SUNON — Audit Report / Information 2018

Nov 2, 2018

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD. PARENT COMPANY ONLY STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 AND INDEPENDENT AUDITORS' REPORT

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CONTENTS

Item	Page
Cover page 1.	1
Contents 2.	$\overline{2}$
Independent auditors' report 3.	3
Balance sheets 4.	4
Statements of comprehensive income 5.	5
Statements of changes in equity 6.	6
Statements of cash flows 7.	7
Notes to financial statements 8.
(1) General information	8
(2) The authorization of the parent company only financial statements	8
Application of new and amended standards and interpretations (3)	$9 - 14$
Summary of significant accounting policies (4)	$14 - 31$
Critical accounting judgments, estimates and key sources of (5) assumption uncertainty	$31 - 35$
Contents of significant accounts (6)	$35 - 63$
Related party transactions (7)	$63 - 68$
(8) Pledged assets	68
(9) Significant contingent liabilities and unrecognized contract commitments	$68 - 69$
(10) Significant disaster loss	69
Significant subsequent events (11)	69
Others (12)	$69 - 78$
Supplementary disclosures (13)	78
A. Significant transactions information	$79 - 86$
B. Information on investees	$87 - 89$
C. Information on investments in Mainland China	$90 - 92$
Segment information (14)	93
Statement of major accounting item 9.	$94 - 118$

國富浩華聯合會計師事務所 Crowe (TW) CPAs 80250 高雄市苓雅區四維三路 6 號 27樓之1 27F-1., No.6, Siwei 3rd Rd., Lingya Dist., Kaohsiung City 80250, Taiwan Tel +886 7 3312133 Fax +886 7 3331710 www.crowe.tw

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders Sunonwealth Electric Machine Industry Co., Ltd.

Opinion

We have audited the accompanying parent company only balance sheets of Sunonwealth Electric Machine Industry Co., Ltd. (the "Company") as of December 31, 2018 and 2017, and the parent company only statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the parent company only financial statements, including a summary of significant accounting policies.

In Our opinion, based on our audits and the report of the other independent accountants, as described in the other matters section of our report, the accompanying parent company only financial statements present fairly, in all material respects, the parent company only financial position of the Company as of December 31, 2018 and 2017, and its parent company only financial performance and its parent company only 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 audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and 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 parent company only Financial Statements section of our report. We are independent of the Company in accordance with the Norm of Professional Ethics for Certified Public Accountant of the Republic of China and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion base on the results that we audit and the audit report of other accountants.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the parent company only financial statements for the year ended December 31, 2018. These matters were addressed in the context of our audit of the parent company only financial statements as a whole, and in forming our opinion thereon, we do not provide a separate opinion on these matters.

Key audit matters of the Company's parent company only financial statements for the year ended December 31, 2018 are stated as follows:

Valuation of inventory

Please refer to Note 4(7) to the parent company only financial statements for the accounting policy of inventories, Note 5(2)G for critical accounting judgments and key sources of estimation and assumption uncertainty of inventories, and Note 6(4) for inventory valuation.

Description of key audit matter:

As of December 31, 2018, inventory was \$869,834 thousand and accounted for 11.8% of the total assets. Due to rapid changes in technology may lead to write-downs of slow moving inventories to their net realizable values. As uncertainty exists in management's judgment when the determining the loss on inventory, the valuation of inventory has been identified as a key audit matter.

How the matter was addressed in our audit:

In relation to the key audit matter above, our principal audit procedures included the understanding of the feature of the product and the inventory aging to confirm the appropriateness of the inventory evaluation method; testing the book value of the inventory to assess the rationality of the change in the impairment loss of the inventory, obtaining the inventory status of the Company and compare the actual write-offs of the past to assess the appropriateness of the depreciation and damage to the goods.

Revenue recognition

Please refer to Note $4(19)$ to the parent company only financial statements for the accounting policy of revenue recognition, Note $5(1)D$ and Note $5(2)A$ for critical accounting judgements and key sources of estimation and assumption uncertainty of revenue recognition, and Note 6 (21) for the description of revenue recognition.

Description of key audit matter:

The Company's sales revenue is easily influenced by various factors such as the industry boom and market environment, and has a significant impact on the utilization rate of the Company (the levy of idle capacity loss), inventory risk and cash flow. Consequently, this is one of the key areas our audit focused on.

How the matter was addressed in our audit:

In relation to the key audit matter above, our principal audit procedures included testing the Company's controls surrounding revenue recognition; inspecting customer orders and performing a test of revenue transactions which incurred within a certain period before or after. the balance sheet date; analysis of the trend of product sales and comparing the number of relevant changes or differences with the budget to confirm whether there is a significant exception.

Other Matters

We did not audit the financial statements of investments accounted for using the equity method that are included in the parent company only financial statements. Those financial statements were audited by other independent accountants whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included in the parent company only financial statements is based solely on the audit reports of other independent accountants. The balance of these investments accounted for under the equity method amounted to \$126,809 thousand and \$ 109,447 thousand, constituting 1.72% and 1.54% of total assets as of December 31, 2018 and 2017, respectively, and share of profits of subsidiaries was \$15,400 thousand and \$32,803 thousand, constituting 2.09% and 4.09% of profit before income tax for the years ended December 31, 2018 and 2017, respectively.

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

Management is responsible for the preparation and fair presentation of the parent company only financial statements in accordance with the 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 parent company only financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the parent company only 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 (inclusive of the Audit Committee) are responsible for overseeing the Company's financial reporting process.

Auditors' Responsibilities for the Audit of the Parent Company Only Financial Statements

Our objectives are to obtain reasonable assurance about whether the parent company only financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' 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 parent company only financial statements.

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

• 1. Identify and assess the risks of material misstatement of the parent company only 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.
• 1. 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.
• 1. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• 1. 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 auditors' report to the related disclosures in the parent company only 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 auditors' report. However, future events or conditions may cause the Company to cease to continue as a going concern.
• 1. Evaluate the overall presentation, structure and content of the parent company only financial statements, including the disclosures, and whether the parent company only financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• 1. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the parent company only financial statements. We are responsible for the direction, supervision and performance of the Company 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 parent company only financial statements for the year ended December 31, 2018 and are therefore the key audit matters. We describe these matters in our auditors' 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 Ching Ling Lee and Shu Man Tsai.

$C_{\text{rowe}}$ $(Tw)$ $C\cancel{P3s}$
Crowe (TW) CPAs

Kaohsiung, Taiwan Republic of China March 14, 2019

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD.

PARENT COMPANY ONLY BALANCE SHEETS

(In Thousands of New Taiwan Dollars)

		December 31, 2018		December 31, 2017				December 31, 2018		December 31, 2017
Assets	Note	Amount	%	Amount	%	Liabilities and Equity	Note	Amount	%	Amount	%
CURRENT ASSETS						CURRENT LIABLITIES
Cash and cash equivalents	6(1)	\$447,217	6.1	\$422,062	6.0	Short-term loans	6(11)	\$510,000	6.9	\$410,000	5.8
Notes receivable, net	6(2)	31,737	0.4	27,775	0.4	Contract liabilities - current	6(21)	10,745	0.1		$\sim$
Accounts receivable, net	6(3)	1,780,771	24.1	1,706,598	24.0	Accounts payable		1,021,169	13.9	920,729	13.0
Accounts receivable - related parties, net	$6(3) \cdot 7$	347,039	4.7	318,011	4.5	Accounts payable - related parties	7	1,026,604	13.9	818,564	11.5
Other receivables		9,838	0.1	12,886	0.2	Other payables	6(12)	261,760	3.5	271,924	3.8
Other receivables - related parties	$\tau$	11,242	0.2	38,938	0.5	Other payables - related parties	$6(12) \cdot 7$	13,440	0.2	12,190	0.2
Inventories	6(4)	869,834	11.8	760,871	10.7	Current tax liabilities		34,211	0.5	66,427	0.9
Prepayments		14,591	0.2	8,711	0.1	Provisions - current	6(13)	13,120	0.2	12,636	$0.2\,$
Total current assets		3,512,269	47.6	3,295,852	46.4	Advance receipts				20,034	0.3
NONCURRENT ASSETS						Obligation under capital leases - current	6(15)	2,361
Financial assets carried at cost - noncurrent	6(6)			62,000	0.9	Total current liabilities		2,893,410	39.2	2,532,504	35.7
Investments accounted for using equity method	6(7)	2,691,244	36.4	2,605,105	36.7	NONCURRENT LIABILITIES
Property, plant and equipment	6(8)	1,062,632	14.4	1,027,463	14.5	Long-term loans	6(14)	220,000	3.0	320,000	4.5
Investment properties, net	6(9)	75,011	1.0	75,461	1.1	Deferred income tax liabilities	6(26)	51,377	0.8	31,479	0.5
Intangible assets	6(10)	12,904	0.2	8,890	0.1	Obligation under capital leases - noncurrent	6(15)	2.456	$\blacksquare$		$\bullet$
Deferred income tax assets	6(26)	28,840	0.4	20,583	0.3	Net defined benefit liabilities - noncurrent	6(16)	75,660	1.0	70,630	1.0
Refundable deposits		2,485	$\blacksquare$	2,303	$\sim$	Guarantee deposits		3,177	$\overline{\phantom{a}}$	3,077
Other noncurrent assets - others		66		244	$\sim$	Total noncurrent liabilities		352,670	4.8	425,186	6.0
Total noncurrent assets		3,873,182	52.4	3,802,049	53.6	Total Liabilities		3,246,080	44.0	2,957,690	41.7
						Share capital
						Ordinary shares	6(17)	2,509,297	34.0	2,509,297	35.3
						Capital surplus	6(18)	366,903	4.9	365,706	5.2
						Retained earnings
						Legal reserve	6(19)	628,886	8.5	563,140	7.9
						Special reserve	6(19)	127,111	1.7	82,857	1.2
						Unappropriated earnings	6(19)	671,883	9.1	746,322	10.5
						Other equity	6(20)	(164, 709)	(2.2)	(127, 111)	(1.8)
						Total equity		4,139,371	56.0	4,140,211	58.3
TOTAL ASSESTS		\$7,385,451	100.0	\$7,097,901	100.0	TOTAL LIABILITIES AND EQUITY		\$7,385,451	100.0	\$7,097,901	100.0

The accompanying notes are an integral part of the financial statements.

$\sim 10^{11}$

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD. PANENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

		Year Ended December 31
		2018		2017
	Note	Amount	$\%$	Amount	$\%$
OPERATING REVENUES	6(21)	\$8,186,530	100.0	\$7,688,919	100.0
OPERATING COSTS	6(4)	6,951,866	84.9	6,396,832	83.2
GROSS PROFIT		1,234,664	15.1	1,292,087	16.8
UNREALIZED GROSS PROFIT ON SALES TO		32,687	0.4	32,758	0.4
SUBSIDIARIS AND ASSOCIATES
REALIZED GROSS PROFIT ON SALES TO		32,758	0.4	25,807	0.3
SUBSIDIARIS AND ASSOCIATES
OPERATING EXPENSES
Sales and marketing		268,733	3.3	258,383	3.4
General and administrative		263,774	3.2	248,571	3.2
Research and development		416,191	5.1	399,923	5.2
Expected credit loss (gain)	6(3)	2,547
Total operating expenses		951,245	11.6	906,877	11.8
INCOME FROM OPERATIONS		283,490	3.5	378,259	4.9
NON-OPERATING INCOME AND EXPENSES
Other income	6(23)	92,337	1.1	91,061	1.1
Other gains and losses	6(24)	83,577	1.0	71,001	0.9
Finance costs	6(25)	(7, 873)	(0.1)	(6,889)
Share of profits of subsidiaries, associates and		285,106	3.5	269,311	3.5
joint ventures
Total non-operating income and expenses		453,147	5.5	424,484	5.5
INCOME BEFORE INCOME TAX		736,637	9.0	802,743	10.4
INCOME TAX EXPENSE	6(26)	131,517	1.6	145,284	1.9
NET INCOME		605,120	7.4	657,459	8.5
OTHER COMPREHENSIVE INCOME (LOSS)
Items that will not be reclassified subsequently
to profit or loss: Remeasurement of defined benefit obligation
Unrealized gain on investments in equity instruments		(6, 841) 8,985	0.1	(4, 336)
at fair value through other comprehensive income
Share of other comprehensive loss of subsidiaries,				(21)
associates and joint ventures
Income tax benefit related to items that will		(2,020)		(737)
not be reclassified subsequently
Items that may be reclassified subsequently
to profit or loss:
Share of other comprehensive loss of subsidiaries,		(45, 162)	(0.6)	(52, 872)	(0.7)
associates and joint ventures
Income tax benefit related to items that may		(8,614)	(0.1)	(8,618)	(0.1)
be reclassified subsequently to profit or loss
Total other comprehensive loss, net of income tax	6(27)	(32, 384)	(0.4)	(47, 874)	(0.6)
TOTAL COMPREHENSIVE INCOME		\$572,736	7.0	\$609,585	7.9
EARNINGS PER SHARE
Basic	6(28)	\$2.41		\$2.62

The accompanying notes are an integral part of the financial statements.

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD. PARENT COMPANY ONLY STATEMENTS OF CHANGES IN EQUITY (In Thousands of New Taiwan Dollars)

							Others
							Unrealized
							Gain (Loss) on
	Share Capital			Retained Earnings		Exchange	Financial Assets	Unrealized
					Unappropriated	Differences on Translating Foreign	at Fair Value Through	Gain (Loss) on Available-for-sale	Total
	Ordinary Shares	Capital Surplus	Legal Reserve	Special Reserve	Earnings	Operations	Other Comprehensive Income	Financial Assets	Equity
BALANCE AT JANUARY 1, 2017	\$2,509,297	\$365,706	\$505,950	\$79,155	\$655,235	(\$82,857)			\$4,032,486
Appropriations and distributions of prior years' earnings:
Legal reserve			57,190		(57, 190)
Special reserve				3,702	(3,702)
Cash dividends - \$2 per share					(501, 860)				(501, 860)
Total			57,190	3,702	(562, 752)	$\blacksquare$	$\blacksquare$	$\sim$	(501, 860)
Net income in 2017					657,459				657,459
Other comprehensive income (loss) in 2017, net of income tax					(3,620)	(44, 254)			(47, 874)
Total comprehensive income in 2017		$\overline{\phantom{a}}$	$\overline{\phantom{a}}$		653,839	(44, 254)			609,585
BALANCE AT DECEMBER 31, 2017	2,509,297	365,706	563,140	82,857	746,322	(127, 111)			4,140,211
Impact of retrospective application and retrospective restatement		$\overline{\phantom{a}}$	$\overline{\phantom{a}}$	$\overline{\phantom{a}}$	$\overline{\phantom{a}}$	$\sim$	3,415		3,415
Adjusted balabce at January 1, 2018	2,509,297	365,706	563,140	82,857	746,322	(127, 111)	3,415		4,143,626
Appropriations and distributions of prior years' earnings:
Legal reserve			65,746		(65, 746)
Special reserve				44,254	(44, 254)
Cash dividends - \$2.3 per share					(577, 138)				(577, 138)
Total			65,746	44,254	(687, 138)	$\blacksquare$		$\sim$	(577, 138)
Net income in 2018					605,120				605,120
Other comprehensive income (loss) in 2018, net of income tax					(4, 821)	(36, 548)	8,985		(32, 384)
Total comprehensive income in 2018					600,299	(36, 548)	8,985		572,736
Reorganization		1,050				(1,050)
Differences between considerations and carrying amounts		147							147
of subsidiaries acquired or disposed
Disposal of equity instruments at fair value					12,400		(12,400)
through other comprehensive income
BALANCE AT DECEMBER 31, 2018	\$2,509,297	\$366,903	\$628,886	\$127,111	\$671,883	(\$164,709)			\$4,139,371

The accompanying notes are an integral part of the financial statements.

$\sim 10^{-1}$

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD.

PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

$\bar{\gamma}$

	Year Ended December 31
	2018	2017
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax	\$736,637	\$802,743
Adjustment for:
Income and expenses having no effect on cash flows:
Depreciation	37,209	30,020
Amortization	9,248	5,146
Expected credit loss	2,547
Provision for (reversal of) allowance for doubtful accounts		(441)
Interest expense	7,873	6,889
Interest income	(7,968)	(6, 467)
Share of profits of subsidiaries, associates and joint ventures	(285, 106)	(269,311)
Gain on disposal and retirement of property, plant and equipment	(114)	(582)
Transfer of property, plant and equipment to expenses	445	1,256
Impairment loss on non-financial assets		15,371
Unrealized gross profit on sales to subsidiaries and associates	32,687	32,758
Realized gross profit on sales to subsidiaries and associates	(32, 758)	(25, 807)
Total income and expenses having no effect on cash flows	(235, 937)	(211, 168)
Net changes in operating assets and liabilities
Decerase (increase) in notes receivable	(3, 436)	19,431
Decrease (increase) in accounts receivable	(76, 720)	(211,986)
Decrease (increase) in accounts receivable - related parties	17,978	(39,709)
Decrease (increase) in other receivables	3,486	(3,025)
Decrease (increase) in other receivables - related parties	6,354	6,615
Decrease (increase) in inventories	(112, 925)	(120, 333)
Decrease (increase) in prepayments	(6,164)	(2,174)
Total changes in operating assets	(171, 427)	(351, 181)
Net changes in operating liabilities
Increase (decrease) in contract liabilities	(9,266)
Increase (decrease) in accounts payable	88,576	(30, 834)
Increase (decrease) in accounts payable - related parties	186,200	(87, 942)
Increase (decrease) in other payables	(9,366)	35,540
Increase (decrease) in other payables - related parties	(431)	(1, 334)
Increase (decrease) in provisions	399	(94)
Increase (decrease) in advance receipts		6,521
Increase (decrease) in net defined benefit liabilities	(4, 974)	(4, 977)
Total changes in operating liabilities	251,138	(83, 120)
Total net changes in operating assets and liabilities	79,711	(434, 301)
Total adjustments	(156, 226)	(645, 469)

	Year Ended December 31
	2018	2017
Cash generated from operations	580,411	157,274
Interest received	7,954	6,351
Dividends received	139,540	380,821
Interest paid	(7, 875)	(6,906)
Income tax paid	(155, 582)	(110,611)
Net cash generated from operating activities	564,448	426,929
CASH FLOWS FROM INVESTING ACTIVITIES
Disposal of financial assets at fair value through	74,400
other comprehensive income
Acquisition of property, plant and equipment	(70, 570)	(56, 694)
Proceeds from disposal of property, plant and equipment	2,922	1,623
Increase in refundable deposits	(182)	(559)
Decrase in other receivables - related parties	21,342	10,908
Acquisition of intangible assets	(11, 778)	(4,716)
Cash received through merger	48,256
Increase in other noncurrent assets	(635)	(1,690)
Net cash generated from (used in) investing activities	63,755	(51, 128)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term loans	100,000	130,000
Repayments of long-term loans	(100,000)
Increase in guarantee deposits	100	280
Increase in obligation under captial leases	4,817
Cash dividends paid	(577, 138)	(501, 860)
Acquisition of subsidiary equity	(30, 827)
Net cash used in financing activities	(603, 048)	(371, 580)
NET INCREASE (DECREASE) IN CASH AND CASH	25,155	4,221
EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	422,062	417,841
CASH AND CASH EQUIVALENTS, END OF YEAR	\$447,217	\$422,062

The accompanying notes are an integral part of the financial statements.

1. GENERAL INFORMATION

Sunonwealth Electric Machine Industry Co., Ltd. (collectively as the "Company") was incorporated in October 1980. The Company engages mainly in the manufacturing and selling of AC/DC brushless fans, electric fans, motors and related components, and microcooling fans.

The Company's board of directors approved on March 30, 2007 to merge (simplified merger) with Inventor Precision Co., Ltd., and the effective merger date was May 31, 2007. The Company was the surviving company. The merger was for the purpose of reorganization. The Company didn't issue new shares for the consolidation.

Inventor Precision Co., Ltd. was incorporated in March 2000. The main activities were the manufacturing and selling of molds and areo parts, and business consulting.

The Company's board of directors approved on August 25, 2009 to merge by absorption with Sunon Motor Co., Ltd. The Company was the surviving company. The merger was for the purpose of reorganization. The Company didn't issue new shares for the consolidation. The effective merger date was December 31, 2009.

Sunon Motor Co., Ltd. was incorporated in March 1999. The main activities were the manufacturing of other machines, data storage and processing equipment, wholesale of motors and parts, and international trading.

The Company's board of directors approved on August 8, 2018 to merge (simplified merger) with Sunon Smt Co., Ltd., and the effective merger date was October 1, 2018. The Company was the surviving company. The merger was for the purpose of reorganization. The Company didn't issue new shares for the consolidation.

Sunon Smt Co., Ltd. was incorporated in November 2000. The main activities were the manufacting of electronic components, wholesale of information software, electronic materials and molds, business management, processing data and supplying electronic information.

The parent company only financial statements are presented in the Company's functional currency, New Taiwan Dollars.

2. THE AUTHORIZATION OF THE PARENT COMPANY ONLY FINANCIAL STATEMENTS

The parent company only financial statements were approved and authorized for issue by the board of directors on March 14, 2019.

3. APPLICATION OF NEW AND AMENDED STANDARDS AND INTERPRETATIONS

(1) Effect of the adoption of new issuances of or amendments to International Financial Reporting Standards ("IFRSs") as endorsed by the Financial Supervisory Commission $("FSC")$ :

Except for the following, the application of the above amendments have no significant effect on the Company's financial condition and financial performance.

A. IFRS 9 "Financial Instruments" and related amendment

IFRS 9 supersedes IAS 39 "Financial Instruments: Recognition and Measurement", with consequential amendments to IFRS 7 "Financial Instruments: Disclosures" and other standards. IFRS 9 sets out the requirements for classification, measurement and impairment of financial assets and hedge accounting. Please refer to Note 4 for information relating to the relevant accounting policies.

The Company elects not to restate prior reporting period when applying the requirements for the classification, measurement and impairment of financial assets and financial liabilities under IFRS 9 with the cumulative effect of the initial application recognized at the date of initial application.

The impact on measurement categories, carrying amount and related reconciliation for each class of the Company's financial assets when retrospectively applying IFRS 9 on January 1, 2018 is detailed below:

	Measurement Category	Carrying Amount	Remark
Financial Assets	IAS 39	IFRS 9	IAS 39	IFRS 9
Cash and cash equivalents	Loans and receivables	Amortized cost	\$422,062	\$422,062	(a)
Equity securities	Financial assets carried at cost	Fair value through other comprehensive income	62,000	65.415	(b)
Notes receivable, accounts receivable and other receivables	Loans and receivables	Amortized cost	2.104.208	2,104,208	(a)
Refundable deposits	Loans and receivables	Amortized cost	2.303	2.303	(a)

The Company classified financial assets at FVTPL and available-for-sale financial assets with their fair value can't be measured reliably as financial assets measured at amortized cost - noncurrent.

FVTOCI	Carrying Amount as of January 1, 2018 (IAS 39)	Reclassifications	Remeasurements	Carrying Amount as of January 1, 2018 (IFRS 9)	Retained Earnings Effect on January 1. 2018	Other Equity Effect on January 1, 2018	Remark
- Equity instruments	$\mathbb{S}$ -	$s -$	$\mathbb{S}$ $\blacksquare$	\$ $\blacksquare$	\$ $\overline{\phantom{a}}$	$s -$
Add: From financial assets carried at cost (IAS 39)	$\overline{\phantom{a}}$	62,000	3,415	65,415	$\overline{\phantom{0}}$	3,415	(b)
Total	\$ $\overline{\phantom{a}}$	\$62,000	\$3,415	\$65,415	S $\blacksquare$	\$3,415

• (a) Those financial assets were classified as loans and receivables under IAS 39 are now classified financial assets at amortized cost with no material impact on future lifetime expected credit loss under IFRS 9.
• (b) Equity investment on unlisted companies originally classified as financial assets carried at cost by IAS 39 were re-designated as financial assets at fair value through other comprehensive income by IFRS9 and were re-measured its fair value to both increase financial asset at fair value through comprehensive income and other equity-unrealized gain or loss of FVTOCI by \$3,415 thousand.
• B. IFRS 15 "Revenue from Contracts with Customers"

IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers, and will supersede IAS 18, "Revenue," IAS 11, "Construction Contracts," and a number of revenue-related interpretations. Please refer to Note 4 for information relating to the relevant accounting policies.

The Company currently recognizes revenues of goods sales while (1) significant risk and rewards of ownership were transferred to clients; (2) revenues and costs can be reliably measured; (3) it is probable that the consideration can be received; (4) the Company no longer retains continuing managerial involvement over the goods sold. After initial adoption of IFRS15, the Company will recognize revenue while the client gains control of the goods sold. No impact on revenue recognizing will occur. But to some contracts, the Company had already collect portion of the consideration at the contract establishment. The portion collected which were accounted as advance receipt currently will be accounted as contract liabilities after adoption of IFRS 15.

The impact on assets, liabilities and equity when retrospectively applying IFRS 15 on January 1, 2018 is detailed below:

	Carrying Amount as of January 1, 2018 (IAS 18)	Adjustments Arising from Initial Application	Carrying Amount as of January 1, 2018 (IFRS 15)
Advance receipts	\$20,034	$(\$20,034)$
Contract liabilities - current	-	20,034	20,034
Total effect on liabilities	\$20,034		\$20,034

If the Company continues to adopt IAS 11, IAS 18 and related interpretations in 2018, the impact on the current period of the application of IFRS15 is detailed below:

Impact on Assets, Liabilities and Equity	December 31, 2018
Increase (decrease) in assets
Increase in contract liabilities - current	\$10,745
Decrease in advance receipts	(10,745)
Increase (decrease) in liabilities
Increase (decrease) in equity

No impact on comprehensive income and cash flow item for Year 2018.

(2) Effect of new issuances of or amendments to IFRSs as endorsed by the FSC but not yet adopted by the Company:

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, 2019.

New, Amended or Revised Standards and Interpretations	Effective Date Announced
(the "New IFRSs")	by IASB (Note 1)
Amendments to IFRS 9 "Prepayment Features with Negative	January 1, 2019
Compensation"
IFRS 16 "Leases"	January 1, 2019
Amendments to IAS 19 "Plan Amendment, Curtailment or	January 1, 2019 (Note 2)
Settlement"
Amendments to IAS 28 "Long-term Interests in Associates and	January 1, 2019
Joint Ventures"
IFRIC 23 "Uncertainty over Income Tax Treatments"	January 1, 2019
Annual Improvements to IFRSs 2015-2017 Cycle	January 1, 2019

• Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after their respective effective dates.
• Note 2: The Company shall apply these amendments to plan amendments, curtailments or settlements occurring on or after January 1, 2019.

Except for the following items, the Company believes that the adoption of aforementioned standards or interpretations will not have a significant effect on the Company's accounting policies.

1) IFRS 16 "Leases"

IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and IFRIC 4, a number of related interpretations. Upon initial application of IFRS 16, the Company will apply the guidance of IFRS 16 in determining whether contracts are, or contain, a lease only to contracts entered into (or changed) on or after January 1, 2019. Contracts identified as containing a lease under IAS 17 and IFRIC 4 will not be reassessed and will be accounted for in accordance with the transitional provisions under IFRS 16.

The Company as lessee

Upon initial application of IFRS 16, except for payments for low-value asset and short-term leases which will be recognized as expenses on a straight-line basis, the Company will recognize right-of-use assets and lease liabilities for all leases on the parent company only balance sheets. However, right-of-use assets which meet the definition of investment property will be presented as investment property. On the parent company only statements of comprehensive income, the Company will present the depreciation expense charged on right-of-use assets separately from the interest expense accrued on lease liabilities and computed using the effective interest method. On the parent company only statements of cash flows, cash payments for the principal portion and the interest portion of lease liabilities are classified within financing activities and operating activities, respectively.

Currently, payments under operating lease contracts are recognized as expenses on a straight-line basis. Cash flows for operating leases are classified within operating activities on the parent company only statements of cash flows. Financial lease contracts are classified within lease assets and obligation under capital leases, respectively.

Under initial application of IFRS 16, the Company anticipates applying retrospectively with the cumulative effect of this standard at the date of initial application, comparative information will not be restated.

Leases agreements on office building and staff dormitory classified as operating leases under IAS 17 will be measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate on January 1, 2019. Right-of-use assets are measured at an amount equal to the lease liabilities, adjusted by the amount of any prepaid or accrued lease payments.

Right-of-use assets are subject to impairment testing under IAS 36, except for following expediency (2). The Company will apply the following practical expedients to measure right-of-use assets and lease liabilities on January 1, 2019 :

• (1) The Company will apply a single discount rate to a portfolio of leases with reasonably similar characteristics to measure lease liabilities.
• (2) The Company will adjust the right-of-use assets in the amount of provision that recognized as onerous leases at the year ended December 31, 2018.
• (3) The Company will exclude initial direct costs from the measurement of right-of-use assets on January 1, 2019.
• (4) The Company will determine lease period (if the contract includes an extension or the option to terminate) base on project status to measure assets.

For the leases classified as financial leases based on IAS17, the carrying amount of the lease assets liabilities as at December 31, 2018 will be used as the carrying amount as at January 1, 2019.

The Company as lessor

The Company will not make any adjustments for leases in which it is a lessor, and will be accounting for those leases under IFRS 16 starting from January 1, 2019.

If the Group continues to adopt IAS 17 in 2018, the impact on the current period of the application of IFRS16 is detailed below:

( \$18) \$245 Prepaid leases - current 22,263 Right-of-use asset \$22,245 \$245 Total impact on assets \$9,229 Lease liabilities - current S $\rightarrow$ 13,016 Lease liabilities - noncurrent \$22,245 Total impact on liabilities S. $\overline{\phantom{0}}$ Total impact on equity \$ S $\overline{\phantom{a}}$ $\overline{\phantom{a}}$	Carrying Amount as of December 31, 2018	Adjustments Arising from Initial Application	Adjusted Carrying Amount as of January 1, 2019
			\$227
			22,263
			\$22,490
			\$9,229
			13,016
			\$22,245

Except for the above influences, the Company believes that the adoption of aforementioned standards or interpretations will not have a significant effect on the Company's financial position and financial performance as of the date the accompanying parent company only financial statements were issued.

(3) The IFRSs issued by IASB but not yet endorsed and issued into effect by FSC

	Effective Date Announced
New, Revised or Amended Standards and Interpretations	by IASB (Note 1)
Amendments to IFRS 10 and IAS 28 "Sale or Contribution	To be determined by IASB
of Assets between an Investor and its Associate or Joint
Venture"
IFRS 17 "Insurance Contracts"	January 1, 2021
Amendments to IFRS 3 "Definition of a Business"	January 1, 2020 (Note 2)
Amendments to IAS 1 and IAS 8 "Definition of Material"	January 1, 2020 (Note 3)

• Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after their respective effective dates.
• Note 2: The Company shall apply these amendments to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2020 and to asset acquisitions that occur on or after the beginning of that period.

Note 3: The Company shall apply these amendments prospectively for annual reporting periods beginning on or after January 1, 2020.

The Company continues in evaluating the impact on its financial position and financial performance as a result of the initial adoption of the aforementioned standards or interpretations. The related impact will be disclosed when the Company completes the evaluation.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these parent company only financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

(1) Compliance statement

The accompanying parent company only financial statements have been prepared in conformity with the Regulations Governing the Preparation of Financial Reports by Securities Issuers.

• (2) Basis of preparation
• A. Except for the following items, the accompany parent company only financial statements have been prepared under the historical cost convention:
  • a. Financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.
  • b. Financial assets and liabilities at fair value through other comprehensive income in 2018.
  • c. Defined benefit liabilities recognised based on the net amount of pension fund assets less present value of defined benefit obligation.
• B. The preparation of financial statements in compliance with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the parent company only financial statements are disclosed in Note 5.

• C. The Company retrospectively applied IFRS 9 and IFRS 15 electing not to prepare comparative parent company only financial report and notes of 2017 and recognized the differences in retained earnings or other equity at January 1, 2018. The parent company only financial report and notes of 2017 were prepared according to IAS 39, IAS 11, IAS 18 and other related explanations.

• D. When preparing the parent company only financial statements, the Company account for subsidiaries and associates by using the equity method. In order to agree with the amount of net income, other comprehensive income and equity attributable to shareholders of the parent in the consolidated financial statements, the differences of the accounting treatment between the parent company only basis and the consolidated basis are adjusted under the heading of investments accounted for using equity method, share of profits of subsidiaries and associates and share of other comprehensive income of subsidiaries and associates in the parent company only financial statements.

• (3) Foreign currency translation
• A. Foreign currency transactions and balance
  • a. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions are recognized in profit or loss in the period in which they arise.
  • b. Monetary assets and liabilities denominated in foreign currencies at the period end are retranslated at the exchange rates prevailing at the balance sheet date. Exchange differences arising upon re-translation at the balance sheet date are recognized in profit or loss.
  • c. Non-monetary items measured at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Exchange differences arising on the retranslation of non-monetary items are included in profit or loss for the year except for exchange differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognized directly in other comprehensive income, in which case, the exchange differences are also recognized directly in other comprehensive income. Non-monetary items that are measured in terms of historical cost in foreign currencies are not retranslated.

• B. Translation of foreign operations

  • a. The operating results and financial position of all the Company's subsidiaries, associates and joint ventures that have afunctional currency different from the presentation currency are translated into the presentation currency as follows:
  • (a) Assets and liabilities for each balance sheet presented are translated at the closing exchange rate at the date of that balance sheet;
  • (b) Income and expenses for each statement of comprehensive income are translated at average exchange rates of that period; and
  • (c) All resulting exchange differences are recognized in other comprehensive income.

• b. When the foreign operation partially disposed of or sold is an associate or a joint venture, exchange differences that were recorded in other comprehensive income are proportionately reclassified to profit or loss as part of the gain or loss on sale. In addition, even when the Company retains partial interest in the former foreign associate or joint venture after losing significant influence over the former foreign associate or joint venture, such transactions should be accounted for as disposal of all interest in these foreign operations.

• c. When the foreign operation partially disposed of or sold is a subsidiary, cumulative exchange differences that were recorded in other comprehensive income are proportionately transferred to the non-controlling interest in this foreign operation. In addition, even when the Company retains partial interest in the former foreign subsidiary after losing control of the former foreign subsidiary, such transactions should be accounted for as disposal of all interest in the foreign operation
• (4) Classification of current and non-current items
• A. Assets that meet one of the following criteria are classified as current assets; otherwise they are classified as non-current assets:
  • a. Assets arising from operating activities that are expected to be realized, or are intended to be sold or consumed within the normal operating cycle;
  • b. Assets held mainly for trading purposes;
  • c. Assets that are expected to be realized within twelve months from the balance sheet date:
  • d. Cash and cash equivalents, excluding restricted cash and cash equivalents and those that are to be exchanged or used to pay off liabilities more than twelve months after the balance sheet date.
• B. Liabilities that meet one of the following criteria are classified as current liabilities; otherwise they are classified as non-current liabilities:
  • a. Liabilities that are expected to be paid off within the normal operating cycle;
  • b. Liabilities arising mainly from trading activities;
  • c. Liabilities that are to be paid off within twelve months from the balance sheet date;
  • d. Liabilities for which the repayment date cannot be extended unconditionally to more than twelve months after the balance sheet date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.
• (5) Cash and cash equivalents

Cash and cash equivalents comprises cash on hand, demand deposits and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value (including the original maturity of the time deposits within three months.)

(6) Financial instruments

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

Financial assets and financial liabilities are recognized initially at fair value plus or minus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

1. Financial assets

The Company adopts trade-date accounting to recognize and derecognize financial assets.

(1) Category of financial assets

2018

Financial assets are classified into the following categories: financial assets at FVTPL, financial assets at amortized cost, and investments in equity instruments at FVTOCI.

A. Financial asset at FVTPL

Financial asset is classified as at FVTPL when the financial asset is mandatorily classified or it is designated as at FVTPL. Financial assets mandatorily classified as at FVTPL include investments in equity instruments which are not designated as at FVTOCI and debt instruments that do not meet the amortized cost criteria or the FVTOCI criteria.

Financial assets are designated initially at FVTPL, if the designation can eliminated or significantly reduces the measurement or recognition of inconsistencies.

Financial assets at FVTPL are subsequently measured at fair value, with any gains or losses arising on remeasurement recognized in profit or loss including relevant dividend or interest income. Fair value is determined in the manner described in Note 12.

B. Financial assets at amortized cost

Financial assets that meet the following conditions are subsequently measured at amortized cost:

• a. The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and
• b. The contractual terms of the financial assets give rise on specified date to cash flow that are solely payments of principal and interest on the principal amount outstanding.

Financial assets at amortized cost, which equals to gross carrying amount determined by the effective interest method less any impairment loss. Exchange differences are recognized in profit or loss.

Expect for the following two cases, interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset.

• a. Purchased or originated credit-impaired financial assets: for those financial assets, the Company applies the credit-adjusted effective interest rate to the amortized cost of the financial asset from initial recognition.
• b. Financial assets that are not purchased or originated credit-impaired financial assets but subsequently have become credit-impaired financial assets: for those financial assets, the Company shall apply the effective interest rate to the amortized cost of the financial asset in subsequent reporting periods.

C. Investments in equity instruments at FVTOCI

On initial recognition, the Company may make an irrevocable election to designate investments in equity instruments as at FVTOCI. Designation at FVTOCI is not permitted if the equity investment is held for trading or if it is contingent consideration recognized by an acquirer in a business combination.

Investments in equity instruments at FVTOCI are subsequently measured at fair value with gains and losses arising from changes in fair value recognized in other comprehensive income and accumulated in other equity. The cumulative gain or loss will not be reclassified to profit or loss on disposal of the equity investments, instead, they will be transferred to retained earnings.

Dividends on these investments in equity instruments at FVTOCI are recognized in profit or loss when the Company's right to receive the dividends is established, unless the Company's right clearly represent a recovery of part of the cost of the investment.

2017

Financial assets are classified into the following specified categories: loans, receivables, and financial assets at FVTPL.

A. Loans and receivables

Accounts receivable

They are created by the entity by selling goods or providing services to customers in the ordinary course of business. Accounts receivable are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Interest income is recognized by applying the effective interest rate, except for short-term receivables when the effect of discounting is immaterial.

B. Financial assets at fair value through profit or loss

a. Financial assets at fair value through profit or loss are financial assets held for trading or financial assets designated as at fair value through profit or loss on initial recognition. Financial assets are classified in this category of held for trading if acquired principally for the purpose of selling in the short-term. Derivatives are also categorized as financial assets held for trading unless they are designated as hedges. Financial assets that meet one of the following criteria are designated as at fair value through profit or loss on initial recognition:

• (a) Hybrid (combined) contracts; or
• (b) They eliminate or significantly reduce a measurement or recognition inconsistency; or
• (c) They are managed and their performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy.
• b. On a regular way purchase or sale basis, financial assets at fair value through profit or loss are recognized and derecognized using trade date accounting.
• c. Financial assets at fair value through profit or loss are initially recognized at fair value. Related transaction costs are expensed in profit or loss. These financial assets are subsequently remeasured and stated at fair value, and any changes in the fair value of these financial assets are recognized in profit or loss. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured or derivatives that are linked to and must be settled by delivery of such unquoted equity instruments are presented in 'financial assets measured at cost - noncurrent'.
• (2) Impairment of financial assets
• 2018
• A. At the end of each reporting period, a loss allowance for expected credit loss is recognized for financial assets at amortized cost (including accounts receivable), investments in debt instruments that are measured at FVTOCI, lease receivable and contract assets.
• B. The Company always recognize lifetime Expected Credit Loss (i.e. ECL) for For other financial assets, the Company recognize accounts receivables. lifetime ECL when there has been a significant increase in credit risk since initial recognition. If, on the other hand, the credit risk on the financial instrument has not increased significantly since initial recognition, the Company measures the loss allowance for that financial instrument at an amount equaling to 12-month ECL.
• C. Expected credit losses reflect the weighted average of credit losses with the respective risks of a default occurring as the weights. 12-month ECL represents the portion of lifetime ECL that is expected to result from default events on a

financial instrument that are possible within 12 months after the reporting date. In contrast, lifetime ECL represents the expected credit losses that will result from all possible default events over the expected life of a financial instrument.

• D. The Company recognizes an impairment loss in profit or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account, except for investments in debt instruments that are measured at FVTOCI, for which the loss allowance is recognized in other comprehensive income and does not reduce the carrying amount of the financial asset.
• 2017
• A. Except for financial asset at FVTPL, the Company assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired 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 or group of financial assets that can be reliably estimated.
• B. The criteria that the Company uses to determine whether there is objective evidence of an impairment loss is as follows:
• a. Significant financial difficulty of the issuer or debtor;
• b. A breach of contract, such as a default or delinquency in interest or principal payments:
• c. The Company, for economic or legal reasons relating to the borrower's financial difficulty, granted the borrower a concession that a lender would not otherwise consider;
• d. It becomes probable that the borrower will enter bankruptcy or other financial reorganisation;
• e. The disappearance of an active market for that financial asset because of financial difficulties:
• f. Observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial asset in the group, including adverse changes in the payment status of borrowers in the group or national or local economic conditions that correlate with defaults on the assets in the group;
• g. Information about significant changes with an adverse effect that have taken place in the technology, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in the equity instrument may not be recovered;

• h. A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.

• C. When the Company assesses that there has been objective evidence of impairment and an impairment loss has occurred, accounting for impairment is made as follows according to the category of financial assets:

• a. Loans and receivables

The amount of the impairment loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the financial asset's original effective interest rate, and is recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset does not exceed its amortised cost that would have been at the date of reversal had the impairment loss not been recognised previously.

b. Financial assets measured at cost

The amount of the impairment loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at current market return rate of similar financial asset, and is recognised in profit or loss. Impairment loss recognised for this category shall not be reversed subsequently.

(3) Derecognition of financial assets

The Company derecognises a financial asset when one of the following conditions is meet:

• A. The contractual rights to receive cash flows from the financial asset expire.
• B. The contractual rights to receive cash flows from the financial asset have been transferred and the Company has transferred substantially all risks and rewards of ownership of the financial asset.
• C. The Company neither retains nor transfers substantially all risks and rewards of ownership of the financial asset; however, it has not retained control of the financial asset.

On derecognition of a financial asset in its entirety, the difference between the financial asset's carrying amount and the sum of the consideration received or receivable and the cumulative gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in profit or loss. But for equity instruments at fair value through other comprehensive income under IFRS 9 since 2018, the cumulative profit and loss will be transferred directly to retained earnings without reclassified into profit and loss at disposal.

1. Equity instruments

The Company classifies the instrument issued as a financial liability or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability, and an equity instrument.

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. The transaction costs of an equity transaction are accounted for as a deduction from equity to the extent they are incremental costs directly attributable to the equity transaction that otherwise would have been avoided.

• 1. Financial liabilities
• (1) Subsequent measurement

Financial liabilities other than those held for trading purposes and designated as at fair value through profit or loss are subsequently measured at amortised cost at the end of each reporting periods.

(2) Derecognition of financial liabilities

The Company derecognizes financial liabilities when, and only when, the Company's obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss.

(7) Inventories

Inventories are stated at the lower of cost and net realisable value, accounted for on a perpetual basis. Cost is determined using the weighted average method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (allocated based on normal operating capacity). It excludes borrowing costs. The item by item approach is used in applying the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and applicable variable selling expenses.

(8) Investments accounted for using equity method / subsidiaries

A. Subsidiaries are all entities (including structured entities) controlled by the Company. The Company controls an entity when the Company is exposed, or has rights, to variable returns from its involvement with the entity and and has the ability to affect those returns through its power over the eniry.

B. Unrealized gains or losses resulting from inter-company transactions with subsidiaries are eliminated. Necessary adjustments are made to the accounting policies of subsidiaries, to be consistent with the accounting policies of the Company.

• C. After acquisition of subsidiaries, the Company recognizes proportionately the share of profit and loss and other comprehensive income in the income statement as part of the Company's profit and loss and other comprehensive income, respectively. When the share of loss from a subsidiary exceeds the carrying amount of Company's interest in that subsidiary, the Company continues to recognize its share in the subsidiary's loss proportionately.
• D.As long as the change in shareholding in the subsidiaries does not lead to loss of control, it is to be treated as equity transaction that is to be treated as transactions between the owners. The difference between non-controlling equity adjustment amount and the fair value of payment and receipt is to be recognized as equity
• E.Changes in the Company's ownership interests in subsidiaries that do not result in the Company losing control over the subsidiaries are accounted for as equity transactions. Any difference between the carrying amount of the subsidiary and the fair value of the consideration paid or received is recognized directly in equity.
• F.According to "Regulations Governing the Preparation of Financial Statements by Securities Issuers", "Profit for the year" and "Other comprehensive income for the year" reported in an entity's parent company only statement of comprehensive income, shall equal to "profit for the year" and "Other comprehensive income" attributable to owners of the parent reported in that entity's consolidated statement of comprehensive income. Total equity reported in an entity's parent company only financial statements, shall equal to equity attributable to owners of parent reported in that entity's consolidated financial statements.
• (9) Property, plant and equipment
• A. Property, plant and equipment are initially recorded at cost. Borrowing costs incurred during the construction period are capitalised.
• B. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.
• C. Land is not depreciated. Other property, plant and equipment apply cost model and are depreciated using the straight-line method to allocate their cost over their estimated useful lives. The assets' residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each balance sheet date. If expectations for the assets' residual values and useful lives differ from previous estimates or the patterns of consumption of the assets' future economic benefits embodied in the assets have changed significantly, any change is accounted for as a

change in estimate under IAS 8, "Accounting Policies, Changes in Accounting Estimates and Errors", from the date of the change.

Service lives estimated as follows:

Buildings:

Main building, 43 to 57 years; Others, 2 to 39 years; Machinery and equipment, 2 to 22 years; Other equipment, 2 to 24 years; Leasehold improvement, 3 to 22 years;

• D. An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the assets. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.
• (10) Leases/The Company as a lessee

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

• A. Assets held under finance leases are initially recognized as assets of the Company at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the parent company only balance sheets as a finance lease obligation.
• B. Finance expenses implicit in lease payments for each period are recognized immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalized.
• C. The property, plant and equipment acquired under finance leases are depreciated based on the durability of the assets. If it is not reasonable to determine that the Company will acquire ownership at the end of the lease term, the depreciation is provided based on the short-lived period of the asset and the lease term.

Operating lease payments are recognized as an expense on a straight-line basis over the lease term.

(11) Investment properties

Investment properties are properties held to earn rentals and/or for capital appreciation (including property under construction for such purposes), also include land held for a currently undetermined future use.

Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are measured at cost less accumulated depreciation and accumulated impairment loss. Depreciation is recognized using the straight-line method.

Investment properties under construction of which the fair value is not reliably measurable are stated at cost less accumulated depreciation and accumulated impairment loss until either such time as the fair value becomes reliably measureable or construction is completed (whichever comes earlier).

Investment properties in the course of construction are stated at cost less accumulated impairment loss. Cost includes professional fees and borrowing costs eligible for capitalization. Depreciation of these assets commences when the assets are ready for their intended use.

On derecognition of an investment property, the difference between the net disposal proceeds and the carrying amount of the asset is recognized in profit or loss.

(12) Intangible assets

Intangible assets with finite useful lives that are acquired separately are initially measured at cost and subsequently measured at cost less accumulated amortization and accumulated impairment loss. Amortization is recognized on a straight-line basis over the following estimated lives: computer software - 2 to 15 years; patent are the economic benefit or contract period. The estimated useful life, residual value, and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are measured at cost less accumulated impairment loss.

On derecognition of an intangible asset, the difference between the net disposal proceeds and the carrying amount of the asset is recognized in profit or loss.

(13) Impairment of non-financial assets

The Company assesses at each balance sheet date the recoverable amounts of those assets where there is an indication that they are impaired. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell or value in use. When the circumstances or reasons for recognizing impairment loss for an asset in prior years no longer exist, the impairment loss shall be reversed to the extent of the loss previously recognised in profit or loss.

(14)Provisions

Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of economic resources will be required to settle the obligation and the amount of the obligation can be reliably estimated. Provisions are measured at the present value of the expenditures

expected to be required to settle the obligation on the balance sheet date, which is discounted using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the obligation. When discounting is used, the increase in the provision due to passage of time is recognized as interest expense. Provisions are not recognized for future operating losses.

$(15)$ Employee benefits

A.Short-term employee benefits

Short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in respect of service rendered by employees in a period and should be recognized as expenses in that period when the employees render service.

B.Pensions

a. Defined contribution plans

For defined contribution plans, the contributions are recognised as pension expenses when they are due on an accrual basis. Prepaid contributions are recognised as an asset to the extent of a cash refund or a reduction in the future payments.

• b. Defined benefit plans
• (a) Net obligation under a defined benefit plan is defined as the present value of an amount of pension benefits that employees will receive on retirement for their services with the Company in current period or prior period. The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognised past service costs. The defined benefit net obligation is calculated annually by independent actuaries using the projected unit credit method. The rate used to discount is determined by using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability; when there is no deep market in high-quality corporate bonds, the Company uses interest rates of government bonds (at the balance sheet date) instead.
• (b) Actuarial gains and losses arising on defined benefit plans are recognised in other comprehensive income in the period in which they arise and are recorded as retained earnings.
• (c) Past service costs are recognised immediately in profit or loss.

C. Employees' bonus and directors' and supervisors' remuneration

Employees' bonus and directors' and supervisors' remuneration are recognised as expenses and liabilities, provided that such recognition is required under legal or constructive obligation and those amounts can be reliably estimated. However, if the accrued amounts for employees' bonus and directors' and supervisors' remuneration are different from the actual distributed amounts as resolved by the stockholders at their stockholders' meeting subsequently, the differences should be recognised based on the accounting for changes in estimates.

D. Termination benefits

Termination benefits are employee benefits provided in exchange for the termination of employment as a result from either the Company's decision to terminate an employee's employment before the normal retirement date, or an employee's decision to accept an offer of redundancy benefits in exchange for the termination of employment. The Company recognises expense when it can no longer withdraw an offer of termination benefits or it recognises related restructuring costs, whichever is earlier. Benefits that are expected to be due more than 12 months after balance sheet date shall be discounted to their present value.

(16) Share capital and treasury shares

A.Share capital

Ordinary share is classified as equity. The classification of the preferred stock depends on the essence of the agreement. If the preferred stock matches the definition of the financial liability, it is classified as a liability. Otherwise, it is classified as equity. Incremental cost that can be attributed to the issuance of stocks or options is deducted from the capital issued.

B.Treasury Shares

When the Company acquires its outstanding shares that have not been disposed or retired, treasury shares are stated at cost and shown as a deduction in stockholders' equity. When treasury shares are sold, if the selling price is above the book value, the difference should be credited to the capital surplus - treasury share transactions. If the selling price is below the book value, the difference should first be offset against capital surplus from the same class of treasury share transactions, and the remainder, if any, debited to retained earnings. The carrying value of treasury shares is calculated using the weighted-average approach in accordance with the purpose of the acquisition.

When the Company's treasury shares are retired, the treasury share account should be credited, and the capital surplus - premium on stock account and capital stock account should be debited proportionately according to the share ratio. The carrying value of treasury shares in excess of the sum of its par value and premium on stock should first be offset against capital surplus from the same class of treasury share transactions, and the remainder, if any, debited to retained earnings. The sum of the par value and premium on treasury shares in excess of its carrying value should be credited to capital surplus from the same class of treasury share transactions.

(17) Share-based payment transactions

• A.For the equity-settled share-based payment arrangements, the employee services received are measured at the fair value of the equity instruments granted at the grant date, and are recognised as compensation cost over the vesting period, with a corresponding adjustment to equity. The fair value of the equity instruments granted shall reflect the impact of market vesting conditions and non-market vesting conditions. Compensation cost is subject to adjustment based on the service conditions that are expected to be satisfied and the estimates of the number of equity instruments that are expected to vest under the non-market vesting conditions at each balance sheet date. And ultimately, the amount of compensation cost recognized is based on the number of equity instruments that eventually vest.
• B.Cash-settle share-based payment arrangements are the fair value of liabilities undertaken recognized in remuneration costs and liabilities in the vesting period and measured by the fair value of equity instruments offered at each balance sheet date and the settlement date. Any changes are recognized in profit or loss.

$(18)$ Income tax

• A. The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or items recognised directly in equity, in which cases the tax is recognised in other comprehensive income or equity.
• B. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in accordance with applicable tax regulations. It establishes provisions where appropriate based on the amounts expected to be paid to the tax authorities. An additional tax is levied on the unappropriated retained earnings and is recorded as income tax expense in the year the stockholders resolve to retain the earnings.
• C.Deferred income tax is recognised, using the balance sheet method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the parent company only financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of goodwill or of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted

by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

• D. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. At each balance sheet date, unrecognised and recognised deferred income tax assets are reassessed.
• E. Current income tax assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. Deferred income tax assets and liabilities are offset on the balance sheet when the entity has the legally enforceable right to offset current tax assets against current tax liabilities and they are levied by the same taxation authority on either the same entity or different entities that intend to settle on a net basis or realise the asset and settle the liability simultaneously.
• F.Tax preference given for expenditures incurred on acquisitions of equipment or technology, research and development, employees" training and equity investments is recorded using the income tax credits accounting.

(19) Revenue Recognition

2018

The Company recognizes revenues based on the following steps:

• 1. Identifying the contracts;
• 1. Identifying obligations in the contracts;
• 1. Determining prices;
• 1. Allocating prices into the obligations in the contracts;
• 1. Recognizing revenues while fulfilling the obligations.

The Company does not adjust the promised amount of consideration for the effects of a significant financing component if the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

1. Goods sales

The Company sells fans and other relevant products. Sales revenues are recognized while the control of goods is transferred to the customers since the customers already have the rights to use, set price, take the major responsibility to resell the good and bear the risk of obsoleteness. The Company recognizes revenues and accounts receivable at the point and presents it in net term after deducting sales return, quantity discount and sales allowance.

The Company does not recognize sales revenue on materials delivered to subcontractors because this delivery does not involve a transfer of risks and rewards of materials ownership.

1. Service revenue

Revenue from technical services is recognized when services are provided that in accordance with the relevant agreements.

2017

1. Sale of goods

The Company manufactures and sells fans. Revenue is measured at the fair value of the consideration received or receivable taking into account value-added tax, returns, rebates and discounts for the sale of goods to external customers in the ordinary course of the Company's activities. Revenue from the sale of goods is recognized when all the following conditions are satisfied:

• (1) The Company has transferred to the buyer the significant risk and rewards of ownership of the goods;
• (2) The Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
• (3) The amount of revenue can be measured reliably;
• (4) It is probable that the economic benefits associated with the transaction will flow to the Company; and
• (5) The costs incurred or to be incurred in respect of the transaction can be measured reliably.

The Company does not recognize sales revenue on materials delivered to subcontractors because this delivery does not involve a transfer of risks and rewards of materials ownership.

• 1. Service revenue, technique service income, rental income, dividend income and interest income
• (1) Revenues from a contract to provide services are recognized by reference to the stage of completion of the contract. However, if certain work is more important than other work, the recognization of revenue shall be deferred until the completion of the certain work.
• (2) Revenues from technical services is recognized in accordance with the substance of the relevant agreement provided that it is probable that the economic benefits associated with the transaction flow to the Company and the amount of the revenue can be measured reliably.
• (3) Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease.
• (4) Dividend income from investments is recognized when the shareholder's right to receive payment has been established, provided that it is probable that the

economic benefits will flow to the Company and the amount of income can be measured reliably.

(5) Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

(20)Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.

All borrowing costs other than those stated above are recognized in profit or loss in the period in which they are incurred.

$(21)$ Government grants

Government grants are not recognized until there is reasonable assurance that the Company will comply with the conditions attached to them and will receive the grants. Government grants are recognized in profit or loss on a systematic basis over the periods in which the Company recognizes as expenses the related costs for which the grants are intended to compensate. Government grants related to property, plant and equipment are recognized as non-current liabilities and are amortised to profit or loss over the estimated useful lives of the related assets using to straight-line method.

5. CRITICAL ACCOUNTING JUDGMENTS, ESTIMATES AND KEY SOURCES OF ASSUMPTION UNCERTAINTY

The preparation of the Company's parent company only financial statements is adopting accounting policies based on the following significant judgements, significant accounting estimates and assumptions:

(1) Critical judgements in applying accounting policies

A. Judgment of financial asset classification (applied to 2018)

The Company assesses the business model of financial assets based on the hierarchy that reflects the Company of financial assets that are jointly managed for specific business purposes. This assessment requires consideration of all relevant evidence, including measures of asset performance, risks affecting performance, and the manner in which the relevant managers are determined, and judgments are required. The Company continues to assess the adequacy of its business model and monitors the financial assets measured by the amortized cost before the maturity date and the debt instrument investments measured at fair value through other comprehensive income. Evaluate whether the disciplinary action has the same goal of business model. If the business model has been changed, the Company delays the adjustment of the subsequent classification of financial assets.

B. Impairment of financial assets - equity instruments (applied to 2017)

Financial assets are assessed to determine whether there is objective evidence that an impairment loss has occurred. Financial assets that are considered to be impaired required significant judgment. The criteria that the Company used is a significant or prolonged decline in the fair value in equity instrument below its cost.

C. Financial assets carried at cost (applied to 2017)

• The Company believed that the fair value of the above unlisted equity investments held by the Company cannot be reliably measured due to no recent sufficient information for reasonable fair value estimates, therefore, they were classified as financial assets carried at cost.
• D. Revenue recognition

2018

The Company follows IFRS 15 to determine if it controls the specified good or service before that good or service is transferred to the customer, and the Company is acting as a principal or an agent in that transaction. When the Company acts as an agent, revenue is recognized on a net basis.

The Company acts as a principal as that it meets one the of following situations:

• a. The Company gains control over the goods from the other party before transferring goods to customers.
• b. The Company controls the right of providing service by the other party in order to control the ability of the party to provide service to customers.
• c. The Company gain control over goods or service from the other party in order to combine with other goods or services to provide specific goods or services to customers.

The indicators (not limited to) which assist making judgment on whether the Company controls the goods or services before transferring goods or services to customers:

• a. The Company has primary responsibilities for the goods or services it provides;
• b. The Company bears inventory risk before transferring the specific goods or services to customer, or after transferring the control to customer. (For example, if the customer has the right to return.)
• c. The Company has the discretion to set prices.

2017

The sales transaction classified as a principal or agent is pursuant to the type and economic nature of transaction. If the exposure to the risk and reward is material at the sale of goods or service providing, the Company is a principal in that transaction and the revenue is recognized in gross sales amount. Otherwise, the revenue is recognized in net sales amount.

The Company's transaction of manufacturing and selling of precise motors and fans is classified as a principal based on:

• a. Taking the major responsibility at the sale of goods
• b. Taking the inventory risk
• c. Taking the credit risk of the customers
• (2) Critical accounting estimates and assumptions
• A. Revenue Recognition

2018

The Company recognizes records a refund for estimated future returns and other allowances in the same period the related revenue is recorded. Refund for estimated sales returns and other allowances is generally made and adjusted at a specific percentage based on historical experience and any known factors that would significantly affect the allowance, and our management periodically reviews the adequacy of the percentage used.

2017

The Company recognizes revenue when performance obligations are satisfied. Revenue is reduced by the amount of estimated customer returns, rebates and other similar allowances. Allowances for sale returned and liabilities for returns are recognized at the time of sale based on the seller's reliable estimate of future returns and base on past experience and other relevant factors.

B. Estimated impairment of financial assets (applied to 2018)

The provision for impairment of trade receivables is based on assumptions about risk of default and expected loss rates. The Company uses judgement in making these assumptions and in selecting the inputs to the impairment calculation, based on the Company's past history, existing market conditions as well as forward looking estimates at the end of each reporting period. Where the actual future cash inflows are less than expected, a material impairment loss may arise.

C. Process of fair value measurement and evaluation (applied to 2018)

When the assets and liabilities at fair value with no active market, the Company determines whether to use outside appraisal and using proper evaluation techniques based on related regulation or its own judgment. If the Level 1 input value is not available while evaluating, the Company refers to the analysis of the investee's financial position and operating outcome, recent trading price, quotes on non-active market of same equity instrument, quotes on active market of similar equity instrument and evaluation multiples of comparable companies. If the future input value is different from expectation, the fair value might change. The Company updates input values quarterly according to the market status in order to moniter if the measurement of fair value is appropriate.

D. Impairment assessment of tangible and intangible assets

The Company assesses impairment based on its subjective judgement and determines the separate cash flows of a specific group of assets, useful lives of assets and the future possible income and expenses arising from the assets depending on how assets are utilised and industrial characteristics. Any changes of economic circumstances or estimates due to the change of Company strategy might cause material impairment on assets in the future.

E. Impairment assessment on investment using equity method

The Company assesses the impairment of investments accounted for using the equity method whenever triggering events or changes in circumstances indicate that an investment may be impaired and carrying value cannot be recoverable. The Company assesses the recoverable amount based on a projected future cash flow and receivable cash dividend of the investees, and disposal-generating future cash flow to ensure the reasonableness of such assumptions.

F. Realisability of deferred income tax assets

Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilised. Assessment of the realisability of deferred income tax assets involves critical accounting judgements and estimates of the management, including the assumptions of expected future sales revenue growth rate and profit rate. tax exempt duration, available tax credits, tax planning, etc. Any variations in global economic environment, industrial environment, laws, and regulations might cause material adjustments to deferred income tax assets.

G. Evaluation of inventories

As inventories are stated at the lower of cost and net realisable value, the Company must determine the net realisable value of inventories on balance sheet date using judgements and estimates. The Company evaluates the amounts of normal inventory comsumption, obsolete inventories or inventories without market selling value on balance sheet date, and writes down the cost of inventories to the net realisable value.

H. Calculation of accrued pension obligations

When calculating the present value of defined pension obligations, the Company must apply judgments and estimates to determine the actuarial assumptions on balance sheet date, including discount rates and future salary growth rate. Any changes in these assumptions could significantly impact the carrying amount of defined pension obligations.

I. Financial assets - fair value measurement of unlisted stocks without active market (applied to 2017)

The fair value of unlisted stocks held by the Company that are not traded in an active market is determined considering those companies' recent fund raising activities and technical development status, fair value assessment of other companies of the same type, market conditions and other economic indicators existing on balance sheet date. Any changes in these judgments and estimates will impact the fair value measurement of these unlisted stocks. Please refer to Note 12(3) for the financial instruments fair value information.

CONTENTS OF SIGNIFICANT ACCOUNTS 6. (1) CASH AND CASH EQUIVALENTS

	December 31
Item	2018	2017
Cash on hand	\$453	\$406
Cash in banks	446,764	421,656
Total	\$447,217	\$422,062

A. The Company have good credit quality in financial institutions, and the Company's transactions with a number of financial institutions to diversify credit risk that are unlikely to be expected to default.

B. The Company had no cash and cash equivalents pledged to others.

(2) NOTES RECEIVABLE, NET

	December 31
Item	2018	2017
At amortized cost
Notes receivable	\$31,761	\$27,799
Less: Loss allowance	(24)	(24)
Net	\$31,737	\$27,775

A. The Company had no notes receivable pledged to others.

B. The relevant disclosure of loss allowance for notes receivable. Please refer to Note $6(3)$ .

(3) ACCOUNTS RECEIVABLE, NET

	December 31
Item	2018	2017
At amortized cost
Accounts receivable	\$2,135,825	\$2,030,077
Less: Loss allowance	(8,015)	(5, 468)
Net	\$2,127,810	\$2,024,609

A. The accounts receivable that were neither past due nor impaired was following the Company's credit policy determined by reference to the industry characteristics, operation scale and current financial position of the counterparties. The average credit period on sales of goods was 3-4 months.

B. The Company had no account receivable pledged to others.

$\mathbf{r}$

$\ddotsc$

C. To reduce major credit risk, the Company bought credit guarantee insurance.

• D. Please refer to Note 7 for accounts receivable with related parties 2018
• 1. The Company applies the simplified approach to provisions for expected credit losses prescribed by IFRS 9, which permits the use of a lifetime expected credit losses provision for trade receivables (including other receivables). The expected credit losses on trade receivables are estimated by reference to past account aging records of the debtor, an analysis of the debtor's current financial position, industrial trend. The Company estimates expected credit losses based on the number of days for which receivables are past due. As the Company's historical credit losses experience does not show significantly different loss patterns for different customer segments, the provision for losses based on past due status of receivables is not further distinguished between the Company's different customer base.
• 1. The Company measures the loss allowance for notes receivable, accounts receivable and other receivables according to the preparation matrix (including related parties):

	Expected credit	Notes	Allowance for
December 31, 2018	loss rate	receivable	doubtful accounts	Amortized Cost
No pase due	$0.05\% - 5\%$	\$1,977,790	$(\$7,079)$	\$1,970,711
Past due within 30 days	$0.05\% - 5\%$	195,484	(940)	194,544
Past due 31-90 days	$0.05\% - 5\%$	15,392	(20)	15,372
Past due over 91 days	$0.05\% - 5\%$	۰	۰	$\qquad \qquad \blacksquare$
Total		\$2,188,666	$(\$8,039)$	\$2,180,627

1. Movements of the loss allowance for notes and accounts receivable (include other receviables and related parites) were as follows:

$\sum_{n=1}^{\infty}$

	2018
Balance at January 1, 2018 (IAS 39)	\$5,492
Effect of retrospective application of IFRS 9
Balance at January 1, 2018 (IFRS 9)	\$5,492
Add: Provision for impairment	2,547
Less: Reversal of impairment
Less: Derecognition
Less: Write - offs
Less: Other
Balance at December 31, 2018	\$8,039

The above provision has already taken into consideration of collateral or other credit enhancement. The other credit enhancement possessed by above receivables was \$564,958 thousand.

The Company writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery of the receivable. For trade receivables that have been written off, the Company continues to engage in enforcement activity to attempt to recover the receivables which are due. Where recoveries are made, these are recognized in profit or loss. The Company's trade receivables for offsetting the contract amount is \$0 thousand in 2018.

1. Please refer to Note 12 for the relevant credit risk management and assessment method.

2017

1. The aging analysis of notes and accounts receivable (including other receivables) that were past due but not impaired was as follows:

Item	December 31, 2017
Up to 30 days	\$157,348
$31$ to 90 days	4,839
Over 91 days	4,744
Total	\$166,931

The above was analyzed on the basis of the past due date.

The Company considered no significant change in credit quality for above mentioned receivables and the amounts were still recoverable.

1. Movements of the allowance for doubtful receivables (including other receivables):

	Year Ended December 31, 2017
Item	Individual provision		Company provision	Total
Beginning balance			\$5,933	\$5,933
Provision for impairment
Reversal of impairment			(441)	(441)
Write-offs
Ending balance			\$5,492	\$5,492

The Company recognized allowance for doubtful accounts for impaired receivables

amounting to \$0 thousand as of December 31, 2017.

The aging analysis of notes and accounts receivable that were impaired: None.

(4) INVENTORIES AND OPERATING COSTS

	December 31
Item	2018	2017
Raw materials	\$348,194	\$282,445
Supplies	8,194	6,875
Work in process	123,794	91,127
Finished goods	443,151	410,572
Subtotal	\$923,333	\$791,019
Less: Valuation allowance	(53, 499)	(30, 148)
Net	\$869,834	\$760,871

A. The related inventory gain (loss) recoginzed as operating cost for the years ended December 31, 2018 and 2017 were as follows:

Year Ended December 31
2018	2017
\$6,886,775	\$6,354,960
31,669	33,512
19,389	(5, 547)
14,033	13,907
\$6,951,866	\$6,396,832

• B. The Company recognized inventory valuation gain (loss) of \$19,389 thousand and (\$5,547) thousand for the years ended December 31, 2018 and 2017, respectively, as a result of inventory's write-down to net realizable value and recovery of inventory net realizable value.
• C. The Company had no inventories pledged to others.

(5) FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE IMCOME - NONCURRENT - 2018

• 1. The investment in Tongli Indusrtial Co., Ltd is held for medium to long-term purposes. The management of the Company considers that if the short-term fair value fluctuations of the investment is included in the profit or loss and inconsistent with the aforementioned long-term investment plans, therefore such investment is accounted for as FVTOCI. This investment was originally classified by IAS 39 as financial assets measured at cost - noncurrent. Please refer to Note 3 and Note 6(6) for the reclassification and information for 2017.
• 1. The Company adjusted its investment position in 2018 to diversify risks, and therefore sold all stocks for \$74,400 thousand. The related other equity - unrealized gain or loss on financial assets at FVTOCI of \$12,400 thousand were transferred to retained earnings.
• 1. Please refer to Note 12 for related credit risk management and assessment methods.

(6) FINANCIAL ASSETS CARRIED AT COST - NONCURRENT

Item	December 31, 2017
Overseas unlisted stocks	\$62,000

A. Since there is a wide range of estimated fair values of the Company's investments in non-publicly traded stocks, the Company concludes that the fair value cannot be reliably measured and therefore they are classified as finanial assets carried at cost - noncurrent.

• B. The accumulated impairment loss were \$0 thousand as of December 31, 2017.
• C. The Company had no financial assets carried at cost noncurrent pledged to others.

		December 31
Company Name		2018	2017
Subsidiaries:
Sunon Smt Co., Ltd	\$		\$192,812
Successful Century Co., Ltd		1,168,133	1,113,567
BVI Sunon International Limited		1,391,680	1,184,719
Sunon INC		63,462	48,345
Sunon SAS		63,347	61,102
Sunon Electric Machine Ind (H.K) Ltd.		2,065	2,055
Sunon Corporation		2,557	2,505
Total		\$2,691,244	\$2,605,105

(7) INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

A. For more information regarding the subsidiaries of the Company, please refer to Note 4(3) "Basis of consolidation" of the Company and subsidiaries' consolidated financial statement of 2018.

• B. The investments accounted for by the equity method and the share of profit or loss and other comprehensive income of those investments for the years ended December 31, 2018 and 2017 were based on the subsidiaries' financial statements audited by auditors for the same years, except for Sunon Electric Machine Ind. (H.K) Ltd. and Sunon Coperation. The Company considered no material adjustments had these subsidiaries' financial statements been audited.
• C. The Company had no investments accounted for using equity method pledged to others as of December 31, 2018 and 2017.
• D. The Company merged with 100% shareholding subsidiary, Sunon Smt Co., Ltd., on October 1, 2018. Please refer to Note 6(30) for the information.

(8) PROPERTY, PLANT AND EQUIPMENT

	December 31
Item	2018	2017
Land	\$804,381	\$804,381
Buildings	206,916	202,814
Machinery and equipment	100,093	80,434
Miscellaneous equipment	80,494	62,957
Leasehold improvements	41,212	40,061
Equipment to be inspected	31,797	27,293
and construction in progress
Total cost	\$1,264,893	\$1,217,940
Less: Accumulated depreciation	(202, 261)	(190, 477)
Accumulated impairment
Carrying amount	\$1,062,632	\$1,027,463

								Equipment to be
								Inspected and
				Machinery and	Miscellaneous	Leasehold		Construction in
		Land	Buildings	Equipment	equipment	improvement		Progress	Total
Cost
Balance at January 1, 2018		\$804,381	\$202,814	80,434	\$62,957	\$40,061		\$27,293	\$1,217,940
Additions			2,371	6,879	25,337	1,452		33,328	69,367
Disposals				(11,251)	(13, 370)	(1,698)		(1, 464)	(27, 783)
Reclassification			1,731	18,607	5,180	1,397		(26,915)
Transfer to expenses					$\qquad \qquad \blacksquare$			(445)	(445)
Acquisition through merger				5,424	390				5,814
Balance at December 31, 2018		\$804,381	\$206,916	\$100,093	\$80,494	\$41,212		\$31,797	\$1,264,893
Accumulated depreciation
and impairment
Balance at January 1, 2018	S		\$91,860	\$37,012	\$31,612	\$29,993	S.		\$190,477
Depreciation expense			5,138	11,551	18,309	1,761			36,759
Disposals				(9,907)	(13, 370)	(1,698)			(24, 975)
Balance at December 31, 2018	\$		\$96,998	\$38,656	\$36,551	\$30,056	S		\$202,261

						Inspected and
			Machinery and	Miscellaneous	Leasehold	Construction in
	Land	Buildings	Equipment	equipment	improvement	Progress	Total
Cost
Balance at January 1, 2017	\$804,381	\$194,769	\$68,277	\$63,518	\$39,956	\$20,609	\$1,191,510
Additions		6,916	5,553	26,080	105	26,098	64,752
Transferred from other		143					143
noncurrent assets
Disposals			(661)	(30,086)		(6, 462)	(37, 209)
Transfer to expenses						(1,256)	(1,256)
Reclassification		986	7,265	3,445		(11,696)
Balance at December 31, 2017	\$804,381	\$202,814	\$80,434	\$62,957	\$40,061	\$27,293	\$1,217,940
Accumulated depreciation
and impairment
Balance at January 1, 2017	S	\$87,404	\$28,322	\$42,389	\$28,479	S	\$186,594
Depreciation expense		4,456	9,351	14,249	1,514		29,570
Disposals			(661)	(25,026)	$\ddot{\phantom{1}}$		(25, 687)
Balance at December 31, 2017	\$	\$91,860	\$37,012	\$31,612	\$29,993	\$	\$190,477

Equipment to be

A. The details of interest capitalized: None.

B.Impairment of property, plant and equipment: None.

C.Property, plant and equipment pledged for the borrowings: Please refer to Note 8.

D.Reconciliations of current additions and the acquisition of property, plant and

equipment in statement of cash flows were as follows:

	Year Ended December 31
Item	2018	2017
Acquisition of property, plant and equipment	\$69,367	\$64,752
Decrease (increase) in equipment payable	1,203	(8,058)
Cash paid for acquisition of property, plant	\$70,570	\$56,694
and equipment

(9) INVESTMENT PROPERTIES, NET

	December 31
Item	2018	2017
Land	\$89,384	\$89,384
Building	26,070	26,070
Total cost	\$115,454	\$115,454
Less: accumulated depreciation	(14, 385)	(13, 935)
accumulated impairment	(26, 058)	(26, 058)
Net	\$75,011	\$75,461

Cost	Land	Buildings	Total
Balance at January 1, 2018	\$89,384	\$26,070	\$115,454
Additions
Disposals
Balance at December 31,	\$89,384	\$26,070	\$115,454
2018
Accumulated depreciation
and impairment	Land	Buildings	Total
Balance at January 1, 2018	\$26,058	\$13,935	\$39,993
Depreciation expense		450	450
Disposals
Balance at December 31,	\$26,058	\$14,385	\$40,443
2018
Cost	Land	Buildings	Total
Balance at January 1, 2017	\$89,384	\$26,070	\$115,454
Additions
Disposals
Balance at December 31,	\$89,384	\$26,070	\$115,454
2017
Accumulated depreciation
and impairment	Land	Buildings	Total
Balance at January 1, 2017	\$10,687	\$13,485	\$24,172
Depreciation expense		450	450
Disposals
Provision for impairment	15,371		15,371
loss
Balance at December 31,	\$26,058	\$13,935	\$39,993
2017

$\label{eq:2.1} \frac{1}{\sqrt{2}}\int_{\mathbb{R}^3}\frac{1}{\sqrt{2}}\left(\frac{1}{\sqrt{2}}\right)^2\frac{1}{\sqrt{2}}\left(\frac{1}{\sqrt{2}}\right)^2\frac{1}{\sqrt{2}}\left(\frac{1}{\sqrt{2}}\right)^2\frac{1}{\sqrt{2}}\left(\frac{1}{\sqrt{2}}\right)^2.$

A. Rent income and direct operating expense of investment properties:

	Year Ended December 31
Item	2018	2017
Rent income of investment properties	\$2,196	\$2,196
Direct operating expense incurred for the	\$781	\$777
investment properties with current rent income

• B. The fair values of investment properties held by the Company were both \$101,402 thousand as of December 31, 2018 and 2017. The fair value determination was performed by independent qualified professional appraisers. The valuation was based on the comparison method, and the fair value was measured by using Level 3 inputs. Please refer to Note 12(3).
• C. The accumulated impairment of investment properties were both \$26,058 thousand as of December 31, 2018 and 2017.
• D. The Company had no investment properties pledged to others.

(10) INTANGIBLE ASSETS

		December 31
Item		2018	2017
Trademark		\$3,126	\$3,126
Computer software		15,727	8,891
Total cost		\$18,853	\$12,017
Less: accumulated amortization		(5,949)	(3,127)
Net		\$12,904	\$8,890
Cost	Trademark	Computer Software	Total
Balance on January 1, 2018	\$3,126	\$8,891	\$12,017
Additions		12,161	12,161
Derecognition		(5,325)	(5,325)
Balance on December 31, 2018	\$3,126	\$15,727	\$18,853
Accumulated amortization
and impairment	Trademark	Computer Software	Total
Balance on January 1, 2018	$\mathcal{S}$	\$3,127	\$3,127
Amortization expenses		8,147	8,147
Derecognition		(5,325)	(5,325)
Balance on December 31, 2018	$\mathbb{S}$	\$5,949	\$5,949

Cost		Trademark	Computer Software	Total
Balance on January 1, 2017		\$3,126	\$13,537	\$16,663
Additions			6,441	6,441
Derecognition			(11,087)	(11,087)
Balance on December 31, 2017		\$3,126	\$8,891	\$12,017
Accumulated amortization
and impairment		Trademark	Computer Software	Total
Balance on January 1, 2017	\$		\$9,587	\$9,587
Amortization expenses			4,627	4,627
Derecognition			(11,087)	(11,087)
Balance on December 31, 2017	S		\$3,127	\$3,127

(11) SHORT-TERM LOANS

	December 31, 2018
Borrowings Nature	Amout	Interest
Unsecured loan	\$510,000	$0.90\% - 1.15\%$
	December 31, 2017
Borrowings Nature	Amout	Interest
Unsecured loan	\$410,000	$0.90\% - 0.95\%$

(12) OTHER PAYABLES (INCLUDING RELATED PARTIES)

	December 31
Item	2018	2017
Accrued payroll	\$120,457	\$124,174
Commission payable	16,412	13,511
Service fee payable	15,384	13,605
$R \& D$ payable	17,923	19,979
Bonus to employees and remuneration to	26,000	27,500
directors and supervisors
Equipment payable	23,892	25,095
Others	55,132	60,250
Total	\$275,200	\$284,114

Please refer to Note 7 for other payables with related parties.

(13) PROVISIONS - CURRENT

	December 31
Item	2018	2017
Employee benefits	\$13,120	\$12,636
	Year Ended December 31
Item	2018	2017
Beginning balance	\$12,636	\$12,730
Additional provisions recognized	399
Reversing un-usage balances	-	(94)
Acquisition through merger	85
Ending balance	\$13,120	\$12,636

Provision for employee benefits represents vested short-term service leave entitlements accrued.

(14) LONG-TERM LOANS AND CURRENT PORTION OF LONG-TERM LOANS

	December 31
Item	2018	2017
Mortgage loans	\$220,000	\$320,000
Less: portion due within	-
one year
Long-term loans	\$220,000	\$320,000
Interest rates	1.34%	1.46%

A.Refer to Note 8 for assets pledged as collateral for long-term borrowings.

B. Under the loan agreement, the Company should maintain certain current, debt, interest coverage and net value ratios based on the Company's audited semi-annual and annual consolidated financial statements. As of December 31, 2018, the Company had no irregularities.

(15) OBLIGATION UNDER CAPITAL LEASES

The Company leases information equipment under finance leases. According to the terms of the lease contract, the Company can obtain the ownership of the equipment unconditionally when the contract expires. The rent is priced according to the contract and is paid in half a year. The total amount of the minimum lease payments and their present value as at December 31, 2018 and 2017 are as follows:

		December 31, 2018
	Future financial
	Total Amount	expenses	Present Value
Current
Under 1 year	\$2,500	\$139	\$2,361
Noncurrent
1 year to 5 year	\$2,500	\$44	\$2,456
Over 5 years
Subtotal	\$2,500	\$44	\$2,456
Total	\$5,000	\$183	\$4,817

December 31, 2017: None.

(16) PENSION

A.Defined contribution plans

• a. The plan under the Labor Pension Act (the "Act") is deemed a defined contribution plan. Pursuant to the Company has made monthly contributions equal to 6% of each employee's monthly salary to employees' pension accounts.
• b. The total expenses recognized in the statement of comprehensive income were \$22,067 thousand and \$20,801 thousand, representing the contributions payable to these plans by the Company at the rates specified in the plans for the years ended December 31, 2018 and 2017, respectively.
• B.Defined benefit plans
• a. The Company has defined benefit plans under the Labor Standards Law that provide benefits based on an employee's length of service and average monthly salary for the six-month period prior to retirement. The aforementioned companies contribute an amount equal to 2% of salaries paid each month to their respective pension funds (the Funds), which are administered by the Labor Pension Fund Supervisory Committee (the Committee) and deposited in the Committee's name in the Bank of Taiwan. Before the end of each year, the Company assesses the balance in the Funds. If the amount of the balance in the Funds is inadequate to pay retirement benefits for employees who conform to retirement requirements in the next year, the Company

is required to fund the difference in one appropriation that should be made before the end of March of the next year. The Funds are operated and managed by the government's designated authorities; as such, the Company does not have any right to intervene in the investments of the Funds.

b. The amounts arising from the defined benefit obligation of the Company in the balance sheets were as follows:

December 31
2018	2017
\$94,388	\$92,688
(18, 728)	(22,058)
\$75,660	\$70,630

c. Movements of the net defined benefit liabilities were as follows:

	Year Ended December 31, 2018
	Present value of defined	Fair value of	Net defined benefit
Item	benefit obligation	plan assets	liabilities
Balance, beginning of year	\$92,688	$(\$22,058)$	\$70,630
Acquisition through merger	5,033	(1, 870)	3,163
Service cost
Current service cost	10		10
Interest expense (income)	1,433	(365)	1,068
Past service cost
Settlement loss (income)	(9,769)	10,598	829
Recognized in profit or loss	(\$8,326)	\$10,233	\$1,907
Remeasurement
Return on plan assets (excluding	\$	(\$497)	$(\$497)$
amounts included in net interest
expense)
Actuarial loss (gain) -
Changes in demographics	1,367		1,367
assumptions
Changes in financial assumptions	1,845		1,845
Experience adjustments	4,126		4,126
Recognized in other comprehensive	\$7,338	(\$497)	\$6,841
income
Contributions from the employer	$\mathbb{S}$	$(\$6,881)$	$(\$6,881)$
Benefits paid from plan assets	(2,345)	2,345
Balance, end of year	\$94,388	(\$18,728)	\$75,660

		Present value of defined	Fair value of	Net defined benefit
Item		benefit obligation	plan assets	liabilities
Balance, beginning of year		\$88,357	(\$17,086)	\$71,271
Service cost
Current service cost
Interest expense (income)		1,325	(302)	1,023
Past service cost		1,028		1,028
Settlement loss (income)
Recognized in profit or loss		\$2,353	(\$302)	\$2,051
Remeasurement
Return on plan assets (excluding	\$		\$118	\$118
amounts included in net interest
expense)
Actuarial loss (gain)
Changes in demographics		2,337		2,337
assumptions
Changes in financial assumptions
Experience adjustments		1,881		1,881
Recognized in other comprehensive		\$4,218	\$118	\$4,336
income
Contributions from the employer	\$		(\$6,000)	$(\$6,000)$
Benefits paid from plan assets		(2,240)	1,212	(1,028)
Balance, end of year		\$92,688	$(\$22,058)$	\$70,630

Year Ended December 31 2017

• D. Through the defined benefit plans under the Labor Standards Law, the Company is exposed to the following risks:
• a. Investment risk: The pension funds are invested in equity and debt securities, bank deposits, etc. The investment is conducted at the discretion of the government's designated authorities or under the mandated management. However, under the Labor Standards Law, the rate of return on assets shall not be less than the average interest rate on a two-year time deposit published by the local banks and the government is responsible for any shortfall in the event that the rate of return is less than the required rate of return.

• b. Interest risk: A decrease in the government bond interest rate will increase the present value of the defined benefit obligation; however, this will be partially offset by an increase in the return on the debt investments of the plan assets.

• c. Salary risk: The present value of the defined benefit obligation is calculated by reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the present value of the defined benefit obligation.

• E. The actuarial valuations of the present value of the defined benefit obligation were carried out by qualified actuaries. The principal assumptions of the actuarial valuation were as follows:

	Measurement Date
	Decembe 31, 2018	Decembe 31, 2017
Discount rate	1.375%	1.50%
Future salary increase rate	2.00%	2.00%
The weighted average duration of the	$14.9$ years	14.8 years
defined benefit obligation

If possible reasonable change in each of the significant actuarial assumptions will occur and all other assumptions will remain constant, the present value of the defined benefit obligation would increase (decrease) as follows:

	December 31
Item	2018	2017
Discount Rate
$0.25%$ higher	$(\$3,433)$	$(\$3,349)$
$0.25\%$ lower	\$3,598	\$3,510
Expected rates of salary increase
$0.25\%$ higher	\$3,518	\$3,436
$0.25\%$ lower	(\$3,374)	$(\$3,296)$

The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

F. The Company expects to make contributions of \$7,200 thousand to the defined benefit plans for the year ended December 31, 2019.

(17) SHARE CAPITAL

A. Movements in the number of the Company's ordinary shares outstanding were as follows:

	Year Ended December 31, 2018
Item	Shares (in thousands)	Amount
Balance at January 1	250,930	\$2,509,297
Capital increase in cash
Capitalization of retained earnings	۰
Balance at December 31	250,930	\$2,509,297

Year Ended December 31, 2017
Shares (in thousands)	Amount
250,930	\$2,509,297
$\blacksquare$	$\blacksquare$
250,930	\$2,509,297

B. As of December 31, 2018, the authorized capital are \$3,000,000 thousand, consisting of 300,000 thousand shares.

(18)CAPITAL SURPLUS

	December 31
Item	2018	2017
From merger	\$18,227	\$18,227
From convertible bonds	326,015	326,015
Treasurry share transactions	21,464	21,464
Reorganization	1,050
Differences between considerations and carrying	147
amounts of subsidiaries acquired or disposed
Total	\$366,903	\$365,706

Under the Company Act, the capital surplus generated from the excess of the issuance price over the par value of capital stock and donations can be used to offset deficit or may be distributed as stock dividends or in cash. Under the regulations of the Security Exchange Law, the maximum amount transferred from the foregoing capital surplus to the Company's capital per year shall not be over 10% of the Company's paid-in capital. Capital surplus can't be used to offset deficit unless legal reserve is insufficient. The capital surplus from longterm investments may not be used for any purpose.

(19) RETAINED EARNINGS AND DIVIDEND POLICY

(1) In accordance with the dividend policy as set forth in the amended Articles, where the Company made profit in a fiscal year, the profit shall be first utilized for paying taxes, offsetting losses of previous years, setting aside as legal reserve 10% of the remaining profit, setting aside a special reserve in accordance with the laws and regulations, and the remainder plus prior year's unappropriated earnings will be recommended by the board of directors and approved through the shareholders' meeting.

In consideration of its operation and capital expenditure demands, the Company stipulates appropriate dividend distribution ratio, and proposes for approval in the shareholders' meeting. However, at least 20% of total dividends should be distributed in cash.

• (2) Legal reserve may be used to offset a deficit, and be transferred to capital or distributed in cash. However, legal reserve can be transferred to capital or distributed in cash only when the legal reserve has exceeded 25% of the Company's paid-in capital.
• (3) Special reserve

	December 31
Item	2018	2017
Reserve for the dedit balance of other equities	\$47,956	\$3,702
Reserve for first-time adoption of IFRS	79,155	79,155
Total	\$127,111	\$82,857

• A. While earning distribution, the earnings can be distributed after appropriation of the equivalent amount of the debit balance of the other equities of the balance sheet.
• B. Under Rule No.1010012865 issued by the FSC for first-time adoption of IFRS, the special reserve can be reversed while usage, disposal and reclassification of related assets.
• (4) The appropriation of 2017 and 2016 earnings had been resolved at the shareholders' meeting in May 2018 and June 2017, respectively. Details were summarized below:

2.0
	2016

(5) The appropriation of 2018 earnings had been proposed by the board of directors on March 14, 2019. Details were summarized below:

Item	Amount	Dividends Per Share
Legal reserve	\$60,512
Special reserve	37,598
Cash dividends	501,860	2.0

• A. The appropriations of earnings for 2018 are to be presented for approval in the shareholders' meeting to be held in June 2019.
• B. In the event of repurchase of the Company's shares, transfer, conversion or annulment of treasury stocks, and exercise of employees' stock options, leading to a change in the number of outstanding shares and a consequent change in dividend yield, it is proposed that the chairman is authorized by the Board of Directors to duly adjust stocks and cash payout rates.
• (6) Information on the earnings appropriation proposed by the Company's Board of Directors and approved by the Company's shareholders is available on the Market Observation Post System website of the Taiwan Stock Exchange.

		Unrealized Gain (Loss) on
	Exchange Differences	Financial Assets at Fair
	on Translating Foregin	Value Through Other
Item	Operations	Comprehensive Income	Total
Balance at January 1, 2018	(\$127,111)	\$	(\$127,111)
Impact of retroactive		3,415	3,415
applications of IFRS 9
Exchange dirrerences arising on	(36, 548)		(36, 548)
translation of foreign operations
Unrealized Gain (loss) on		8,985	8,985
financial assets at fair value
through other comprehensive
income
Transfer to retained earning on
disposal of equity instruments		(12,400)	(12, 400)
at fair value through other
comprehensive income
Reorganization	(1,050)		(1,050)
Banance at December 31, 2018	(\$164,709)	\$	(\$164,709)

(20) OTHERS EQUITY

			Unrealized Gain (Loss) on
	Exchange Differences		Financial Assets at Fair
	on Translating Foregin		Value Through Other
Item	Operations	Comprehensive Income		Total
Balance at January 1, 2017	(\$82,857)	\$		$(\$82,857)$
Exchange dirrerences arising on	(44, 254)			(44, 254)
translation of foreign operations
Banance at December 31, 2017	(\$127,111)	\$		(\$127,111)

(21) OPERATING REVENUES

	Year Ended December 31
Item	2018	2017
Revenue from contracts with customer
Total revenues	\$8,258,807	\$7,736,465
Sales returns	(11,940)	(15,739)
Sales discount	(60, 337)	(31,807)
Net	\$8,186,530	\$7,688,919

A. Explain of contract revenue

Sales of fans and other related goods are mainly to system manufacturers and distributors. Please refer to Note 14 for the main sale areas.

• B. The Company's timing of recognition is transferred the goods at a certain point of time.
• C. Contract balances

The Company recognizes the accounts receivable, contract assets and contract liabilities related to contract revenue as follows:

	December 31, 2018
Accounts receivable	\$2,127,810
Contract assets
Total	\$2,127,810
Contract liabilities -	\$10,745
current

a. Significant changes in contract assets and contract liabilities

The changes in the contract assets and contract liabilities primarily result from the timing difference between the satisfaction of performance obligation and the customer's payment, and there is no other significant changes.

b. Amount from previous period's satisfied performance obligations and beginning contract liabilities recognized in the current period as income were as follows:

		Year Ended
Revenue in the current period		December 31, 2018
From beginning contract liabilities		\$20,034
From previous period's satified performance
obligations	S

(22) LABOR COST, DEPRECIAION AND AMORTIZATION

	Year ended December 31, 2018
Item	Operating cost	Operating expenses	Total
Labor cost
Salaries	\$30,881	\$436,646	\$467,527
Insurance	3,646	36,188	39,834
Pension	1,908	22,066	23,974
Remuneration to		14,321	14,321
directors
Others	2,947	35,710	38,657
Depreciation	5,278	31,931	37,209
Amortization	492	8,756	9,248
Total	\$45,152	\$585,618	\$630,770

	Year ended December 31, 2017
Item	Operating cost	Operating expenses	Total
Labor cost
Salaries	\$39,524	\$428,903	\$468,427
Insurance	4,700	34,186	38,886
Pension	2,395	20,457	22,852
Remuneration to		14,680	14,680
directors
Others	5,250	30,973	36,223
Depreciation	6,575	23,445	30,020
Amortization	199	4,947	5,146
Total	\$58,643	\$557,591	\$616,234

• 1. The numeber of employees in December 31, 2018 and 2017 were 555 and 583 respectively. The number of directors who were not adjunct employees as of December 31, 2018 and 2017 were both 5.
• 1. The Company accrued employees' compensation and remuneration to directors and supervisors at the rates not less than 2% and not higher than 5% of net income before income tax, emoployees' compensation and remuneration to directors and supervisors during the period. If there is a change in the amounts after the annual consolidated financial statements were authorized for issue, the differences are recorded as a change in the accounting estimate.
• 1. The employees' compensation and remuneration to directors for the years ended December 31, 2018 and 2017 had been approved by the Company's Board of Directors meeting held on March 14, 2019 and March 12, 2018, respectively, and the relevant amounts recognized in the parent company only financial statement were as follows:

	Year ended December 31
		2018	2017
	Employees' compensation	Remuneration to directors	Employees' compensation	Remuneration to directors
Resolution amount of allotment	\$16,500	\$9,500	\$17,500	\$10,000
Recognized in financial statements	16,500	9,500	17,500	10,000
Difference

The above mentioned employees' compensation will be paid by cash.

1. Information about the appropriation of employees' compensation and directors' remuneration by the Company as proposed by the Board of Directors and resolved by the shareholders will be posted in the "Market Observation Post System" at the website of the Taiwan Stock Exchange.

(23) OTHER INOCME

	Year Ended December 31
Item	2018	2017
Rental income	\$3,784	\$2,492
Interest income	7,968	6,467
Others - sample sales	11,923	12,025
Others - subsidy	29,635	27,945
Others	39,027	42,132
Total	\$92,337	\$91,061

(24) OTHER GAINS AND LOSSES

	Year Ended December 31
Item	2018	2017
Loss on disposal of property, plant and	\$114	\$582
equipment
Net currency exchange gain	87,799	89,533
Impairment loss on non-financial assets		(15,371)
Others	(4,336)	(3,743)
Total	\$83,577	\$71,001

(25) FINANCE COSTS

	Year Ended December 31
Item	2018	2017
Interest on loans	\$7,700	\$6,889
Others	173
Less: capitalized amount for qualified assets	$\,$
Carrying amount	\$7,873	\$6,889

(26) INCOME TAX EXPENSE

A. Income tax recorded in profit or loss.

a. The major components of tax expense were as follows:

	Year Ended December 31
Current income tax	2018	2017
Current tax expense	\$120,286	\$150,561
Additional tax on unappropriated earnings		618
Adjustments in tax of prior periods	(608)	(324)
Total	\$119,678	\$150,855
Deferred income tax
The origination and reveral of temporary differences	\$8,794	$(\$5,571)$
Effect of tax rate change	3,045
Total	\$11,839	$(\$5,571)$
Income tax expense	\$131,517	\$145,284

b. Income tax expense recognized in other comprehensive income was as follows:

	Year Ended December 31
Item	2018	2017
Share of other comprehensive loss of	$(\$8,614)$	(\$8,618)
subsidiaries
Remeasurement of defined benefit plans	(2,020)	(737)
Total	$(\$10,634)$	$(\$9,355)$

B. A reconciliation of income before income tax and income tax expense recognized in profit or loss was as follows:

	Year Ended December 31
Item	2018	2017
Income before income tax	\$736,637	\$802,743
Income tax expense at the statutory rate	\$147,327	\$136,466
Tax effect of adjusting items:
Loss on investment under equity method	(57, 021)	(45, 783)
Expense not deductible for tax purpose	29,980	59,878
Adjustments for prior year's tax adjustments	(608)	(324)
Additional income tax on unappropriated earnings		618
Deferred income tax expense
Temporary differences	8,794	(5,571)
Effect of tax rate change	3,045
Income tax expense recognized in profit or loss	\$131,517	\$145,284

The corporate income tax is 17% in 2017. The corpoate income tax rate was adjusted from 17% to 20% starting from 2018. In addition, the tax rate applicable to unappropriated earnings was reduced from 10% to 5%.

C.Amounts of deferred tax assets or liabilities as a result of temporary difference, loss carryfoward and investment tax credit were as follows:

				Year Ended December 31, 2018
		Recognized
	Balance,	Effect of		Recognized	in Other	Effect of	Balance,
	Beginning	Tax Rate	Acquisition	in Profit	Comprehensive	Exchange	End of
	of Year	Change	Through Merger	or Loss	Income	Rate Changes	Year
Deferred income tax assets:
Temporary differences
Loss on investment under	\$1,303	\$230	\$	(\$1,149)	\$	\$	\$384
equity method
Net defined benefit liability	12,007	1,516	632	(1,043)	2,020		15,132
Unrealized loss on	5,125	904		4,671			10,700
inventories
Unused compensated	2,148	379	17	80			2,624
absences
Unrealized exchange loss			30	(30)
Subtotal	\$20,583	\$3,029	\$679	\$2,529	\$2,020	\$	\$28,840
Deferred income tax liabilities:
Temporaty differences
Gain on foreign investment	\$29,129	\$5,660	\$11,115	\$13,711	(\$8,614)	$\mathbf{s}$	\$51,001
under equity method
Unrealized exchange gain	2,350	414		(2,388)			376
Subtotal	\$31,479	\$6,074	\$11,115	\$11,323	(\$8,614)	$\boldsymbol{\mathsf{S}}$ $\overline{a}$	\$51,377
Total	(\$10,896)	$(\$3,045)$	(\$10,436)	$(\$8,794)$	\$10,634	\$ $\overline{a}$	$(\$22,537)$
	Year Ended December 31, 2017 $\mathbf{D}$

			Recognized
	Balance,	Recognized	in Other	Effect of	Balance,
	Beginning	in Profit	Comprehensive	Exchange	End of
	of Year	or Loss	Income	Rate Changes	Year
Deferred income tax assets:
Temporary differences
Loss on investment under equity method	\$2,141	(\$838)	\$	\$	\$1,303
Net defined benefit liability	12,116	(846)	737		12,007
Unrealized loss on inventories	6,068	(943)			5,125
Unused compensated absences	2,164	(16)			2,148
Unrealized exchange loss	2,266	(2,266)
Subtotal	\$24,755	( \$4,909)	\$737	\$	\$20,583
Deferred income tax liabilities:
Temporaty differences
Gain on foreign investment under equity method	\$50,577	(\$12,830)	(\$8,618)	\$	\$29,129
Unrealized exchange gain		2,350			2,350
Subtotal	\$50,577	(\$10,480)	$(\$8,618)$	\$	\$31,479
Total	\$25,822)	\$5,571	\$9,355	\$	(\$10,896)

$\bar{\gamma}$

D. Items with no deferred tax assets recognized:

	December 31
Item	2018	2017
Loss on investment under the equity method	\$577	\$1.952

E. As of December 31, 2018, the tax authorities have ractified Company's income tax returns through Year 2016.

(27) OTHER COMPREHENSIVE INCOME (LOSS)

	Year Ended December 31, 2018
	Other Comprehensive	Income Tax	Other Comprehensive
Item	Income (Loss), Before Tax	(Expense) Benefit	Income (Loss), Net of Tax
Items that will not be reclassified
subsequently to profit or loss:
Remeasurement of defined	$(\$6,841)$	\$2,020	(\$4,821)
benefit obligation
Unrealized gain on	8,985		8,985
investments in equity
instruments at fair value through
other comprehensive income
Subtotal	\$2,144	\$2,020	\$4,164
Items that may be reclassified
subsequently to profit or loss:
Share of other comprehensive	$(\$45,162)$	\$8,614	$(\$36,548)$
income (loss) of subsidiaries,
associates and joint ventures
Subtotal	$(\$45,162)$	\$8,614	$(\$36,548)$
Recognized in other	$(\$43,018)$	\$10,634	$(\$32,384)$
comprehensive income (loss)

	Other Comprehensive	Income Tax	Other Comprehensive
Item	Income (Loss), Before Tax	(Expense) Benefit	Income (Loss), Net of Tax
Items that will not be reclassified
subsequently to profit or loss:
Remeasurement of defined	(\$4,336)	\$737	$(\$3,599)$
benefit obligation
Share of other comprehensive	(21)		(21)
income (loss) of subsidiaries,
associates and joint ventures
Subtotal	(\$4,357)	\$737	$(\$3,620)$
Items that may be reclassified
subsequently to profit or loss:
Share of other comprehensive	$(\$52,872)$	\$8,618	$(\$44,254)$
income (loss) of subsidiaries,
associates and joint ventures
Subtotal	$(\$52,872)$	\$8,618	$(\$44,254)$
Recognized in other	$(\$57,229)$	\$9,355	$(\$47,874)$
comprehensive income (loss)

Year Ended December 31, 2017

(28) EARNINGS PER SHARE

	Year Ended December 31
Item	2018	2017
Net income	\$605,120	\$657,459
Weighted average shares outstanding	250,930	250,930
(in thousands)
Basic earnings per share (after tax)	\$2.41	\$2.62
Net income	\$605,120	\$657,459
Effect of potential dilutive ordinary shares
Net income used in computation of diluted	\$605,120	\$657,459
earning per share
Weighted average shares outstanding	\$250,930	\$250,930
(in thousands)
Impact on employees' compensation (Note)	517	437
Weighted average number of ordinary shares	\$251,447	\$251,367
outstanding after dilution (in thousands)
Diluted earning per share (after tax)	\$2.41	\$2.62

(Note) Since the Company offered to settle compensation paid to employees in cash or shares, the Company assumed the entire amount of the compensation would be settled in shares and the resulting potential shares were included in the weighted average number of shares outstanding used in the computation of diluted earnings per share, as the effect is dilutive. Such dilutive effect of the potential shares is included in the computation of diluted earnings per share until the number of shares to be distributed to employees is resolved in the following year.

(29) TRANSACTIONS WITH NON-CONTROLLING INTERESTS

1. Acquisition of additional interests in subsidiary 2018:

In July 2018, the Company purchased an additional 15% equity of its subsidiary, Sunon Smt Co., Ltd. in cash of \$30,827 thousand, and the shareholding ratio increased from 85% to 100%. As the above transaction did not change the control to subsidiary, the Company treats it as an equity transaction:

	Sunon Smt Co., Ltd.
Carrying amount	\$30,974
Payment to the non-controlling interest	(30, 827)
Capital surplus - differences between considerations and	\$147
carrying amounts of subsidiaries acquired and disposed

2017: None.

(30) BUSINESS COMBINATIONS

The Company's board of directors approved in August 2018 to merge with Sunon Smt Co., Ltd., and the effective merge date was October 1,2018. The Company was the surviving company. The merger was approved by the Investment Commission, Ministry of Economic Affairs on October 4, 2018, and the registration was completed. The amount of assets, liabilities and investments accounted for using equity method that acquired through merger on effective merger date are as follow:

	Amount
Current assets
Cash and cash equivalents	\$48,256
Notes receivable	526
Accounts receivable - related parties, net	47,006
Other receivables	447
Allowance for inventory valuation and	(3,962)
obsolescence losses
Current tax assets	123
Prepayments	4
Nocurrent assets
Investments accounted for using equity	158,154
mentod
Property, plant and equipment	5,814
Deferred income tax assets	679
Total assets	\$257,047
Current liabilities
Accounts payable	11,864
Accounts payable - related parties	21,840
Other payables	1,705
Current tax liabilities	2,757
Provisions - current	85
Nocurrent liabilities
Deferred income tax liabilities	11,115
Net defined benefit liabilities - noncurrent	3,163
Total liabilities	\$52,529
Equity	204,518
Total liabilities and equity	\$257,047

7. RELATED PARTY TRANSACTIONS

(1) Parent and ultimate controlling party: The Company is the ultimate controlling party.

		(2) Related party name and category:
--	--	--------------------------------------	--

Related Party Name	Related Party Category
Sunon Smt Co., Ltd.	Subsidiary
Sunon SAS	Subsidiary
Sunon INC	Subsidiary
Sunon Electronic (Kunshan) Co., Ltd.	Subsidiary
Sunon Electronic (Foshan) Co., Ltd.	Subsidiary
Sunon Electronic (Bei Hai) Co., Ltd.	Subsidiary
Guang Sheng Investment Corporation	Other related parties
Shehng-Yuan Children Development and	Other related parties
Adult Support Services Center
Yo Yuan Investment Corporation	Other related parties

(3) Significant transactions with related parties:

A. Sales:

December 31
2018	2017
\$1,038,710	\$1,103,321

B. Purchase:

	December 31
Related Party Category	2018	2017
Subsidiaries:
Sunon Electronic (Kunshan) Co., Ltd.	\$1,580,065	\$1,542,979
Sunon Electronic (Bei Hai) Co., Ltd.	1,601,026	1,329,458
Other	33,934	26,308
Total	\$3,215,025	\$2,898,745

C. Contract assets: None.

D. Contract liabilities: None.

$\hat{\mathcal{A}}$

	December 31
Related Party Category	2018	2017
Accounts receivable:
Subsidiaries	\$347,039	\$318,011
Other receivables:
Subsidiaries
Sunon Electronic (Kunshan) Co., Ltd.	\$5,474	\$10,973
Sunon Electronic (Foshan) Co., Ltd.	3,538	5,441
Other	2,230	1,182
Total	\$11,242	\$17,596

E. Balance of receivables (excluding lending to related parties and contract assets):

F. Balance of payables (excluding borrowing from related parties):

$\overline{a}$

	December 31
Related Party Category	2018	2017
Accounts payables:
Subsidiaries
Sunon Electronic (Kunshan) Co., Ltd.	\$292,973	\$362,614
Sunon Electronic (Foshan) Co., Ltd.	239,620	132,040
Sunon Electronic (Bei Hai) Co., Ltd.	494,011	284,886
Other		39,024
Total	\$1,026,604	\$818,564
Other payables:
Subsidiaries	\$13,440	\$12,190
G. Prepayments: None. H. Property transactions: a. Purchase of property, plant and equipment	Year End December 31
Related Party Category	2018	2017
Subsidiaries	\$1,687	\$4,678
b. Disposal of property, plant and equipment
	Proceeds
	Year End December 31
Related Party Category	2018	2017
Subsidiaries	\$2,922	\$12,104

	Gains
	Year End December 31
Related Party Category	2018	2017
Subsidiaries	\$114	\$582
I. Financing activities - lending to related parties:
a. Ending balance
	Year End December 31
Related Party Category	2018	2017
Subsidiaries
Sunon SAS	\$	\$21,342
b.Interest income
	Year End December 31
Related Party Category	2018	2017
Subsidiaries
Sunon SAS	\$129	\$38
Sunon INC		540
Total	\$129	\$578
Interest rates	1.2%	1.2%-3.5%
J. Financing activities - borrowing from related parties :
	December 31
Related Party Category	2018	2017
Subsidiaries	USD 20,000	USD 18,000
K. Guarantee for related parties: None.
L. Others:
a.Processing fee
	Year End December 31
Related Party Category	2018	2017
Subsidiaries
Sunon Electronic (Foshan) Co., Ltd.	\$883,828	\$819,265
Sunon Smt Co., Ltd.	120,270	149,246
Other	102,233	117,984
Total	\$1,106,331	\$1,086,495

b. Refundable deposits:

	December 31
Related Party Category	2018	2017
Other related parties
Guang Sheng Investment Corporation	\$26	\$446
c. Advance receipts:
	December 31
Related Party Category	2018	2017
Subsidiaries	\$	\$150
d. Guarantee deposits:
	December 31
Related Party Category	2018	2017
Other related parties	\$55	\$55
e. Miscellaneous income:
	Year Ended December 31
Related Party Category	2018	2017
Subsidiaries
Sunon Electronic (Kunshan) Co., Ltd.	\$13,401	\$12,196
Other	20,128	12,220
Other related parties	194	181
Total	\$33,723	\$24,597
f. Miscellaneous expenses:
	Year Ended December 31
Related Party Category	2018	2017
Subsidiaries
Sunon SAS	\$48,499	\$45,332
Sunon INC	28,290	22,295
Others	1,814	2,902
Other related parties	1,756	2,356
Total	\$80,359	\$72,885

(4) Key management compensation

	Year Ended December 31
Item	2018	2017
Salaries and other short-term employee benefits	\$35,791	\$35,765
Post-employment benefits
Other long-term employee benefits	-
Termination benefits	$\qquad \qquad$
Share-based payments	$\overline{\phantom{a}}$
Total	\$35,791	\$35,765

8. PLEDGED ASSETS

	December 31
Item	2018	2017
Property, plant and equipment (net)	\$496,858	\$496,858

9. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED CONTRACT COMMITMENTS

• (1) As of December 31, 2018 and 2017, the Company issued guarantee notes for bank loans amounting to \$2,822,185 thousand and \$2,705,908 thousand, respectively.
• (2) Commitments and contingency as of December 31, 2018 and 2017 consisted of the following:

(In thousands)

	December 31
Item	2018	2017
$L/C$ Amount	USD 520	USD 1,401
		NTD 1,484

(3) As of December 31, 2018 and 2017, the note endorsement for material purchase were as follows:

		(In thousands)
	December 31
Item	2018	2017
USD	\$1,979	\$1,409
NTD	1,289	3,896

(4) As of December 31, 2018 and 2017, the Company endorsed guarantees for others. Please refer to Note 13 for the information.

(5) ADDA Corporation manufactured fan products, which was suspeted infringing the Company's new patents. The related lawsuit details were as follows: The ADDA Corporation manufactured fan products, which was suspeted infringing the Company's new patents for No. 1381559, No. 1384723 and No. 1389429. The Company filed a lawsuit seeking for infringement obviation and requesting compensation from that company and its related parties. However, the Court dismissed the lawsuit. The Company believe that the use of the judgment has been violated and has appealed against the judgment. At present, the Intellectual Property Court is still in the process of judgement.

10. SIGNIFICANT DISASTER LOSS: NONE.

11. SIGNIFICANT SUBSEQUENT EVENTS: NONE.

12. OTHERS

(1) Capital risk management

The Company should maintain an adequate capital structure to enable the expansion and enhancement of equipments. Therefore, the Company manages its capital in a manner to ensure that it has sufficient and necessary financial resources to fund its working capital needs, capital asset purchases and debt service requirements associated with its existing operations over the next 12 months.

(2) Financial instruments

A. Financial risk of financial instruments

Financial risk management policies

The Company's activities expose it to a variety of financial risks: market risk (including foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk. The Company's overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company's financial position and financial performance.

The plans for material treasury activities are reviewed by board of directors in accordance with procedures required by relevant regulations or internal controls. During the implementation of such plans, the Company Treasury function must comply with certain treasury procedures that provide guiding principles for overall financial risk management and segregation of duties.

a. Market risk

(a) Foreign exchange rate risk

The Company's functional currency is New Taiwan dollars. Many of the Company's operating activities are denominated in foreign currencies. Consequently, the Company is exposed to foreign currency risk. To protect against reductions in value and the volatility of future cash flows caused by changes in foreign exchange rates, the Company raises loans denominated in foreign currency and derivative financial instruments to hedge the currency exposure. These instruments help to reduce, but do not eliminate, the impact of foreign currency exchange rate movements. The net investment in foreign operation is strategic investment. Therefore, the Company does no hedge for it.

					December 31, 2018
					Sensitivity Analysis
	Foreign	Exchange	Carrying Value		Profit and
	Currency	Rate	(NTD)	Variation	Loss Impact	Equity Impact
Financial assets
Monetary item
USD:NTD	68,377	30.7150	2,100,202	increase 1%	21,002
EUR:NTD	8,325	35.2000	293,049	increase 1%	2,930
JPY:NTD	24,888	0.2782	6,924	increase 1%	69
RMB:NTD	447	4.4753	2,000	increase 1%	20
Investments
accounted
for using
equity method
USD:NTD	40,098	30.7150	1,231,595	increase 1%		12,316
EUR:NTD	1,800	35.2000	63,347	increase 1%		633
RMB:NTD	310,969	4.4753	1,391,680	increase 1%		13,917
Financial liabilities
Monetary item
USD:NTD	65,606	30.7150	2,015,087	increase 1%	(20, 151)
EUR:NTD	217	35.2000	7,636	increase 1%	(76)
JPY:NTD	146	0.2782	41	increase 1%

(b) Foreign currency risk and sensitivity analysis

					December 31, 2017
					Sensitivity Analysis
	Foreign	Exchange	Carrying Value		Profit and
	Currency	Rate	(NTD)	Variation	Loss Impact	Equity Impact
Financial assets
Monetary item
USD:NTD	64,763	29.7600	1,927,335	increase 1%	19,273
EUR:NTD	7,839	35.5700	278,818	increase 1%	2,788
JPY:NTD	32,000	0.2642	8,454	increase 1%	85
RMB:NTD	696	4.5545	3,169	increase 1%	32
Investments
accounted
for using
equity method
USD:NTD	39,043	29.7600	1,161,912	increase 1%		11,619
EUR:NTD	1,718	35.5700	61,102	increase 1%		611
RMB:NTD	260,121	4.5545	1,184,719	increase 1%		11,847
Financial liabilities
Monetary item
USD:NTD	55,858	29.7600	1,662,343	increase 1%	(16, 623)
EUR:NTD	386	35.5700	13,744	increase 1%	(137)
JPY:NTD	350	0.2642	92	increase 1%	(1)

$\hat{\mathcal{A}}$

When New Taiwan dollar appreciates and other variation factors stay unchanged, there will be the same but opposite amount of influence as of December 31, 2018 and 2017.

$\bar{\beta}$

	Year Ended December 31, 2018
		Foreign Exchange Gain (Loss)
	Foreign Currency
	(In thousands)	Exchange Rate	Carrying Value
Item
Financial Assets
Monetary Item
USD: NTD		30.1750	(4,310)
EUR: NTD		35.5900	1,805
RMB: NTD		4.5599	(73)
Financial Liabilities
Monetary Item
USD: NTD		30.1750	4,306
EUR: NTD		35.5900	(3)
		Year Ended December 31, 2017
		Foreign Exchange Gain (Loss)
	Foreign Currency
	(In thousands)	Exchange Rate	Carrying Value
Item
Financial Assets
Monetary Item
USD: NTD		30.4100	(18, 417)
EUR: NTD		34.4000	1,996
RMB: NTD		4.5040	(111)
Financial Liabilities
Monetary Item
USD: NTD		30.4100	30,437
EUR: NTD		34.4000	12

The details of unrealized exchange gain (loss) for montary items due to material exchange rate fluctuation were as follow:

b. Price risk

The Company does not hold financial instrument which measured by fair value.

c. Interest rate risk

The carrying amount of the financial assets and liabilities that exposed interest rate risk as reporting date was as follow:

		Carrying Value
Item	December 31, 2018	December 31, 2017
Fair value interest rate risk:
Financial assets	\$		\$21,342
Financial liabilities		(4, 817)
Net		$(\$4,817)$	\$21,342
Cash flow interest rate risk:
Financial assets		\$446,653	\$421,477
Financial liabilities		(730,000)	(730,000)
Net		$(\$283,347)$	$(\$308,523)$

(a) Sensitivity analysis of fair value interest rate risk

The Company does not classify any fixed-rate instruments as financial assets at fair value through profit or loss and financial assets at fair value through other comprehensive income. In addition, the Company does not designate derivatives (interest rate swap) as hedge instruments under hedge accounting. Therefore, the change of interest rate at reporting date does not have influence on net income and other comprehensive income.

(b) Sensitivity analysis of cash flow interest rate risk

The Company's financial instruments with variable interest rate are those with floating-rate. If interest rate increases 1%, the net income will decerase \$2,833 thousand and \$3,085 thousand for the years ended December 31, 2018 and 2017, respectively.

B. Credit risk

Credit risk is the risk that counterparty will not meet its obligations under a contract leading to a financial loss to the Company. The Company is exposed to credit risk from operating activities, primarily accounts receivables, and from investing activities, primarily deposit and other financial instruments. Credit risk is managed separately for business related and financial related exposures.

a. Business related credit risk

In order to maintain the credit quality of accounts receivables, the Company has established procedures to monitor and limit exposure to credit risk on trade receivables. Credit evaluation is performed in the consideration of the relevant factors which may affects the customer's paying ability such as financial condition , external and internal credit scoring, historical experience, and economic conditions.

b. Financial credit risk

The Company's exposure to financial credit risk which pertained to bank deposits and other financial instruments were evaluated and monitored by Company Treasury function. The Company only deals with creditworthy counterparties, banks, and governent so that no significant credit risk was identified. In addition, the Company has no financial assets at amortized and investments in debt instruments at fair value through other comprehensive income.

(a) Credit concentration risk:

As of December 31, 2018 and 2017, the Company's ten largest customers accounted for 47.24% and 53.35% of accounts receivable, respectively. The Company believes the concentration of credit risk is insignificant for the remaining accounts receivable. The Company continuously evaluated customers' financial situation. To reduce major credit risk, the Company bought credit guarantee insurance, and asked customers to make payment in advance.

(b) Measured in expected credit loss - 2018

(i) Account receivables adopts a simplified approach, please prefer to Note 6(3).

• (ii) Identification basis for whether credit risk is significantly increased: None.
• c. Details of financial effect of exposure amount:

December 31, 2018: None.

Total
\$574,007

C. Liquidity risk

a. Liquidity risk management:

The objective of liquidity risk management is to ensure the Company has sufficient liquidity to fund its business requirements of cash and cash equivalents and the unused of financing facilities associated with existing operations.

b. Financial liabilities with repayment periods:

The following table details the Company's remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods.

	December 31, 2018
Item	Within 1 year	1-2 years			2-5 years		Over 5 years	Contract Cash Flow	Carrying Value
Non-derivative
Financial liabilities
Short-term loans	\$510,000	\$		\$		\$		\$510,000	\$510,000
Accounts payable	1,021,169							1,021,169	1,021,169
Accounts payable -	1,026,604							1,026,604	1,026,604
related parties
Other payables	261,760							261,760	261,760
Other payables -	13,440							13,440	13,440
related parties
Long-term loans					220,000			220,000	220,000
(Inclusive of current portion)
Obligation under	2,500		2,500					5,000	4,817
capital leases
Guarantee deposits	3,177							3,177	3,177
Total	\$2,838,650		\$2,500		\$220,000	\$		\$3,061,150	\$3,060,967

Within 1 year
	1-2 years		2-5 years		Over 5 years		Contract Cash Flow	Carrying Value
\$410,000	$\boldsymbol{\mathsf{S}}$		\$		\$		\$410,000	\$410,000
920,729							920,729	920,729
818,564							818,564	818,564
271,924							271,924	271,924
12,190							12,190	12,190
							320,000	320,000
(Inclusive of current portion)
3,077							3,077	3,077
\$2,436,484	\$				\$		\$2,756,484	\$2,756,484
					320,000 \$320,000

2. Categories of financial instruments

The carrying value of financial assets and liabilities of the Company as of December 31, 2018 and 2017 was as follow:

	December 31
Financial assets	2018	2017
Financial assets measured at amortized cost
Cash and cash equivalents	\$447,217	$\boldsymbol{\mathsf{S}}$
Notes and accounts receivable	2,159,457
(including related parties)
Other receivables	21,080
Refundable deposits	2,485
Loans and receivables
Cash and cash equivalents		422,062
Notes and accounts receivable		2,052,384
(including related parties)
Other receivables		51,824
Refundable deposits		2,303
Financial assets carried at cost - noncurrent		62,000
Financial liabilites
Financial liabilites measured at amortized cost
Short-term loans	510,000	410,000
Notes and accounts payable	2,047,773	1,739,293
(including related parties)
Other payables	275,200	284,114
Obligation under capital leases	4,817
Long-term loans	220,000	320,000
Guarantee deposits	3,177	3,077

(3) Fair value information

A. Details of the fair value of the Company's financial assets and financial liabilities not measured at fair value are provided in Note 12(3)C. Details of the fair value of the Company's investment property measured at cost are provided in Note 6(9).

B. The different levels that the inputs to valuation techniques are used to measure fair value of financial and non-financial instruments have been defined as follows: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. A market is regarded as active where a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The fair value of the Company's investment in listed stocks, beneficiary certificates and others is included in Level 1.

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The fair value of the Company's investments in government bonds, corporate bonds, financial debentures, convertible bonds, and most derivative instruments is included in Level 2.

Level 3: Unobservable inputs for the asset or liability. The fair value of the Company's investments in some derivative instruments and equity instruments without active market is included in Level 3.

• C. Financial instruments that are not measured at fair value The Company considers that the carrying amounts of financial instruments cash and cash equivalents, receivables, long-term loans and gurantee deposits that are not measured at fair value approximate their fair values.
• D. The related information of financial and non-financial instruments measured at fair value by level: None.
• E. The methods and assumptions the Company used to measure fair value are as follows: Valuation techniques of financial instruments valued at fair value
• (a) The fair value of financial assets and liabilities traded in an active market is based on the quoted market prices. The quotation, which is published by the main exchange center or that which was deemed to be a public bond by the Treasury Bureau of Center Bank, is included in the fair value of the listed securities instruments and the debt instruments in active markets with open bid.

A financial instrument is regarded as the quoted price in an active market if the quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency; and if those prices represent the actual and regularly occurring market transactions on an arm's length basis. Otherwise, the market is deemed to be inactive. Normally, a market is considered to be inactive when the bidask spread is increasing; or the bid-ask spread varies significantly; or there has been a significant decline in trading volume.

(b) Except for the above-mentioned financial instruments traded in an active market, the fair value is based on the valuation techniques or the quotation from the counterparty. The fair value refers to the current fair value of the other financial instruments with similar conditions and characteristics, using a discounted cash flow analysis or other valuation techniques, such as calculations of using models (for example, applicable yield curve from Taipei Exchange, or average quoted price on interest rate of commercial paper from Reuters), based on the information acquired from the market at the balance sheet date.

When the financial instrument of the Company is not traded in an active market, the fair value is determined based on the ratio of the quoted market price of the comparative company, its book value per share and its operating situation. Also, the fair value is discounted for its lack of liquidity in the market.

• F. There was no transfer between Level 1 and Level 2 for the years ended December 31, 2018 and 2017.
• G. Changes in level 3 instruments as at December 31, 2018 and 2017:

	Financial Assets Measured
	at Fair Value Through Other
	Comprehensive
Item	Income - Unlisted Stock
January 1, 2018	\$
Adjustment on initial application of IFRS 9		65,415
Acquisition
Sale		(74, 400)
Recognized in profit or loss
Recognized in comprehensive income		8,985
December 31, 2018	ς

H. The Company's Finance Department is responsible for validating the fair value measurement to ensure that the valuation are in line with market conditions. The Department reviews regularly to ensure the measurement or assessment are reasonable.

• (4) Transfer of financial assets: None.
• (5) Offset of financial assets and liabilities: None.

13. SUPPLEMENTARY DISCLOSURES

• (1) Significant transactions information
• A. Financings provided: Table 1
• B. Endorsement/guarantee provided: Table 2
• C. Marketable securities held: Table 3
• D. Marketable securities acquired and disposed of at costs or prices of at least NT\$300 million or 20% of the paid-in capital: Table 4
• E. Acquisition of individual real estate properties at costs of at least NT\$300 million or 20% of the paid-in capital: None
• F. Disposal of individual real estate properties at prices of at least NT\$300 million or 20% of the paid-in capital: None
• G. Total purchases from or sales to related parties of at least NT\$100 million or 20% of the paid-in capital: Table 5
• H. Receivables from related parties amounting to at least NT\$100 million or 20% of the paid-in capital: Table 6
• I. Information about the derivative financial instruments transaction: None.
• (2) Information on investees: Table 7
• (3) Information on investments in Mainland China: Table 8

Table 1

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD.

FINANCINGS PROVIDED

DECEMBER 31, 2018

(Amounts in Thousands of New Taiwan Dollars and Foreign Currencies)

													Collateral	Financing Limits for	Financing Company's
$N_{\rm O}$ .	Financing Company	Counter- party	Financial Statement Account	Related Party	Maximum Balance for the Period	Ending Balance (Note 4)	Amount Actually Drawn	Interest Rate	Nature for $\vert$ , Financing (Note 3)	Transaction Reason for Amounts	Financing	Allowance for Bad Debt	Item Value	Each Borrowing Company (Note 1)	Total Financing Amount Limits (Note 2)
	Sunonwealth Electric Machine Industry Co., Ltd.	Sunon SAS	Other receivables-related parties	Yes	35,200 $ $ (EUR 1,000) $ $	$\overline{\phantom{000000000000000000000000000000000000$	$\overline{\phantom{000000000000000000000000000000000000$	1.2%		$\overline{\phantom{000000000000000000000000000000000000$	Operating capital	$\overline{\phantom{000000000000000000000000000000000000$		413,937	827,874

Note 1: Financing limits for each borrowing company:

(1) For trading partner:

Shall not be higher than the purchase or sales amount of the most recent year.

(2) For short-term financing:

Shall not exceed 10% of the company's net worth.

Note 2: The maximum balance of financing activities:

(1) For trading partner:

Shall not exceed 20% of the company's net worth

(2) For short-term financing:

Shall not exceed 20% of the company's net worth

(3) The policy for loans granted mutually between overseas subsidiaries of which the Company directly or indirectly holds 100% of their voting shares is as follows:

The maximum amount for total loan for individual enterprise shall not exceed 60% of its net worth.

• Note 3: The code represents the nature of financing activities as follows:
• (1) Related to trading partner is "1".
• (2) Short-term financing is "2".

$\sim 10^7$

Note 4: The maximum amount was approved by the Board of Directors' meeting.

Table 2

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD.

ENDORSEMENTS/GUARANTEES PROVIDED

DECEMBER 31, 2018

(Amounts in Thousands of New Taiwan Dollars and Foreign Currencies)

No. (Note $1$ )	Endorsers	Name of endorsees	Endorsees Relationship (Note 2)	Endorsement limit for a single entity (Note 3)	Highest balance during the period	Ending balance at December 31, 2018	Actual amount drawn	Balance secured by collaterals	Ratio of accumulated amount to net worth of the Company	Maximum amount of endorsement (Note 4)	Provision of endorsements by parent company to subsidary	Provision of endorsements by subsidary to parent company	Provision of endorsements to the party in Mainland China
$\Omega$	Sunonwealth Electric Machine Industry Co., Ltd.	Sunon Electronic (Kunshan) Co., Ltd	$\overline{3}$	1,241,811	NTD 337,865 (USD 11,000)	NTD 276,435 (USD 9,000)			6.68%	2,069,686	Y	$\mathbf N$	Y
$\Omega$	Sunonwealth Electric Machine Industry Co., Ltd.	Sunon Electronic (Foshan) Co., Ltd	$\mathbf{3}$	1,241,811	NTD 92,145 (USD 3,000)	NTD 92,145 (USD 3,000)	NTD 92,145 (USD 3,000)	$\overline{\phantom{m}}$	2.23%	2,069,686	Y	N	Y
$\Omega$	Sunonwealth Electric Machine Industry Co., Ltd.	Sunon Electronic (Bei Hai) Co., Ltd	$\overline{3}$	1,241,811	NTD 245,720 (USD 8,000)	NTD 245,720 (USD 8,000)	NTD 107,840 (USD 3, 511)	$\overline{\phantom{m}}$	5.94%	2,069,686	$\mathbf Y$	N	Y

Note 1: The description of the number column is as follows:

(1) The issuer is represented in 0.

(2) The investee company is numbered sequentially from Arabic numeral 1.

Note 2: The following code represents the relationship with the Company:

1. Trading partner.

2. Majority owned subsidiary

3. 1. The Company direct and indirect owns over 50% ownership of the investee company.
4. 1. A subsidiary jointly owned over 90% by the Company.
5. 1. Guaranteed by the Company according to the construction contract.
6. 1. An investee company. The guarantees were provided based on the Company's proportionate share in the investee company.
7. 1. Joint and several guaranteed by the Company according to the pre-contruction contract under Consumer protection Act.
8. Note 3: Endorsements/guarantees provided by the Company to a single enterprise and a single foreign affiliate shall not exceed 20% and 30% of

the Company's net worth, respectively.

Note 4: The maximum amount of the endorsements/guarantees provided by the Company shall not exceed 50% of the Company's net worth.

Table 3

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD.

MARKETABLE SECURITIES HELD

$\mathcal{L}_{\mathcal{A}}$

DECEMBER 31, 2018

(Amounts in Thousands of New Taiwan Dollars)

						$\alpha$ modifies in Thousands of TVCW Tarwall Dollars,
					Ending balance			Remarks
Investor	Type and name of securities	Relationship with the issuer	General ledger account	Number of shares	Book value	Percentage of $ $ ownership	Fair value
			(in thousands)
Sunon Electronic (Foshan) Co., Ltd.	China Resources Yuanda Fund - Common stock	None	Financial assets at fair value through profit or loss		23,164		23,164
Sunon Electronic (Bei Hai) Co., Ltd.	China Resources Yuanda Fund - Common stock	None	Financial assets at fair value through profit or loss		84,667		84,667

Table 4

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD.

MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST

NT\$300 MILLION OR 20% OF THE PAID-IN CAPITAL

DECEMBER 31, 2018

(Shares in thousand; amounts in Thousands of New Taiwan Dollars)

	Marketable			Relationship		Beginning Balance		Addition (Note)			Disposal			Ending Balance
Company Name	Securities Type and Name	General ledger account	(Counter-party	with the investor	Shares	Amount	Shares	Amount	Shares	Selling price	Book value	$ \text{Gain (loss)} $ Shares on disposal		Amount
Sunon	China	Financial	China	None		92,311	ļ	159,227		231,643	228,374	3,269	$\overline{\phantom{000000000000000000000000000000000000$	23,164
Electronic	Resources	assets at fair	Resources
(Foshan)	Yuanda Fund		Yuanda Fund			(RMB 20,268)		(RMB 34,991)		(RMB 50,800) (RMB 50,083) (RMB 717)				(RMB 5,176)
Co., Ltd.	- Common	value through	Management '
	stock	profit or loss	Co., Ltd.
Sunon	China	Financial	China
Electronic	Resources	assets at fair	Resources	None	$\overline{\phantom{a}}$	136,654	—	219,306		273,594	271,293	2,301		84,667
(Bei Hai)	Yuanda Fund	value through	Yuanda Fund			(RMB 30,004)		(RMB 48,410)		(RMB 60,000) (RMB 59,495) (RMB 505)				(RMB 18,919)
Co., Ltd.	- Common		Management 1
	stock	profit or loss	Co., Ltd.

(Note): Including current purchase of \$380,296 thousand, net loss of financial assets at fair value through profit or loss of \$4 thousand and the exchange rate

impact of (\$1,767) thousand.

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD. TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES OF AT LEAST NT\$100 MILLION OR 20% OF THE PAID-IN CAPITAL

DECEMBER 31, 2018

(Amounts in Thousands of New Taiwan Dollars)

Company Name		Nature of				Abnormal Transaction		(Notes/Accounts Payable) Remarks Or Receivable
Related Party		Relationships	Purchases/ Sales	Transaction Details $%$ to Payment Terms Amount Total $0.01\%$ 3 to 4 months 663 $27.41\%$ 2 to 3 months 1,580,065 102,233 $8.31\%$ 2 to 3 months $0.30\%$ 3 to 4 months 24,915 $0.48\%/2$ to 3 months 27,541 883,828 $71.82\%$ 2 to 3 months 204,216 2.49% $3$ to 4 months 1,601,026 $27.78\%$ 2 to 3 months 5.04% $2$ to 3 months 412,990 4.84% $2$ to 3 months 395,926 $0.07\%$ 2 to 3 months 3,796 $0.05\%$ 2 to 3 months 2,597	Unit Price	Payment Terms	Ending Balance	$%$ to Total
	Sunon		Sales					367	0.02%
	Electronic (Kunshan)	Indirect-subsidiary	Purchases
	Co., Ltd.		Outsourcing processing fee					(292, 973)	14.31%
	Sunon	Indirect-subsidiary	Sales				—	5,421	0.25%
	Electronic (Foshan)		Purchases
Sunonwealth Electric	Co., Ltd.		Outsourcing processing fee				$\overline{\phantom{0}}$	(239, 620)	11.70%
Machine	Sunon	Electronic Indirect-subsidiary	Sales				$\overline{\phantom{000000000000000000000000000000000000$	146,250	6.85%
Industry Co., Ltd.	(Bei Hai) Co., Ltd.		Purchases			(Note)	(Note)	(494, 011)	24.12%
	Sunon INC	Subsidiary	Sales				$\overline{\phantom{0}}$	101,059	4.73%
	Sunon SAS	Subsidiary	Sales					93,942	4.40%
			Purchases				$\overline{\phantom{0}}$		$\overline{\phantom{000000000000000000000000000000000000$
	Sunon Smt	Subsidiary	Purchases
	Co., Ltd.		Outsourcing processing fee	120,270	$9.77\%$ 2 to 3 months

Note : It is the transaction that undertakes the transfer of the Company, so it is based on the order price of the Company, and the payment period is 2-3 months.

Table 6

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD.

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT\$100 MILLION OR 20% OF THE PAID-IN CAPITAL

DECEMBER 31, 2018

(Amounts in Thousands of New Taiwan Dollar and Foreign Currencies)

			Nature of				Overdue	Amounts Received	Allowance
	Company Name	Related Party	Relationships	Ending Balance	Turnover			in Subsequent	for Bad
						Amount	Action Taken	Period (Note1)	Debts
	Machine Industry Co., Ltd.	Sunonwealth Electric Sunson Electronic (Bei Hai) Co., Ltd.	Subsidiary	146,250	4.50			96,154
	Sunon Electronic	Sunonwealth Electric Machine	The ultimate	292,973				292,944
	(Kunshan) Co., Ltd.	Industry Co., Ltd.	parent company	(RMB 65,464)	5.04			(RMB 65,458)
	Sunon Electronic	Sunonwealth Electric Machine	The ultimate	239,619				239,619
	(Foshan) Co., Ltd.	Industry Co., Ltd.	parent company	(RMB 53,543)	4.57			(RMB 53,543)
	Sunon Electronic	Sunonwealth Electric Machine	The ultimate	494,009				483,481
(Bei Hai) Co., Ltd.		Industry Co., Ltd.	parent company	(RMB 110,386)	5.02			(RMB108,033)

Note: Amounts collected as of March 14, 2019.

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD.

NAMES, LOCATIONS AND OTHER INFORMATION OF INVESTEE COMPANIES (EXCLUDING INVESTEE IN MAINLAND)

DECEMBER 31, 2018

(Amounts in Thousands of New Taiwan Dollars and Foreign Currencies)

				Original Investment Amount			Balance as of December 31, 2018
Investor Company	Investee Company	Location	Main Businesses and Products	As of December 31, 2018	As of December 31, 2017	Shares $(\text{In} \text{ \quad}$	Percentage of Ownership	Carrying Value	Net Income (Losses) of the Investee	Share of Profits/Losses Remarks of Investee
	Sunon Smt Co., Ltd.	Taiwan	Manufacturing and wholesales of electronic parts	$\overline{\phantom{000000000000000000000000000000000000$	26,017				15,017	14,142	Note 1
	Successful Century Co., Ltd.	British Virgin Islands	Investments	1,136,933	1,104,025	33,880	100.00%	1,168,133	13,742	15,798
	BVI Sunon International Limited	British Virgin Islands	Investments	1,035,677	963,411		100.00%	1,391,680	248,873	239,896
Sunonwealth Electric Machine	Sunon INC	USA	Manufacturing and sales of fans	49,140	49,140	150	100.00%	63,462	14,422	12,339
Industry Co., Ltd.	Sunon SAS	France	Manufacturing and sales of fans	16,127	16,127	50	100.00%	63,347	3,035	3,061
	Sunonwealth Electric Machine Ind.(H.K.) Ltd.	Hong Kong	Manufacturing and sales of fans	3,428	3,428	800	99.99%	2,065	(51)	(51)
	Sunon Corporation	Japan	Manufacturing and sales of fans	4,470	4,470	4	100.00%	2,557	(79)	(79)
			Total					2,691,244	294,959	285,106

				Original Investment Amount			Balance as of December 31, 2018
Investor Company	Investee Company	Location	Main Businesses and Products	As of December 31, 2018	As of December 31, 2017	Shares (In Thousands)	Percentage of Ownership	Carrying Value	Net Income (Losses) of the Investee	Share of Profits/Losses of Investee	Remarks
Sunon Smt Co.,	Great Smt Electronics $Co$ ., Ltd.	British Virgin Islands	Investments		32,908				4,023	4,023	Note 2
Ltd.	Liyuan Investments Co., Ltd.	Republic of Samoa	Investments		72,266				6,380		6,380 Note 3
Great Smt Electronics $Co$ , Ltd.	Kunshan Guang Ying Technology Co., Ltd.	China	Manufacturing and wholesales of electronic parts		NTD 32,251 (USD1,000)				NTD 4,023 (USD 134)	NTD 4,023 (USD 134)	Note 4
Liyuan Investments Co., Ltd.	Li Man Electronics (Foshan) Co., Ltd.	China	Manufacturing and wholesales of electronic parts		NTD 72,266 (USD 2,220)				NTD 6,381 (USD 213)	NTD 6,381 (USD 213)	Note 5
Successful Centurty Co., Ltd.	Sunon Electronic (Kunshan) Co., Ltd.	China	Manufacturing and selling of fans	NTD1,136,276 (USD 34,000)	NTD1,104,025 (USD 33,000)		100.00%	NTD1,179,940 (USD 38,416)	NTD 13,741 (USD 455)	NTD 13,741 (USD 455)
Sunon Electronic (Kunshan) Co., Ltd.	Hefei Hua Zhun Electronics Co., Ltd. [Formerly Sunon Electronic (He Fei) Co., Ltd.]	China	Manufacturing and selling of new type electronic parts		NTD 32,994 (RMB 7,000)				NTD -7,033 $(RMB -1, 542)$	NTD -7,033 $(RMB - 1, 542)$	Note 6

$\sim$ $\sim$

$\mathcal{L}^{\text{max}}_{\text{max}}$

				Original Investment Amount		Balance as of December 31, 2018				Share of
Investor Company	Investee Company	Location	Main Businesses and Products	As of December 31, 2018	As of December 31, 2017	Shares $(\text{In})$	Percentage of Thousands) Ownership	Carrying Value	Net Income (Losses) of the Investee	Profits/Losses of Investee	Remarks
BVI Sunon	Sunon Electronic (Foshan) Co., Ltd.	China	Manufacturing and selling of fans	NTD 765,207 (RMB166,171)	NTD 692,941 (RMB150,443)		100.00%	NTD 974,761 (RMB217,809)	NTD 121,068 (RMB 26,550)	NTD 121,068 (RMB 26,550)
International Limited	Sunon Electronic (Bei Hai) Co., Ltd.	China	Manufacturing and selling of new type electronic parts	NTD 293,115 (RMB63,732)	NTD 293,115 (RMB63,732)	$\overline{\phantom{000000000000000000000000000000000000$	100.00%	NTD 462,409 (RMB103,325)	NTD128,677 (RMB 28,219)	NTD128,677 (RMB 28,219)
Sunon SAS	Sunon Deutschland GmbH	Germany	Sales of fans	NTD 1,027 (EUR 25)	NTD 1,027 (EUR 25)		100.00%	NTD 5,662 (EUR 161)	NTD 2,080 (EUR 59)	NTD 2,080 (EUR 59)

Note 1: Merged with Sunonwealth Electric Machine Industry Co., Ltd. on October 1, 2018. Sunon Smt Co., Ltd. was the dissolved company.

Note 2: Merged with Successful Century Co., Ltd. on October 1, 2018. Great Smt Electronics Co., Ltd. was the dissolved company.

Note 3: Merged with BVI Sunon International Limited on October 1, 2018. Liyuan Investments Co., Ltd. was the dissolved company.

Note 4: Merged with Sunon Electronic (Kunshan) Co., Ltd. on October 1, 2018. Kunshan Guang Ying Technology Co., Ltd. was the dissolved company.

Note 5: Merged with Sunon Electronic (Foshan) Co., Ltd. on October 1, 2018. Li Man Electronics (Foshan) Co., Ltd. was the dissolved company.

Note 6: The Company sold entire equity of Hefei Hua Zhun Co., Ltd. on December 3, 2018.

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD.

INFORMATION ON INVESTMENT IN MAINLAND CHINA

DECEMBER 31, 2018

(1) Mainland Investment Information:

(Amounts in Thousands of New Taiwan Dollars and Foreign Currencies)

				Accumulated		Investment Flows	Accumulated				Carrying	Accumulated
Investee Company	Main Businesses and Products	Total Amount of Paid-in Capital	Method of Investment (Note 1)	Outflow of Investment from Taiwan as of January 1, 2018	Outflow	Inflow	Outflow of Investment from Taiwan as of December 31, 2018	Net Income (Losses) of the Investee Company	Percentage of Ownership	Share of Profits/Losses (Note 2)	Amount as of December 31, 2018	Inward Remittance of Earnings as of December 31, 2018
Sunon Electronic (Kunshan) Co., Ltd. (Note 5)	Manufacturing and selling of fans	NTD1,136,276 (USD 34,000) (Note 5)	(2)	NTD1,104,025 (USD33,000)	NTD32,648 (USD880)	$\qquad \qquad -$	NTD1,136,673 (USD 33,880)	NTD 13,741 (USD 455)	100%	NTD 13,741 (USD 455) (2). B	1,179,940 (USD 38,416)	NTD 204,545 (USD 6, 792)
Sunon Electronic (Foshan) Co., Ltd. (Note 6)	Manufacturing and selling of fans	NTD 765,207 (USD 23,600) (Note 7)	(2)	NTD 671,397 NTD72,266 $(USD20, 620)$ $(USD2, 220)$		$\qquad \qquad -$	NTD 743,663 (USD 22, 840)	NTD 121,068 (RMB 26,550)	100%	NTD 121,068 (RMB 26, 550) (2). B	974,761 (RMB 217,809)	NTD 385,334 (USD 12,550)
Sunon Electronic (Bei Hai) Co., Ltd.	Manufacturing and selling of new type electronic parts	NTD 293,115 (USD 10,000)	(2)	NTD 293,115 (USD10,000)			NTD 293,115 (USD 10,000)	NTD 128,677 (RMB 28,219)	100%	NTD 128,677 (RMB 28,219) (2).B	462,409 (RMB 103,325)	NTD419,041 (USD 13,505)
Kunshan Guang Ying Manufacturing and Technology Co., Ltd. (Note 5)	wholesales of electronic parts		(2)	NTD 32,648 880) (USD	$\overline{\phantom{m}}$	NTD32,648 (USD880)		NTD 4,023 (USD 134)	$\overline{\phantom{m}}$	NTD 4,023 (USD 134) (2). B
Li Man Electronics (Foshan) Co., Ltd. (Note 6)	Manufacturing and wholesales of electronic parts		(2)	NTD 72,266 (USD 2,220)	$\overline{\phantom{a}}$	NTD72,266 (USD2, 220)		NTD 6,381 (USD 213)	$\overline{\phantom{0}}$	NTD 6,381 (USD 213) (2). B
Hefei Hua Zhun Electronics Co., Ltd .[Sunon] Electronic (He Fei) Co., Ltd. former] (Note 8)	Manufacturing and selling of new type electronic parts		(3)	(Note 8)		--	(Note 8)	NTD -7,033 $(RMB - 1, 542)$	$\overline{\phantom{m}}$	NTD -7,033 $(RMB - 1, 542)$ (2). B

Table 8

Accumulated Investment in Mainland China as of December 31, 2017	Investment Amounts Authorized by Investment Commission, MOEA	Upper Limit on Investment	from Taiwan for the Disposed Mainland The Disposed Mainland Subsidiaries the end of the period	The Cumulative Amount of Investment The Repatriated Investment Income from Subsidiaries (including sale, liquidation, (including sale, liquidation, dissolution, dissolution, merger, bankruptcy, etc.) at merger, bankruptcy, etc.) at the end of the period
NTD 1,136,673(USD 33,880) NTD 743,663(USD 22,840) NTD 293,115(USD 10,000)	USD 34,000 USD 23,660 USD 10,000	(Note 4)	NTD 34,284	NTD 1,024,503

Note: Gain and loss on investment are translated using average exchange rates for the year ended December 31, 2018 (USD:NTD 1:30.175; CYN:NTD

1:4.5599). Additions and ending balance are translated using the exchange rates as at December 31, 2018 (USD:NTD 1:30.715; CYN:NTD 1:4.4753)

Note 1: The investment methods are divided into the following three types:

(1) Investing directly to the Mainland China;

(2) Reinvesting in the Mainland China through third-region companies (please refer to Table 7);

$(3)$ Others.

Note 2: In the current period, the investment profit and loss column is recognized:

(1) If during incorporation with no investment income or loss, it should be indicated;

(2) The basis for recognition of investment gains and losses divided into the following three types, which should be indicated:

A. Audited financial statements by international accounting firms with cooperation relationship with accounting firms in the Republic of China.

B. Audited financial statements by parent company's auditors.

C. Others.

Note 3: The relevant figures in this form should be listed in New Taiwan Dollars.

Investee Company	Sales/Purchases	Sales/Purchases			(Notes/Accounts Payable) Or Receivables
		Amount	$\frac{0}{0}$	Price	Payment Terms	Comparison with general	Ending	$%$ to
						transactions	Balance	Total
Sunon	Sales	663	0.01%	Cost based	3-4 months	Equivalent to sales price with ordinary clients	367	0.02%
Electronic (Kunshan) Co., Ltd.	Purchases	1,580,065	27.41%	Cost based	2-3 months	Equivalent to purchase price with ordinary suppliers
	Outsourcing processing fee	102,233	8.31%	Add a certain margin based on cost	Equivalent to pricing of other 2-3 months processors		(292, 973)	14.31%
	Sales	24,915	0.30%	Cost based	3-4 months	Equivalent to sales price with ordinary clients	5,421	0.25%
Sunon Electronic	Purchases	27,541	0.48%	Cost based	2-3 months	Equivalent to purchase price with ordinary suppliers
(Foshan) Co., Ltd.	Outsourcing processing fee	883,828	71.82%	Add a certain margin based on cost	2-3 months	Equivalent to pricing of other processors	(239, 620)	11.70%
Sunon	Sales	204,216	2.49%	Cost based	3-4 months	Equivalent to sales price with ordinary clients	146,250	6.85%
Electronic (Bei Hai) Co., Ltd.	Purchases	1,601,026	27.78%	According to the company's order price as the basis of pricing	2-3 months	According to the Company's order price as the basis of pricing	(494, 011)	24.12%

(2) The Company's major transactions during year 2018 directly or indirectly through the third place and the mainland invested company are listed as follows:

Note 4: Enterprises approved by the Ministry of Economic Affairs as the operational headquarters are not subject to the amount or proportion.

Note 5: Sunon Electronic (Kunshan) Co., Ltd. merged with Kunshan Guang Ying Technology Co., Ltd. on October 1, 2018. Kunshan Guang Ying Technology Co., Ltd. was the dissolved company. The paid-in capital included Sunon Electronic (Kunshan) Co., Ltd's initial capital USD 33,000 (NTD 1.104.025) thousand and USD 1.000 (NTD 32.251) thousand obtained by merging with Kunshan Guang Ying Technology Co., Ltd.

• Note 6: The former subsidiary of Sunon Motor, Guanyuan Co., Ltd, which is owned by Innovation Co., Ltd. was transferred at the price of USD 1,200 thousand (refered to Company's net worth) to BVI Sunon International Limited on July 2009, which was seen as an organization restructuring. On December 16, 2009, Sunon Electronic (Foshan) Co., Ltd. merged with Sunon Electronic (Foshan) Co., Ltd. and Nanhai Guangyuan Electronic (Foshan) Co., Ltd. was the dissolved company. Sunon Electronic (Foshan) Co., Ltd. merged with Li Man Electronics (Foshan) Co., Ltd. on October 1, 2018, and Li Man Electronics (Foshan) Co., Ltd. was the dissolved company.
• Note 7: It included Sunon Electrics's original capital of USD 19,420 thousand, and USD 2,020 thousand obtained by merging with Sun Growth Tranding (at the purchase price of USD 1,200 thousand). The exchange rate of USD to NTD at the consolidation date is 32.32, and USD 2,220 (NTD 72,266) thousand was obtained by merging with Li Man Electronics Co., Ltd.
• Note 8: It is invested by Sunon Electronic (Kunshan) Co., Ltd. In addition, the Company sold entire equity of Hefei Hua Zhun Electronics Co., Ltd. in December 2018.

14.SEGMENT INFORMATION

The Company has provided the operating segments disclosure in the consolidated financial statements.

$\hat{\mathcal{L}}$

STATEMENTS OF MAJOR ACCOUNTING ITEMS

$\ddot{\phantom{a}}$

Item	Statement Index
Major accounting items in assets, liabilities and equity
Statement of cash and cash equivalents	P.96
Statement of notes receivable	P.97
Statement of accounts receivable	P.98
Statement of receivable from related parties	P.99
Statement of other receivables	P.100
Statement of inventories	P.101
Statement of prepayments	P.102
Statement of changes in financial assets at fair value through other	P.103
comprehensive income - noncurrent
Statement of changes in investments accounted for using equity method	P.104
Statement of changes in property, plant and equipment	Note $6(8)$
Statement of changes in accumulated depreciation of property, plant and	Note $6(8)$
equipment
Statement of changes in investment properties	Note $6(9)$
Statement of changes in accumulated depreciation of investment properties	Note $6(9)$
Statement of changes in accumulated impairment of investment properties	Note $6(9)$
Statement of changes in intangible assets	Note $6(10)$
Statement of deferred income tax assets	Note $6(26)$
Statement of refundable deposits	P.105
Statement of short - term loans	P.106
Statement of contract liabilities - current	P.107
Statement of accounts payables	P.108
Statement of payables from related parties	P.109
Statement of other payables	Note $6(12)$
Statement of provisions	Note $6(13)$
Statement of long-term loans and current portion of long-term loans	P.110
Statement of deferred income tax liabilities	Note $6(26)$
Statement of guarantee deposits	P.111

Major accounting items in profit or loss
Statement of net revenue	P.112
Statement of cost of revenue	P.113
Statement of factory overhead	P.115
Statement of sales and marketing expenses	P.116
Statement of general and administrative expenses	P.117
Statement of research and development expenses	P.118
Statement of other gains and losses	Note $6(24)$
Statement of finance costs	Note $6(25)$
Statement of labor, depreciation and amortization by function	Note $6(22)$

$\label{eq:2} \frac{1}{\sqrt{2}}\sum_{i=1}^n\frac{1}{\sqrt{2}}\sum_{i=1}^n\frac{1}{\sqrt{2}}\sum_{i=1}^n\frac{1}{\sqrt{2}}\sum_{i=1}^n\frac{1}{\sqrt{2}}\sum_{i=1}^n\frac{1}{\sqrt{2}}\sum_{i=1}^n\frac{1}{\sqrt{2}}\sum_{i=1}^n\frac{1}{\sqrt{2}}\sum_{i=1}^n\frac{1}{\sqrt{2}}\sum_{i=1}^n\frac{1}{\sqrt{2}}\sum_{i=1}^n\frac{1}{\sqrt{2}}\sum_{i=1}^n\frac{1$

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD. STATEMENT OF CASH AND CASH EQUIVALENTS DECEMBER 31, 2018

Item	Description	Amount	Remark
Cash	Petty cash	\$453	NTD 80
			RMB 23
			USD 3
			EUR 5
Subtotal		\$453
Bank savings	Checking accounts	\$111
	Demand deposits	81,195
	Foreign deposits	336,279	USD 9,002
			JPY 20,377
			HKD 7
			EUR 1,487
			RMB 384
	Time deposits	29,179	USD 950
Subtotal		\$446,764
Total		\$447,217

(In Thousand of New Taiwan Dollars and Foreign Currencies)

USD:NTD	1:30.715
JPY:NTD	1:0.2782
HKD:NTD	1:3.921
EUR:NTD	1:35.20
CNY:NTD	1:4.4753

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD. STATEMENT OF NOTES RECEIVABLE DECEMBER 31, 2018

$\frac{1}{2}$

		(In Thousands of New Taiwan Dollars)
Client Name	Description	Amount	Remark
Company A	Note of trade receivable	\$27,464
Company B	Note of trade receivable	1,924
Others	Under 5%	2,373
Total		\$31,761
Less: Allowance for		(24)
doubtful accounts
Net		\$31,737

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD. STATEMENT OF ACCOUNTS RECEIVABLE DECEMBER 31, 2018

			(In Thousands of New Taiwan Dollars)
Client Name	Description	Amount	Remark
Company A	Trade receivable	\$313,405
Company B	Trade receivable	98,518
Others	Under 5%	1,376,863
Total		\$1,788,786
Less: Allowance for		(8,015)
doubtful accounts
Net		\$1,780,771

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD. STATEMENT OF RECEIVABLE FROM RELATED PARTIES DECEMBER 31, 2018

		(In Thousands of New Taiwan Dollars)
Client Name	Description	Amount	Remark
Sunon SAS	Trade receivable	\$93,942
Sunon Electronic (Bei Hai) Trade receivable		146,250
Co., Ltd.
Sunon INC	Trade receivable	101,059
Others	Under $5%$	5,788
Total		\$347,039
Less: Allowance for
doubtful accounts
Net		\$347,039

$\sim$ $\sim$

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD. STATEMENT OF OTHER RECEIVABLES DECEMBER 31, 2018

		(In Thousands of New Taiwan Dollars)
Item	Description	Amount	Remark
Receivable	Sample and consumable sale, etc.	\$8,211
Income tax refund receivable	Business tax	1,627
Sutotal		\$9,838
Other receivables - related parties	Patent revenue	\$5,474
Other receivables - related parties	Sample fee and molding fee, etc.	5,768
Sutotal		\$11,242
Total		\$21,080

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD. STATEMENT OF INVENTORIES DECEMBER 31, 2018

		Amount	(In Thousands of New Taiwan Dollars)
Item	Description	Cost	Fair Value	Remark
Raw materials	Copper tube/slug,	\$348,194	\$337,385
	ICR, etc.
Supplies	Solder wire, Bar tin,	8,194	8,123
	Lubricant, etc.
Work in process	Plastic frame, PCB,	123,794	122,924
	Bobbins, etc.
Finished goods	Fans, etc.	443,151	487,197
Total		\$923,333	\$955,629
Less: Allowance for		(53, 499)
inventory and
obsolescence losses
Net		\$869,834	\$955,629

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD. STATEMENT OF PREPAYMENTS DECEMBER 31, 2018

(In Thousands of New Taiwan Dollars)

Item	Description	Amount	Remark
Prepayment for purchase	Prepayment for purchase	\$50
Prepaid expenses	Prepaid insurance, etc.	4,089
Payment on behalf of	Payment on behalf of	684
others	others, etc.
Other prepaid expenses	Overpaid sales tax, etc.	9,768
Total		\$14,591

$\hat{\mathcal{A}}$

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD.

STATEMENT OF CHANGES IN FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME-NONCURRENT

FOR THE YEAR ENDED DECEMBER 31, 2018

(In Thousands of New Taiwan Dollars)

	Balance, January 1, 2018			Increase		Decrease		Balance, December 31, 2018
	Shares			Shares		Shares		Shares			Market
Item	(In Thousands)		Amount	(In Thousands)	Amount	(In Thousands)	Amount	(In Thousands)	Amount	Collateral	Value
Tongli Industrial Co., Ltd.	$\sim$			8,910	\$74,400	8,910	\$74,400		$\rightarrow$	Nil
(Hong Kong)
Less: Accumulated impairment
Net		_________			\$74,400		\$74,400

1. Increase in the amount of \$74,400 thousand includes IFRS 9 adjustment in the amount of \$65,415 thousand and other comprehensive income in the amount of \$8,985 thousand. 2. Decrease in the amount of \$74,400 thousand is current sale.

$-103-$

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD. STATEMENT OF CHANGES IN INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD FOR THE YEAR ENDED DECEMBER 31, 2018

											Market Value or
		Balance, January 1, 2018	Increase in Investment		Decrease in Investment			Balance, December 31, 22018			Net Assets Value
Names	Shares	Amount	Shares	Amount	Shares	Amount	Shares	%	Amount	Unit Price	Total Amount	Collateral	Remark
Sunon Smt Co., Ltd.	9,023	\$192,812	1,592	\$45,116	10,615	\$237,928		$\sim$		$\sim$	$\overline{a}$	Nil
Successful Century Co.,	33,000	1,113,567	880	73,926	$\bullet$	19,360	33,880	100.00	1,168,133	34.83	1,180,099	Nil
Ltd.
BVI Sunon	$\sim$	1,184,719	$\overline{\phantom{a}}$	339,948	$\sim$	132,987	$\sim$	100.00	1,391,680	$\sim$	1,437,828	Nil
International Limited
Sunon INC	150	48,345	$\sim$	15,117	$\sim$	$\overline{\phantom{a}}$	150	100.00	63,462	487.19	73,078	Nil
Sunon SAS	50	61,102	$\overline{\phantom{a}}$	3,061	$\bullet$	816	50	100.00	63,347	1,401.74	70,087	Nil
Sunonwealth Electric	800	2,055		61	$\blacksquare$	51	800	99.99	2,065	2.58	2,065	Nil
Machine Ind. (H.K.) Ltd.
Sunon Corporation		2,505		131		79	4	100.00	2,557	639.25	2,557	Nil
Total		\$2,605,105		\$477,360		\$391,221			\$2,691,244		\$2,765,714

Note: 1.It is calculated based on the audited financial statements for the same period, except the financial statements of Sunonwealth Electric Machine Ind. (H.K.)Ltd. and Sunon Corperation.

2.Current increase of \$477,360 thousand includes \$30,827 thousand of acquisition, \$285,236 thousand of share of profits of subsidiaries, associates and joint ventures, \$2,266 thousand

of exchange difference arising on translation of foreign operations, \$730 thousand of changes in unrealized inter-company gross profit, and \$147 thousand of capital surplus - differences between considerations and carrying amounts of subsidiaries acquired and disposed. In addition, \$158,154 thousand is acquisition from merger.

3.635,145 3.61 3.91 3.221 thousand includes \$130 thousand of share of loss of subsidiaries, associates and joint ventures, \$139,540 thousand of cash dividends received, \$45,855 thousand of exchange difference arising on translation of foreign operations, and \$659 thousand of changes in unrealized inter-company gross profit. In addition, \$205,037 thousand comes from the simplified merger with the equity method investee.

1. The cost and valuation for using equity method are listed below:

		Share of Profit	Exchange
		or Loss of	Differences
		Subsidiaries.	Arising
		associates and	Transalation of
Investee Company	Cost	joint ventures	Foreign Operations	Others	Total
Successful Century Co., Ltd.	\$1,136,933	\$1,381	$($ \$68,643)	\$98,462	\$1,168,133
BVI Sunon International Limited	1,035,677	367,747	(90, 386)	78.642	1,391,680
Sunon INC	49,140	41,785	(5,278)	(22, 185)	63,462
Sunon SAS	16,127	69,999	(10, 878)	(11,901)	63,347
Sunonwealth Electric Machine Ind.	3,428	29	(561)	(831)	2,065
$(H.K.)$ Ltd.
Sunon Corporation	4,470	(4,805)	(520)	3,412	2,557
Total	\$2,245,775	\$476.136	(\$176.266)	\$145.599	\$2,691,244

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD. STATEMENT OF REFUNDABLE DEPOSITS DECEMBER 31, 2018

		(In Thousands of New Taiwan Dollars)
Item	Description	Amount	Remark
Refundable deposits	Renting builing and company car, etc.	\$2,485
Total		\$2,485

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD. STATEMENT OF SHORT-TERM LOANS DECEMBER 31, 2018

(In Thousands of New Taiwan Dollars)

Creditor	Description	Beginning Balance	Contract Period	Loan Commitments	Collateral	Remark
First Bank - Po-Ai Branch	Unsecured loans	\$50,000	20181228-20190125	NTD 100,000 (Note)	Nil
The Export - Import Bank of the	Unsecured loans	50,000	20180126-20190126	NTD 100,000	Nil
Republic of China - Kaoshsiung Branch
Mega Bank - Hsin Hsing Branch	Unsecured loans	40,000	20180808-20190204	NTD 250,000 (Note)	Nil
HSBC - Kaohsiung Branch	Unsecured loans	80,000	20181128-20190527	$USD 3,500$ (Note)	Nil
HUA NAN Bank - Dong Ling Branch	Unsecured loans	50,000	20181214-20190111	NTD 90,000 (Note)	Nil
E, SUN Bank - Chihsien Branck	Unsecured loans	50,000	20181207-20190104	NTD 100,000 (Note)	Nil
KGI Bank - Kaoshsiung Branch	Unsecured loans	90,000	20180809-20190201	NTD 160,000 (Note)	Nil
Taishin Internation Bank - Linya Branch Unsecured loans			50,000 20181228-20190128	NTD 300,000 (Note)	Nil
				USD 1,500
Bank of Taiwan - Chienchen Branch	Unsecured loans	50,000	20181228-20190315	NTD 200,000 (Note)	Nil
				USD 650
Total		\$510,000
Range of Interest Rates $(\% )$		$0.90\% - 1.15\%$

(Note): It is comprehensive commitments.

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD. STATEMENT OF CONTRACT LIABILITIES - CURRENT DECEMBER 31, 2018

		(In Thousands of New Taiwan Dollars)
Client Name	Description	Amount	Remark
Company A	Unearned sales revenue	\$3,653
Company B	Unearned sales revenue	708
Company C	Unearned sales revenue	611
Company D	Unearned sales revenue	595
Others	Under 5%	5,178
Total		\$10,745

$\bar{z}$

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD. STATEMENT OF ACCOUNTS PAYABLES DECEMBER 31, 2018

$\sim 10^7$

		(In Thousands of New Taiwan Dollars)
Vendor Name	Description	Amount	Remark
Company A	Trade payable	\$65,706
Company B	Trade payable	66,869
Company C
Others	Under $5%$	888,372
Subtotal		\$1,020,947
Notes payable	Accrued expenses	\$222
Total		\$1,021,169

$\sim 10^{-1}$

$\sim 10^{-1}$

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD. STATEMENT OF PAYABLES FROM RELATED PARTIES DECEMBER 31, 2018

		(In Thousands of New Taiwan Dollars)
Vendor Name	Description	Amount	Remark
Sunon Electronic (Kushan) Co., Ltd.	Trade payable and processing fee	\$292,973
Sunon Electronic (Bei Hai) Co., Ltd.	Trade payable	494,011
Sunon Electronic (Foshan) Co., Ltd.	Trade payable and processing fee	239,620
Total		\$1,026,604

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD. STATEMENT OF LONG-TERM LOANS AND CURRENT PORTION OF LONG-TERM LOANS DECEMBER 31, 2018

(In Thousands of New Taiwan Dollars)

Range of

Credior	Description	Amount	Contract Period	interest rate	Collateral
CTBS Bank - Kaohsiung Branch	Guarantee Loan	\$220,000	20161014-20211014	$1.34\%$	Land
Total		\$220,000
Current portion of long-term loans		$\overline{\phantom{0}}$
Balance, End of Year		\$220,000

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD. STATEMENT OF GUARANTEE DEPOSITS DECEMBER 31, 2018

		(In Thousands of New Taiwan Dollars)
Item	Description	Amount	Remark
Guaratee Deposits	Renting building, etc.	\$3,177
Total		\$3,177

$\mathcal{A}$

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD. STATEMENT OF NET REVENUE FOR THE YEAR ENDED DECEMBER 31, 2018

		(In Thousands of New Taiwan Dollars)
Item	Quantity (in thousands)	Amount	Remark
DC fan	84,555	\$6,945,217
AC fan	5,438	714,391
Sales of raw materials, etc.		599,199
Total renvenue		\$8,258,807
Sales return	130	(11,940)
Sales discount		(60, 337)
Nte revenue		\$8,186,530

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD. STATEMENT OF COST OF REVENUE FOR THE YEAR ENDED DECEMBER 31, 2018

$\mathcal{A}^{\pm}$

	(In Thousands of New Taiwan Dollars)
Item	Amount
Raw materials at January 1, 2018	\$282,445
Add: Raw materials purchased	2,273,082
Less: Raw materials at December 31, 2018	(348, 194)
Raw materials sold	(185,970)
Loss on physical count	(1, 354)
Transfer to operating expenses	(18, 625)
Scrapped raw materials	(12, 747)
Others	(584)
Raw materials used	\$1,988,053
Supplies at January 1, 2018	\$6,875
Add: Supplies purchased	61,256
Gain on physical count	51
Less: Supplies at Deeember 31, 2018	(8,194)
Supplies sold	(2,270)
Transfer to operating expenses	(37, 223)
Scrapped supplies	(62)
Supplies used	\$20,433
Direct labor	17,061
Factory overhead	90,653
Manufacturing cost	\$2,116,200
Add: Work in process at January 1 2018	91,127
Work in process purchased	237,469
Outsource processing	1,230,682
Less: Work in process at December 31, 2018	(123, 794)
Work in process sold	(390, 696)
Loss on physical count	(836)
Transfer to operating expenses	(9, 483)
Scrapped work in process	(285)
Cost of finished goods	\$3,150,384
Add: Finished goods at January 1 2018	410,572
Finished goods purchased	3,540,781
Less: Finished goods at December 31, 2018	(443, 151)
Transfer to operating expenses	(1,697)
Scrapped finished goods	(322)
Cost of finished goods sold	\$6,656,567

Item	Amount
Adjustment of cost
Impairment loss on inventories	19,389
Loss on physical count	2,139
Others	(336, 834)
Unallocated factory overhead	31,669
Cost of product	\$6,372,930
Work in process sold	390,696
Raw material sold	185,970
Supplies sold	2,270
Total cost of revenue	\$6,951,866

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD. STATEMENT OF FACTORY OVERHEAD FOR THE YEAR ENDED DECEMBER 31, 2018

(In Thousands of New Taiwan Dollars)

$\sim$

Item	Amount
Indirect labor	\$18,352
Depreciation expense	5,278
Comsumables	52,774
Processing expense	26,450
Import expense	5,104
Others (Note)	14,364
Unallocated manufacturing expense	(31,669)
Total	\$90,653

Note: The amount of each item does not exceed 5% of the account balance.

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD. STATEMENT OF SALES AND MARKETING EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2018

	$\frac{1}{2}$
Item	Amount
Salary and wages	\$96,670
Commission	89,687
Others (Note)	82,376
Total	\$268,733

(In Thousands of New Taiwan Dollars)

Note: The amount of each item does not exceed 5% of the account balance.

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD. STATEMENT OF GERNERAL AND ADMINISTRATIVE EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2018

(In Thousands of New Taiwan Dollars)

Item	Amount
Salary and wages	\$154,782
Professional service fees	31,652
Others (Note)	77,340
Total	\$263,774

Note: The amount of each item does not exceed 5% of the account balance.

$\mathbb{R}^2$

SUNONWEALTH ELECTRIC MACHINE INDUSTRY CO., LTD. STATEMENT OF RESEARCH AND DEVELOPMENT EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2018

(In Thousands of New Taiwan Dollars)

Item	Amount
Salary and wages	\$199,515
Research and derelopment expense	64,704
Depreciation expense	22,288
Others (Note)	129,684
Total	\$416,191

Note: The amount of each item does not exceed 5% of the account balance.