1.99	1.75	1.63	1.62
Proftability	Return on total assets（%）	3.28	6.33	5.33	5.39	5.86
	Return on shareholders' equity（%）	9.06	18.03	15.65	16.28	17.20
	Pre-tax income to paid-in capital（%）	21.01	46.69	54.62	62.48	63.85
	Net margin（%）	1.58	3.08	2.86	3.18	3.57
	Earnings per share（NT$）	1.55	3.57	4.06	4.40	4.67
Cash fow	Cash fow ratio（%）	21.63	17.42	19.20	9.95	14.76
	Cash fow adequacy ratio（%）	159.46	179.72	132.27	128.08	131.73
	Cash reinvestment ratio（%）	19.76	21.34	23.31	7.71	12.45
Leverage	Operating leverage	2.60	1.65	1.64	1.66	1.69
	Financial leverage	1.03	1.04	1.07	1.04	1.02

（It is not necessary to analyze the changes for less than 20%）

Times interest earned: This ratio moved upward in 2017 mainly because of the decrease of interest expenses.
activities.
operating activities.

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

Year The financial analysis of the last five years
Analysis items 2013 2014 2015 2016 2017
----- End of picture text -----

Analysis items Year	Analysis items Year	The fnancial analysis of the last fve years	The fnancial analysis of the last fve years	The fnancial analysis of the last fve years	The fnancial analysis of the last fve years	The fnancial analysis of the last fve years
		2013	2014	2015	2016	2017
Operating Performance	Account receivable turnover（times）	5.57	5.42	5.15	4.76	4.95
	Days sales outstanding	65.53	67.34	70.87	76.68	73.74
	Inventory turnover days（times）	18.68	24.45	24.29	17.38	14.83
	Account payable turnover（times）	6.11	5.63	5.03	3.92	3.54
	Average day in sales	19.54	14.93	15.03	21.00	24.61
	Property, plant and equipment turnover（times）	614.59	678.77	814.22	680.96	508.25
	Total assets turnover（times）	2.49	2.21	2.06	1.67	1.37
Proftability	Return on total assets（%）	4.55	8.33	7.23	7.16	8.07
	Return on shareholders' equity（%）	9.05	18.51	18.11	18.05	18.38
	Pre-tax income to paid-in capital（%）	19.8	37.24	43.68	53.06	48.85
	Net margin（%）	1.79	3.65	3.43	4.23	5.87
	Earnings per share（NT$）	1.55	3.57	4.06	4.40	4.67
Cash fow	Cash fow ratio（%）	12.33	12.46	6.82	29.22	4.15
	Cash fow adequacy ratio（%）	103.17	192.99	103.65	171.89	151.46
	Cash reinvestment ratio（%）	4.31	11.06	2.03	23.71	（5.05）
Leverage	Operating leverage	1.06	1.05	1.04	1.02	1.18
	Financial leverage	1.02	1.09	1.06	1.02	1.05

（It is not necessary to analyze the changes for less than 20%）

Times interest earned: This ratio moved upward in 2017 mainly because of the decrease of interest expenses.
Property, plant and equipment turnover: This rate moved downward in 2017 mainly because of the decline in sales.
Net margin: The margin moved upward in 2017 mainly because of the increase of net income resulting from the disposal of available-for-sale financial assets.
Cash flow ratio: This ratio moved downward in 2017 mainly because of the decrease of net cash inflow from operating activities.
from operating activities, coupled with the increase of cash dividend.

1. Financial structure

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

（ 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 2013 2014 2015 2016 2017
----- End of picture text -----

Analysis items Year	Analysis items Year	The fnancial analysis of the last fve years	The fnancial analysis of the last fve years	The fnancial analysis of the last fve years	The fnancial analysis of the last fve years	The fnancial analysis of the last fve years
		2013	2014	2015	2016	2017
Financial structure （%）	Debit ratio	52.10	59.43	62.34	59.39	52.81
	Ratio of long-term fund to property, plant and equipment	12,189.04	16,962.44	19,054.43	19,632.95	19,177.48
Solvency （%）	Current ratio	130.71	108.56	107.40	118.73	116.61
	Quick ratio	108.15	96.38	90.46	101.67	96.86
	Times interest earned（times）	52.96	27.92	37.23	74.85	202.37

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 sales / Average net property, plant and equipment
（ 7 ） Total assets turnover ＝ Net sales / Average total assets

99 Primax Electronics Ltd. 2017 Annual Report

Primax Electronics Ltd. 2017 Annual Report 100

Financial Review

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

（ 1 ）＝
（ 2 ） Cash flow adequacy ratio ＝ Five-year sum of cash from operating activities / 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 ）／ Net operating income
（ 2 ） Financial leverage ＝ Net operating income ／（ Net operating income － interest expenses ）

3. The Audit Committee's review report on the

The Audit Committee's review report

The Board of Directors has prepared the Company's 2017 Business Report, Financial Statements, and proposal for distribution of earnings. 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 proposal for distribution of earnings have been audited and determined by the Audit Committee members of PRIMAX Electronics Limited, and in compliance with the Company Act and other applicable laws and requlations. According to Article 219 of the Company Act, we hereby submit this report.

PRIMAX Electronics Limited – Shareholders' Meeting

Chairman of the Audit Committee:

Wei, Yung Tu March 13 2018

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5. The 2017 consolidated financial statements and notes （ A ） had been audited by the CPAs

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

101 Primax Electronics Ltd. 2017 Annual Report

Primax Electronics Ltd. 2017 Annual Report 102

Stock Code:4915

Table of contents

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

CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017 and 2016 (With Independent Auditors’ Report Thereon)

		Contents	Page
1.	Cover Page		1
2.	Table of Contents		2
3.	Representation Letter		3
4.	Independent Auditors’ Report		4
5.	Consolidated Balance Sheets		5
6.	Consolidated Statements of Comprehensive Income		6
7.	Consolidated Statements of Changes in Equity		7
8.	Consolidated Statements of Cash Flows		8
9.	Notes to the Consolidated Financial Statements
	(1) (2)	Company history Approval date and procedures of the consolidated financial statements	9 9
	(3)	New standards, amendments and interpretations adopted	9～14
	(4)	Summary of significant accounting policies	15～32
	(5)	Significant accounting assumptions and judgments, and major sources	32～33
		of estimation uncertainty
	(6)	Explanation of significant accounts	33～74
	(7)	Related-party transactions	75～76
	(8)	Pledged assets	76
	(9)	Commitments and contingencies	76～77
	(10)	Losses due to major disasters	77
	(11)	Subsequent events	77
	(12)	Other	78
	(13)	Other disclosures
		(a) Information on significant transactions	79～83
		(b) Information on investees	84
		(c) Information on investments in mainland China	85～86
	(14)	Segment information	86～87

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

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

Representation Letter

The entities that are required to be included in the combined financial statements of PRIMAX ELECTRONICS LTD. as of and for the year ended December 31, 2017 under the Criteria Governing the Preparation of Affiliation Reports, Consolidated Business Reports, and Consolidated Financial Statements of Affiliated Enterprises are the same as those included in the consolidated financial statements prepared in conformity with International Financial Reporting Standards No. 10 by the Financial Supervisory Commission, “Consolidated and Separate Financial Statements.” In addition, the information required to be disclosed in the combined financial statements is included in the consolidated financial statements. Consequently, PRIMAX ELECTRONICS LTD. and its Subsidiaries do not prepare a separate set of combined financial statements.

Independent Auditors’ Report

To the board of directors of PRIMAX ELECTRONICS LTD.:

Opinion

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

We have audited the consolidated financial statements of PRIMAX ELECTRONICS LTD. and its subsidiaries (“ the Group” ), which comprise the consolidated balance sheets as of December 31, 2017 and 2016, the consolidated statements of comprehensive income, changes in equity and cash flows for the years ended December 31, 2017 and 2016, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, based on our audits and the report of other auditors (please refer to Other Matter paragraph), the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2017 and 2016, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and with the International Financial Reporting Standards (“IFRSs”), International Accounting Standards (“IASs”), interpretation as well as related guidance endorsed by the Financial Supervisory Commission of the Republic of China.

Basis for Opinion

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

Other Matter

We did not audit the financial statements of certain subsidiaries. Those financial statements were audited by other auditors. Therefore, our opinion, insofar as it relates to those subsidiaries, is based solely on the reports of the other auditors. As of December 31, 2017 and 2016, the assets of these subsidiaries constitute 30% and 14%, respectively, of the consolidated total assets. For the years ended December 31, 2017 and 2016, the operating revenue of these subsidiaries constitute 34% and 14%, respectively, of the consolidated operating revenue.

PRIMAX ELECTRONICS LTD. has prepared its parent-company-only financial statements as of and for the years ended December 31, 2017 and 2016, on which we have issued an unmodified opinion with other matter paragraph.

4-1

4-2

Key Audit Matters

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

1. Evaluation of inventories

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

Description of key audit matter:

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

How the matter was addressed in our audit:

Our principal audit procedures included: understanding the policies of evaluating the inventories of the Group; inspecting whether existing inventory policies are applied; examine the accuracy of the aging of inventories by sampling and analyze the changes of the aging of inventories; sampling the inventories sold in the subsequent period to assess whether the allowance for inventories are reasonable.

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

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

How the matter was addressed in our audit:

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

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

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

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

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

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

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

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

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

4-3

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

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

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

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

The engagement partners on the audit resulting in this independent auditors’ report are MEI-PIN WU and YUNG-HUA HUANG .

KPMG

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

Notes to Readers

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

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% - 46 - 10 3 1 1 61 1 4 1 6 67 12 - 2 2 - 13 - 4 33 100
- 16,892,918 150,430 3,878,606 1,146,183 350,860 382,222 22,801,219 218,889 1,408,138 449,345 2,076,372 24,877,591 4,421,343 3,024 791,466 788,634 97,300 4,779,419 118,538 1,244,734 12,244,458 37,122,049
Amount
December 31, 2016
% 3 43 - 11 3 1 - 61 - 3 2 5 66 12 - 3 3 - 13 (1) 4 34 100
995,638 16,350,178 103,107 3,991,128 1,105,153 433,894 135,555 23,114,653 83,333 1,039,581 555,774 1,678,688 24,793,341 4,456,883 3,085 1,232,490 982,041 97,300 5,008,344 (394,871) 1,596,530 12,981,802 37,775,143
Amount
December 31, 2017
$ $
(note 6(h))
)
Total liabilities Total equity
Liabilities and Equity Short-term borrowings (note 6(l)) Notes and accounts payable Current financial liabilities at fair value through profit or loss (note 6(b)) Other payables Salary payable (note 6(r)) Other current liabilities Long-term borrowings, current portion (note 6(m)) Long-term borrowings (note 6(m)) Long-term deferred revenue (note 6(i)) Other non-current liabilities (notes 6(o) and (p)) Ordinary shares (note 6(q)) Capital collected in advance (note 6(q)) Capital surplus (notes 6(q) and (r)) Legal reserve (note 6(q)) Special reserve (note 6(q)) Unappropriated retained earnings (note 6(q)) Other equity interest
Current liabilities: Non-Current liabilities: Equity attributable to owners of parent: Non-controlling interests Total liabilities and equity
New Taiwan Dollars 2100 2170 2120 2200 2201 2300 2320 2540 2630 2600 3110 3140 3200 3310 3320 3350 3400 36XX
% 17 - 37 - 2 18 1 75 2 13 - 7 2 1 - 25 100
Consolidated Balance Sheets December 31, 2017 and 2016 141,317 102,841 495,392 425,668 887,801 35,677 570,205 264,014 173,706
Amount 6,359,916 13,603,873 6,670,547 27,799,554 4,717,422 2,673,670 9,322,495 37,122,049
December 31, 2016
(Expressed in Thousands of % 21 - 35 - 2 18 1 77 1 12 - 7 1 1 1 23 100
PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES
7,821,011 141,151 13,014,207 105,911 737,687 6,791,093 530,360 29,141,420 402,997 4,437,684 35,214 2,730,188 548,995 217,520 261,125 8,633,723 37,775,143
Amount
December 31, 2017
$ $
(English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese)
non-current (notes 6(c) and (g))
－
Assets Cash and cash equivalents (note 6(a)) Current financial assets at fair value through profit or loss (note 6(b)) Notes and accounts receivable, net (note 6(d)) Accounts receivable from related parties, net (notes 6(d) and 7) Other receivables, net (note 6(d)) Inventories (note 6(e)) Other current assets Property, plant and equipment (note 6(i)) Investment property (note 6(j)) Intangible assets (note 6(k)) Deferred tax assets (note 6(p)) Long-term prepaid rents Other non-current assets (note 8)
Current assets: Non-current assets: Available-for-sale financial assets Total assets
1100 1110 1170 1180 1200 1310 1470 1523 1600 1760 1780 1840 1985 1990
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(English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2017 and 2016 (Expressed in Thousands of New Taiwan Dollars , Except for Earnings Per Share)

4000 Operating revenue (notes 6(t) and 7) 5000 Operating costs (notes 6(e), (o), (r), (u) and 12(a)) Gross profit Operating expenses (notes 6(f), (o), (r), (u) and 12(a)): 6100 Selling expenses 6200 Administrative expenses 6300 Research and development expenses Total operating expenses Net operating income Non-operating income and expenses: 7010 Other income (note 6(v)) 7020 Other gains and losses (notes 6(c), (g) and (w) and 7) 7050 Finance costs Total non-operating income and expenses Profit from continuing operations before tax 7950 Less: income tax expense (note 6(p)) Profit from continuing operations 8100 Profit from discontinued operations, net of tax (note 12(b)) Profit 8300 Other comprehensive income (loss): 8310 Items that may not be reclassified subsequently to profit or loss: 8311 Actuarial gains (losses) on defined benefit plans (note 6(o)) 8349 Income tax expense related to items that may not be reclassified to profit or loss 8360 Items that may be reclassified subsequently to profit or loss: 8361 Exchange differences on translation of foreign operation’s financial statements 8362 Unrealized gains on available-for-sale financial assets (notes 6(c) and (x)) 8399 Income tax expense related to items that may be reclassified to profit or loss Components of other comprehensive income that may be reclassified to profit or loss 8300 Other comprehensive income after tax Comprehensive income Profit attributable to: 8610 Owners of parent 8620 Non-controlling interests (note 6(h)) Comprehensive income attributable to: 8710 Owners of parent 8720 Non-controlling interests (note 6(h)) Earnings per share (note 6(s)) 9710 Basic earnings per share (NT dollars) Profit from continuing operations Profit from discontinued operations Profit per share 9810 Diluted earnings per share (NT dollars) Profit from continuing operations Profit from discontinued operations Profit per share	2017 Amount % $ 60,741,692 100 53,261,685 88 7,480,007 12 1,460,339 2 1,454,789 2 2,364,974 4 5,280,102 8 2,199,905 4 143,367 - 541,030 1 (36,722) - 647,675 1 2,847,580 5 678,599 1 2,168,981 4 - - 2,168,981 4 (5,909) - - - (5,909) - (108,024) - (331,977) (1) - - (440,001) (1) (445,910) (1) $ 1,723,071 3 $ 2,057,415 4 111,566 - $ 2,168,981 4 $ 1,606,886 3 116,185 - $ 1,723,071 3 $ 4.67 - $ 4.67 $ 4.63 - $ 4.63	2016 Amount % 64,329,462 100 57,062,275 89 7,267,187 11 1,555,372 2 1,134,095 2 2,204,249 3 4,893,716 7 2,373,471 4 149,924 - 331,952 - (90,895) - 390,981 - 2,764,452 4 777,686 1 1,986,766 3 61,896 - 2,048,662 3 (1,340) - - - (1,340) - (656,445) (1) 110,706 - - - (545,739) (1) (547,079) (1) 1,501,583 2 1,934,070 3 114,592 - 2,048,662 3 1,432,480 2 69,103 - 1,501,583 2 4.36 0.04 4.40 4.32 0.04 4.36

													Total equity	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	2,168,981	(445,910)	1,723,071		-	(1,111,886)	(217,774)	-	-	79,420	13,676	15,892	1,938	233,007	12,981,802
										Total equity	attributable Non-	to owners of controlling	parent interests	10,430,381 2,486,204	1,934,070 114,592	(501,590) (45,489)	1,432,480 69,103		- -	(927,933) -	- -	43,182 -	2,517 1,079	19,097 -	- -	- (1,311,652)	10,999,724 1,244,734	2,057,415 111,566	(450,529) 4,619	1,606,886 116,185		- -	(1,111,886) -	(217,774) -	- -	- -	79,420 -	11,072 2,604	15,892 -	1,938 -	- 233,007	11,385,272 1,596,530
(English Translation of Consolidated and Report Originally Issued in Chinese)	PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES	Consolidated Statements of Changes in Equity	For the years ended December 31, 2017 and 2016	(Expressed in Thousands of New Taiwan Dollars)	Equity attributable to owners of parent	Total other equity interest	Share capital Retained earnings	Exchange Unrealized	differences on gains (losses)	translation of on available-	Advance Unappropriated foreign for-sale Unearned	Ordinary receipts for Capital Special retained financial financial employee	shares share capital surplus Legal reserve reserve earnings statements assets compensation	$ 4,411,877 15,174 777,368 611,322 97,300 3,951,934 351,045 294,760 (80,399)	- - - - - 1,934,070 - - -	- - - - - (1,340) (610,956) 110,706 -	- - - - - 1,932,730 (610,956) 110,706 -		- - - 177,312 - (177,312) - - -	- - - - - (927,933) - - -	(3,850) - (6,350) - - - - - 10,200	- - - - - - - - 43,182	- - 2,517 - - - - - -	- 19,097 - - - - - - -	13,316 (31,247) 17,931 - - - - - -	- - - - - - - - -	4,421,343 3,024 791,466 788,634 97,300 4,779,419 (259,911) 405,466 (27,017)	- - - - - 2,057,415 - - -	- - - - - (5,909) (112,643) (331,977) -	- - - - - 2,051,506 (112,643) (331,977) -		- - - 193,407 - (193,407) - - -	- - - - - (1,111,886) - - -	- - 299,514 - - (517,288) - - -	30,000 - 122,030 - - - - - (152,030)	(940) - (2,881) - - - - - 3,821	- - - - - - - - 79,420	- - 11,072 - - - - - -	- 15,892 - - - - - - -	6,480 (15,831) 11,289 - - - - - -	- - - - - - - - -	$ 4,456,883 3,085 1,232,490 982,041 97,300 5,008,344 (372,554) 73,489 (95,806)
														Balance at January 1, 2016	Profit	Other comprehensive income	Comprehensive income	Appropriation and distribution of retained earnings:	Legal reserve	Cash dividends of 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 options and abandonment	Derecognize non-controlling interests due to dispose subsidiaries	Balance at December 31, 2016	Profit	Other comprehensive income	Comprehensive income	Appropriation and distribution of retained earnings:	Legal reserve	Cash dividends of ordinary share	Changes in shares of investment accounted for using equity method	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 options and abandonment	Changes in non-controlling interests	Balance at December 31, 2017

See accompanying notes to consolidated financial statements.

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

Consolidated Statements of Cash Flows

For the years ended December 31, 2017 and 2016

(Expressed in Thousands of New Taiwan Dollars)

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

2017
2016
$ 2,847,580
2,764,452
-
105,225
2,847,580
2,869,677
1,513,201
1,650,235
67,188
947,465
(10,392)
137,481
-
(248,006)
(330,887)
(140,969)
-
86,850
32,707
98,693
(110,012)
(126,400)
93,096
46,778
77,548
14,814
1,332,449
2,466,941
166
(53,611)
1,002,173
(1,165)
(3,070)
(47,846)
(259,689)
(132,548)
224,508
(691,918)
60
(185,378)
-
(223,244)
1,131
(6,288)
965,279
(1,341,998)
(856,204)
(1,271,222)
(39,092)
(80,924)
220,175
224,411
9,942
104,737
(412,083)
115,582
(1,077,262)
(907,416)
(111,983)
(2,249,414)
1,220,466
217,527
4,068,046
3,087,204
110,012
126,400
(32,639)
(98,448)
(733,254)
(846,899)
3,412,165
2,268,257
(646,638)
-
-
108,980
25,366
-
(1,226,326)
(1,107,108)
24,358
72,617
(89,783)
(50,813)
(21,045)
-
497,186
220,270
23,325
14,692
(38,837)
24,063
(1,452,394)
(717,299)
995,638
(974,439)
(382,223)
(759,456)
30,930
27,566
(1,111,886)
(927,933)
15,892
19,097
(451,649)
(2,615,165)
(47,027)
(199,257)
1,461,095
(1,263,464)
6,359,916
7,623,380
$
7,821,011
6,359,916

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

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016 (Expressed in Thousands of New Taiwan Dollars, Unless Otherwise Specified)

(1) Company history

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

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

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

The consolidated financial statements of the Company as at and for the year ended December 31, 2017, comprised the Company and subsidiaries (together referred to as “ the Group” ). The major business activities of the Group were the manufacture and sale of multi-function printers, scanners, digital camera modules, computer mice, keyboards, track pads, mobile phone accessories, consumer electronics products, shredders, amplifiers, speakers, audio systems and industrial automation parts. Please refer to note 14 for further information.

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

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

The consolidated financial statements were authorized for issuance by the board of directors on March 13, 2018.

(3) New standards, amendments and interpretations adopted:

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

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

	New, Revised or Amended Standards and Interpretations	Effective date per IASB
	Amendments to IFRS 10, IFRS 12 and IAS 28 “Investment Entities: Applying the Consolidation Exception”	January 1, 2016
	Amendments to IFRS 11 “Accounting for Acquisitions of Interests in Joint Operations”	January 1, 2016

(Continued)

See accompanying notes to consolidated financial statements.

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

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

New, Revised or Amended Standards and Interpretations
IFRS 14 “Regulatory Deferral Accounts”
Amendment to IAS 1“Presentation of Financial Statements-Disclosure
Initiative”
Amendments to IAS 16 and IAS 38 “Clarification of Acceptable Methods of
Depreciation and Amortization”
Amendments to IAS 16 and IAS 41 “Agriculture: Bearer Plants”
Amendments to IAS 19 “Defined Benefit Plans: Employee Contributions”
Amendment to IAS 27 “Equity Method in Separate Financial Statements”
Amendments to IAS 36 “Impairment of Non-Financial assets- Recoverable
Amount Disclosures for Non Financial Assets”
Amendments to IAS 39 “Financial Instruments-Novation of Derivatives and
Continuation of Hedge Accounting”
Annual Improvements to IFRSs 2010-2012 Cycle and 2011-2013 Cycle
Annual Improvements to IFRSs 2012-2014 Cycle
IFRIC 21 “Levies”

Effective date per
IASB

January 1, 2016
January 1, 2016
January 1, 2016
January 1, 2016
July 1, 2014
January 1, 2016
January 1, 2014
January 1, 2014
July 1, 2014
January 1, 2016
January 1, 2014

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

(b) The impact of IFRS endorsed by FSC but not yet effective

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

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

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

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

(i) IFRS 9 “Financial Instruments”

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

－ 1) Classification Financial assets

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

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

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

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2) Impairment Financial assets and contract assets

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

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

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

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

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

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

3) Disclosures

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

4) Transition

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

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

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

‧The following assessments have to be made on the basis of the facts and circumstances that exist at the date of initial application.
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 - The determination of the business model within which a financial asset is held.
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- The designation and revocation of previous designations of certain financial assets and financial liabilities as measured at FVTPL.
  - The designation of certain investments in equity instruments not held for trading as at FVOCI.
(ii) IFRS 15 Revenue from Contracts with Customers

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

1) Sales of goods

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

2) Transition

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

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

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

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

(c) The impact of IFRS issued by IASB but not yet endorsed by the FSC

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

FSC:
	Effective date
New, Revised or Amended Standards and Interpretations	per IASB
Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets Between	Effective date to
an Investor and Its Associate or Joint Venture”	be determined by IASB
IFRS 16 “Leases”	January 1, 2019
IFRS 17 “Insurance Contracts”	January 1, 2021
IFRIC 23 “Uncertainty over Income Tax Treatments”	January 1, 2019
Amendments to IAS 28 “Long-term interests in associates and joint ventures”	January 1, 2019
Annual Improvements to IFRS Standards 2015–2017 Cycle	January 1, 2019
Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement”	January 1, 2019

(4) Summary of significant accounting policies:

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

(a) Statement of compliance

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

(b) Basis of preparation

(i) Basis of measurement

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

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

Issuance / Release Dates January 13, 2016	Standards or Interpretations Content of amendment IFRS 16 “Leases” The new standard of accounting for lease is amended as follows:

‧For a contract that is, or contains, a lease, the lessee shall recognize a right of use asset and a lease liability in the balance sheet. In the statement of profit or loss and other comprehensive income, a lessee shall present interest expense on the lease liability separately from the depreciation charge for the right of-use asset during the lease term.

‧ A lessor classifies a lease as either a finance lease or an operating lease, and therefore, the accounting remains similar to IAS 17.

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

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

(ii) Functional and presentation currency

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

(c) Basis of consolidation

(i) Principles of preparation of the consolidated financial statements

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

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

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

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

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

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

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

(ii) List of subsidiaries in the consolidated financial statements

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

Name of investor The Company The Company The Company The Company The Company The Company The Company Primax Cayman	Name of subsidiary Primax Industries (Cayman Holding) Ltd. (Primax Cayman) Primax Technology (Cayman Holding) Ltd. (Primax Tech.) Destiny Technology Holding Co., Ltd. (Destiny BVI.) Primax Destiny Co., Ltd. (Destiny Japan) Diamond (Cayman) Holdings Ltd. (Diamond) Gratus Technology Corp. (Gratus Tech.) Global TEK Fabrication Co., Ltd. (Global TEK) Primax Industries (Hong Kong) Ltd. (Primax HK)	Principal activities Holding company Holding company Holding company Market development and customer service Holding company Market development and customer service Manufacture and sale of sophisticated machinery components, automotive parts, industrial automation parts, communication parts and aerospace components Holding company and customer service	Percentage of shareholding December 31, 2017 December 31, 2016 Description % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % - % - (note 1) % 100.00 % 100.00
			December 31, 2017 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % - % 100.00

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

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

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

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

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

Note 1: The Board resolved to dispose 20% of the shares of Global TEK on June 21 and September 21, 2016. The disposal transaction has been settled on October 3, 2016, and the Company lost control over Global TEK on the same date.
Note 2: TWEL was incorporated in October 2013, acquiring all shares of TYM HK by issuing new ordinary shares. The Company acquired 70% of the shares of TWEL by cash through its subsidiary Diamond on January 10, 2014. Therefore, the Company indirectly acquired all shares of subsidiaries through TWEL, and included them in the consolidated financial statements from the same date. Also, the Group acquired 5.5% of the shares of TWEL by cash, and 24.5% of the shares of TWEL by exchanging the shares of Premium Huizhou on October 31, 2017.
Note 3: TYM HK was originally a 100% owned subsidiary of TWEL; however, after the restructuring of the Group in the third quarter of 2017, TYM HK became a 100% owned subsidiary of TYM Acoustic HK.
Note 4: Premium Huizhou was originally a 100% owned subsidiary of TYM HK; however, after the restructuring of the Group in the third quarter of 2017, Premium Huizhou became 100% owned subsidiary of TWEL. TWEL decreased the ownership of Premium Huizhou to 66.44% due to the shares swap, and the issuance of employee stock ownership plans in the fourth quarter of 2017.
Note 5: TYP was originally a 100% owned subsidiary of TWEL; however, after the restructuring of the Group in the third quarter of 2017, TYP became a 100% owned subsidiary of TYM Acoustic HK.
Note 6: The Company was incorporated in January 2017.
Note 7: Tymphany Dongguan was originally a 100% owned subsidiary of TYM HK; however, after the restructuring of the Group in the third quarter of 2017, Tymphany Dongguan became a 100% owned subsidiary of Premium Huizhou.
Note 8: TYM Acoustic HK acquired all shares of Bang & Olufsen s.r.o (renamed as Tymphany Acoustic Technology Europe, s.r.o. after merger) by cash on June 1, 2017.
Note 9: The Company was incorporated in December 2017.

(d) Foreign currencies

(i) Foreign currency transactions

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

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

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

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

(ii) Foreign operations

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

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

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

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

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

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

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

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

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

(g) Financial instruments

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

(i) Financial assets

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

1) Financial assets at fair value through profit or loss

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

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

2) Available-for-sale financial assets

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

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

(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.

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

3) Loans and receivables

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

4) Impairment of financial assets

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

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

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

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

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

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

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

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

5) Derecognition of financial assets

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

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

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

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

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

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

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.

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

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

2) Other financial liabilities

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.

(i) Discontinued operations

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

(j) Investment property

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

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

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

(k) Property, plant and equipment
(i) Recognition and measurement

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

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

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

(ii) Reclassification to investment property

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

(Continued)

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

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

(iii) Subsequent cost

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

(iv) Depreciation

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

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

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

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

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

(l) Lease

(i) Lessor

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

(ii) Lessee

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

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

(m) Intangible assets

(i) Goodwill

1) Recognition

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

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

2) Subsequent measurement

Goodwill is measured at cost less accumulated impairment losses.

(ii) Other intangible assets

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

(iii) Subsequent expenditure

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

(iv) Amortization

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

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

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

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

(Continued)

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

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

(n) Impairment of non-financial assets

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

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

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

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

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

(o) Revenue

(i) Goods sold

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

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

(ii) Services

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

(p) Deferred grant revenue

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

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

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

(q) Employee benefits

(i) Defined contribution plans

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

(ii) Defined benefit plans

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

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

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

(Continued)

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

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

(iii) Short-term employee benefits

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

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

(r) Share-based payment

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

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

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

(s) Income taxes

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

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

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

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

(ii) Temporary differences arising from equity investments in subsidiaries or joint ventures where there is a high probability that such temporary differences will not reverse.
(iii) Initial recognition of goodwill.

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

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

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

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

(t) Business combination

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

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

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

(i) Assets and liabilities that are initially recognized but are not related to a business combination and have no effect on profit or taxable gains (losses) at the time of the transaction.

(Continued)

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

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.

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

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

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

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

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

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

(a) Valuation of inventories

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

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

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

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

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

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

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

(6) Explanation of significant accounts:

(a) Cash and cash equivalents

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

(Continued)

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

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

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

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

Financial assets at fair value through profit or loss – current:		December 31, 2017	December 31, 2016
Derivative financial assets:
Forward exchange contracts	$	125,940	141,317
Foreign exchange swap contracts		15,211	-
$		141,151	141,317

Financial liabilities at fair value through profit or loss – current:
Derivative financial liabilities:
Forward exchange contracts Foreign exchange swap contracts	$	(69,167) (33,940)	(72,909) (77,521)
	$	(103,107)	(150,430)

(ii) The Group held the following derivative financial instruments not designated as hedging instruments presented as held-for-trading financial assets as of December 31, 2017 and 2016:

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

	December 31, 2016	Maturity date Predetermined rate January 5, 2017~ March 27, 2017 31.157~32.015 January 5, 2017~ March 27, 2017 31.765~32.290 January 5, 2017~ January 19, 2017 31.245~31.920
Derivative financial instruments	Nominal amount
Forward exchange contracts －buy USD / sell TWD Forward exchange contracts －buy TWD / sell USD Foreign exchange swap contracts －swap in TWD / swap out USD	USD 252,000 USD 189,500 USD 81,000

(iii) Please refer to note 6(y) for the liquidity risk of the Group’s financial instruments.
(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, 2017 December 31, 2016 $ - 586,404 380,835 287,517 22,162 13,880 $ 402,997 887,801

(i) WK Technology Fund IV Ltd. refunded $1,280 and $2,816 to the Group due to capital reduction in April 2016 and July 2017, respectively.
(ii) WK Global Investment III Ltd. refunded $2,254 and $4,757 to the Group due to capital reduction in April 2016 and July 2017, respectively.
(iii) The Group held 30% share of Global TEK’s shares and sold 20% shares of them at $50 per share on October 3, 2016. The Group reclassified the remaining amounted to $275,500 to －
available-for-sale financial assets non-current. Please refer to note 6(g) for further information about disposal of Global TEK’s shares.
(iv) In the second quarter of 2016, the Group sold 841 thousand shares of Nien Made Enterprise Co., Ltd. for $220,270. The gain from disposal of which was recognized as other gains and losses, amounted to $140,969, deducting the cost of $79,301. Also, in the fourth quarter of 2017, the Group sold 1,764 thousand shares of Nien Made Enterprise Co., Ltd. for $497,186. The gain from disposal of which was recognized as other gains and losses, amounted to $330,887, deducting the cost of $166,299.
－
(v) The Group invested $21,045 in the unlisted company Grove Ventures, L.P, and classified as available-for-sale financial assets in March 2017.
(vi) The unrealized gains (losses) were $(1,090) and $110,706 for the years ended December 31, 2017 and 2016, respectively, and were recognized as unrealized gains on available-for-sale financial assets. The Group reclassified the realized gains of Nien Made Enterprise amounted to $330,887 in 2017 as gains from disposal.

(Continued)

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

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

(vii) The Group did not provide any of the aforementioned available-for-sale financial assets as collateral.

(d) Notes and accounts receivable, and other receivables (including related parties)

Notes receivable Accounts receivable Accounts receivable – related parties Other receivables Less: allowance for doubtful accounts allowance for sales returns and discounts Total	December 31, 2017 December 31, 2016 $ 175,324 3,761 13,019,199 13,798,350 105,911 102,841 737,687 495,392 (127,640) (99,936) (52,676) (98,302) $ 13,857,805 14,202,106

(i) The Group did not provide any of the aforementioned notes and accounts receivable, and other receivables (including related parties) as collateral.
(ii) Please refer to note 6(y) for the movements in the allowance for doubtful accounts and the credit risk and currency risk for the years ended December 31, 2017 and 2016.

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

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

(e) Inventories

Raw materials Semi-finished goods and work in process Finished goods and merchandise	December 31, 2017 December 31, 2016 $ 1,797,211 1,618,227 1,351,885 1,485,837 3,641,997 3,566,483 $ 6,791,093 6,670,547

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

(iii) The Company entered into agreements with banks to sell its accounts receivable without recourse. According to the agreements, within the limit of its credit facilities, the Company does not need to guarantee the capability of its customers to pay for reasons other than commercial disputes when transferring its accounts receivable. The Company receives partial advances upon sales of accounts receivable and pays interest calculated based on the interest rates agreed for the period through the collection of the accounts receivable. The remaining amounts are received upon the collection of the accounts receivable, and are recorded as other receivables. In addition, the Company shall pay handling charges based on a fixed rate. As of December 31, 2017 and 2016, the details of transferred accounts receivable which conformed to the criteria for derecognition were as follows:


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

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

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

(f) Business combination

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

(Continued)

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

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

(i) Consideration transferred

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

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

(g) Loss of control of subsidiaries

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

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

(ii) Obtaining control

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

(iii) According to IFRSs, the fair value of net assets acquired should be measured on the acquisition date. Therefore, the Company evaluated the fair value and useful lives of intangible assets at the time of acquisition. As of the reporting date, the share purchase agreement was in accordance with the preliminary purchase price allocation, which is subject to change in the future. The Company engaged experts to evaluate its identifiable net assets, and the preliminary information was as follows:

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

(iv) The cost of acquisition

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

(v) Simulated operating results

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

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 Other payables		(559,790) (256,220)
Other current liabilities		(32,997)
Deferred tax liabilities－non-current		(119,909)
Other non-current liabilities		(6,075)
Book value of net assets	$	1,873,789

(h) Material non-controlling interests of subsidiaries

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

Name of subsidiaries	Main operation place Business/Registered Country	Proportion of Ownership and Voting Rights Held by Non- controlling Interests December 31, 2017 December 31, 2016 % 33.56 % 30 % - % -

(Continued)

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

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

(i) TWEL and its subsidiaries:

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

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

(ii) Global TEK and its subsidiaries

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

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

(i)

Property, plant and equipment

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

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

(Continued)

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

Balance on January 1, 2016 Additions Disposals Reclassifications Disposal of subsidiaries Effect of movements in exchange rates Balance on December 31, 2016 Depreciation and impairments loss: Balance on January 1, 2017 Depreciation Disposals Reclassifications Effect of movements in exchange rates Balance on December 31, 2017 Balance on January 1, 2016 Depreciation Impairment loss Disposals Reclassifications Disposal of subsidiaries Effect of movements in exchange rates Balance on December 31, 2016 Carrying amounts: Balance on December 31, 2017 Balance on December 31, 2016 Balance on January 1, 2016	Land $ 284,973 - - 111,822 (262,094) - $ 134,701 $ - - - - - $ - $ - - - - - - - $ - $ 134,701 $ 134,701 $ 284,973	Buildings, leasehold improvement, and additional equipment	Machinery and equipment	Office and other equipment	Construction in progress and testing equipment	Government grants Total
		4,145,565 49,514 (94,696) 381,033 (340,019) (338,639) 3,802,758 1,731,111 224,238 (93,204) (3,797) (27,386) 1,830,962 1,737,377 245,594 - (90,910) 35,827 (47,041) (149,736) 1,731,111 1,978,402 2,071,647 2,408,188	6,578,407 396,263 (696,426) 425,506 (461,910) (569,536) 5,672,304 3,632,382 1,037,844 (299,809) (5,477) (53,762) 4,311,178 3,718,475 1,126,355 74,584 (619,931) (249,717) (58,972) (358,412) 3,632,382 1,713,476 2,039,922 2,859,932	680,211 41,155 (83,133) (12,851) (58,963) (55,962) 510,457 383,934 54,426 (31,219) (118) (7,139) 399,884 449,371 79,501 384 (76,609) (29,572) 3,579 (42,720) 383,934 197,316 126,523 230,840	503,242 988,516 (63) (977,213) (133,277) (33,527) 347,678 - - - - - - - - 11,882 - - (11,882) - - 413,789 347,678 503,242	(12,731) 12,179,667 - 1,475,448 - (874,318) (4,813) (76,516) - (1,256,263) 1,258 (996,406) (16,286) 10,451,612 (13,237) 5,734,190 (2,926) 1,313,582 13,701 (410,531) - (9,392) 178 (88,109) (2,284) 6,539,740 (9,579) 5,895,644 (4,622) 1,446,828 - 86,850 - (787,450) - (243,462) - (114,316) 964 (549,904) (13,237) 5,734,190 - 4,437,684 (3,049) 4,717,422 (3,152) 6,284,023

(i) The unamortized deferred revenue of equipment subsidy amounted to $946,180 and $1,310,945 for the years ended December 31, 2017 and 2016, respectively.
(ii) The Group did not provide any of the aforementioned property, plant and equipment as collateral.

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

(j) Investment property

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

(i) The fair value of investment property is based on the quotation from third parties, which is categorized within Level 3.
(ii) The Group reclassified $219,472 as property, plant and equipment from investment property due to the change of the use of such property in 2016.
(iii) Investment property comprises a number of commercial properties which are leased to third parties. Each of the leases contains an initial non-cancellable period between 1 and 2 years. Subsequent renewals are negotiated with the lessee, and no contingent rents are charged. Please refer to note 6(n) for further information.

(Continued)

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

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

(iv) The Group did not provide any of the aforementioned investment property as collateral.

(k) Intangible assets

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

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

Technology

419,300
-
-
-

419,300

(i) Intangible assets were transferred out due to the resolution to dispose parts of shares of Global TEK which were approved during the board of directors’ meeting in 2016. Please refer to note 6(g) for further detail.
(ii) For the intangible assets identified from the acquisition of TYM Acoustic Europe on June 1, 2017, please refer to note 6(f).
(iii) The Group did not provide any of the aforementioned intangible assets as collateral.
(l) Short-term borrowings

The details were as follows:

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

(m) Long-term borrowings

December 31, 2017

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

(i) Pursuant to the loan agreements with The Export-Import Bank of the ROC and CTBC Bank, the Company has to maintain the following financial ratios calculated based on the Company’s semi-annual audited (reviewed) consolidated financial statements. As of December 31, 2017, the Company had not violated the financial covenants. The financial covenants include (1) a

current ratio of not less than 100%; (2) a financial debt ratio of not greater than 75%; (3) an interest coverage ratio of not less than 400%; and (4) stockholders’ equity of not less than $4,000,000. If the Company violates the financial covenants, the banks have the right to charge a default penalty or to require the Company to improve its financial ratios.

(Continued)

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

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

(n) Operating lease

(i) Lessee

Non-cancellable operating lease rentals are payable as follows:

Less than one year Between one and five years More than five years	December 31, 2017 December 31, 2016 $ 299,316 234,469 489,361 327,873 461,370 12,989 $ 1,250,047 575,331

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

(ii) Lessor

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

Less than one year		December 31, 2017 1,484	December 31, 2016
	$		1,060

(o) Employee benefits

(i) Defined benefit plans

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

Present value of defined benefit obligations Fair value of plan assets Deficit in the plan Asset ceiling Net defined benefit liability	December 31, 2017 December 31, 2016 $ 156,494 160,593 88,082 96,865 68,412 63,728 - - $ 68,412 63,728

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

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

1) Composition of plan assets

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

The Group’ s Bank of Taiwan labor pension reserve account balance amounted to $88,082 at the end of the reporting period. For information on the utilization of the labor pension fund assets, including the asset allocation and yield of the fund, please refer to the website of the Bureau of Labor Funds, Ministry of Labor.

2) Movements in present value of defined benefit obligations

The movements in present value of defined benefit obligations for the Group for the years ended December 31, 2017 and 2016, were as follows:

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

3) Movements of defined benefit plan assets

The movements in the present value of the defined benefit plan assets for the Group for the years ended December 31, 2017 and 2016, were as follows:

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

(Continued)

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

4) Expenses recognized in profit or loss

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

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

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

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

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

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

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

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

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

There were no changes in the method and assumptions used in the preparation of the sensitivity analysis for 2017 and 2016.

6) Actuarial assumptions

(ii) Defined contribution plans

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

Discount rate Future salary increase rate	December 31, 2017 December 31, 2016 % 1.250 1.375% % 3.250 3.250%

The expected allocation payment to be made by the Group to the defined benefit plans for the one-year period after the reporting date was $3,192. The weighted-average duration of the defined benefit plans is 11 years.

7) Sensitivity analysis

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

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

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

The Group recognized pension costs under the defined contribution method amounting to $337,071 and $370,871 for the years ended December 31, 2017 and 2016, respectively, recorded as operating cost and operating expenses in the statement of comprehensive income.

(p) Income taxes from continuing operations

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

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

(Continued)

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

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

Income tax calculated based on domestic tax rate of individual entity of the Group Overseas investment gains recognized under the equity method Non-taxable income Prior year’s income tax adjustment 10% surtax on unappropriated earnings Investment tax credits accrued Other Income tax expense	2017 2016 $ 901,871 606,212 (168,149) (47,655) (232,750) (96,547) 24,801 3,501 62,744 65,978 (74,012) (41,196) 164,094 287,393 $ 678,599 777,686

(iii) Deferred tax assets and liabilities

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

3) Recognized deferred tax assets and liabilities

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

Investment income recognized under the equity method (overseas)	Unrealized foreign exchange gains	Amortization of appraised value adjustment of intangible assets	Others Total
$ 136,577 51,480 $ 188,057 155,486 (43,432) 24,523 $ 136,577	- 24,493	73,631 (10,483) 63,148 152,009 (63,309) (15,069) 73,631	17,538 227,746 235 65,725 17,773 293,471 9,566 317,061 (13,168) (119,909) 21,140 30,594 17,538 227,746
	24,493
	- - -
	-

1) Unrecognized deferred tax liabilities

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

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

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

2) Unrecognized deferred tax assets

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

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

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

(iv) Except for 2014, the Company’s income tax returns have been examined by the tax authority through the years to 2015.
(v) Information related to the unappropriated earnings and tax deduction ratio is summarized below:

Unappropriated earnings in 1998 and after Balance of imputation credit account Creditable ratio for earnings distribution to ROC residents stockholders	December 31, 2017 (Note) $ (Note) $ 2017 (Note)	December 31, 2017 (Note) $ (Note) $ 2017 (Note)	December 31, 2016
			4,779,419
			508,028
			2016 (actual)
			14.50 %

(Continued)

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

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

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

(q) Capital and other equity

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

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

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

(i) Ordinary shares
1) The Company issued 648 thousand and 1,331 thousand new shares of ordinary shares for the exercise of employee stock options in 2017 and 2016, respectively. The related registration procedures were also completed.
2) Employee stock options exercised without registration procedures were recorded as capital collected in advance. The exercise price and units as of December 31, 2017 and 2016, were as follows:

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

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

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

(ii) Capital surplus

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

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

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

(iii) Retained earnings

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

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

1) Legal reserve

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

(Continued)

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

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

2) Special reserve

By choosing to apply exemptions granted under IFRS 1 “ First-time Adoption of International Financial Reporting Standards” during the Company’s first-time adoption of the International Financial Reporting Standards endorsed by the FSC, retained earnings increased by $97,300 by recognizing the cumulative translation adjustments (gains) on the adoption date as deemed cost. In accordance with Ruling No. 1010012865 issued by the FSC on April 6, 2012, the increase in retained earnings due to the first-time adoption of IFRSs shall be reclassified as special reserve, and when the relevant asset is used, disposed of, or reclassified, this special reserve, shall be reversed as distributable earnings proportionately. The carrying amount of special reserve amounted to $97,300 on December 31, 2017.

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

3) Earnings distribution

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

(r) Share-based payment

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

a) Exercise period:

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

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

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

(Continued)

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

5) In accordance with the revised employee stock option plan mentioned above, the Company issued 9,545,248 units of employee stock options in November 2009. Each unit could be converted into 1 ordinary share of the Company.
6) In September 2011, the Company’s board of directors resolved to issue employee stock options (Plan 3). The plan was approved by the SFB in October 2011, and the maximum number of options authorized to be granted was 5,000 units with each unit eligible to be converted into 1,000 ordinary shares of the Company when exercised. The options may be granted to qualified employees of the Company or any of its domestic or foreign subsidiaries in which the Company owns, directly or indirectly, more than fifty percent (50%) of the subsidiary’s voting rights. The Company actually issued 1,500 units and 3,500 units in November 2011 and October 2012, respectively, which were evaluated at fair value. In accordance with the employee stock option plan mentioned above, the Company recognized the investment and capital surplus amounting to $11,072 and $2,517 in 2017 and 2016, respectively.
7) As of December 31, 2017, outstanding employee stock options of the Company for equity-settled share-based payment were as follows:

Modification and grant date Exercise price Granted units (thousand) Service period (from the grant date of the original stock options) Vesting period (from the grant date of the original stock options)	Plan 1 (note ) December 30, 2008/ November 12, 2009 11.42 30,828 5 years (May 23, 2005~ November 11, 2014) 2 ~ 3 years	Plan 2 (note ) December 30, 2008/ November 12, 2009 11.42 7,224 6~8 years (January 2, 2008~November11, 2017) 3 ~ 5 years	Plan 3 (note )
			Issued in November 2011 Issued in October 2012 November 24, 2011 October 22, 2012 16.20 24.10 1,500 3,500 5 years (November 24, 2011~November 23, 2016) 5 years (October 22, 2012~ October 21, 2017) 2 ~ 3 years 2 ~ 3 years

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

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

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

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

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

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

Period of stock options	Plan 1 Plan 2 0.91677~1 0.91677~0.92827 34.78%~44.59% 38.98%~48.44% - - 2.439%~2.665% 2.509%~2.538%
Stock price per share of Primax Holding (USD) Expected volatility of stock price Expected cash dividend rate Risk-free interest rate

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

Period of stock options Exercise price of stock options (NT dollars)	Plan 1 11.42	Plan 2 11.42	Plan 3 Issued in November 2011 Issued in October 2012 18.2 28.25
Expected time until expiration (years) Stock price per share (NT dollars)	5 16.50	8 16.50	5 5 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 Before the	After the	Plan 2 Before the After the
modification Primax Holdings		modification the Company	modification modification Primax Holdings the Company
Granted units of options	7,365	21,654	2,331 6,853

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

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

(Continued)

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

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

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

Outstanding on January 1 Granted during the year Forfeited during the year Exercised during the year Expired during the year Outstanding on December 31 Exercisable on December 31	2017 Weighted- average exercise price Stock options (in thousands) 22.16 957 - - 15.21 (301) 24.23 (656) - - - - - -	2016 Weighted- average exercise price Stock options (in thousands) 24.66 1,728 - - 25.20 (25) 25.62 (746) - - 22.16 957 22.16 957
	Weighted- average exercise price 22.16 - 15.21 24.23 - - -

As of December 31, 2017 and 2016, the information on the employee stock option plans outstanding was as follows:

Employee stock option plan 1 Employee stock option plan 2 Employee stock option plan 3 -Issued in November 2011 Employee stock option plan 3 -Issued in October 2012 Outstanding at end of year Weighted-average expected time remaining until expiration (years)		December 31, 2017 December 31, 2016 - - - 211 - - - 746 - 957 - 0.82

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

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

The Group measured the fair value of the 2 aforementioned share-based payment arrangements. The measurement inputs were as follows:

Exercise price Expected time until expiration (years) Stock price per share Expected volatility of stock price Expected dividend rate Risk-free interest rate	Employee stock options December 2014 July 2015 $15.74 $18.82 4~4.5 4~5 $14.81 $18.23 29.49%~30.14% 30.06%~30.45% - - 1.09%~1.17% 0.96%~1.08%	Employee stocks ownership plans
		September 2017
		CNY$1.3406 15 CNY$2.0121 - - -

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

					2017	2017			2016
				Weighted-				Weighted-
				average exercise price		Stock options (in thousands)		average exercise price Stock options (in thousands)
		Outstanding	on January 1	18.27		3,308		18.20		3,450
		Granted during the year			-	-		-		-
		Forfeited during the year			-	-		-		-
		Exercised during the year - Expired during the year 18.27 Outstanding on December 31 -				- (3,308) -		- 16.50 18.27		- (142) 3,308
		Exercisable	on December	31	-	-		-		-
(ii)	Restricted stock 1) As of December 31, follows:			2017, the	outstanding restricted stock of the Company was as
			Plan 1 (note 1)			Plan 2 (note		1)	Plan 3 (note 1)
Grant date		October 1, 2013	November 20, 2013	February 10, 2014	July 17, 2014	February 24, 2015 August 18, 2015 February			13, 2017	September 7, 2017
Fair value on grant date (per share) Exercise price		22.80 Free grants	25.15 Free grants	27.30 Free grants	52.00 Free grants	43.70 Free grants	38.40 45.80 Free grants Free grants			72.40 Free grants
Granted units (thousand		1,450	186	135	220	1,225		1,775 2,450		550
shares)
Vesting period		1~3 years	1~2 years	1~2 years	1~2 years	1~3years		1~3 years 1~3	years	1~3 years
		(notes 2 and 3)	(notes 3 and 4)	(notes 3 and 4)	(note 3)	(note 2 and 3)		(note 2) (note 2)		(note 2)

(Continued)

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

Note 1: Plan 1 –After the stockholders’ meeting on June 25, 2013, the Company decided to issue shares of restricted stock to those full-time employees who meet the Company’s requirements. The restricted stock has been registered with and approved by the Securities and Futures Bureau of the FSC. The board of directors’ meeting resolved to issue 1,450 thousand shares, 186 thousand shares, 135 thousand shares, and 220 thousand shares on August 13 and November 12, 2013, and January 22 and June 27, 2014, respectively.

Plan 2 –After the stockholders’ meeting on June 24, 2014, the Company decided to issue shares of restricted stock to those full-time employees who meet the Company’s requirements. The restricted stock has been registered with and approved by the Securities and Futures Bureau of the FSC. The board of directors’ meeting resolved to issue 1,225 thousand shares and 1,775 thousand shares on January 28 and August 13, 2015, respectively.

Plan 3 –After the shareholders’ meeting on June 20, 2016, the Company decided to issue shares of restricted stock to those full-time employees who meet the Company’s requirements. The restricted stock has been registered with and approved by the Securities and Futures Bureau of the FSC. The board of directors’ meeting resolved to issue 2,450 thousand shares and 550 thousand shares on January 23 and August 10, 2017, respectively.
Note 2: If the employees continue to provide service to the Company and meet the prior year’s performance indicator, 30% of the restricted stock shall be vested in year 1 after the grant date, and the remaining 30% and 40% shall be vested in year 2 and year 3, respectively, after the grant date.
Note 3: If the employees continue to provide service to the Company and meet the prior year’s performance indicator, 50% of the restricted stock shall be vested in year 1 after the grant date, and the remaining 50% shall be vested in year 2 after the grant date.
Note 4: If the employees continue to provide service to the Company and meet the prior year’s performance indicator, the restricted stock shall be vested in year 1 after the grant date.

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

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

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

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

(iii) Expenses and liabilities attributable to share-based payment of the continuing operations for 2017 and 2016 were as follows:
(s) Earnings per share
(i) Basic earnings per share

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

Profit attributable to owners of parent Continuing operations Discontinued operations Total Weighted-average number of ordinary shares (thousand shares) Basic earnings per share (NT dollars) Continuing operations Discontinued operations Total	2017 2016
	$ 2,057,415 1,915,501 - 18,569 $ 2,057,415 1,934,070 440,907 439,169 $ 4.67 4.36 - 0.04 $ 4.67 4.40

(Continued)

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

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

Weighted-average number of ordinary shares (thousand shares)

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

(ii) Diluted earnings per share

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

Profit attributable to owners of parent
Continuing operations
Discontinued operations
Total
Weighted-average number of ordinary shares (diluted)
(thousand shares)
Diluted earnings per share
Continuing operations
Discontinued operations
Total
Weighted-average number of ordinary shares on
December 31 (basic)
Effect of employee stock options
Estimated effect of employee stock bonuses
Effect of restricted stock
Weighted-average number of ordinary shares on
December 31 (diluted)

2017
2016

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

(t) Operating revenue

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

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

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

(u) Employee and directors’ and supervisors’ remuneration

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

Details of remuneration to employees and directors for the years ended December 31, 2017 and 2016, were as follows:

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

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

(Continued)

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

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

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

Employee remuneration Stock Cash Directors’ remuneration Employee remuneration Stock Cash Directors’ remuneration	2016 Actual earnings distributed Accrued in the financial statement Difference $ - - - 74,000 74,000 - 36,800 36,803 3 2015 Actual earnings distributed Accrued in the financial statement Difference $ - - - 78,500 78,269 (231) 32,000 31,907 (93)

The differences were accounted for as changes in accounting estimates and recognized as profit or loss in the year 2017 and 2016. Information about the remuneration to employee and directors approved in the board of directors’ meetings can be accessed in the Market Observation Post System website.

(v) Other income

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

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

(w) Other gains and losses

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

Net gains (losses) on financial assets/liabilities measured at fair value through profit or loss Foreign currency exchange gains (losses), net Impairment losses on property plant and equipment Net losses on disposal of property, plant and equipment Net gains on disposal and liquidation of available-for-sale financial assets Gains on disposal of subsidiaries Compensation loss Other	2017 2016 $ 76,196 (9,111) (20,520) 242,423 - (22,677) (77,548) (19,100) 330,887 140,969 - 248,006 - (200,263) 232,015 (48,295) $ 541,030 331,952

(x) Reclassification adjustments of components of other comprehensive income

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

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

(y) Financial instruments

(i) Credit risk

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

Past due 0-30 days Past due 31-90 days Past due 91-180 days Past due 181-360 days Past due over a year	December 31, 2017 December 31, 2016 $ 827,739 763,565 62,006 213,509 9,641 17,593 2,218 13,247 91,632 - $ 993,236 1,007,914

(Continued)

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

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

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

The movements in the allowance for the years ended December 31, 2017 and 2016, were as follows:

Balance on January 1, 2017 Impairment loss recognized (reversal amount) Amounts written off Exchange differences on translation of foreign currency Balance on December 31, 2017 Balance on January 1, 2016 Impairment loss recognized Amounts written off Exchange differences on translation of foreign currency Disposal of subsidiaries Balance on December 31, 2016	Individually assessed impairment $ - 66,591 - - $ 66,591 Individually assessed impairment $ - - - - - $ -	Collectively assessed impairment Total 99,936 99,936 (31,357) 35,234 - - (7,530) (7,530) 61,049 127,640 Collectively assessed impairment Total 29,247 29,247 74,106 74,106 - - (605) (605) (2,812) (2,812) 99,936 99,936

(ii) Liquidity risk

The following table shows the contractual maturities of financial liabilities:

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

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

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

(iii) Currency risk

1) Exposure to foreign currency risk

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

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

2) Sensitivity analysis

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

(Continued)

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

A weakening (strengthening) of 5% of the TWD, CNY, HKD, and EUR against the USD as of December 31, 2017 and 2016, would have increased or decreased the net profit before tax by $220,429 and $122,595, respectively. The analysis is performed on the same basis for both periods.

Since the Group has many kinds of functional currency, the information on foreign exchange gain (loss) on monetary items is disclosed by total amount. For years 2017 and 2016, foreign exchange gain (loss) (including realized and unrealized portions) amounted to loss $20,520 and gain $242,423, respectively.

(iv) Interest rate analysis

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

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

If the interest rate had increased or decreased by 0.25%, and assumed all other variables remain constant the net profit before tax would have increased or decreased by $16,508 and $14,390 for the years ended December 31, 2017 and 2016, respectively. This is mainly due to bank savings and borrowings with variable interest rates.

(v) Other price risk:

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

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

(vi) Fair value

1) Kinds of financial instruments and fair value

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

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

	December 31, 2017	December 31, 2017	December 31, 2017
Carrying amounts $ 141,151 $ 402,997 $ 7,821,011 13,120,118 737,687 90,805 $ 21,769,621 $ 103,107 $ 1,214,526 16,350,178 3,991,128 1,105,153 174,167 $ 22,835,152		Fair Value
	Level 1 Level 2 Level 3 Total - - 141,151 141,151 - - 402,997 402,997 - - 103,107 103,107 December 31, 2016
		Fair Value
	Level 1 - 586,404 -	Level 2 - - -	Level 3 Total 141,317 141,317 301,397 887,801 150,430 150,430

(Continued)

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

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

2) Valuation techniques for financial instruments measured at fair value

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

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

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

a) The fair value of derivative instruments is based on quoted prices. When quoted prices are unavailable, the fair value is estimated on the basis of the contract’s spot exchange rate and swap point.
b) Available-for-sale financial assets – non-current are investments in domestic or foreign non-listed stock. If the price of capital increase by cash is reliable, the fair value will be estimated on the issuance price of ordinary shares, while others will be based on market approach of comparable business. For stocks in the emerging market, the estimated fair value is adjusted for the lack liquidity. When prices listed in the emerging market are available, the fair value is estimated on the basis of unadjusted prior trade prices.

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

4) Reconciliation of Level 3 fair values

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

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

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

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

note 1: The fair value is based on unadjusted prior trade prices, therefore there is no need to show the sensitivity analysis of unobservable inputs.
note 2: The fair value is based on the quotation of a third party, therefore there is no need to show the sensitivity analysis of unobservable inputs.
3) There is no transferring of fair value hierarchy for 2017 and 2016.

(Continued)

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

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

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

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

(iii) Credit risk

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

1) Cash and cash equivalents

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

(z) Financial risk management

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

2) Notes and accounts receivable

(i) Overview

The Group has exposure to the following risks arising from financial instruments:

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

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

(ii) Structure of risk management

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

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

There was no sales to individual customers constituting over 10% of total revenue for the year ended December 31, 2017. Sales to individual customers constituting over 10% of total revenue for the year ended December 31, 2016, totaled 15%. As of December 31, 2016, 7% of the ending balance of notes and accounts receivable were accounted for by those customers. In order to reduce credit risk, the Group assesses the financial status of the customers and the possibility of collection of receivables on a regular basis. The above-mentioned customers are profitable and have a good credit record, and the Group did not suffer any significant credit loss from those customers during the financial reporting period.

3) Derivative instruments

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

(iv) Liquidity risk

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

The Group manages sufficient cash and cash equivalents so as to cope with its operations and mitigate the effects of fluctuations in cash flows. The Group had unused bank facilities of $17,453,299 and $13,301,651 as of December 31, 2017 and 2016, respectively.

(Continued)

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

(v) Market risk

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

1) Currency risk

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

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

2) Interest rate risk

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

3) Other market price risk

The Group is exposed to equity price risk due to the investments in listed equity securities. Those equity securities are strategic investments and is not held for trading. All of the equity securities have been disposed in 2017.

(aa) Capital management

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

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

The Group’s debt ratio as of December 31, 2017 and 2016, were 66% and 67%, respectively.

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES

Notes to the Consolidated Financial Statements

(7) Related-party transactions:

(a) Names and relationship of the related parties

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

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

(b) Other related-party transactions

(i) Sales

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

were as follows:
Other related parties	Sales 2017 2016 $ 273,551 238,563	Notes and accounts receivable December 31, 2017 December 31, 2016 105,911 102,841
	2017 $ 273,551

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

－ (ii) Property transaction disposal of equity securities

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

==> picture [426 x 86] intentionally omitted <==

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

2017 2016
Gains or Proceeds Gains or
Proceeds losses from losses
Trading Trading from from Trading Trading disposal from
Relationship Account quantities targets disposal disposal quantities target (note) disposal
HUANG, YA- Investment using - - - - 11,020 Shares 549,347 164,785
HSING and his equity method (thousand)
family members
TZBV, SC and ″ - Equity 479,752 - - - - -
Bochuang (note 1)
----- End of picture text -----

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

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

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

(Continued)

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

－ (iii) Property transaction Acquired of equity securities

Relationship Account Trading quantities UIDL、SC and XT Investment using equity method 16,500 (thousand) Key management personnel compensation Short-term employee benefits Post-employment benefits Other long-term benefits Termination benefits Share-based payments	Relationship	Account		2017	Trading price 723,139 $ $	Trading price 723,139 $ $		2016
				Trading target Shares			Trading quantities - 2017
						$ $

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

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

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

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

Property, plant and equipment	December 31, 2017 December 31, 2016 $ 41,209 42,286

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

(10) Losses due to major disasters: None

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

(11) Subsequent events:

(8) Pledged assets:

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

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

(a) According to the amendments to the “Income Tax Act” enacted by the office of the President of the Republic of China (Taiwan) on February 7, 2018, an increase in the corporate income tax rate from 17% to 20% is applicable upon filing the corporate income tax return commencing with 2018. This increase does not affect the amounts of the current or deferred income taxes recognized in 2017. However, it will increase the Company’s current or deferred tax charge accordingly in the future. If the new tax rate is applied in calculating the taxable temporary differences and tax losses recognized in 2017, the deferred tax assets and deferred tax liabilities would increase by $55,383 and $36,184, respectively.

(9) Commitments and contingencies:

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

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

(b) For the detail of the Group’s guarantee, please refer to note 13.
(c) The following are savings accounts provided by the Group to the bank in order for the bank to issue a guarantee letter to customs as guarantee deposits. Please refer to note 8.
(b) In order to expand the business scale and strengthen the Company’s competitiveness in the market, the board of directors’ meeting resolved to acquire 37% shares of Belfast Limited, a company that engages in the manufacturing of electric power steering system and adaptive front lighting system, with an approximate amount of USD$48,100 on November 10, 2017 by participating in its capital increase by cash, and purchasing its outstanding shares. Until March 13, 2018, this investment has been approved by Investment Commission, Ministry of Economics Affairs, ROC. (MOEA), and its amount USD$48,100 has been exported in January, 2018.
(c) Due to response to the capital expenditure for the property, plant and equipment in the future, and expanding the working capital of Premium HuiZhou, the board of directors’ meeting resolved to increase its investment in Premium Huizhou amounting to USD$45,000 on March 13, 2018.

Guarantee letters	December 31, 2017 December 31, 2016 $ 173,837 198,121

(Continued)

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

(12) Other:

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

By function By item	2017	2017	2017	2016	2016	2016
	Operating cost	Operating expenses	Total	Operating cost	Operating expenses	Total
Employee benefits Salaries Labor and health insurance Pension Others Depreciation Amortization	3,431,156 108,800 224,062 78,218 1,198,737 17,730	2,805,559 133,246 115,015 166,846 114,845 181,426	6,236,715 242,046 339,077 245,064 1,313,582 199,156	3,829,623 105,984 272,241 46,599 1,264,078 19,708	2,572,977 107,713 101,105 151,697 110,004 162,226	6,402,600 213,697 373,346 198,296 1,374,082 181,934

(b) Discontinued operations

The Group resolved to disposed parts of the shares of Global TEK in the board of directors’ meeting held on June 21, 2016. Profit and loss, and cash flows from discontinued operations are summarized as follows:

Results from operating activities:
Operating revenue
Operating cost
Gross profit
Operating expenses
Net operating income
Non-operating income (expenses)
Income before income taxes
Income tax expense
Net income from discontinued operations
Net income attributable to:
Stockholders 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 in cash and cash in equivalents

For the nine
months ended
September 30,
2016
$ 1,926,626
(1,457,401)
469,225
(277,699)
191,526
(86,301)
105,225
(43,329)
$
61,896
$ 18,569
43,327
$
61,896
$ 321,226
(161,102)
38,022
(26,190)
$
171,956

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

(13) Other disclosures:

(a) Information on significant transactions:

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

(i) Loans to other parties:

No.	Name of lender	Name of borrower	Account name	Related party	Highest balance of financing to other parties during the period	Ending balance	Actual usage amount during the period	Range of interest rates during the period	Purposes of fund financing for the borrower	Transaction amount for business between two parties	Reasons for short-term financing	Allowance for bad debt	Col	lateral	Individual funding loan limits	Maximum limit of fund financing
													Item	Value
1 2 3	PKSI Tymphan Dongguan TYM HK	The Company y TYDC TYM Acoustic HK	Other receivables Other receivables Other receivables	Y 〃〃	781,263 38,341 863,693	423,944 - 761,124	423,944 - 722,322	- 2% 2%	Necessary to loan to other parties 〃〃	- - -	Operating capital 〃 Investment capital	- - -		- - -	867,628 364,980 747,124	867,628 364,980 747,124

Note 1: After approval by the Board of directors, PKS1, Tymphany Dongguan and TYM HK can lend the individual and total amount shall not exceed its net worth in the latest financial statements to parent company and subsidiaries whose voting shares are 100% owned, directly or indirectly.
Note 2: Related transactions have been eliminated during the preparation of the consolidated financial statements.

(ii) Guarantees and endorsements for other parties:

No.	Name of guarantor	Counter-party of guarantee and endorsement	Counter-party of guarantee and endorsement	Limitation on amount of guarantees and endorsements for a specific enterprise	Highest balance for guarantees and endorsements during the period	Balance of guarantees and endorsements as of reporting date	Actual usage amount during the period	Property pledged for guarantees and endorsements (Amount)	Ratio of accumulated amounts of guarantees and endorsements to net worth of the latest financial statements	Maximum amount for guarantees and endorsements	Parent company endorsements/ guarantees to third parties on behalf of subsidiary t	Subsidiary endorsements/ guarantees o third parties on behalf of parent company	Endorsements/ guarantees to third parties on behalf of companies in Mainland China
		Name	Relationship with the Company
0 1 〃	The Company PCH2 〃	PCH2 PCQ1 PKS1	The subsidiary of Primax HK and Primax Tech. The same parent company 〃	3,415,582 1,501,202 1,501,202	338,930 193,674 167,398	313,404 131,331 164,164	- 16,938 56,552	- - -	% 2.75 % 2.62 % 3.28	9,108,218 4,003,206 4,003,206	Y - -	- - -	Y Y Y

Note 1: The amount of the guarantee to a company shall not exceed 30% of the Company’s net worth in the latest financial statements. The total amount of the guarantee to total company shall not exceed 80% of the Company’s net worth in the latest financial statements.
Note 2: The amount of the guarantee to a company shall not exceed 30% of the PCH2’s net worth in the latest financial statements. The total amount of the guarantee to total company shall not exceed 80% of the PCH2’s net worth in the latest financial statements.
Note 3: The above counter-parties of guarantee and endorsement are subsidiaries included in the consolidated financial statements.

(Continued)

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

(iii) Securities held as of December 31, 2017 (excluding investment in subsidiaries, associates and joint ventures):

Name of holder	Category and name of security	Relationship with company	Account title		Ending balance	Ending balance	Ending balance	Highest balance during the year	Highest balance during the year	Note
				Shares/Units (thousands)	Carrying value	Percentage of ownership (%)	Fair value	Shares/Units (thousands)	Percentage of ownership (%)
The Company Primax Tech.	Shares: Green Rich Technology Co., Ltd. WK Technology Fund IV LTD. Changing Information Technology Inc. Formosoft International Inc. Syntronix Corp. Ricavision International Inc. Global TEK Grove Ventures L.P. Shares: Echo. Bahn. WK Global Investment III Ltd.	- - - - - - - - - -	Available-for-sale financial asset- non-current 〃〃〃〃〃〃〃 Available-for-sale financial asset- non-current 〃	359 230 179 53 6 917 5,510 - 400 473	2,000 2,004 2,102 - 49 - 374,680 16,417 397,252 - 5,745 5,745	3.59 0.38 1.62 0.76 0.02 2.04 9.18 2.73 11.90 1.32	2,000 2,004 2,102 - 49 - 374,680 16,417 - 5,745	359 512 179 53 6 917 5,510 - 400 630	3.59 0.38 1.66 0.76 0.02 2.04 10.00 5.74 11.90 1.32

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

Name of company	Category and name of security	Account name	Name of counter- party	Relationship with the company	Beginning Balance	Beginning Balance	Purchases	Purchases	Sa	Sa	les		Ending Balance	Ending Balance
					Shares (thousands	) Amount	Shares (thousands)	Amount	Shares (thousands)	Price	Cost	Gain (loss) on disposal	Shares (thousands)	Amount
TYM Acoustic HK TYM HK TWEL TWEL TYM Acoustic HK Diamond TWEL	Shares: TYM Acoustic Europe Premium Hui Zhou Premium Hui Zhou TYM HK TYM HK TWEL Premium Hui Zhou	Investment accounted for using equity method 〃〃〃〃〃〃	Initial Offerings TWEL TYM HK TYM Acoustic HK TWEL UIDL, SC and XT TZBV, SC and Bochuang	None The Group 〃〃〃 Substantive related parties 〃	- - - 144,395 - 38,501 -	- 410,738 - 1,540,112 - 2,904,380 586,768	187,800 - - - 144,395 16,500 -	653,796 - 569,138 - 714,258 723,139 -	- - - 144,395 - - -	- 569,138 - 714,258 - - 479,752	- 643,733 - 837,712 - - 479,752	- - (note 1) - - (note 1) - - -	187,800 - - - 144,395 55,001 -	545,980 (note 2) - 1,514,469 (note 2) - 747,124 (note 2) 3,187,565 (note 3) 1,514,469 (note 3)

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

Name of company	Category and name of security	Account name	Name of counter- party	Relationship with the company	Beginning Balance	Beginning Balance	Purchases	Purchases	Sa	Sa	les		Ending Balance	Ending Balance
					Shares (thousands)	Amount	Shares (thousands)	Amount	Shares (thousands)	Price	Cost	Gain (loss) on disposal	Shares (thousands)	Amount
The Company PCH2 〃 PCQ1 PKS1	Shares: Nien Made Enterprise Co., Ltd. Financial instruments of floating income and capital Money market fund of RMB Money market fund of RMB Money market fund of RMB	Available- for-sale financial assets Held-for- trading financial assets 〃〃〃	Initial Offerings 〃〃〃〃	None 〃〃〃〃	1,763,621 - - - -	586,404 - - - -	- - - - -	- 1,450,402 9,146,504 3,684,887 550,197	1,763,621 - - - -	497,186 1,455,108 9,167,750 3,705,442 558,263	166,299 1,450,402 9,144,803 3,694,627 555,556	330,887 4,706 (note 4) 21,246 (note 4) 20,555 (note 4) 8,066 (note 4)	- - - - -	- - - - -
	Note 1: The amount is the capital surplus derived from the difference between the selling price and the cost during the restructuring in the third quarter of were no related gains (losses) of disposal. Also, this investment has been eliminated during the preparation of the consolidated financial statement. Note 2: The difference between the ending balance and the purchasing price is the investment income (losses) accounted by using equity method, difference price and net worth, as well as the capital increase and the adjustment of exchange differences on translation. Also, this investment has been el preparation of the consolidated financial statement. Note 3: The amount is the capital surplus derived from the differences between the selling price and the cost during acquiring the shares of the subsidiaries a in the fourth quarter of 2017, in which there were no related gains (losses) of disposal. Also, this investment has been eliminated during the consolidated financial statement.												2017, in which there between purchasing iminated during the nd the restructuring preparation of the

Note 4: Gains of disposal include valuation and exchange differences on translation.
(v) Acquisition of individual real estate with amount exceeding the lower of TWD$300 million or 20% of the Company’s paid-in capital: None
(vi) Disposal of individual real estate with amount exceeding the lower of TWD$300 million or 20% of the Company’s paid-in capital: None

(vii) Related-party transactions for purchases and sales with amounts exceeding the lower of TWD$100 million or 20% of the Company’s paid-in capital:

Name of company	Related party	Nature of relationship		Transaction details	Transaction details	Transaction details	Transactions wit from	h terms different others	Notes/Accounts receivable (payable)	Notes/Accounts receivable (payable)	Note
			Purchase/ Sale	Amount	Percentage of total purchases/sales	Payment terms	Unit price	Payment terms	Ending balance	Percentage of total notes/accounts receivable (payable)
The Company 〃〃〃〃〃 Primax Cayman 〃	Primax Cayman PCH2 PKS1 PCQ1 Polaris TYM HK The Company PCH2	Subsidiary The subsidiary of Primax HK The subsidiary of Primax HK The subsidiary of Primax HK The subsidiary of Primax Tech The subsidiary of TYM Acoustic HK Parent The subsidiary of Primax HK	Purchase Purchase Purchase Purchase (Sale) (Sale) (Sale) Purchase	140,623 26,362,084 1,079,140 5,278,105 (2,886,921) (202,897) (140,623) 140,623	% - % 81 % 3 % 16 % (8) % (1) % (100) % 100	60 days 〃 360 days 60 days 90 days 60 days 〃〃	Price agreed by both side 〃〃〃〃〃〃〃	The same as general purchasing 〃〃〃 The same as general selling 〃〃 The same as general purchasing	(31,085) (6,137,747) (421,786) (1,748,395) 22,202 6,979 31,085 (16,045)	-% (73)% (5)% (21)% -% -% 100% (100)%

(Continued)

PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES

Notes to the Consolidated Financial Statements

Name of company	Related party	Nature of relationship	Nature of relationship	Transaction details	Transaction details	Transaction details	Transaction details	Transaction details	Transaction details	Transactions with terms different from others	Transactions with terms different from others	Transactions with terms different from others	Transactions with terms different from others	Notes/Accounts receivable (payable)	Notes/Accounts receivable (payable)	Notes/Accounts receivable (payable)
				Purchase/ Sale	Amount		Percentage of total purchases/sales		Payment terms	Unit price		Payment terms		Ending balance	Percentage of total notes/accounts receivable (payable)
PCH2 〃 PKS1 PCQ1 Polaris Premium Hui Zhou Tymphany Dongguan TYDC TYM Acoustic HK TYM HK 〃〃〃 TYM Acoustic Europe	The Company Primax Cayman The Company The Company The Company TYM HK TYM HK TYM HK TYM Acoustic Europe The Company Premium Hui Zhou Tymphany Dongguan TYDC TYM Acoustic HK	The parent of Primax Cayman The parent of Primax HK The parent of Primax Cayman The parent of Primax Cayman The parent of Primax Tech. The subsidiary of TYM Acoustic HK The subsidiary of TYM Acoustic HK The subsidiary of TYM Acoustic HK Subsidiary The parent of Diamond The parent of TYM Acoustic HK The subsidiary of Premium Hui Zhou The subsidiary of Tymphany Dongguan Parent		(Sale) (Sale) (Sale) (Sale) Purchase (Sale) (Sale) (Sale) Purchase Purchase Purchase Purchase Purchase (Sale)	(26,362,084) (140,623) (1,079,140) (5,278,105) 2,886,921 (5,073,442) (11,102,092) (1,246,821) 1,281,595 202,897 5,073,442 11,102,092 1,246,821 (1,281,595)		% (82) % - % (100) % (90) % 100 % (92) % (97) % (99) % 96 % 1 % 27 % 60 % 7 % (93)		〃〃 360 days 60 days 90 days 60 days 〃〃 90 days 60 days 〃〃〃 90 days	〃〃〃〃〃〃〃〃〃〃〃〃〃〃		The same as general selling 〃〃〃 The same as general purchasing The same as general selling 〃〃 The same as general selling 〃〃〃〃 The same as general purchasing		6,137,747 16,045 421,786 (note 1) 1,748,395 (22,202) 1,888,768 4,873,979 65,706 (437,898) (6,979) (1,888,768) (4,873,979) (65,706) 437,898	82% -% 100% 90% (100)% 93% 97% 80% (93)% -% (26)% (67)% (1)% 93%
Note 1: Accounts receivables over payment terms have been classified as other receivables-non-current. Note 2: Related transactions have been eliminated during the preparation of the consolidated financial statements. (viii) Receivables from related parties with amounts exceeding the lower of TWD$100 million or 20% of the Company’s paid-in capital: Name of Nature of Ending Turnover Overdue Amounts received Allowance company Counter-party relationship balance (note 2) rate Amount Action taken in subsequent period (note 1) for bad debts PCH2 The Company The parent of Primax Cayman 6,137,747 % 4.02 - 5,399,648 - PKS1 The Company The parent of Primax Cayman 845,730 % 2.60 423,944 Reclassify to Long-term payable, and enhance the control of receivables 133,362 - PCQ1 The Company The parent of Primax Cayman 1,748,395 % 2.88 - 973,149 - Premium Hui Zhou TYM HK The subsidiary of TYM Acoustic HK 1,888,768 % 3.53 - 649,807 - Tymphany Dongguan TYM HK The subsidiary of TYM Acoustic HK 4,873,979 % 3.66 - 3,699,981 - TYM Acoustic Europe TYM Acoustic HK Parent 437,898 % 5.85 - 316,220 -
Name of company	Counter-party		Nature of relationship			Ending balance (note 2)		Turnover rate	Overdue				Amounts received in subsequent period (note 1)			Allowance for bad debts
									Amount		Action taken
PCH2 PKS1 PCQ1 Premium Hui Zhou Tymphany Dongguan TYM Acoustic Europe	The Company The Company The Company TYM HK TYM HK TYM Acoustic HK		The parent of Primax Cayman The parent of Primax Cayman The parent of Primax Cayman The subsidiary of TYM Acoustic HK The subsidiary of TYM Acoustic HK Parent			6,137,747 845,730 1,748,395 1,888,768 4,873,979 437,898		% 4.02 % 2.60 % 2.88 % 3.53 % 3.66 % 5.85	- 423,944 - - - -		Reclassify to Long-term payable, and enhance the control of receivables		5,399,648 133,362 973,149 649,807 3,699,981 316,220			- - - - - -

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

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

(x) Business relationships and significant intercompany transactions:

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

Note 1: Disclosure of the amounts exceeding the lower of NT$100 million. Note 2: Related transactions have been eliminated during the preparation of the consolidated financial statements.

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

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

(Continued)

																			84																		85
				PRIMAX ELECTRONICS LTD. AND ITS								SUBSIDIARIES									PRIMAX ELECTRONICS LTD. AND ITS SUBSIDIARIES
					Notes to the Consolidated Financial Statements																	Notes to the Consolidated				Financial Statements
(b)		Information on investees:																		(c)	Information on investments in mainland China:
		The following is the information				on investees for				the year	ended December 31,			2017 (excluding information					on		(i) The names of investees in Mainland				China, the main businesses and products, and											other
		investees		in Mainland China):																	information:
					Main	Original investment amount				Balance as of December 31, 2017			Highest balance theyear			during	Net income	Share of			Main	Total	Accumulated outflow of Investment		flows			Accumulated outflow of	Net income		Highest Percentage of						Accumulated remittance of
Name of			Name of		businesses	December	December			Shares	Percentage	Carrying	Shares		Percentage		(losses)	profits/losses			businesses	amount	Method investment from				investment from		(losses)	Percentage	ownership			Investment			earnings in
investor			investee	Location	and products	31, 2017	31, 2016			(thousands)	of ownership	value	(thousands)		of ownership		of investee	of investee	Note	Name of	and	of paid-in	of Taiwan as of					Taiwan as of	of the	of	during the			income	Book		current
The			Primax	Cayman Islands Holding company		2,540,588	2,540,588			8,147,636	100.00	5,135,159	8,147,636			100.00	963,666	853,625		investee	products	capital	investment January 1, 2017 Outflow	Inflow			December 31, 2017		investee	ownership	year			(losses)	value		period
Company			Cayman																				(note 2)					(note 2)
	〃〃		Primax Tech. Destiny BVI.	Cayman Islands Holding company Virgin Island Holding company		897,421 30,939		897,421 30,939		285,067 1,050	100.00 100.00	2,021,715 14,551	285,067 1,050			100.00 100.00	204,489 (10,972)	154,146 (10,972)		PCH2	Manufacture of multifunctional peripherals, computer	2,037,050	Indirect investment through Primax Cayman and 1,773,902 -			-		1,636,597	613,116	100%	100%			613,116	5,004,008		-
	〃		Destiny Japan	Japan	Market development and customer service	7,032		7,032		0.50	100.00	16,386		0.5		100.00	1,025	1,025			mice, mobile phone accessories, consumer electronics products,		Primax Tech.
	〃		Diamond	Cayman Islands Holding company		2,517,298	2,517,298			84,050	100.00	3,089,647	84,050			100.00	293,587	293,587			and shredders
	〃		Gratus Tech. Total	USA	Market development and customer service	9,330 6,002,608	9,330 6,002,608		-	300	100.00	9,647 10,287,105		300		100.00	523 1,452,318	523 1,291,934		Destiny Beijing	Research and development of computer peripheral devices and software	40,353	Indirect investment through Destiny BVI. 33,893 -			-		31,340	(10,972)	100%	100%			(10,972)	14,547		-

Primax			Primax HK	Hong Kong	Holding company and	2,375,164	2,375,164			602,817	100.00	5,346,825	602,817			100.00	967,397	967,397		PKS1	Manufacture of	891,956	Indirect 710,138 -			-		656,656	(35,216)	100%	100%			(35,216)	867,628		-
Cayman Primax			Polaris	USA	customer service Sale of multi-function	52,680		52,680		1,600	100.00	373,193	1,600			100.00	8,712	8,712			computer, peripherals and keyboards		investment through Primax Cayman
Tech.					printers and computer															PCQ1	Manufacture of	572,472	Indirect 645,580 -			-		596,960	176,309	100%	100%			176,309	1,076,168		-
Diamond			TWEL	peripheral devices Cayman Islands Holding company		2,711,450	2,515,800			55,001	100.00	3,187,565	55,001			100.00	500,879	298,734	(note 3)		computer, peripherals and keyboards		investment through Primax Cayman
Premiurn Hui Zhou			TYM Acoustic HK	Hong Kong	Research and development, design, and sale of audio	19,497		-		5,000	100.00	147,011	5,000			100.00	(14,475)	(22,017)	(note 2)	Premium Hui Zhou	Research and development, design, and sale of audio	1,311,036	Indirect investment through Diamond 2,711,436 -			-		2,507,232	265,156	66.44%	75.5%			194,561	1,514,469		-
					accessories, amplifiers																accessories, amplifiers
					and their components																and their components
TYM Acoustic HK			TYM HK	Hong Kong	Holding company and sale of audio accessories, amplifiers	76,280 (note 1)		-		144,395	100.00	747,124	144,395			100.00	376,600	20,869	(note 2)	Tymphany Dongguan	〃	149,240	Indirect investment through Diamond 16,140 -			-		14,924	197,738	66.44%	75.5%			129,391	242,493		-
	〃		TYP	USA	and their components Market development and customer service	15 (note 1)		-		0.50	100.00	8,200		0.5		100.00	3,748	892	(note 2)	TYDC	〃	91,360	〃 - -			-		-	5,320	66.44%	75.5%			3,432	64,726		-
					of amplifiers and their components																Note 1: The above information on the exchange rate is as follows: HKD:TWD 3.8183; USD:TWD 29.8480; CNY:TWD 4.5680. Note 2: The differences between the accumulated out flow of investments and paid in capital was derived from the currency exchange on translation, capital increase from retained earning and working capital.
	〃		TYM UK	United	Research and	15,631		-		400	100.00	16,624		400		100.00	563	563			Note 6: Related transactions have been eliminated during the preparation of the consolidated financial statements.
				Kingdom	development, design of
					audio accessories, amplifiers and their																(ii) Limitation on investment in Mainland China:
					components
	〃		TYM Acounstic	Czech	Manufacture, install and repair of audio	653,796		-		187,800	100.00	545,980	187,800			100.00	29,907	29,907			Name of Company Accumulated Investment in Mainland China as of					Investment Amounts Authorized by Investment					Upper	Limit on Investment
			Europe		accessories and their																		December 31, 2017				Commission, MOEA
	〃		Tymphany	Taiwan	components Research and	-		-		-	100.00	-	-			100.00	-	-			The Company		5,526,547					6,282,248				None(Note)
			Acoustic		development, design,
					and sale of audio accessories, amplifiers																Note: The Company has received the Certificate issued by the Industrial Development Bureau,
					and their components																Ministry of Economic Affairs, allowing it to start the operating of its											headquarters.
TYM HK			TYML	USA	Sales of audio accessories, amplifiers	6,628		6,628		200	100.00	10,057		200		100.00	1,219	3,447			The above investment income (losses)			in		mainland China, except for PCH							2, Destiny Beijing,
					and their components																PKS 1, and PCQ 1, which were based					on		financial	statements audited			by the			Company’ s
		Note 1: The amount is the initial investment costs from				the original stockholders prior to the acquisition of the Company through Diamond.															auditors, others were based on the audited results of other auditors.
		Note 2: The information is represented after the restructuring in the third quarter of								2017.
		Note 3: The information is represented after the acquiring 30% of the					capital from		minority interest in the fourth			quarter of 2017
		Note 4: Related transactions have been eliminated during the preparation						of the consolidated financial statements.
																	(Continued)																	(Continued)

(b) Information on investees:

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

(iii) Significant transactions:

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

(14) Segment information:

(a) General information

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

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

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

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

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

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

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

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

Revenue External revenue Intra-group revenue Elimination from discontinued operations Total segment revenue Profit from segments reported Elimination from discontinued operations Total profit			2016
	Computer Peripherals		Non-computer Peripherals Total 40,525,423 66,256,088 - - (1,926,626) (1,926,626) 38,598,797 64,329,462 1,328,378 2,869,677 (105,225) (105,225) 1,223,153 2,764,452
	$ 25,730,665 - - $ 25,730,665 $ 1,541,299 - $ 1,541,299

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

(d) Major customer information

The information on major customers that accounted for more than 10% of revenue in the consolidated statements of comprehensive income in 2017 and 2016 is as follows:

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

(Continued)

Stock Code:4915

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

FINANCIAL STATEMENTS

December 31, 2017 and 2016 (With Independent Auditors’ Report Thereon)

6. The 2017 proprietary financial statements and notes （ B ） had been audited by the CPAs

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

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

103

Primax Electronics Ltd. 2017 Annual Report

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

Independent Auditors’ Report

To the board of directors of PRIMAX ELECTRONICS LTD.:

Opinion

We have audited the financial statements of PRIMAX ELECTRONICS LTD.(“the Company”), which comprise the balance sheets as of December 31, 2017 and 2016, the statements of comprehensive income, changes in equity and cash flows for the years ended December 31, 2017 and 2016, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, based on our audits and the report of other auditors (please refer to other Matter paragraph), the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2017 and 2016, and its financial performance and its cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers.

Basis for Opinion

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

Other Matter

We did not audit the financial statements of certain investees accounted for using equity method. Those financial statements were audited by other auditors, and our opinion, insofar as it relates to the amounts included for those investments, is based solely on the reports of the other auditors. The Company’s investment in these companies constituting 6% and 4% of the total assets, as of December 31, 2017 and 2016, respectively. The related share of profit of associates accounted for using the equity method amounted constituting 17% and 11% of the profit before tax, for the years ended December 31, 2017 and 2016, respectively.

Key Audit Matters

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

3-1

3-2

1. Evaluation of inventories

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

Description of key audit matter:

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

How the matter was addressed in our audit:

Our principal audit procedures included: understanding the policies of evaluating the inventories of the Company; inspecting whether existing inventory policies are applied; examine the accuracy of the aging of inventories by sampling and analyze the changes of the aging of inventories; sampling the inventories sold in subsequent period to assess whether the allowance for inventories are reasonable.

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 impairment contains estimation uncertainty. Therefore, the assessment of impairment of intangible assets, recognized from the business combination by the subsidiary accounted for using equity method, is one of the key audit matters for our audit.

How the matter was addressed in our audit:

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

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

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

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

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

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

Auditor’s Responsibilities for the Audit of the Financial Statements

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

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

3-3

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

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

The engagement partners on the audit resulting in this independent auditors’ report are MEI-PIN WU and YUNG-HUA HUANG.

KPMG

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

Notes to Readers

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

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% 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
% - 35 - 8 1 1 - 45 2 - 4 2 8 53 18 - 5 4 - 21 (1) 47 100
28,195 8,339,013 103,107 1,828,968 206,129 248,553 135,555 10,889,520 423,944 83,333 885,580 461,235 1,854,092 12,743,612 4,456,883 3,085 1,232,490 982,041 97,300 5,008,344 (394,871) 11,385,272 24,128,884
Amount
December 31, 2017
$
)
Total liabilities Total equity
Liabilities and Equity 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 (notes 6(o) and 6(p)) 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
2170 2180 2120 2200 2201 2300 2320 2622 2540 2630 2600 3110 3140 3200 3310 3320 3350 3400
% 18 1 27 2 4 8 - 60 3 35 - 1 - 1 - 40 100
Balance Sheets
Thousands of New Taiwan Dollars
33,532 68,785 22,966 73,776
December 31, 2017 and 2016 4,751,198 141,317 7,339,708 513,446 1,050,923 2,293,419 873,921 9,317,894 255,149 348,269
PRIMAX ELECTRONICS LTD. Amount 16,123,543 10,960,760 27,084,303
December 31, 2016
(Expressed in % 17 - 26 - 1 9 - 53 2 43 - 1 - 1 - 47 100
(English Translation of Financial Statements and Report Originally Issued in Chinese) Amount 3,979,290 93,095 6,256,390 29,181 184,718 2,128,441 27,641 12,698,756 397,252 10,287,105 69,036 251,589 18,351 338,330 68,465 11,430,128 24,128,884
December 31, 2017
$ $
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
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(English Translation of Financial Statements and Report Originally Issued in Chinese) PRIMAX ELECTRONICS LTD.

Statements of Comprehensive Income

For the years ended December 31, 2017 and 2016

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

4000 Operating revenue (notes 6(r) and 7) 5000 Operating costs (notes 6(e), (m), (s), 7 and 12) Gross profit Operating expenses (notes 6(m), (s), 7 and 12): 6100 Selling expenses 6200 Administrative expenses 6300 Research and development expenses Total operating expenses Net operating income Non-operating income and expenses: 7010 Other income (notes 6(t) and 7) 7020 Other gains and losses (notes 6(c), (u) and 7) 7070 Share of profit of subsidiaries accounted for using equity method 7050 Finance costs Total non-operating income and expenses Profit from operations before tax 7950 Less: Income tax expense (note 6 (n)) Profit 8300 Other comprehensive income (loss): 8310 Items that may not be reclassified subsequently to profit or loss: 8311 Actuarial gains (losses) on defined benefit plans 8360 Items that may be reclassified subsequently to profit or loss: 8361 Exchange differences on translation of foreign operation’s financial statements 8362 Unrealized gains on available-for-sale financial assets (note 6(v)) Components of other comprehensive income that will be reclassified to profit or loss 8300 Other comprehensive income after tax Comprehensive income Earnings per share (note 6(q)) 9710 Basic earnings per share (NT dollars) 9810 Diluted earnings per share (NT dollars)	2017 Amount % $ 35,023,563 100 32,785,654 94 2,237,909 6 605,515 2 434,624 1 971,418 3 2,011,557 6 226,352 - 52,076 - 619,291 2 1,291,934 4 (10,820) - 1,952,481 6 2,178,833 6 121,418 - 2,057,415 6 (5,909) - (5,909) - (112,643) - (331,977) (1) (444,620) (1) (450,529) (1) $ 1,606,886 5 $ 4.67 $ 4.63	2016 Amount % 45,739,783 100 42,106,442 92 3,633,341 8 670,475 2 442,145 1 970,860 2 2,083,480 5 1,549,861 3 33,468 - 371,406 1 424,575 1 (31,786) - 797,663 2 2,347,524 5 413,454 1 1,934,070 4 (1,340) - (1,340) - (610,956) (1) 110,706 - (500,250) (1) (501,590) (1) 1,432,480 3 4.40 4.36

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- - 2,517 - - - 1,938 -
Total equity 10,430,381 1,934,070 (501,590) 1,432,480 (927,933) 43,182 19,097 10,999,724 2,057,415 (450,529) 1,606,886 (1,111,886) (217,774) 79,420 11,072 15,892 11,385,272
3,821
(80,399) - - - - - 10,200 43,182 - - - (27,017) - - - - - - 79,420 - - - (152,030) (95,806)
Unearned employee
compensation
294,760 - 110,706 110,706 - - - - - - - 405,466 - (331,977) (331,977) - - - - - - - - - 73,489
for-sale
Unrealized gains (losses) on available- financial assets
Total other equity interest
351,045 - (610,956) (610,956) - - - - - - - (259,911) - (112,643) (112,643) - - - - - - - - - (372,554)
Exchange statements
differences on translation of foreign financial
(1,340) (5,909)
3,951,934 1,934,070 1,932,730 (177,312) (927,933) - - - - - 4,779,419 2,057,415 2,051,506 (193,407) (1,111,886) (517,288) - - - - - - 5,008,344
retained earnings
Unappropriated
)
- - - - - - - - - - - - - - - - - - - - - -
97,300 97,300 97,300
Special reserve
Retained earnings
- - - - - - - - - - - - - - - - - - - -
611,322 177,312 788,634 193,407 982,041
Legal reserve
Capital surplus 777,368 - - - - - (6,350) - 2,517 - 17,931 791,466 - - - - - 299,514 (2,881) - 11,072 - 11,289 122,030 1,232,490
- - - - - - - - 3,024 - - - - - - - - - - 3,085
15,174 19,097 (31,247) 15,892 (15,831)
Thousands of New Taiwan Dollars Advance share capital
receipts for
PRIMAX ELECTRONICS LTD. Statements of Changes in Equity Share capital - - - - - (3,850) - - - 13,316 - - - - - - (940) - - - 6,480 30,000
shares 4,411,877 4,421,343 4,456,883
Ordinary
$ $
For the years ended December 31, 2017 and 2016 (Expressed in
(English Translation of and Report Originally Issued in Chinese)
For the years ended December 31, 2017 and 2016, the Directors’ remuneration amounted to 34,094 and 36,803, and the employee remuneration amounted to 68,182 and 74,000, respectively. The amounts were deducted from the statements of comprehensive income in 2017 and 2016, respectively.
Profit Other comprehensive income Legal reserve Cash dividends of ordinary share Profit Other comprehensive income Legal reserve Cash dividends on ordinary share ：
Balance at January 1, 2016 Comprehensive income Appropriation and distribution of retained earnings: 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 options and abandonment Balance at December 31, 2016 Comprehensive income Appropriation and distribution of retained earnings: Changes in shares of investment accounted for using equity method 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 Issuance of restricted stock Balance at December 31, 2017 Note
----- End of picture text -----

See accompanying notes to financial statements.

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

Statements of Cash Flows

For the years ended December 31, 2017 and 2016

(Expressed in Thousands of New Taiwan Dollars)

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

Notes to the Financial Statements

For the years ended December 31, 2017 and 2016

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

Cash flows from (used in) operating activities:
Profit before tax
Adjustments:
Adjustments to reconcile profit (loss):
Depreciation and amortization
Losses related to inventories
Amortization of long-term deferred revenue
Provision (reversal of provision) for bad debt expense and sales returns and discounts
Interest expense
Interest income
Compensation cost of share-based payment
Share of profit of subsidiaries accounted for using equity method
Gain on disposal of subsidiaries
Loss (gain) on disposal of property, plant and equipment
Gain on disposal of available-for-sale financial assets
Total adjustments to reconcile profit (loss)
Changes in operating assets and liabilities:
Accounts receivable, including related parties
Other receivables
Inventories
Other current assets
Deferred tax assets
Other operating assets
Changes in operating assets
Notes and accounts payable, including related parties
Salary payable
Other payables
Other current liabilities
Other operating liabilities
Changes in operating liabilities
Total changes in operating assets and liabilities
Total adjustments
Cash inflow generated from operations
Interest received
Interest paid
Income taxes paid
Net cash flows from operating activities
Cash flows from (used in) investing activities:
Proceeds from disposal and settle of share of subsidiaries accounted for using equity method
Acquisition of available-for-sale financial assets
Proceeds from capital reduction of available-for-sale financial assets
Proceeds from disposal of available-for-sale financial assets
Acquisition of property, plant and equipment
Acquisition of long-term deferred revenue
Acquisition of unamortized expense
Decrease in refundable deposits
Dividends received
Other investing activities
Net cash flows from investing activities
Cash flows from (used in) financing activities:
Decrease in short-term borrowings
Repayment of long-term borrowings
Decrease in guarantee deposits
Cash dividends
Exercise of employee stock options
Decrease in long-term accounts payable to related parties
Net cash flows used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

2017
2016
$ 2,178,833
2,347,524
43,534
41,765
112,940
32,516
(378,087)
(336,211)
37,431
43,345
6,804
31,383
(20,293)
(11,599)
79,420
43,182
(1,291,934)
(424,575)
-
(248,006)
(186)
474
(330,887)
(140,969)
(1,741,258)
(968,695)
1,530,152
3,477,770
842,880
(1,036,774)
52,038
225,636
5,891
(5,079)
-
(54,750)
48,222
(62,265)
2,479,183
2,544,538
(1,769,025)
(422,970)
(151,212)
(52,401)
(120,371)
569,820
28,697
72,680
(48,548)
132,613
(2,060,459)
299,742
418,724
2,844,280
(1,322,534)
1,875,585
856,299
4,223,109
20,293
11,599
(6,736)
(31,315)
(417,927)
(234,992)
451,929
3,968,401
-
559,498
(21,045)
-
2,816
1,280
497,186
220,270
(21,309)
(23,062)
104,594
476,552
(10,120)
(23,710)
(510)
(441)
23,325
14,692
1,826
91
576,763
1,225,170
-
(1,120,518)
(382,223)
(715,556)
34,936
34,977
(1,111,886)
(927,933)
15,892
19,097
(357,319)
-
(1,800,600)
(2,709,933)
(771,908)
2,483,638
4,751,198
2,267,560
$
3,979,290
4,751,198

See accompanying notes to financial statements.

(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 13, 2018.

(3) New standards, amendments and interpretations adopted:

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

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

	New, Revised or Amended Standards and Interpretations	Effective date 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 “Presentation of Financial Statements-Disclosure	January 1, 2016
	Initiative”

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

	Effective date per
New, Revised or Amended Standards and Interpretations	IASB
Amendments to IAS 16 and IAS 38 “Clarification of Acceptable Methods of	January 1, 2016
Depreciation and Amortization”
Amendments to IAS 16 and IAS 41 “Agriculture: Bearer Plants”	January 1, 2016
Amendments to IAS 19 “Defined Benefit Plans: Employee Contributions”	July 1, 2014
Amendment to IAS 27 “Equity Method in Separate Financial Statements” Amendments to IAS 36 “Impairment of Non-Financial assets- Recoverable	January 1, 2016 January 1, 2014
Amount Disclosures for Non-Financial Assets”
Amendments to IAS 39 “Financial Instruments-Novation of Derivatives and Continuation of Hedge Accounting” Annual Improvements to IFRSs 2010-2012 Cycle and 2011-2013 Cycle	January 1, 2014 July 1, 2014
Annual Improvements to IFRSs 2012-2014 Cycle	January 1, 2016
IFRIC 21 “Levies”	January 1, 2014

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

(b) The impact of IFRS endorsed by FSC but not yet effective

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

amendments to IFRS 9 “Prepayment features with negative compensation”:
	Effective date
New, Revised or Amended Standards and Interpretations	per IASB
Amendment to IFRS 2 “Classification and Measurement of Share-based	January 1, 2018
Payment Transactions”
Amendments to IFRS 4 “Applying IFRS 9 Financial Instruments with IFRS 4	January 1, 2018
Insurance Contracts”
IFRS 9 “Financial Instruments” Amendments to IFRS 9 “Prepayment features with negative compensation” IFRS 15 “Revenue from Contracts with Customers”	January 1, 2018 January 1, 2019 January 1, 2018
Amendment to IAS 7 “Statement of Cash Flows -Disclosure Initiative”	January 1, 2017
Amendment to IAS 12 “Income Taxes- Recognition of Deferred Tax Assets for	January 1, 2017
Unrealized Losses” Amendments to IAS 40 “Transfers of Investment Property”	January 1, 2018
Annual Improvements to IFRS Standards 2014–2016 Cycle:
Amendments to IFRS 12 Amendments to IFRS 1 and Amendments to IAS 28	January 1, 2017 January 1, 2018
IFRIC 22 “Foreign Currency Transactions and Advance Consideration”	January 1, 2018

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

(i) IFRS 9 “Financial Instruments”

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

－ 1) Classification Financial assets

Based on its assessment, the Company does not believe that the new classification requirements will have a material impact on its accounting for trade receivables, loans, investments in debt securities and investments in equity securities that are managed on a fair value basis. At December 31, 2017, the Company had equity investments classified as available-for-sale with a fair value of 397,252 thousand that are held for long-term strategic purposes. At initial application of IFRS 9, the Company has designated these investments as measured at FVOCI. Consequently, all fair value gains and losses will be reported in other comprehensive income, no impairment losses would be recognized in profit or loss and no gains or losses will be reclassified to profit or loss on disposal. The Company estimated the application of IFRS 9’s classification requirements on January 1, 2018 resulting in a decrease of 38,042 thousand in other equity interest, as well as an increase of 38,042 thousand in retained earnings.

－ 2) Impairment Financial assets and contract assets

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

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

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

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

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

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

3) Disclosures

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

4) Transition

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

‧ The Company will take advantage of the exemption allowing it not to restate comparative information for prior periods with respect to classification and measurement (including impairment) changes. Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 generally will be recognized in retained earnings and other equity interest as at January 1, 2018.
‧The following assessments have to be made on the basis of the facts and circumstances that exist at the date of initial application.
- The determination of the business model within which a financial asset is held.
The designation and revocation of previous designations of certain financial assets and financial liabilities as measured at FVTPL.
The designation of certain investments in equity instruments not held for trading as at FVOCI.

(ii) IFRS 15 Revenue from Contracts with Customers

1) Sales of goods

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

2) Transition

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

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

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

	FSC:
		Effective date
	New, Revised or Amended Standards and Interpretations	per IASB
	Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets Between an Investor and Its Associate or Joint Venture”	Effective date to be determined by IASB
	IFRS 16 “Leases”	January 1, 2019
	IFRS 17 “Insurance Contracts” IFRIC 23 “Uncertainty over Income Tax Treatments”	January 1, 2021 January 1, 2019
	Amendments to IAS 28 “Long-term interests in associates and joint ventures” Annual Improvements to IFRS Standards 2015–2017 Cycle	January 1, 2019 January 1, 2019
	Amendments to IAS 19 “Plan Amendment, Curtailment of Settlement”	January 1, 2019

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

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

Issuance / Release Dates Standards or Interpretations Content of amendment 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.

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

(4) Summary of significant accounting policies:

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

(a) Statement of compliance

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

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

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

1) Derivative financial instruments at fair value through profit or loss are measured at fair value;

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(ii) Functional and presentation currency

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

(c) Foreign currencies

(i) Foreign currency transactions

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

(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.

2) Available-for-sale financial assets are measured at fair value; and
3) The defined benefit liabilities are recognized as plan assets less the present value of the defined benefit obligation.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

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

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

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

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

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

(e) Cash and cash equivalents

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

(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.

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

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.

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.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

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

An impairment loss in respect of a financial asset 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.

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.

3) Derecognition of financial liabilities

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

4) Offsetting of financial assets and liabilities

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

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(iii) Derivative financial instruments

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

(g) Inventories

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

(h) Investments in subsidiaries

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

(i) Investment property

(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.

(ii) Reclassification to investment property

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

(iii) Subsequent cost

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

(iv) Depreciation

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

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

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

1) Buildings and additional equipment: 1 ~ 51 years

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.

2) Machinery and equipment: 1 ~4 years
3) Other equipment: 1 ~5 years

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(k) Lease

(i) Lessor

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

(ii) Lessee

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

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

(l) Intangible assets

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

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

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

(i) Trademarks 10 years

(ii) Patents 2.5~10 years (iii) Copyrights 15 years

(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.

(ii) Services

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

(o) Employee benefits

(i) Defined contribution plans

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

(ii) Defined benefit plans

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

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

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

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

(iii) Short-term employee benefits

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

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

(p) Share-based payment

(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.

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

(r) Earnings per share

(q) Income taxes

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

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(s) Operating segments

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

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

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

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

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

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

(a) Valuation of inventories

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

(b) Valuation of inventories and assessment of impairment of intangible assets of investments accounted for using equity method

Please refer to note 5(a) for inventories valuation. The Company’s investments accounted for using equity method include intangible assets from premium investment. The assessment of impairment of intangible assets required the Company to make subjective judgments on cash-generating units, allocate the intangible assets to relevant cash-generating units, and estimate the recoverable amount of relevant cash-generating units. Changes in economic conditions or changes in assessment caused by business strategies could result in significant impairment charges or reversal in future years.

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

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

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

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

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

(6) Explanation of significant accounts:

(a) Cash and cash equivalents

Cash	and cash equivalents
			December 31, 2017	December 31, 2016
Cash on hand Checking accounts and demand deposits		$	451 2,600,847	543 931,183
Time deposits $			1,377,992 3,979,290	3,819,472 4,751,198

Please refer to note 6(w) for the currency risk and the interest rate risk of the Company’s cash and cash equivalents.
Finan	cial assets and liabilities at fair value through profit or loss
(i)	The derivative financial instruments were as follows:
			December 31, 2017	December 31, 2016
	Financial assets at fair value through profit or loss –
	current:
	Forward exchange contracts	$	77,884	141,317
	Foreign exchange swap contracts		15,211	-
	$		93,095	141,317
	Financial liabilities at fair value through profit or loss – current:
	Forward exchange contracts	$	(69,167)	(72,909)
	Foreign exchange swap contracts		(33,940)	(77,521)
		$	(103,107)	(150,430)

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

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

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(ii) The Company held the following derivative financial instruments not designated as hedging instruments presented as held-for-trading financial assets as of December 31, 2017 and 2016:

	December 31, 2017
Derivative financial instruments Forward exchange contracts – buy USD / sell TWD Forward exchange contracts－ buy TWD / sell USD Forward exchange contracts – buy CNY/ sell USD Forward exchange swap contracts– swap in USD/ swap out TWD Forward exchange swap contracts– swap in TWD/ swap out USD	Nominal amount Maturity date Predetermined rate USD 299,000 January 4, 2018~ June 26, 2018 29.437~30.021 USD 276,500 January 4, 2018~ March 26, 2018 29.792~30.328 USD 6,000 February 26, 2018 6.6875 USD 103,500 January 12, 2018~ February 9, 2018 30.052~30.232 USD 116,000 January 5, 2018~ June 26, 2018 29.583~30.0155

Forward exchange swap contracts– swap in USD/ swap out TWD Forward exchange swap contracts– swap in TWD/ swap out USD	USD 103,500 January 12, 2018~ February 9, 2018 30.052~30.232 USD 116,000 January 5, 2018~ June 26, 2018 29.583~30.0155
	December 31, 2016
Derivative financial instruments Forward exchange contracts – buy USD / sell TWD Forward exchange contracts－ buy TWD / sell USD Forward exchange swap contracts – swap in TWD / swap out USD	Nominal amount Maturity date Predetermined rate USD 252,000 January 5, 2017~ March 27, 2017 31.157~32.015 USD 189,500 January 5, 2017~ March 27, 2017 31.765~32.290 USD 81,000 January 5, 2017~ January 19, 2017 31.245~31.920

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

Stocks listed in domestic markets Stocks unlisted in domestic markets Stocks unlisted in foreign markets	December 31, 2017 December 31, 2016 $ - 586,404 380,835 287,517 16,417 - $ 397,252 873,921

(ii) The Company held 30% shares of Global TEK Fabrication Co., Ltd’s shares and sold 20% of them at $50 per share on October 3, 2016. The total proceeds of $549,347 were received. The Company recorded the total gain of $248,004 under other gains or losses, including the amount of $83,219 from the remaining shares measured at fair value due to losing its control over Global TEK Fabrication Co., Ltd. The Company reclassified the carrying amounts of the －
remaining shares to available-for-sale financial asset non-current. Please refer to the Company’s consolidated financial statements of 2017 for further information on losing control of subsidiaries.
(iii) In the second quarter of 2016, the Company sold 841 thousand shares of Nien Made Enterprise Co., Ltd. for $220,270. The gain from disposal of which was recognized as other gains and losses, amounted to $140,969, deducting the cost of $79,301. Also, in the fourth quarter of 2017, the Company sold 1,764 thousand shares of Nien Made Enterprise Co., Ltd. for $497,186. The gain from disposal of which was recognized as other gains and losses, amounted to $330,887, deducting the cost of $166,299.
－
(iv) The Company invested $21,045 in the unlisted company Grove Ventures, L.P, and classified as available-for-sale financial assets in March 2017.
(v) The unrealized gains were $2,288 and $111,105 for the years ended December 31, 2017 and 2016, respectively, and were recognized as unrealized gains on available-for-sale financial assets. The Company reclassified the realized gains of Nien Made Enterprise amounted to $330,887 in 2017 as gains from disposal.
(vi) The Company did not provide any of the aforementioned available-for-sale financial assets as collateral.
(d) Accounts receivable, and other receivables (including related parties)

Accounts receivable Accounts receivable – related parties Other receivables Less: allowance for doubtful accounts allowance for sales returns and discounts Total	December 31, 2017 December 31, 2016 $ 6,385,246 7,437,179 29,181 513,446 184,718 1,050,923 (101,027) (76,977) (27,829) (20,494) $ 6,470,289 8,904,077

(i) The Company did not provide any of the aforementioned accounts receivable and other receivables (including related parties) as collateral.
(ii) Please refer to note 6(w) for the movements in the allowance for doubtful accounts and the credit risk and currency risk for the years ended December 31, 2017 and 2016.
(i) WK Technology Fund IV Ltd. refunded $1,280 and $2,816 to the Company due to capital reduction in April 2016 and July 2017, respectively.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(iii) The Company entered into agreements with banks to sell its accounts receivable without recourse. According to the agreements, within the limit of its credit facilities, the Company does not need to guarantee the capability of its customers to pay for reasons other than commercial disputes when transferring its accounts receivable. The Company receives partial advances upon sales of accounts receivable and pays interest calculated based on the interest rates agreed for the period through the collection of the accounts receivable. The remaining amounts are received upon the collection of the accounts receivable, and are recorded as other receivables. In addition, the Company shall pay handling charges based on a fixed rate. As of December 31, 2017 and 2016, the details of transferred accounts receivable which conformed to the criteria for derecognition were as follows:

			December 31, 2017
Buyer Mega International Commercial Bank HSBC Bank Bank of Taiwan EnTie Bank	Amount sold NT$ $ - - - 81,751 $ 81,751	Credit facilities US$ (expressed in thousand) 15,000 45,000 29,250 7,000 96,250	Cash received in advance NT$ Interest rate Guarantee (promissory note) expressed in thousands - - US 3,750 - - US 13,500 - - NT 210,000 - - - - December 31, 2016	Amount derecognized NT$ Amount not received NT$ - - - - - - - 81,751 - 81,751
Buyer Mega International Commercial Bank HSBC Bank Bank of Taiwan		Credit facilities US$ (expressed in thousand) 20,000 64,400 26,000 110,400	Cash received in advance NT$ Interest rate Guarantee (promissory note) expressed in thousands 336,651 % 1.75 US 5,000 533,157 % 1.42 US 58,000 404,146 % 2.10 NT 772,200 1,273,954	Amount derecognized NT$ Amount not received NT$ 336,651 37,406 533,157 59,240 404,146 44,905 1,273,954 141,551

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

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

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

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

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

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

(f) Investments accounted for using equity method

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

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

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

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

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

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

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

(i) The unamortized deferred revenue of equipment subsidy amounted to $885,580 and $1,159,073 for the years ended December 31, 2017 and 2016, respectively.
(ii) The Company did not provide property, plant and equipment as collateral.
(h) Investment property

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

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

Carrying amounts: Balance on December 31, 2017 Balance on December 31, 2016 Balance on January 1, 2016 Fair value: Balance on December 31, 2017 Balance on December 31, 2016 Balance on January 1, 2016	Land $ 128,071 $ 128,071 $ 128,071	Buildings and other equipment Total 123,518 251,589 127,078 255,149 130,638 258,709 $ 555,061 $ 629,690 $ 592,092

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

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

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

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

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

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

(j) Short-term borrowings

The details were as follows:

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

(k) Long-term borrowings

Unsecured bank loans Less: current portion Total Unused credit lines Unsecured bank loans Less: current portion Total Unused credit lines		December 31, 2017 Annual interest rate Maturity year Amount 1.19%~1.48% 2018~2020 $ 218,888 (135,555) $ 83,333 $ - December 31, 2016 Annual interest rate Maturity year Amount 0.95%~1.56% 2017~2020 $ 601,111 (382,222) $ 218,889 $ -
	Currency	Annual interest rate
	TWD
	Currency	Annual interest rate
	TWD	0.95%~1.56%

(i) Pursuant to the loan agreements with The Export-Import Bank of the ROC and CTBC Bank, the Company has to maintain the following financial ratios calculated based on the Company’s semi-annual audited (reviewed) consolidated financial statements. As of December 31, 2017, the Company had not violated the financial covenants. The financial covenants include (1) a current ratio of not less than 100%; (2) a financial debt ratio of not greater than 75%; (3) an interest coverage ratio of not less than 400%; and (4) stockholders’ equity of not less than $4,000,000. If the Company violates the financial covenants, the banks have the right to charge a default penalty or to require the Company to improve its financial ratios.

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

(l) Operating lease

(i) Lessee

Non-cancellable operating lease rentals are payable as follows:

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

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

(ii) Lessor

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

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

(m) Employee benefits

(i) Defined benefit plans

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

Present value of defined benefit obligations $ Fair value of plan assets Deficit in the plan Asset ceiling Net defined benefit liability $	December 31, 2017 December 31, 2016 156,494 160,593 88,082 96,865 68,412 63,728 - - 68,412 63,728

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

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

1) Composition of plan assets

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

The Company’ s Bank of Taiwan labor pension reserve account balance amounted to $88,082 at the end of the reporting period. For information on the utilization of the labor pension fund assets, including the asset allocation and yield of the fund, please refer to the website of the Bureau of Labor Funds, Ministry of Labor.

2) Movements in present value of defined benefit obligations

The movements in present value of defined benefit obligations for the Company for the years ended December 31, 2017 and 2016, were as follows:

Defined benefit obligation on January 1	$	2017 160,593	2016 160,913
Business combinations
Benefits paid		(12,898)	(4,995)
Current service costs and interest cost		2,707	3,417
Remeasurement of net defined benefit liabilities		6,092	1,258
Defined benefit obligation on December 31	$	156,494	160,593

3) Movements of defined benefit plan assets

The movements in the present value of the defined benefit plan assets for the Company for the years ended December 31, 2017 and 2016, were as follows:

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

4) Expenses recognized in profit or loss

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

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

5) Remeasurement of net defined liability (asset) recognized in other comprehensive income

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

Balance on January 1 Recognized during the period Balance on December 31	2017 2016 $ 4,421 2,892 5,909 1,529 $ 10,330 4,421

6) Actuarial assumptions

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

Discount rate Future salary increase rate	December 31, 2017 December 31, 2016 % 1.250 % 1.375 % 3.250 % 3.250

The expected allocation payment to be made by the Company to the defined benefit plans for the one-year period after the reporting date was $3,192. The weighted-average lifetime of the defined benefit plans is 11 years.

7) Sensitivity analysis

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

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

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

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

There were no change in the method and assumptions used in the preparation of the sensitivity analysis for 2017 and 2016.

(ii) Defined contribution plans

The Company allocates 6% of each employee’s monthly wages to the labor pension personal account at the Bureau of Labor Insurance in accordance with the provisions of the Labor Pension Act. Under this defined contribution plan, the Company contributes a fixed amount to the Bureau of Labor Insurance without additional legal or constructive obligation.

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

(n) Income taxes

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

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

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

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

(iv) Deferred tax assets and liabilities

1) Unrecognized deferred tax liabilities

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

2) Unrecognized deferred tax assets

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

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

The deductible temporary differences cannot be realized. Therefore, they were not recognized as deferred tax assets.

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

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

3) Recognized deferred tax assets and liabilities

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

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

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

(v) Except for 2014, the Company’s income tax returns have been examined by the tax authority through the years to 2015.
(vi) Information related to the unappropriated earnings and tax deduction ratio is summarized below:

Unappropriated earnings in 1998 and after Balance of imputation credit account Creditable ratio for earnings distribution to ROC residents stockholders	December 31, 2017 December 31, 2016 (Note) $ 4,779,419 (Note) $ 508,028 2017 2016 (actual) (Note) 14.50 %	December 31, 2017 December 31, 2016 (Note) $ 4,779,419 (Note) $ 508,028 2017 2016 (actual) (Note) 14.50 %
		2016 (actual)
		14.50 %

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

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

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

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

(i) Ordinary shares
1) The Company issued 648 thousand and 1,331 thousand new shares of ordinary shares for the exercise of employee stock options in 2017 and 2016, respectively. The related registration procedures were also completed.
2) Employee stock options exercised without registration procedures were recorded as capital collected in advance. The exercise price and units as of December 31, 2017 and 2016, were as follows:

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

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

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

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(ii) Capital surplus

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

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

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

(iii) Retained earnings

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, 2017.

3) Earnings distribution

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

(p) Share-based payment

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

a) Exercise period:

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

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

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

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

5) In accordance with the revised employee stock option plan mentioned above, the Company issued 9,545,248 units of employee stock options in November 2009. Each unit could be converted into 1 ordinary share of the Company.
6) In September 2011, the Company’s board of directors resolved to issue employee stock options (Plan 3). The plan was approved by the SFB in October 2011, and the maximum number of options authorized to be granted was 5,000 units with each unit eligible to be converted into 1,000 ordinary shares of the Company when exercised. The options may be granted to qualified employees of the Company or any of its domestic or foreign subsidiaries in which the Company owns, directly or indirectly, more than fifty percent (50%) of the subsidiary’s voting rights. The Company actually issued 1,500 units and 3,500 units in November 2011 and October 2012, respectively, which were evaluated at fair value. In accordance with the employee stock option plan mentioned above, the Company recognized the investment and capital surplus amounting to $11,072 and $2,517 in 2017 and 2016, respectively.
7) As of December 31, 2017, outstanding employee stock options of the Company for equity-settled share-based payment were as follows:

Modification and grant date Exercise price Granted units (thousand) Service period (from the grant date of the original stock options) Vesting period (from the grant date of the original stock	Plan 1 (note) December 30, 2008/ November 12, 2009 11.42 30,828 5 years (May 23, 2005~ November 11, 2014) 2 ~ 3 years	Plan 2 (note) December 30, 2008/ November 12, 2009 11.42 7,224 6~8 years (January 2, 2008~ November11, 2017) 3 ~ 5 years	Plan 3 (note)
			Issued in November 2011 Issued in October 2012 November 24, 2011 October 22, 2012 16.20 24.1 1,500 3,500 5 years (November 24, 2011~ November 23, 2016) 5 years (October 22, 2012~ October 21, 2017) 2 ~ 3 years 2 ~ 3 years

options)

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

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

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

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

Period of stock options	Plan 1 Plan 2 0.2 0.2 2.37~5 6~8 0.91677~1 0.91677~0.92827
Exercise price of Primax Holdings’s stock options (USD) Expected time until expiration (years) Stock price per share of Primax Holdings (USD)

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

Period of stock options	Plan 1 Plan 2 34.78%~44.59% 38.98%~48.44% - - 2.439%~2.665% 2.509%~2.538%
Expected volatility of stock price Expected cash dividend rate Risk-free interest rate

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

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

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

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

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

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

Outstanding on January 1 Granted during the year Forfeited during the year Exercised during the year Expired during the year Outstanding on December 31 Exercisable on December 31	2017 Weighted- average exercise price Stock options (in thousands) 22.16 957 - - 15.21 (301) 24.23 (656) - - - - - -	2016
	Weighted- average exercise price 22.16 - 15.21 24.23 - - -	Weighted- average exercise price Stock options (in thousands) 24.66 1,728 - - 25.20 (25) 25.62 (746) - - 22.16 957 22.16 957

As of December 31, 2017 and 2016, the information on the employee stock option plans outstanding was as follows:

Employee stock option plan 1 Employee stock option plan 2 Employee stock option plan 3 -Issued in November 2011 Employee stock option plan 3 -Issued in October 2012 Outstanding at end of year Weighted-average expected time remaining until expiration (years)		December 31, 2017 December 31, 2016 - - - 211 - - - 746 - 957 - 0.82

(ii) Restricted stock

1) As of December 31, 2017, the outstanding restricted stock of the Company was as follows:

Grant date Fair value on grant date (per share) Exercise price Granted units (thousand shares) Vesting period	Plan 1 (note 1)	Plan 2 (note 1) Plan 3 (note 1) February 24, 2015 August 18, 2015 February 13, 2017 September 7, 2017 43.70 38.40 45.80 72.40 Free grants Free grants Free grants Free grants 1,225 1,775 2,450 550 1~3years (notes 2 and 3) 1~3 years (note 2) 1~3 years (note 2) 1~3 years (note 2)
	October 1, 2013 November 20, 2013 February 10, 2014 July 17, 2014 22.80 25.15 27.30 52.00 Free grants Free grants Free grants Free grants 1,450 186 135 220 1~3 years (notes 2 and 3) 1~2 years (notes 3 and 4) 1~2 years (notes 3 and 4) 1~2 years (note 3)

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

Note 1: Plan 1 –After the stockholders’ meeting on June 25, 2013, the Company decided to issue shares of restricted stock to those full-time employees who meet the Company’s requirements. The restricted stock has been registered with and approved by the Securities and Futures Bureau of the FSC. The board of directors’ meeting resolved to issue 1,450 thousand shares, 186 thousand shares, 135 thousand shares, and 220 thousand shares on August 13 and November 12, 2013, and January 22 and June 27, 2014, respectively.
Plan 2 –After the stockholders’ meeting on June 24, 2014, the Company decided to issue shares of restricted stock to those full-time employees who meet the Company’s requirements. The restricted stock has been registered with and approved by the Securities and Futures Bureau of the FSC. The board of directors’ meeting resolved to issue 1,225 thousand shares and 1,775 thousand shares on January 28 and August 13, 2015, respectively.
Plan 3 –After the shareholders’ meeting on June 20, 2016, the Company decided to issue shares of restricted stock to those full-time employees who meet the Company’s requirements. The restricted stock has been registered with and approved by the Securities and Futures Bureau of the FSC. The board of directors’ meeting resolved to issue 2,450 thousand shares and 550 thousand shares on January 23 and August 10, 2017, respectively.
Note 2: If the employees continue to provide service to the Company and meet the prior year’s performance indicator, 30% of the restricted stock shall be vested in year 1 after the grant date, and the remaining 30% and 40% shall be vested in year 2 and year 3, respectively, after the grant date.
Note 3: If the employees continue to provide service to the Company and meet the prior year’s performance indicator, 50% of the restricted stock shall be vested in year 1 after the grant date, and the remaining 50% shall be vested in year 2 after the grant date.
Note 4: If the employees continue to provide service to the Company and meet the prior year’s performance indicator, the restricted stock shall be vested in year 1 after the grant date.

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

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

(Thousand shares)		2017	2016
Outstanding on January 1		1,771		3,270
Granted during the year		3,000	-
Forfeited during the year		-	-
Vesting during the year Expired during the year		(743) (94)	(1,214) (285)
Outstanding on December 31		3,934		1,771
Expenses and liabilities attributable to share-based payment were as follows:
Restricted stock Salary payable:	$	2017 79,420	2016 43,182
Current	$	-		1,938
ngs per share
Basic earnings per share
The calculation of basic earnings per share for the years ended December 31, 2017 and 2016, based on the profit and the weighted-average number of ordinary shares outstanding was as follows:
		2017	2016
Profit of the Company for the year	$	2,057,415	1,934,070
Weighted-average number of ordinary shares (thousand shares)		440,907	439,169
Basic earnings per share (NT dollars)	$	4.67		4.40

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

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

Weighted-average number of ordinary shares (thousand shares)

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

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(ii) Diluted earnings per share

The calculation of diluted earnings per share for the years ended December 31, 2017 and 2016, based on the profit and the weighted-average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares was as follows:

Profit of the Company for the year Weighted-average number of ordinary shares (diluted / thousand shares) Diluted earnings per share (NT dollars) Weighted-average number of ordinary shares on December 31 (basic) Effect of employee stock options Estimated effect of employee stock bonuses Effect of restricted stock Weighted-average number of ordinary shares on December 31 (diluted)	2017 2016 $ 2,057,415 1,934,070 444,846 443,212 $ 4.63 4.36 2017 2016 440,907 439,169 529 745 1,117 2,174 2,293 1,124 444,846 443,212

(r) Operating revenue

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

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

(s) Employee’s, directors’ and supervisors’ remuneration

Details of remuneration to employees and directors for the years ended December 31, 2017 and 2016, were as follows:

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

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

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

Employee remuneration Stock Cash Directors’ remuneration Employee remuneration Stock Cash Directors’ remuneration	Actual earnings distributed $ - 74,000 36,800 Actual earnings distributed $ - 78,500 32,000	2016
		Accrued in the financial statements Difference - - 74,000 - 36,803 3 2015
		Accrued in the financial statements Difference - - 78,269 (231) 31,907 (93)

(t) Other income

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

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

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(u) Other gains and losses

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

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

(v) Reclassification adjustments of components of other comprehensive income

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

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

(w) Financial instruments

(i) Credit risk

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

Past due 0-30 days Past due 31-90 days Past due 91-180 days Past due 181-365 days Past due over a year	December 31, 2017 December 31, 2016 $ 365,148 505,192 14,794 208,462 7,381 10,926 473 4,028 88,597 - $ 476,393 728,608

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

The movements in the allowance for the years ended December 31, 2017 and 2016, were as follows:

Balance on January 1, 2017 Impairment loss recognized (reversal amount) Amounts written off Exchange differences on translation of foreign currency Balance on December 31, 2017 Balance on January 1, 2016 Impairment loss recognized Amounts written off Exchange differences on translation of foreign currency Balance on December 31, 2016	Individually assessed impairment $ - 66,591 - - $ 66,591 Individually assessed impairment $ - - - - $ -	Collectively assessed impairment Total 76,977 76,977 (36,495) 30,096 - - (6,046) (6,046) 34,436 101,027 Collectively assessed impairment Total 19,647 19,647 57,778 57,778 - - (448) (448) 76,977 76,977

(ii) Liquidity risk

The following table shows the contractual maturities of financial liabilities:

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

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

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

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

(iii) Currency risk

1) Exposure to foreign currency risk

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

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

2) Sensitivity analysis

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

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:

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2017 2016
Exchange Average Exchange Average
gains exchange gains exchange
and losses rate and losses rate
TWD $ 57,284 1 160,646 1
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(iv) Interest rate analysis

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

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

If the interest rate had increased or decreased by 0.25%, and assumed all other variables remain constant the net profit before tax would have increased or decreased by $9,400 and by $10,374 for the years ended December 31, 2017 and 2016, respectively. This is mainly due to bank savings and borrowings with variable interest rates.

(v) Other price risk

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

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

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(vi) Fair value

1) Kinds of financial instruments and fair value

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

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

Financial assets at fair value through profit or loss – current Available-for-sale financial assets – non-current Loans and receivables Cash and cash equivalents Notes and accounts receivable (including related parties) Other receivables Refundable deposits Total Financial liabilities at fair value through profit or loss – current Financial liabilities carried at amortized cost Borrowings Notes and accounts payable (including related parties) Other payables Long-term accounts payable to related parties Salary payable Guarantee deposits Total		December 31, 2016	December 31, 2016	December 31, 2016
	Carrying amounts $ 141,317 $ 873,921 $ 4,751,198 7,853,154 1,050,923 26,209 $ 13,681,484 $ 150,430 $ 601,111 10,136,233 2,331,760 781,263 359,279 125,703 $ 14,335,349		Fair Value
		Level 1 - 586,404 -	Level 2 - - -	Level 3 Total 141,317 141,317 287,517 873,921 150,430 150,430

2) Valuation techniques for financial instruments measured at fair value

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

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

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

a) The fair value of derivative instruments is based on quoted prices. When quoted prices are unavailable, the fair value is estimated on the basis of the contract’s spot exchange rate and swap point.
b) Available-for-sale financial assets – non-current are investments in domestic or foreign non-listed stock. If the price of capital increase by cash is reliable, the fair value will be estimated on the issuance price of ordinary shares, while others will be based on market approach of comparable business. For stocks in the emerging market, the estimated fair value is adjusted for the lack liquidity. When prices listed in the emerging market are available, the fair value is estimated on the basis of unadjusted prior trade prices.
3) There is no transferring of fair value hierarchy for 2017 and 2016.
4) Reconciliation of Level 3 fair values

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

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

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

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

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

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

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

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

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

(x) Financial risk management
(i) Overview

The Company has exposure to the following risks from financial instruments:

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

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(ii) Structure of risk management

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

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

(iii) Credit risk

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

1) Cash and cash equivalents

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

2) Accounts receivable

Sales to individual customers (including related parties) constituting over 10% of total revenue for the years ended December 31, 2017 and 2016, totaled 15% and 21%, respectively. As of December 31, 2017 and 2016, 10% and 7%, respectively, of the ending balance of accounts receivable (including related parties) was accounted for by those customers. In order to reduce credit risk, the Company assesses the financial status of the customers and the possibility of collection of receivables on a regular basis. The above-mentioned customers are profitable and have a good credit record, and the Company did not suffer any significant credit loss from those customers during the financial reporting period.

3) Derivative instruments

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

(iv) Liquidity risk

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

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

(v) Market risk

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

1) Currency risk

The Company is exposed to currency risk on sales, purchases, and borrowings that are denominated in a currency other than the functional currency. These transactions are denominated in USD.

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

2) Interest rate risk

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

3) Other market price risk

The Company is exposed to equity price risk due to the investments in listed equity securities. Those equity securities are strategic investments and is not held for trading. All of the equity securities have been disposed in 2017.

(y) Capital management

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

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

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

(7) Related-party transactions:

(a) Parent company and ultimate controlling company

Name of related party
Primax Industries (Cayman Holding) Ltd.
(Primax Cayman)
Primax Technology (Cayman Holding) Ltd.
(Primax Tech.)
Destiny Technology Holding Co., Ltd.
(Destiny BVI.)
Primax Destiny Co., Ltd. (Destiny Japan)
Diamond (Cayman) Holdings Ltd. (Diamond)
Gratus Technology Corp. (Gratus Tech.)
Primax Industries (Hong Kong) Ltd. (Primax HK)
Tymphany Worldwide Enterprises Ltd. (TWEL)
Dongguan Primax Electronic & Telecommunication
Products Ltd. (PCH2)
Primax Electronics (KS) Corp., Ltd. (PKS1)
Primax Electronics (Chongqing) Corp., Ltd. (PCQ1)
Polaris Electronics Inc.(Polaris)
Destiny Electronic Corp. (Destiny Beijing)
Premium Loudspeakers (Hui Zhou) Co., Ltd.
(Premium Huizhou)
Tymphany Acoustic Technology HK Ltd.
(TYM Acoustic HK)
Dongguan Tymphany Acoustic Technology Co., Ltd.
(Tymphany Dongguan)
TYMPHANY ACOUSTIC TECHNOLOGY (UK)
LIMITED (TYM UK)
Tymphany Acoustic Technology Europe, s.r.o.
(TYM Acoustic Europe)
TYP Enterprises, Inc.(TYP)
Tymphany HK Ltd.(TYM HK)

Relationship with the Group

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

Name of related party
Tymphany Acoustic Technology Limited
(TYM Acoustic)
TYMPHANY LOGISTICS, INC (TYML)
Dong Guan Dong Cheng Tymphany Acoustic
Technology Co., Ltd. (TYDC)
Ya Xing Huang and his family members
Primax Electronics Korea Co., Ltd. (Primax Korea)
Global TEK Fabrication Co., Ltd. (Global TEK)
Global TEK Co., Ltd. (GT)
Global TEK Fabrication Co., Ltd.(Samoa) (GTF-S)
GP Tech, Inc. (GP)
Global TEK Fabrication Co., Ltd. (HK) (GTF-HK)
Global TEK Co., Ltd (Samoa) (GTS)
WUXI GLOBAL TEK FABRICATION CO., LTD.
(WUXI GLOBAL TEK)
GLOBAL TEK (XI’ AN) CO., LTD.
(GLOBAL TEK XI’ AN)
GLOBAL TEK CO. (WUXI), LTD.
(GLOBAL TEK WUXI)

Relationship with the Group

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

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(b) Significant transactions with related-party

(i) Sales

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

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

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

(ii) Purchases

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

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

Note: Individual amount not exceeding 10%.

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

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

(iii) Purchase of service

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

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

(iv) Receivable and payable on behalf of related parties

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

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

－
(v) Property transaction disposal of equity securities

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

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2017 2016
Gains or Proceeds Gains or
Proceeds losses from losses
Trading Trading from from Trading Trading disposal from
Relationship Account quantities targets disposal disposal quantities targets (note) disposal
Other related Investment using - - - - 11,020 Shares 549,347 164,785
parties equity method (thousand)
----- End of picture text -----

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

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

(vi) Guarantees and endorsements

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

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

(vii) Lease

The Company leased out its investment properties to its subsidiaries as office buildings and entered into 15-years lease contract by reference of the rental price of the nearby offices. The

rental income in 2017 and 2016 amounted to $9,914 and $8,640 and there were no receivables on December 31, 2017 and 2016. Please refer to note 6(l) for non-cancellable receivable.

(c) Key management personnel compensation

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

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

(Continued)

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(8) Pledged assets: None

(9) Commitments and contingencies:

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

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

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

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

(d) The Company entered into lease agreements for its office. Please refer to note 6(l) for future rent payables.

PRIMAX ELECTRONICS LTD. Notes to the Financial Statements

(12) Other:

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

By functio By item	n 2017	n 2017	n 2017	2016	2016	2016
	Operating cost	Operating expenses	Total	Operating cost	Operating expenses	Total
Employee benefits Salaries Labor and health insurance Pension Others Depreciation Amortization	102,796 6,619 3,463 4,226 7 -	1,135,525 73,508 41,858 52,820 16,630 23,337	1,238,321 80,127 45,321 57,046 16,637 23,337	153,736 6,883 3,699 5,963 7 -	1,178,444 68,929 40,006 53,531 18,058 20,140	1,332,180 75,812 43,705 59,494 18,065 20,140

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

(13) Other disclosures:

(a) Information on significant transactions:

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

(i) Loans to other parties:

(10) Losses due to major disasters: None

(11) Subsequent events:

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

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Highest
balance Collateral
of financing Actual Purposes of Transaction
to other usage Range of fund amount for Reasons Maximum
parties amount interest financing business for Allowance Individual limit of
Name of Name of Account Related during the Ending during the rates during for the between two short-term for bad funding fund
Number lender borrower name party period balance period the period borrower parties financing debt Item Value loan limits financing
1 PKS1 The Other Y 781,263 423,944 423,944 - Necessary to - Operating - - 867,628 867,628
Company receivables loan to other capital
parties
2 TymphanyTYDC Other 〃 38,341 - - 2% 〃 - 〃 - - 364,980 364,980
Dongguan receivables
3 TYM HK TYM Other 〃 863,693 761,124 722,322 2% 〃 - Investment - - 747,124 747,124
Acoustic receivables capital
HK
----- End of picture text -----

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

(ii) Guarantees and endorsements for other parties:

											(In Thous	ands of New Taiwan Dollars)	ands of New Taiwan Dollars)
No.	Name of guarantor	Counter-party of guarantee and endorsement L Name Relationship with the Company		imitation on amount of guarantees and endorsements for a specific enterprise	Highest balance for guarantees and endorsements during the period	Balance of guarantees and endorsements as of reporting date	Actual usage amount during the period	Property pledged for guarantees and endorsements (Amount)	Ratio of accumulated amounts of guarantees and endorsements to net worth of the latest financial statements	Maximum amount for guarantees and endorsements	Parent company endorsements/ guarantees to third parties on behalf of subsidiary	Subsidiary endorsements/ guarantees to third parties on behalf of parent company	Endorsements/ guarantees to third parties on behalf of companies in Mainland China
		Name
0 1 〃	The Company PCH2 〃	PCH2 PCQ1 PKS1	The subsidiary of Primax HK and Primax Tech. The same parent company 〃	3,415,582 1,501,202 1,501,202	338,930 193,674 167,398	313,404 131,331 164,164	- 16,938 56,552	- - -	% 2.75 % 2.62 % 3.28	9,108,218 4,003,206 4,003,206	Y - -	- - -	Y Y Y

(Continued)

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

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

(iii) Securities held as of December 31, 2017 (excluding investment in subsidiaries, associates and joint ventures):

Name of holder	Category and name of security	Relationship with company	Account title		Ending balance	Ending balance	Ending balance	Note
				Shares/Units (thousands)	Carrying value	Percentage of ownership (%)	Fair value
The Company Primax Tech.	Shares: Green Rich Technology Co., Ltd. WK Technology Fund IV LTD. Changing Information Technology Inc. Formosoft International Inc. Syntronix Corp. Ricavision International Inc. Global TEK Grove Ventures, L.P. Shares: Echo. Bahn. WK Global Investment III Ltd.	- - - - - - - - -	Available-for-sale financial asset-non- current 〃〃〃〃〃〃 Available-for-sale financial asset-non- current 〃	359 230 179 53 6 917 5,510 - 400 473	2,000 2,004 2,102 - 49 - 374,680 16,417 397,252 - 5,745 5,745	3.59 0.38 1.62 0.76 0.02 2.04 9.18 2.73 11.90 1.32	2,000 2,004 2,102 - 49 - 374,680 16,417 - 5,745

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

Name of company	Category and name of security	Account name	Name of counter- party	Relationship with the company	Beginning Balance	Beginning Balance	Purchases	Purchases	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
TYM Acoustic HK TYM HK TWEL TWEL TYM Acoustic Diamond	Shares: TYM Acoustic Europe Premium Hui Zhou Premium Hui Zhou TYM HK TYM HK TWEL	Investment accounted for using equity method 〃〃〃〃〃	Initial Offerings TWEL TYM HK TYM Acoustic HK TWEL UIDL, SC and XT	None The Group 〃〃〃 Substantive related parties	- - - 144,395 - 38,501	- 410,738 - 1,540,112 - 2,904,380	187,800 - - - 144,395 16,500	653,796 - 569,138 - 714,258 723,139	- - - 144,395 - -	- 569,138 - 714,258 - -	- 643,733 - 837,712 - -	- - (note 1) - - (note 1) - -	187,800 - - - 144,395 55,001	545,980 (note 2) - 1,514,469 (note 2) - 747,124 (note 2) 3,187,565 (note 3)

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

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Category
and Name of Relationship Beginning Balance Purchases Sales Ending Balance
Name of name of Account counter- with the Shares Shares Shares Gain (loss) Shares
company security name party company (thousands) Amount (thousands) Amount (thousands) Price Cost on disposal (thousands) Amount
TWEL Premium 〃 TZBV, SC 〃 - 586,768 - - - 479,752 479,752 - - 1,514,469
Hui Zhou and (note 3)
Bochuang
Shares:
The Nien Made Available- Initial None 1,763,621 586,404 - - 1,763,621 497,186 166,299 330,887 - -
Company Enterprise for-sale offerings
Co., Ltd. financial
assets
PCH2 Financial Held-for- 〃〃 - - - 1,450,402 - 1,455,108 1,450,402 4,706 - -
instruments trading (note 3)
of floating financial
income and assets
capital
〃 Money 〃〃〃 - - - 9,146,504 - 9,167,750 9,144,803 21,246 - -
market fund (note 3)
of RMB
PCQ1 Money 〃〃〃 - - - 3,684,887 - 3,705,442 3,694,627 20,555 - -
market fund (note 3)
of RMB
PKS1 Money 〃〃〃 - - - 550,197 - 558,263 555,556 8,066 - -
market fund (note 3)
of RMB
----- End of picture text -----

Note 1: The amount is the capital surplus derived from the differences between the selling price and the cost during the restructuring in the third quarter of 2017, in which there were no related gains (losses) of disposal. Note 2: The differences between the ending balance and the purchasing price is the investment income (losses) accounted for using equity method, differences between purchasing price and net worth, as well as the capital increase and the adjustment of exchange differences on translation. Note 3: Gains of disposal include valuation and exchange differences on translation.

(v) Acquisition of individual real estate with amount exceeding the lower of TWD$300 million or 20% of the Company’s paid-in capital: None
(vi) Disposal of individual real estate with amount exceeding the lower of TWD$300 million or 20% of the Company’s paid-in capital: None

(vii) Related-party transactions for purchases and sales with amounts exceeding the lower of TWD$100 million or 20% of the Company’s paid-in capital:

Name of company	Related party	Nature of relationship		Transaction details	Transaction details	Transaction details	Transactions wit from	h terms different others	Notes/Accounts receivable (payable)	Notes/Accounts receivable (payable)	Note
			Purchase/ Sale	Amount	Percentage of total purchases/sales	Payment terms	Unit price	Payment terms	Ending balance	Percentage of total notes/accounts receivable (payable)
The Company 〃〃〃〃〃 Primax Cayman 〃	Primax Cayman PCH2 PKS1 PCQ1 Polaris TYM HK The Company PCH2	Subsidiary The subsidiary of Primax HK The subsidiary of Primax HK The subsidiary of Primax HK The subsidiary of Primax Tech The subsidiary of TYM Acoustic HK Parent The subsidiary of Primax HK	Purchase Purchase Purchase Purchase (Sale) (Sale) (Sale) Purchase	140,623 26,362,084 1,079,140 5,278,105 (2,886,921) (202,897) (140,623) 140,623	% - % 81 % 3 % 16 % (8) % (1) % (100) % 100	60 days 〃 360 days 60 days 90 days 60 days 〃〃	Price agreed by both side 〃〃〃〃〃〃〃	The same as general purchasing 〃〃〃 The same as general selling 〃〃 The same as general purchasing	(31,085) (6,137,747) (421,786) (1,748,395) 22,202 6,979 31,085 (16,045)	-% (73)% (5)% (21)% -% -% 100% (100)%

(Continued)

Notes to Financial Statements

PRIMAX ELECTRONICS LTD.

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Transactions with terms different Notes/Accounts receivable
Transaction details from others (payable)
Percentage of
total
Percentage of notes/accounts
Name of Nature of Purchase/ total Payment Ending receivable
company Related party relationship Sale Amount purchases/sales terms Unit price Payment terms balance (payable) Note
PCH2 The Company The parent of (Sale) (26,362,084) (82) % 〃〃 The same as 6,137,747 82%
Primax Cayman general selling
〃 Primax Cayman The parent of (Sale) (140,623) - % 〃〃〃 16,045 -%
Primax HK
PKS1 The Company The parent of (Sale) (1,079,140) (100) % 360 days 〃〃 421,786 100%
Primax Cayman (note 1)
PCQ1 The Company The parent of (Sale) (5,278,105) (90) % 60 days 〃〃 1,748,395 90%
Primax Cayman
Polaris The Company The parent of Purchase 2,886,921 100 % 90 days 〃 The same as (22,202) (100)%
Primax Tech. general purchasing
Premium Hui TYM HK The subsidiary of (Sale) (5,073,442) (92) % 60 days 〃 The same as 1,888,768 93%
Zhou TYM Acoustic HK general selling
Tymphany TYM HK The subsidiary of (Sale) (11,102,092) (97) % 〃〃〃 4,873,979 97%
Dongguan TYM Acoustic HK
TYDC TYM HK The subsidiary of (Sale) (1,246,821) (99) % 〃〃〃 65,706 80%
TYM Acoustic HK
TYM Acoustic TYM Acoustic Subsidiary Purchase 1,281,595 96 % 90 days 〃 The same as (437,898) (93)%
HK Europe general purchasing
TYM HK The Company The parent of Purchase 202,897 1 % 60 days 〃〃 (6,979) -%
Diamond
〃 Premium Hui The parent of Purchase 5,073,442 27 % 〃〃〃 (1,888,768) (26)%
Zhou TYM Acoustic HK
〃 Tymphany The subsidiary of Purchase 11,102,092 60 % 〃〃〃 (4,873,979) (67)%
Dongguan Premium Hui Zhou
〃 TYDC The subsidiary of Purchase 1,246,821 7 % 〃〃〃 (65,706) (1)%
Tymphany
Dongguan
TYM Acoustic TYM Acoustic Parent (Sale) (1,281,595) (93) % 〃〃〃 437,898 93%
Europe HK
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Note 1: Accounts receivables over payment terms have been classified as other receivables-non-current.

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

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

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

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

(ix) Trading in derivative instruments: Please refer to note 6(b) in the consolidated financial statements for the year ended December 31, 2017.
(b) Information on investees:

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

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

Note 1: The amount is the initial investment costs from the original stockholders prior to the acquisition of the Company through Diamond. Note 2: The information is represented after the restructuring in the third quarter of 2017.

Note 3: The information is represented after the acquiring 30% of the capital from minority interest in the fourth quarter of 2017.

(Continued)

PRIMAX ELECTRONICS LTD. Notes to Financial Statements

(c) Information on investments in mainland China:

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

Name of investee	Main businesses and products	Total amount of paid-in capital	Method of investment	Accumulated outflow of investment from Taiwan as of January 1, 2017 (note 2)	Investm	ent flows	Accumulated outflow of investment from Taiwan as of December 31, 2017	Net income (losses) of the investee	Percentage of ownership	Investment income (losses)	Book value	Accumulated remittance of earnings in current period
					Outflow	Inflow
PCH2 Destiny Beijing PKS1 PCQ1 Premium Hui Zhou Tymphany Dongguan TYDC	Manufacture of multifunctional peripherals, computer mice, mobile phone accessories, consumer electronics products, and shredders Research and development of computer peripheral devices and software Manufacture of computer, peripherals and keyboards Manufacture of computer, peripherals and keyboards Research and development, design, and sale of audio accessories, amplifiers and their components 〃〃	2,037,050 40,353 891,956 572,472 1,311,036 149,240 91,360	Indirect investment through Primax Cayman and Primax Tech. Indirect investment through Destiny BVI. Indirect investment through Primax Cayman Indirect investment through Primax Cayman Indirect investment through Diamond 〃〃	1,773,902 33,893 710,138 645,580 2,711,436 16,140 -	- - - - - - -	- - - - - - -	1,636,597 31,340 656,656 596,960 2,507,232 14,924 -	613,116 (10,972) (35,216) 176,309 265,156 197,738 5,320	100% 100% 100% 100% 66.44% 66.44% 66.44%	613,116 (10,972) (35,216) 176,309 194,561 129,391 3,432	5,004,008 14,547 867,628 1,076,168 1,514,469 242,493 64,726	- - - - - - -

PRIMAX ELECTRONICS LTD.

Notes to Financial Statements

(iii) Significant transactions:

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

(14) Segment information:

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

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

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

(ii) Limitation on investment in Mainland China:

Name of Company	Accumulated Investment in Mainland China as of December 31, 2017	Investment Amounts Authorized by Investment Commission, MOEA	Upper Limit on Investment
The Company	5,526,547	6,282,248	None(note)

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

The above investment income (losses) in mainland China, except for PCH2, Destiny Beijing, PKS1, and PCQ1, which were based on financial statements audited by the Company’ s auditors, others were based on the audited results of other auditors.

(Continued)

PRIMAX ELECTRONICS LTD.

Statement of cash and cash equivalents

December 31, 2017

(Expressed in thousands of New Taiwan Dollars)

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

PRIMAX ELECTRONICS LTD.

Statement of other receivables

December 31, 2017

(Expressed in thousands of New Taiwan Dollars)

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

Statement of accounts receivable

Statement of inventories

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


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

Statement of changes in available-for-sale financial asset－ non-current	From January 1 to December 31, 2017	(Expressed in thousands of New Taiwan Dollars)	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. 359 $ 4,000 - - - - - (2,000) 359 2,000 None	WK Technology Fund IV Ltd. 512 3,820 - - - - (282) (1,816) 230 2,004 〃	Changing Information Technology Inc. 179 2,802 - - - - - (700) 179 2,102 〃	Formosoft International Inc. 53 646 - - - - - (646) 53 - 〃	Syntronix Corp. 6 749 - - - - - (700) 6 49 〃	Global TEK Co., Ltd. 5,510 275,500 - - - - - 99,180 5,510 374,680 〃	Nien Made Enterprise Co., Ltd. 1,764 586,404 - - 1,764 (166,299) - (420,105) - - 〃	Ricavision International Inc. 917 - - - - - - - 917 - 〃	Grove Ventures, L.P - - - 21,045 - - - (4,628) - 16,417 〃	$ 873,921 21,045 (166,299) (331,415) 397,252	Note: Other adjustments comprise capital reduction to refund and unrealized gains or losses on available-for-sale financial assets.	76	PRIMAX ELECTRONICS LTD.	Statement of changes in investment accounted for using equity method	From January 1 to December 31, 2017	(Expressed in thousands of New Taiwan Dollars)	Beginning Balance Additions Disposal Other adjustments Ending Balance	Percentage Market	Number Number Number Number Amount Number of holding value or Pledged of	Name of investee of shares Amount of shares Amount of shares Amount of shares (Note1) of shares shares Amount book value guaranteed		Primax Industries (Cayman Holding) Ltd. 8,147,636 $ 4,336,069 - - - - - 799,090 8,147,636 % 100.00 5,135,159 5,356,284 None	Primax Technology (Cayman Holding) Ltd. 285,067 1,922,225 - - - - - 99,490 285,067 % 100.00 2,021,715 2,105,199 〃	Destiny Technology Holding Co., Ltd 1,050 26,320 - - - - - (11,769) 1,050 % 100.00 14,551 14,551 〃	Primax Destiny Co., Ltd. 0.5 16,146 - - - - - 240 0.5 % 100.00 16,386 16,386 〃	Diamond (Cayman) Holdings Ltd. 84,050 3,007,259 - - - - - 82,388 84,050 % 100.00 3,089,647 3,089,647 〃	Gratus Technology Corp. 300 9,875 - - - - - (228) 300 % 100.00 9,647 9,647 〃	$ 9,317,894 - - 969,211 10,287,105 10,591,714		Note 1: Adjustments under equity method valuation.

PRIMAX ELECTRONICS LTD.

Statement of changes in property, plant and

equipment

From January 1 to December 31, 2017

PRIMAX ELECTRONICS LTD.

Statement of other payables

December 31, 2017

(Expressed in thousands of New Taiwan Dollars)

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

Statement of changes in investment property

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

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

Statement of notes and accounts payable

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

PRIMAX ELECTRONICS LTD.

PRIMAX ELECTRONICS LTD.

Statement of other current liabilities

December 31, 2017

(Expressed in thousands of New Taiwan Dollars)

Sales revenue Other (note)	Item received in advance	Description Advance sales receipts－non-related parties	$	Amount 231,497 17,056
Total			$	248,553
Note : individual amount not exceeding 5%

Statement of long-term borrowings

December 31, 2017

(Expressed in thousands of New Taiwan Dollars)

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

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

Statement of other non-current liabilities

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

Note : individual amount not exceeding 5%

PRIMAX ELECTRONICS LTD.

PRIMAX ELECTRONICS LTD.

Statement of operating revenue

From January 1 to December 31, 2017

(Expressed in thousands of New Taiwan Dollars)

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

Statement of operating costs

From January 1 to December 31, 2017

(Expressed in thousands of New Taiwan Dollars)

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

PRIMAX ELECTRONICS LTD.

Statement of selling, administrative, research and development expenses

From January 1 to December 31, 2017

(Expressed in thousands of New Taiwan Dollars)

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

Note : individual amount not exceeding 5%

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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 2017

52436_rns_2018-11-06_3d81ff9c-9734-4c8b-807f-3f12c381d14a.pdf

Primax Electronics Ltd.

2. Registered address and telephone of corporate headquarters

6. CPAs replacement

Dear shareholders,

1 、 Letter to Shareholders

1. Business Operation in 2017

（ 1 ） Financial Results

（ 2 ） Budget Execution

（ 3 ） Cash Flow Analysis

Operating funds and its distribution diagram

（ 4 ）

Trend chart of net cash position and current ratio

2. 2018 Business Strategy and Technology Developments

Strengthen the cornerstones of PC peripheral products, expand audio products domains, purpose automotive electronics

2 、

1. Establishment date ： March 20, 2006

2. Company background

3 、 Corporate Governance Report

1. Organizational system

（ 2 ） The business operations of each main department

4. Corporate governance operation

（ 1 ） Board of Directors operation:

Other mandatory notes:

1. The objective of enhancing the functions of the Board of Directors

Other mandatory notes:

Continuing education / Training of the Directors in 2017:

1. Information of the Remuneration Committee members

2. The operation of the Remuneration Committee

Other mandatory notes:

（ 1 ） Corporate governance:

（ 2 ） Green operations:

（ 3 ） Social care team:

（ 6 ） Substantiating ethical corporate management and policies:

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

1. Internal Control Statement

PRIMAX Electronics Limited Statement of Internal Control System

1. Important resolution of the shareholders' meeting and its implementation.

5. CPAs fees

6. CPAs replacement

（ 1 ） Information of former CPAs:

（ 2 ） About the successor CPAs

（ 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

4 、 Capital Overview

1. Capitalization

2. Composition of Shareholders

Share Ownership

4. List of Major Shareholders

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

8. Remuneration to employees, directors and supervisors

6. The Company's dividend policy and its implementation

（ 3 ） The distribution of remuneration resolved by the Board of Directors:

9. The Company's buying back shares: None

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

11. Employee stock warrant status

（ 2 ） The names of the managers who have acquired ESOP and the top 10 employees acquiring ESOP, and the status of subscription of shares. April 15, 2018 ／

12. The process of new restricted employee shares

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

5 、 Operation Overview

14. Fund plan and its execution

（ 1 ） Project content:

（ 1 ） 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 ）

Communications peripheral equipment

4. New products （ service ） development plan

Non-PC peripherals products

（ 2 ） Industry Overview

1. Industry current status and development

（ 1 ） PC peripherals products

（ 2 ） Non-PC peripherals products

① Mobile device components products

② Business equipment products

Primax Annual Report 2017