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Bluechiip LimitedStock code: 2401 LSE：SUPD 2018 Annual Report Sunplus Technology Co., Ltd. Prepared by Search the annual website: http://mops.tse.com.tw Date of publication: May 15th, 2019 PLEASE READ FOLLOWING NOTICE BEFORE USING THIS REPORT Readers are advised that the original version of the report is in Chinese. If there is any conflict between these financial statements and the Chinese version or any difference in the interpretation of the two versions, the Chinese-language report shall prevail. In addition, certain of our financial information have been published in accordance with requirements of the Republic of China Securities and Futures Commission and are presented in conformity with accounting principles generally accepted in the Republic of China. Readers should be cautioned that these accounting principles differ in many material respects from accounting principles generally accepted in other countries. Except as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise. The materials and information provided on this report have been issued by Sunplus and are posted solely for informational purposes and is not an offer to buy or sell or a solicitation of an offer to buy or sell any securities issued by us or otherwise. SPOKESPERSON Name: Wayne Shen Title: Vice President Tel: +886-3-5786005 E-mail: IR@sunplus.com DEPUTY SPOKESPERSON Name: Ji-An Zhuang Title: Investor Relations Manager Tel: +886-3-5786005 E-mail: IR@sunplus.com SUNPLUS LOCATION Address: 19, Innovation 1st Road, Hsinchu Science Park, Hsinchu 300, Taiwan Tel: +886-3-5786005 Fax: +886-3-5786006 http://www.sunplus.com COMMON SHARES TRANSFER AGENT Company: China Trust Commercial Bank Corporate Trust Operation and service Department Address: 5F, 83, Sec. 1, Chung-Ching S. Rd. Taipei 100, Taiwan Tel: +886-2-21811911 http://www.chinatrust.com.tw AUDITORS Name: Cheng-Chi Lin, SuJai Huang Company: Deloitte & Touche Tohmatsu Limited Address: 6F, 2, Prosperity Road 1, Hsinchu Science Park, Hsinchu 300, Taiwan Tel: +886-3-5780899 http://www.tw.deloitte.com GDR DEPOSITARY BANK Company: The Bank of New York Address: 101 Barclay Street New York, N.Y. 10286 Tel: +1-212-815-2476 http://www.adrbnymellon.com Please refer to London Stock Exchange official website for Sunplus’ Market Price. http://www.londonstockexchange.com SUNPLUS WEBSITE http://www.sunplus.com TABLE OF CONTENT I. II. III. LETTER TO SHAREHOLDERS ..................................................................................................................................... 1 COMPANY PROFILE.................................................................................................................................................. 4 2.1 Foundation of Sunplus ........................................................................................................................................... 4 2.2 Milestones ............................................................................................................................................................. 4 CORPORATE GOVERNANCE ..................................................................................................................................... 5 3.1 Organization........................................................................................................................................................... 6 3.2 Director, general manager, deputy general manager, associate, department and branch office in charge of information ............................................................................................................................................................ 8 3.3 Corporate Governance Implementation .............................................................................................................. 20 3.4 Audit Fees ............................................................................................................................................................ 48 3.5 Replacement of Auditors ..................................................................................................................................... 48 3.6 Chairman, Presidents, and Managers in Charge of Finance and Accounting Who Held a Position in Sunplus’ Independent Audit Firm or Its Affiliates during the Recent Year ......................................................................... 49 3.7 Net Change in Shareholding and Net Changes in Shares Pledged by Director, Manager, and Shareholders with IV. 10% Shareholding or More .................................................................................................................................. 50 3.8 Top 10 Shareholders & Related Parties ............................................................................................................... 52 3.9 Long-term Investment Ownership ....................................................................................................................... 53 CAPITAL & SHARES ................................................................................................................................................ 54 4.1 Capitalization ....................................................................................................................................................... 54 4.2 Issuance of Corporate Bonds ............................................................................................................................... 61 4.3 Preferred Shares .................................................................................................................................................. 61 4.4 Issuance of GDR ................................................................................................................................................... 62 4.5 Employee Stock Options Plan .............................................................................................................................. 63 4.6 Restricted Employees Stock ................................................................................................................................. 63 4.7 Mergers and Acquisitions .................................................................................................................................... 63 V. FINANCIAL PLAN & IMPLEMENTATION .................................................................................................................. 64 VI. BUSINESS HIGHLIGHT ............................................................................................................................................ 65 6.1 Business Activities ................................................................................................................................................ 65 6.2 Market Status ...................................................................................................................................................... 73 6.3 Personnel Structure ............................................................................................................................................. 80 6.4 Environmental Protection & Expenditures .......................................................................................................... 80 6.5 Employees ............................................................................................................................................................ 82 6.6 Important Contracts ............................................................................................................................................ 83 VII. FINANCIAL STATEMENTS ....................................................................................................................................... 84 7.1 Condensed Financial Statement and Auditors’ Opinions by adopting IFRSs ....................................................... 84 7.2 Financial Analysis for recent 5 years .................................................................................................................... 89 7.3 Report by Audit Commitee .................................................................................................................................. 94 7.4 Consolidated Financial Statements ...................................................................................................................... 95 7.5 Financial Statements-Standalone ...................................................................................................................... 197 7.6 Financial Difficulties ........................................................................................................................................... 288 VIII. FINANCIAL ANALYSIS ........................................................................................................................................... 274 8.1 Financial Status .................................................................................................................................................. 274 8.2 Operational Results............................................................................................................................................ 275 8.3 Cash Flow ........................................................................................................................................................... 276 8.4 Major Capital Expenditure ................................................................................................................................. 277 8.5 Long-Term Investment ....................................................................................................................................... 277 8.6 Risk Management .............................................................................................................................................. 278 8.7 Other Remarks ................................................................................................................................................... 280 SPECIAL NOTES .................................................................................................................................................... 281 9.1 Affiliates ............................................................................................................................................................. 281 9.2 Private Placement Securities ............................................................................................................................. 293 9.3 Status of Sunplus Common Shares/GDRs Acquired, Disposed of, or Held by Subsidiaries ............................... 294 9.4 Special Notes ..................................................................................................................................................... 295 9.5 Any Events Impact to Shareholders’ Equity and Share Price ............................................................................. 295 IX. I. LETTER TO SHAREHOLDERS BUSINESS REPORT 2018 Business Results Sunplus consolidated net operating revenue totaled NT$6,078 million and the gross profit were NT$2,429 million in 2018. While R&D expense totaled NT$1,699 million and the G&A expenses were NT$533 million, marketing expense were NT$287 million, Operating net loss was NT$90 million in 2018. Including total non-operating net income NT$294million, the profit before tax were NT$204 million. Excluding the income tax expense NT$62 million, the net profit of the year totaled NT$142 million, attributable to owner of the Company were NT$6 million which the earning per share after tax for 2017 was NT$0.01. The net sales from continuing operations in 2018 decline 10.89% compared to the same period last year. Gross profit margin maintained at approximately 40% comparable to the previous year. The net income outside the industry was mainly due to the interests of the molecular companies in 2018, which recognized NT$171 million. The IFRS Consolidated Statement exposes other comprehensive gains and losses in 2018, Including the difference between the conversion of financial statements of foreign operating institutions, reserve for the sale of financial assets unrealized gains and losses, determine the number of reassessments of the welfare plan, the shareholding of related enterprises and joint ventures recognized by equity method, the total net profit and loss for other consolidated losses in 2018 is NT$131 million. Total after 2018 net profit, the total consolidated profit and loss in 2017 was NT$11 million, the consolidated profit and loss was attributed to the loss of NT$121 million by the owner of the company. PRODUCTS R&D, TECHNOLOGIES AND OUTLOOK Sunplus technology mergers and acquisitions of major individuals, including Sunplus Technology, Generplus Technology, SunplusIT Technology, Jumplux Technology, and mainland subsidiary. Sunplus is currently focuses on the development, in addition to advanced driver assistance system (ADAS) automotive chip products and systems platform, has been launched with advanced driving support system function (ADAS) of the wafer platform products, and car information entertainment system (Display Audio), BoomBox, SoundBar, portable entertainment systems and other products. It also introduces the intelligent computing chip Plus1 for AioT applications, and also provides IP authorization such as high-speed interface, data converter and analog. With the popularity of smart phones, the convenience of getting on the car and the car infotainment system, the system has quickly become the standard equipment for the new car. Even if the global new car market grows slower, it will not affect the growth of the system. Will become the main growth driver of Sunplus Technology's revenue and profit. The revolutionary breakthrough of the intelligent computing chip Plus1, which greatly reduces the research and development threshold of high-speed computing, will be the best solution for a small number of different AIOT new applications, and the popularity of related applications in the future can be expected. 1 Generalplus Technology focuses on consumer electronics chips, the product line includes voice, multimedia, and microcontrollers, Product development market leadership. The main application products include interactive toys, education and learning, driving Recorder, Sports DV, Gaming Keyboard and Wireless Charging. In 2018, the company introduced a new high-end voice controller with built-in 96KB flash memory, 8-channel 12-bit ADC, 8-channel audio synthesis unit and integrated high-power push-pull audio amplifier. In the aspect of driving recorder, the image recognition hardware acceleration module is strengthened to achieve the high-speed operation requirement of artificial intelligence for learning and identification. In terms of MCU, the development and mass production of 32-bit dual-motor control chips was completed. In terms of wireless charging, the company is compatible with the Apple 7.5W solution, and the QI 15W has also passed the certification. Currently, the development of the power RX SoC is in the hands. Sunplus Innovation Technology focuses on computer peripheral application chip development, including human-machine interface device chips, network camera chips, optical sensors, RF wireless transmission chips, remote control ICs, and more. Most of the sales in 2018 came from PC-related mouse keyboard and camera chip solutions, and a small part came from high-stakes, set-top boxes, rear pull and remote control chips. Will continue to invest in non-PC applications and maintain PC market share in 2019. In response to the growing demand for automotive electronics and high-speed storage, Jumplux Technology has developed ASICs with system customers. In 2018, it focused on the application of Apple CarPlay and Baidu CarLife and passed the AECQ100 certification to obtain the certification of the car manufacturer. Subsidiaries in China include Shanghai Sunplus, Sunplus prof-tek, Sunmedia, Sunplus-EHUE and Sunplus APP. Mainly to support the company's mainland customers in the company's engineering services and business promotion. External competition, regulations, and overall economic environment Sunplus Technology focuses on the development of niche-type automotive wafers and intelligent computing chips, continuing its leading position in the audio-visual market, and is beneficial to the competitiveness of automotive audio-visual systems, vehicle-adaptive driving assistance systems, and AIOT. Generplus Technology's consumer product line has been leading the market for many years, and will launch new product series such as smart interactive robots and computer vision applications. In addition to continuing to develop in a more integrated direction, Sunplus Innovation Technology is also actively developing non-PC related products to establish a foundation for growth and profitability. Jumplux Technology actively participates in the automotive USB Media Hub to support Apple CarPlay and Baidu CarLife to meet the needs of the Chinese automotive market. And committed to the development of UFS bridge chip. Looking forward to 2019, the haze of the US-China trade war is gradually dissipating, and the unfavorable factors dragging down the international economy are expected to decrease. However, Trump’s trade barrierism is still huge, and the uncertainty of the future of the international economy is very high. It will also affect the overall competition of the technology industry. The company will pay close attention to the changes in the international economic environment. Future company development strategy Sunplus Technology includes all of the merged individuals of the Group, will continue to deepen the core competitiveness of various fields, efforts to expand the market, Improve product value and observe market trends, adjust and optimize product lines and investments. 2 Improve industry and industry performance, at the same time actively investing in advanced technology, open up new products and markets, reserve a new wave of growth momentum. Expect to continue to increase profits, return the long-term support of shareholders. All the best, Chairman & CEO, 3 II. COMPANY PROFILE 2.1 Foundation of Sunplus Sunplus was founded in August 3rd 1990 in Hsinchu, Taiwan. 2.2 Milestones For the formation of the Company's share capital, please refer to pages 54-57 of this annual report. Please refer to pages 284 to 295 of this annual report on the relationship between the Company and the investment enterprises. August 1990 Sunplus Technology was founded May 1993 Obtained approval from the SIPA to move into Hsinchu Science Park October 1993 Moved into Hsinchu Science Park September 1994 Company started in-house wafer circuit probe testing December 1995 Groundbreaking for the construction of Sunplus’ office building, located in 19, Innovation First Road, Hsinchu Science Park April 1996 Evaluated as “The most productive IC design company” by Hsinchu SIPA January 1997 Grand opening of Sunplus’ office building September 1997 Sunplus Technology was IPO on the Over-The-Counter stock market January 2000 Sunplus was listed on the main board of the Taiwan Stock Exchange (TSE) Jun 2000 Received certificate of ISO 9001 Quality Assessment by RWTUV September 2000 Reorganized into three new business unit, Consumer center, Multimedia center, and production center; and the BOD appointed Mr. Yarn-Chen Chen as the president December 2000 Received the “Distinguished Achieved Award” from Hsinchu SIPA March 2001 Launched Global Depositary Receipts on the London Stock Exchange December 2001 Completed the Grandtech merger and announced the company’s reorganization January 2002 Established a subsidiary in Shanghai, China to provide better service to customers in Mainland. February 2002 Implemented ERP system successfully to enhance company‘s operating efficiency and competence Jun 2002 Purchased a new office building (B-building) at Science Park July 2002 Sponsored the new Innovation Park and Parking Lot at Science Park, Hsinchu February 2003 Licensed 32-bit core IP from MIPS Technology for next-generation consumer electronic products April 2003 Completed acquisition of Oak Optical Storage Business and spin-off a new venture, Sunext May 2003 Technology to focus on next generation Blue Ray ODD controller Licensed MPEG-4 video compression technology from DivX Networks to create DivX certified IC solution for consumer electronic products Jun 2003 Announced reorganization by altering the Product Business Unit Systems to Functional Business Unit Systems August 2003 Established a new milestone for monthly sales over NT$1 billion December 2003 Won “Innovation Product Award 2003” and “R&D Performance Award 2003” from Hsinchu SIPA March 2004 Established a new subsidiary, Generalplus Technology to focus on consumer IC design September 2004 Received certificate of ISO 14000 Quality Assessment December 2004 MFP SoC with 4800dpi image quality won “Innovation Product Award 2004” from Hsinchu SIPA December 2004 Won “R&D Performance Award 2004” from Hsinchu SIPA Jun 2005 Announced the first 32-bit processor core S+core® with Sunplus-owned instruction set Jun 2005 architecture Launched USB2.0-to-Serial ATA bridge solution August 2005 Applied MPEG-4 image controlling technology to the first IP cam with resolution up to 1M pixel in the worldwide August 2005 Completed the merger with the 3G team of information & communication research lab ITRI and started the development of 3G cellular communication ICs September 2005 Established a new milestone of monthly sales up to NT$1.899 billion as record high October 2005 Mass-produced the PHS mobile baseband processor November 2005 Announced the worldwide first DVD ICs certificated by DivX Ultra December 2005 Announced reorganization by altering the Functional Business Unit System to Product Business Unit System and the resolved to spin off the LCD IC business. Mr. Chou-Chye Huang was appointed to CEO of Sunplus 4 March 2006 Completed the spin-off of the LCD IC business into Orise Technology Co., Ltd. December 2006 Completed the spin-off of Controller & Peripheral Business Unit into Sunplus Innovation Technology Inc. December 2006 Completed the spin-off of the Personal Entertainment Business Unit and Advanced Business Unit into Sunplus mMobile Inc. December 2006 Established a new record high with 2006 profit after tax, NT$2.97 billion February 2007 Licensed digital TV SoC IP to Silicon Image, Inc. with US$40 million for license fee. March 2007 Completed the return of capital with outstanding shares afterward 512,953,665 shares April 2007 The spin-off LCD driver IC design company Orise Technology was IPO April 2007 Sunplus mMobile spun-off Sunplus mMedia Inc. December 2007 Highly integrated SoC SPG290 with interactive game and education function won the “Innovation Product Award 2007” from Hsinchu SIPA December 2007 Received certificate of IECQ 080000 for hazardous substance process management. December 2007 Established a new subsidiary, Sunplus Prof-tek Technology, in Shenzhen January 2008 Established a new subsidiary, Sunmedia Technology, in Chengdu March 2008 Sunext licensed optical storage technology to Broadcom Corporation with license income up March 2008 to US$38 million Launched first DTMB demodulator for China digital broadcasting TV system among Taiwanese IC design companies April 2008 Established new subsidiary Sunplus APP Technology in Beijing, to follow up Sunplus University March 2009 Program in China Joint-promoted with DTS next generation DVD SoC delivering the ultimate audio entertainment experience. October 2009 Spun off Sunplus mMedia’s product lines: PC-Cam to Sunplus Innovation Technology Inc.; PMP/MP3/DPF to Generalplus Technology Inc.; DSC to new start-up December 2009 Started up iCatch Technology Inc. to take over the DSC business from Sunplus mMedia Inc. August 2010 Celebrated Sunplus’ 20th Anniversary and Kept Going for “Technology for Easy Living” May 2011 Announced reorganization by altering the IC design Unit and System design Unit to “DVD Product Center”, “STB Product Center”, “TV Product Center” and “IP Product Center”. Appointed Dr. Archie Yeh as President of Home Entertainment Business Unit November 2011 The subsidiary, Generalplus Technology Co., Ltd., focused on consumer IC design listing on Taiwan Stock Exchange under the code “4952” May 2012 Updated the company vision from “Technology for Easy Living” to “Customers Win we win” June 2012 Elected the 9th Board of Directors and Supervisors in AGM2012, the BOD re-elected December 2012 Unanimously Mr. Chou-Chye Huang as Chairman Joint-invest Sunplus Core Technology (renamed: S2-tek Inc.) for TV IC design January 2013 Reorganization to “DVD Product Center”, “STB Product Center” and “IP Product Center”. November 2013 “DVD Product Center” renamed to “Automotive Product Center”. January 2014 Established new subsidiary Beijing Sunplus-Ehue Tech Co., Ltd. October 2014 Sunplus mMedia spun-off Jumplux for USB Multi-Screen Display SoC and IP Design December 2014 The consolidated net sales reached NT$8.71 billion January 2015 Orise Technology merged with Focal Tech January 2015 Disposed STB product Center February 2015 Reorganization due to disposal of STB center, Chariman & CEO Mr. Chou-Chye Huang is acting June 2015 December 2016 June 2017 March 2018 August 2018 as President of HE BU Elected the 10th Board of Directors and Supervisors in AGM2015, the BOD re-elected Unanimously Mr. Chou-Chye Huang as Chairman Completed TSMC 28nm HPC + IP development and verification The first release of the Corporate Social Responsibility Report (CSR Report) actively implements corporate social responsibility to meet the international trends of balanced environmental, social and corporate governance development, contribute to economic development, and improve employees, their families, and the local community as a whole. Social quality of life Home Entertainment BU has set up a "Smart Computing Project" Update Slogan to "Make difference". Simple and powerful, easy to understand, the larger version of Make declares that you want to "do something" and create valuable differentiation 5 December 2014 The consolidated net sales reached NT$8.71 billion III. Corporate Governance 3.1 Organization 3.1.1 Organization Chart 6 3.1.2 Major Corporate Functions Department Job Description March 31st, 2019 Chairman Office CEO Office Internal Auditor Home Entertainment Business Unit Engaging the strategic alliances (1) (2) Planning and executing investment plans (3) Arranging Board of Directors Meetings (4) Executing internal auditing plan as routine Executing and managing the strategic alliances The planning, promotion and implementation of the Company's integrity management Establishing company’s operational strategies, and goals (1) (2) Auditing and improving the operating performances (3) Communicating with investors, public and media (4) (5) Managing strategic investments (1) (2) Auditing subsidiaries regularly (3) Auditing special cases (4) Re-certification auditing of self-examination (5) Establishing the internal control system (1) Developing world-class audio and video solutions (2) Managing sales channels and distributors and providing customer services (3) Marketing and expanding business worldwide (4) Conducting production, material control, International trading affairs (5) Developing and handling quality assurance system (6) Planning new products and engaging cutting-edge technologies (7) Maintaining testing software and facility (1) Total Management, Plant Management, Procurement, Occupational safety, Environmental Protection and Administrative Services Administration Unit Finance & Accounting Division Legal & IP Department Establishing corporate information service to upgrade the productivity (2) Managing human resources and personnel (3) (4) Automating of business process to be more competitive (5) Consulting for management to making business decisions (1) Managing finance & accounting affairs (2) Arranging annual shareholders’ meeting (1) Coordinating the legal and IP affairs (2) Controlling the project procedures and design documents (3) Conserving company confidential documents (4) Purchasing, maintaining librarianship (5) Conducting contracts & IP management 7 3.2 Directors, and Management 3.2.1 Directors& Supervisors Title Name Date Elected Initial Date Elected Term of Office Chairman & CEO Chou-Chye Huang 2018.06.11 1990.07.09 3 years Share holding When Elected Amount 92,737,817 15.67 % Current Shareholding Amount 92,737,817 15.67 % Spouse & Minor Shareholding Amount 1,370,993 Educational Background % 0.23 M.S., Electrical Engineering, Director Wen-Shiung Jan 2018.06.11 2009.04.30 3 years 0 0.00 0 0.00 0 0.00 MBA, International Business, National Taiwan University, Taiwan National Tsing Hua University, Taiwan Director Global View Co., Ltd., 2018.06.11 1990.07.09 3 years 10,038,049 1.70 10,038,049 1.70 0 0.00 - 2018.06.11 1990.07.09 3 years 0 0.00 0 0.00 Director Director Wen-Ren Su (Global View Co., Ltd., Representative of Legal Entity) Wei-Min Lin Independent Director Che-Ho Wei 2018.06.11 2009.04.30 3 years 2018.06.11 2009.04.30 3 years 0 0 0.00 0.00 0 0 0.00 0.00 0 0.00 B.S., Accounting, Chinese Culture University 0 0 0.00 M.S., Accountancy, Jinan University, China 0.00 Ph.D., Electronic Engineering, University of Washington, Seattle, USA April 12th, 2019/Unit: shares Positions Currently held in Other Companies (Note 2) Note 1 Supervisor: Mildex Optical Inc., Hi-Yes Group., E-Pin Optical Inc. Director: Ability Enterprise, Sunext, Panjit Independent Director: Ko Ja (Cayman), Biostar Chairman & General Manager: iCatch Chairman: ECSC Inc. Chairman: RADIANT INNOVATION INC. Chairman: Samoa GLOBAL VIEW HOLDINGS LTD. Chairman: British Cayman Islands GLOBAL VIEW CO.,LTD Director: FidoDarts Director & President: Global View, Director: Beijing Global View, Independent Director: Well Shin Technology Co., Ltd. Supervisor: BEIJING HANDHELD ELECTRONIC TECHNOLOGY CPA Auditor of Wei-Min Lin Accounting Firm Independent Director: Fu-Shin holding Cayman Independent Director & Compensation Committee: Genesis Photonics Inc., Director: Unizyx Holding Corporation, Arcadyan Technology, MXIC Chairman : NIIEPA NCTU, Department of Electronic Engineering, Adjunct Professor Independent Director Tse-Jen Huang 2018.06.11 2015.06.12 3 years 0 0.00 0 0.00 0 0.00 EMBA, National Taiwan CPA and Head of Shengxin CO., CPAs Independent Director Yao-Ching Hsu 2018.06.11 2015.06.12 3 years 0 0.00 0 0.00 University of Science and Independent Director & Compensation Committee: GenMont, Technology Sunfon 0 0.00 M.S., Laws, Cornell University, USA Charged lawyer of Yuan Qing Patent and Trademark Office Director: Xiyinlina Prevention Foundation Note1 : Chairman: Generalplus, Russell Holdings Co., Ltd.,Venturplus Group Inc., Venturplus Mauritius Inc., Venturplus Cayman Inc., Shanghai Sunplus, Sunplus Technology (HK), Sunplus Venture Capital, Lin Shih Investment, Weiying Investment, Sunplus Management Consulting, Generalplus International (SAMOA)Inc., Sunplus Innovation Technology, Sunplus mMobile, Generalplus (MAURITIUS) Inc., Generalplus (Shenzhen), , Sunplus Prof-tek, Sunmedia, Sunplus APP, Ytrip Technology , Magic Sky Limited, , Award Glory Ltd., Sunny Fancy Ltd., Giant Rock Inc., Giant Kingdom Ltd., Zhu Ming Teaching Foundation, Zhu Ming Academic Foundation. Chairman & President: Sunext, Sunplus mMedia, Jumplux, Beijing Sunplus-Ehue Tech Co., Ltd. Director: Pan Wen Yuan Foundation, Sinocon Industrial standards Foundation, SIPP Technology, Inc., iCatch, Global View Co., Ltd., Radiant. Note 2: None of the Company’s directors is within second-degree of consanguinity, such as a spouse or relative, to each other. 8 3.2.2 Directors and Supervisors' Qualifications and Independence Analysis Criteria With over 5 years of working experience and one of the following professional requirements Independent Status (Note 2) April 12th, 2019 Numbers of other public companies concurrently serving as an independent director 1 2 3 4 5 6 7 8 9 10 With an experience in commerce, law, finance, accounting or other specialties necessary to the Company’s business An instructor of higher position in a department of commerce, law, finance, accounting, or other departments related to the Company’s business in a public or private college or university A judge, public prosecutor, attorney, certified public accountant, or other professional or technical specialist who has passed a national examination and been awarded a certificate in a profession necessary for the Company’s business Name (Note 1) Chou-Chye Huang Wen-Shiung Jan Wen-Ren Su (Global View Co., Ltd., Representative of Legal Entity) Wei-Min Lin Che-Ho Wei Tse-Jen Huang Yao-Ching Hsu Note 1: The amount of columns depends on the actual circumstance. Note 2: “” indicates the directors and supervisors meeting any of the following criteria during the term of office and two years before 2 1 1 1 2 being elected. (1) Not an employee of the company or its affiliates. (2) Not a director or supervisor of the company or its affiliates. (This does not apply, however, in case where the position is an independent director of the company, its parent company, or a subsidiary in which the company holds, directly or indirectly, more than 50% of shares.) (3) Not the shareholder (with its relatives or under others’ names) who holds more than 1% shareholding of the total issued shares or ranked as the Top 10 shareholders. (4) Not a spouse, relative within the second-degree of consanguinity, or the lineal relative within the fifth-degree of consanguinity of any of the persons in the preceding three paragraphs. (5) Not a director, supervisor, or employee of a corporate shareholder that directly holds 5% or more of the total number of the company’s issued shares or that holds shares ranked as Top 5 in holdings. (6) Not a director, supervisor, officer, or shareholder holding 5% or more of the shares, of a specified company or institution, which has financial or business relationship with the Company. (7) Not a professional individual, owner, partner, director, supervisor, or officer (and a spouse thereof) of a sole proprietorship, partnership, company, or institution which provides commercial, legal, financial, accounting, and so on, services or consultation to the company or to its affiliates. (8) Not a spouse or a relative within the second-degree of consanguinity to other directors of the company. (9) Not been a person of any condition as defined in Article 30 of the Company Law. (10) Not a governmental, juridical person or its representative as defined in Article 27 of the Company Law. 9 3.2.3 Major Shareholders of Sunplus’ Shareholders as Legal Entities a) Global View’s Top 10 Shareholders Shareholder Sunplus Technology HSBC as trustee for Bank of Singapore Jhih-Yuan Chou Kai Tian Investment Co., Ltd Citi bank as trustee for First Securities (HK) China Trust Commercial Bank is entrusted to keep the investment account of Baofu Investment Consultant (Hong Kong) Co., Ltd. - Customer Account Meng-Huei Lin Shuhui Chen Yunlong Huang Yi Jiang Nan Co., Ltd. b) Remark if the above Major Shareholders as Legal Entities: Shareholder HSBC as trustee for Bank of Singapore Kai Tian Investment Co., Ltd Citi bank as trustee for First Securities (HK) China Trust Commercial Bank is entrusted to keep the investment account of Baofu Investment Consultant (Hong Kong) Co., Ltd. - Customer Account Yi Jiang Nan Co., Ltd. Major Shareholders Not Applicable Bing Huang Shi Yi Ye Wu Not Applicable Not Applicable Jiaxi Huang Jiaqi Huang April 12th, 2019 Holding 13.06% 9.20% 5.42% 4.9% 3.31% 2.58% 2.47% 2.47% 2.09% 1.75% Holding - 50% 50% - - 27% 26% 10 3.2.4 Management Team Title Country of Citizenship Name Gender Effective Date Current Shareholding Spouse’s & Minor’s Shareholding Use the Name of Others to Hold Shares Amount % Amount % Amount % Educational Background Positions Currently held in Other Companies (Note 5) Chairman & CEO Vice President Assistant VP Republic of Republic of China Republic of China China Assistant VP Republic of China Chou-Chy e Huang Wayne Shen Alex Chang Jason Lin Assistant VP Republic of Michael Su China male male male male male 1990.07.09 92,737,817 15.67 1,370,993 0.23 0 0.00 M.S., Electrical Engineering, National Tsing Note:1 2005.12.01 2013.07.01 2013.11.01 2018.03.15 969,558 0.16 0 0.00 146,111 0.02 0 0.00 0 0 0.00 0 0 0.00 0 0 0.00 0 Hua University, Taiwan 0.00 EMBA, Technology Management, National Note:2 Chiao-Tung University, Taiwan 0.00 Master, Industrial Engineering, National Note:3 Chiao-Tung University, Taiwan 0.00 Master, Industrial Engineering, National Note:4 Chiao-Tung University, Taiwan 0.00 Master of Electrical Engineering, - April 12th, 2019/Unit: shares With Spouse or Two Parents Relationship Manager Job Title Name Relationship - - - - - - - - - - - - 2013.03.01 Shu-Chen Cheng Republic of China Director of Finance & Accounting Division Note 1 Chairman: Generalplus, Russell Holdings Co., Ltd.,Venturplus Group Inc., Venturplus Mauritius Inc., Venturplus Cayman Inc., Shanghai Sunplus, Sunplus Technology (HK), Sunplus Venture Capital, Lin Shih Investment, Weiying Investment, Sunplus Management Consulting, Generalplus International (SAMOA)Inc., Sunplus Innovation Technology, Sunplus mMobile, Generalplus (MAURITIUS) Inc., Generalplus (Shenzhen), , Sunplus Prof-tek, Sunmedia, Sunplus APP, Ytrip Technology , Magic Sky Limited, , Award Glory Ltd., Sunny Fancy Ltd., Giant Rock Inc., Giant Kingdom Ltd., Zhu Ming Teaching Foundation, Zhu Ming Academic Foundation. 0 0.00 0 Taiwan Note:5 36,067 female 0.01 - - - University of Southern California, USA 0.00 Bachelor, Accounting, Tunghai University, Chairman & President: Sunext, Sunplus mMedia, Jumplux, Beijing Sunplus-Ehue Tech Co., Ltd. Director: Pan Wen Yuan Foundation, Sinocon Industrial standards Foundation, SIPP Technology, Inc., iCatch, Global View Co., Ltd., Radiant. Note 2 Director: Sunplus mMobile, Sunplus Innovation Technology, Beijing Sunplus-Ehue Tech Co., Ltd., Jumplux, Sunplus mMedia, Sunext Supervisor: Lin Shih Investment, Weiying Investment, Sunplus Management Consulting, Sunplus Venture Capital. Note 3 AVP: iCatch, Sunext, Jumplux, , Shanghai Sunplus. Director: Rudong Core Electronic Technology. Note 4 Director: Advanced Vehicle Systems Co., Ltd. Note 5 Manager: Sunext, Jumplux. Supervisor: Rudong Core Electronic Technology. 11 3.2.5 Remuneration to Directors, Presidents, and Vice Presidents a) Remuneration to Directors Title Name (Note 1) Remuneration to Directors Remuneration to Directors who hold a Concurrent Post in the Company Salary (A) (Note 2) Pension (B) Bonus from Profit Distribution (C) (Note 3) Allowance (D) (Note 4) (A)+(B)+(C)+ (D) %of Net Income (Note 10) Salary, Bonus, etc. (E) (Note 5) Pension (F) Employee Bonus from Profit Distribution (G) (Note 6) (A)+(B)+(C)+( D) +(E)+(F)+(G) % of Net Income (Note 10) S u n p l u s S u n p l u s S u n p l u s C o n s o l i d a t e d S u b s i d i a r i e s ( N o t e 7 ) C o n s o l i d a t e d S u b s i d i a r i e s ( N o t e 7 ) C o n s o l i d a t e d S u b s i d i a r i e s ( N o t e 7 ) S u n p l u s C o n s o l i d a t e d S u b s i d i a r i e s ( N o t e 7 ) Sun plu s Cons olidat ed Subsi diarie s (Note 7) Sunplus Consolid Sunplus ated Subsidia ries (Note 7) Sunplus Consolida ted Subsidiari es (Note 7) Consolidated Subsidiaries (Note 7) S u n p l u s Cash Bonus Stock Bonus Cash Bonus Stock Bonus C o n s o l i d a t e d S u b s i d i a r i e s ( N o t e 7 ) Remuneration from Long-term Investments Except Subsidiaries (Note 11) Units: NT$, shares Chairman Director Director Chou-Chye Huang Wen-Shiung Jan Global View Wen-Ren Su Representative of Legal Entity Wei-Min Lin Che-Ho Wei Tse-Jen Huang Yao-Ching Hsu - - - - 119,384 119,384 2,255,500 2,547,500 42.29 47.48 5,446,316 6,293,072 91,848 91,848 - - - - 140.89 161.17 5,982,829 Director Independent Director Independent Director Independent Director * In addition to the above table revealed, in the last year, the directors of the Company provided remuneration for the services provided by all the companies in the financial report (such as advisers who are not employees): None. Remuneration to Directors Under NT$2,000,000 NT$2,000,000~NT$5,000,000 (Not included) NT$5,000,000~NT$10,000,000 (Not included) NT$10,000,000~NT$15,000,000 (Not included) NT$15,000,000~NT$30,000,000 (Not included) NT$30,000,000~NT$50,000,000 (Not included) NT$50,000,000~NT$100,000,000 (Not included) Total Remuneration Class Names of Directors The total amount of the first four remuneration (A)+(B)+(C)+(D) Sunplus (Note 8) Chou-Chye Huang, Wen-Shiung Jan, Global View, Wen-Ren Su, Wei-Min Lin, Che-Ho Wei, Tse-Jen Huang, Yao-Ching Hsu Consolidated Subsidiaries (Note 9) H Chou-Chye Huang, Wen-Shiung Jan, Global View, Wen-Ren Su, Wei-Min Lin, Che-Ho Wei, Tse-Jen Huang, Yao-Ching Hsu The total amount of the first seven remuneration (A)+(B)+(C)+(D)+(E)+(F)+(G) Sunplus (Note 8) Wen-Shiung Jan, Global View, Wen-Ren Su, Wei-Min Lin, Che-Ho Wei, Tse-Jen Huang, Yao-Ching Hsu Consolidated Subsidiaries (J) (Note 10) Global View, Wei-Min Lin, Che-Ho Wei, Tse-Jen Huang, Yao-Ching Hsu Chou-Chye Huang Wen-Shiung Jan, Wen-Ren Su Chou-Chye Huang 8 8 8 8 Note 1: Names of directors shall be disclosed separately (name of juridical-person shareholders and their representatives shall be disclosed separately), and the remuneration shall be disclosed in total amount. If a director concurrently serves as a president or vice president, his/her remuneration shall be disclosed accordingly in this table and table c) Remuneration to Management Team. Note 2: It indicates the remuneration to directors (including salary, allowance, pension, bonus, rewards, and etc.) in the most recent fiscal year. Note 3: It indicates the remuneration to directors from profit distribution in the most recent fiscal year according to the proposal submitted by BOD to shareholders’ meeting for approval. Note 4: It indicates the expenses generated from directors’ business (including transportation fees, social activity fees, allowances, dormitories, company cars, and etc.) in the most recent fiscal year. If the Company provides a house, car/other transportation, or other allowances to directors, the relevant payments, calculated at actual cost or fair value, shall be disclosed. The remuneration paid to the company drivers shall be disclosed but not included in the remuneration to directors. Note 5: It indicates the salaries, allowances, pensions, severance pay, bonuses, rewards, transportation fees, social activity fees, dormitories, cars, and etc., to directors who hold concurrently posts in the Company (including presidents, vice presidents, managers, or other employees). If the Company provides a house, car/other transportation, or other allowances to directors, the relevant payments, calculated at actual cost or fair value, shall be disclosed. The remuneration paid to the company drivers shall be disclosed but not included in the remuneration to directors. And the salary fee recognized by IFRS 2 "Share Fundamental Contribution", including obtaining employee stock vouchers, restrictions on employee rights of new shares and participation in cash replenishment of shares and so on, should also be included in the remuneration. Note 6: It indicates the employee bonuses (including cash and stock) paid to directors who hold concurrently posts in the Company (including presidents, vice presidents, managers, or other employees). The amount of employee bonus according to the proposal of profit distribution submitted by BOD to shareholders’ meeting for approval in the most recent fiscal year shall be disclosed. If there is no such proposal yet, the stock bonus may be calculated according to the stock bonus last year. Note 7: The total amount remuneration paid to the Company’s directors by all the companies in the consolidated financial statements (including Sunplus) shall be disclosed. 12 Note 8: It indicates the numbers of directors classified by the amount of their remuneration paid by Sunplus. The amount of remuneration paid to juridical-person shareholders shall be distributed equally to each representative, and then they shall also be classified according to the amount. If the Company is willing to disclose the names of directors in each classification, the title of column shall be changed to “Names of Directors”. Note 9: It indicates the numbers of directors classified by the amount of their remuneration paid by all the companies in the consolidated financial statements (including Sunplus). If the Company is willing to disclose the names of directors in each classification, the title of column shall be changed to “Names of Directors”. Note 10: It indicates the net income in the most recent fiscal year. Note 11: a. Whether the Company’s directors receive remuneration from other long-term investments except subsidiaries shall be disclosed as “Yes” or “No”. b. If “Yes”, the amount of remuneration may be disclosed voluntarily and be included into column I; also, the title of the column shall be change to “All the Long-term Investments”. c. The remuneration indicated here means the salaries, allowances, bonuses, and other relevant rewards paid by from other long-term investments except subsidiaries. ※The remuneration disclosed here shall not be applied for taxation purpose because those are calculated on a different basis. b) Remuneration to Management Team Title Name (Note 1) Salary (A) (Note 2) Pension (B) Reward, Allowance, etc. (C) (Note 3) Sunplus Consolidated Subsidiaries (Note 5) Sunplus Consolidated Subsidiaries (Note 5) Sunplus Consolidated Subsidiaries (Note 5) Bonus from Profit Distribution (D) (Note 4) Sunplus Consolidated Subsidiaries (Note 5) Cash Bonus Stock Bonus Cash Bonus Stock Bonus (A)+(B)+(C) +(D) % on Net Income (Note 8) Sunplus Consolidated Subsidiaries (Note 5) Unit: NT$, shares Remuneration from Long-term Investments Except Subsidiaries (Note 9) CEO VP * Regardless of title, where the job is equivalent to the general manager, deputy general manager (such as: president, chief executive, director ... etc.), should be exposed. Chou-Chye Huang Wayne Shen 7,982,800 7,982,800 1,377,716 1,377,716 268,608 268,608 0 0 0 0 171.45 171.45 30,000 Remuneration to Management Sunplus (Note 6) All companies in the financial report (E) (Note 7) Names of Presidents and Vice Presidents Under NT$2,000,000 NT$2,000,000~NT$5,000,000 NT$5,000,000~NT$10,000,000 NT$10,000,000~NT$15,000,000 NT$15,000,000~NT$30,000,000 NT$30,000,000~NT$50,000,000 NT$50,000,000~NT$100,000,000 More than NT$100,000,000 Total Note 1: Names of presidents and vice presidents shall be disclosed separately, and the remuneration shall be disclosed in total amount. If a director concurrently serves as a president or vice president, his/her remuneration shall be disclosed accordingly in this table and table a) Remuneration to Wayne Shen Chou-Chye Huang Wayne Shen Chou-Chye Huang 2 2 Directors. Note 2: It indicates the remuneration to presidents and vice presidents, including salary, allowance, pension, and severance pay) in the most recent fiscal year. Note 3: It indicates the bonuses, rewards, transportation fees, social activity fees, dormitories, cars, and etc., to presidents and vice presidents. If the Company provides a house, car/other transportation, or other allowances to presidents and vice presidents, the relevant payments, calculated at actual cost or fair value, shall be disclosed. The remuneration paid to the company drivers shall be disclosed but not included in the remuneration to directors. And the salary fee recognized by IFRS 2 "Share Fundamental Contribution", including obtaining employee stock vouchers, restrictions on employee rights of new shares and participation in cash replenishment of shares and so on, should also be included in the remuneration. Note 4: It indicates the employee bonuses (including cash and stock) paid to presidents and vice presidents according to the proposal of profit distribution submitted by BOD to shareholders’ meeting for approval in the most recent fiscal year. If there is no such proposal yet, the stock bonus may be calculated according to the stock bonus last year. The amount of stock bonus for public companies shall be calculated at fair value, which means the closing price on the balance sheet date. For private companies, the amount of stock bonus shall be calculated based on the net value on the last day in the fiscal year when the profit distributed. The term “Net Income” indicates the net income in the most recent fiscal year. Note 5: The total amount remuneration paid to the Company’s presidents and vice presidents by all the companies in the consolidated financial statements (including Sunplus) shall be disclosed. Note 6: It indicates the numbers of presidents and vice presidents classified by the amount of their remuneration paid by Sunplus. If the Company is willing to disclose the names of presidents and vice presidents in each classification, the title of column shall be changed to “Names of Presidents and Vice Presidents”. Note 7: It indicates the numbers of presidents and vice presidents classified by the amount of their remuneration paid by all the companies in the consolidated financial statements (including Sunplus). If the Company is willing to disclose the names of presidents and vice presidents in each classification, the title of column shall be changed to “Names of Presidents and Vice Presidents”. Note 8: It indicates the net income in the most recent fiscal year. Note 9: a. Whether the Company’s presidents and vice presidents receive remuneration from other long-term investments except subsidiaries shall be disclosed as “Yes” or “No”. b. If “Yes”, the amount of remuneration paid by other long-term investments except subsidiaries may be disclosed voluntarily and included into column E; also, the title of the column shall be changed to “All the Long-term Investments”. c. The remuneration indicated here means the salaries, allowances, bonuses, and other relevant rewards paid to presidents and vice presidents who concurrently hold posts in other long-term investments except subsidiaries. ※The remuneration disclosed here shall not be applied for taxation purpose because those are calculated on a different basis. 13 c) Employee Bonus Granted to Management Team April 12th, 2019 Title Name Shares Bonus Cash Bonus Sum up % on Net Income Chairman & CEO Chou-Chye Huang Wayne Shen Jason Lin Alex Chang Michael Su Shu-Chen Cheng Vice President Assistant VP Assistant VP Assistant VP Director of Finance & Accounting Division - - - - 3.2.6 Analysis for remuneration paid by all the companies in the consolidated financial statements (including Sunplus) to directors, presidents and vice presidents as % net income in the most recent two years. Also, the relevant policy, standards and procedures, and the relation between remuneration and performance shall be stated. 1. Analysis for remuneration paid as % net income Remuneration Director Supervisor Management 2017 2018 Amount % of Net income(Loss) Amount % of Net income (Loss) 19,254,000 4.57% 12,296,000 218.93% 2. The remuneration is fair compared to peers and the compensations are based on the operation performance of company and individuals. 14 3.3 Corporate Governance Implementation 3.3.1 BOD Meeting Status 5 meetings were held in 2018 (5 meetings by 10th BOD), 5 meetings by 11th BOD, 10 times in total BOD(A), and the attendance of directors is as follow: Title Name (Note 1) Chairman Director Director Chou-Chye Huang Wen-Shiung Jan Representative of Legal Entity , Global View Wen-Ren Su Wei-Min Lin Attendance in Person (B) By Proxy Attendance Rate B/A (%) (Note 2) Remarks 10 9 10 0 1 0 100 Re-election 90 Re-election Re-election 100 0 10 10 Che-Ho Wei Tse-Jen Huang Director Independent Director Independent Director Independent Director Other information required to be disclosed: 1.The operation of the board if one of the following circumstances, should specify the date of the board, period, the contents of the motion, the opinions of all independent directors and the handling of opinions of independent directors: (1)matters listed in Article 14-3 of the Securities Exchange Act 100 Re-election 100 Re-election 100 Re-election 100 Re-election Yao-Ching Hsu 10 10 0 0 0 Board of Directors The contents of the motion and follow-up Article 14-3 of the Securities Exchange Act Independence or objection 1. Deloitte United Certified Public Accountants Internal Adjustment and Change of Visa Accountant Discussion. Opinion of independent directors：None. v None The Company's handling of the opinions of independent directors：None. Tenth 27th Board of Directors 2018.01.31 Resolution results: After the chairman asked all the attendees to pass the case without objection. 1. Review of the qualifications of candidates for directors (including independent directors). Opinion of independent directors：None. Note v The Company's handling of the opinions of independent directors：None. Resolution results: (1) In this case, due to their own interests with the directors, they voted individually and invited the directors under review to evade participation in the discussion and voting. (2) Examining the qualifications of Mr. Huang Zhoujie, a candidate for directorship, because he has a stake in the relationship with Mr. Huang Zhoujie, the chairman has avoided refusing to participate in the discussion and voting. Upon the direction of the chairman, Wei Zhe and the independent director were appointed as the acting chairman. (3) Except for the directors who refused to participate in the discussion and voting according to law, the case was approved by the chairman or the acting chairman after consultation with the remaining attending directors without objection. 1. The fourth session of the company's "payroll committee members" appointed discussion. Opinion of independent directors：None. None v Tenth 30th Board of Directors 2018.04.27 Eleventh 1th Board of Directors 15 2018.06.11 The Company's handling of the opinions of independent directors：None. Resolution results: (1) The case has its own interests with independent directors and evades participation in discussions and voting. (2) Except for independent directors who did not participate in the discussion and voting according to law, the case was approved by the chairman after consultation with the remaining attending directors without objection. 1. The Company transferred the shareholding of the shares of the subsidiary icatch and the cash increase of the share options to all shareholders of the company for discussion. 2. Discussion of the company's directors and functional committees. 3. Discussion on the distribution of directors' compensation in 2017. Opinion of independent directors：None. None v The Company's handling of the opinions of independent directors：None. Resolution results: 1. After the chairman has consulted all the attending directors, they will pass the case without objection. 2. (1) Except for the general directors who did not participate in the discussion and voting according to law, the chairman of the agency consulted all the attending independent directors and passed the no-objection on the general director's car and horse fees. (2) Except for the independent directors who did not participate in the discussion and voting in accordance with the law, the chairman of the general committee was consulted by the chairman and the car and horse fees of the independent directors were passed without objection. 3. (1) Except for the general directors who did not participate in the discussion and voting according to law, the Acting Chairman consulted all the attending independent directors and passed the nomination of the general director's remuneration without a dissent. (2) Except for the independent directors who have not participated in the discussion and voting in accordance with the law, the chairman of the general committee is consulted by the chairman, and the remuneration of the independent directors is passed without objection. 1. Deloitte internal adjustment exchange visa accountant discussion. v None Opinion of independent directors：None. The Company's handling of the opinions of independent directors：None. Resolution results: After the chairman asked all the attendees to pass the case without objection. 1. 2019 Accountant Appointment and Independence Assessment Discussion. Opinion of independent directors：None. None v The Company's handling of the opinions of independent directors：None. Resolution results: After the chairman asked all the attendees to pass the case without objection. 16 Eleventh 2th Board of Directors 2018.07.26 Eleventh 4th Board of Directors 2018.11.12 Eleventh 5th Board of Directors 2018.12.26 (2) Except for the foregoing, other board of directors who oppose or retain opinions and have a record or written statement by an independent director: None. 2. A. On April 27, 2018, the Board of Directors discussed "Review of Candidates for Directors (including Independent Directors)": (1). In this case, due to their own interests with the directors, they will vote individually and invite the directors under review to evade participation in the discussion and voting. (2). Examine the qualifications of Mr. Huang Zhoujie, a candidate for directorship. Because he has a stake in the relationship with Mr. Huang Zhoujie, he is not allowed to participate in the discussion and voting according to law. Upon the direction of the chairman, Wei Zhe and the independent director were appointed as the acting chairman. (3). In addition to legally evading directors who did not participate in the discussion and voting, the case was approved by the chairman or the acting chairman after consultation with the remaining attending directors without objection. B. The Board of Directors discussed on June 11, 2007, "The appointment of the fourth member of the "Wage Remuneration Committee" of the Company": (1). This case has its own interests with independent directors and evades participation in discussions and voting. (2). Except for independent directors who did not participate in the discussion and voting according to law, the case was approved by the chairman after consultation with the remaining attending directors without objection. C. The Board of Directors discussed on July 26, 2007, "The Company's Directors and Functional Committee Cars and Horses": (1). In addition to legally evading the general directors who did not participate in the discussion and voting, the Acting Chairman consulted all the attending independent directors and passed the no-objection on the general director's car and horse fees. (2). Except for the independent directors who did not participate in the discussion and voting in accordance with the law, the chairman of the general committee was consulted by the chairman and the car and horse fees of the independent directors were passed without objection. D. The Board of Directors discussed the "2006 Remuneration Distribution of Directors" on July 26, 2007: (1). In addition to legally evading the general directors who did not participate in the discussion and voting, the chairman of the agency consulted all the attending independent directors and passed the nomination of the general director's remuneration. (2). Except for the independent directors who did not participate in the discussion and voting in accordance with the law, the general directors of all the attending members were consulted by the chairman, and the remuneration of the independent directors was passed without objection. 3. The objectives of strengthening the functions of the board of directors in the current and most recent years (such as setting up an audit committee, improving information transparency, etc.) and performance assessment. The company has set up functional committees such as auditing and remuneration, reviewing relevant proposals in accordance with its authority and submitting resolutions to the board of directors to improve supervision functions and strengthen management functions. Board members continue to participate in refresher courses related to corporate governance topics, enriching new knowledge and enhancing communication to continuously improve board functions. Note 1: The name of a legal entity shareholder and its representative shall be disclosed. Note 2: (a) If a director or supervisor being relieved of office before year end, it shall be notified as a remark. The actual rate of attendance shall be calculated according to the meetings held when he/she is at the post. (b) If there is a re-election before year-end, the new directors and supervisors along with the original ones shall be disclosed, and the date of directors and supervisors being elected shall be stated. The actual rate of attendance shall be calculated according to the meetings held when they are at posts. 3.3.2 Audit Committee 2018 First Annual Audit Committee Meeting 5 times, Second Annual Audit Committee Meeting 4 times, 9 times in total (A), the independent directors are listed below: Title Name Attendance in Person (B) By Proxy Attendance Rate B/A (%) (Note) Remarks Independent director Che-Ho Wei 8 1 88.89 17 0 9 Tse-Jen Huang Yao-Ching Hsu Independent director Independent director Other information required to be disclosed: 1.The operation of the Audit Committee is one of the following circumstances, should specify the date of the board, period, the contents of the motion, the results of the resolutions of the Audit Committee and the handling of the opinions of the Audit Committee. (1) The matters listed in Article 14.5 of the Securities Exchange Act. (2) Except for the foregoing, other unapproved by the Audit Committee, and more than two-thirds of all directors agreed to the matter. 100.00 100.00 0 9 The Audit Committee The contents of the motion and follow-up The matters listed in Article 14.5 of the Securities Exchange Act unapproved by the Audit Committee, and more than two-thirds of all directors agreed to the matter The 25th Audit Committee of the First Session 2018.01.31 1. Deloitte internal adjustment exchange visa accountant discussion. v None Audit committee resolution results: All members of the Audit Committee agreed to adopt. The Company's handling of the opinions of the Audit Committee： All attendees agree to pass. 1. 2017 the report on the results of the internal control self-assessment report and the statement of the internal control system. None v The 26th Audit Committee of the First Session 2018.03.14 2. The fourth quarter of 2017 the implementation of the budget report and the 2017 annual financial statements to discuss the case. v 3. 2017 consolidated financial statements discussion v None None Audit committee resolution results: All members of the Audit Committee agreed to adopt. The 1th Audit Committee of the Second Session 2018.07.26 The 2th Audit Committee of the Second Session 2018.08.08 The Company's handling of the opinions of the Audit Committee： All attendees agree to pass. 1. The Company transferred the shareholding of the shares and the cash increase of the shareholding of the subsidiary icatch to all shareholders of the company for discussion. None v Audit committee resolution results: All members of the Audit Committee agreed to adopt. The Company's handling of the opinions of the Audit Committee： All attendees agree to pass. 1. The second quarter of 2018 budget implementation report and the discussion of consolidated financial statements. None v Audit committee resolution results: All members of the Audit Committee agreed to adopt. The Company's handling of the opinions of the Audit Committee： All attendees agree to pass. 18 The 3th Audit Committee of the Second Session 2018.11.12 The 4th Audit Committee of the Second Session 2018.12.26 1. Deloitte internal adjustment exchange visa accountant discussion. v None Audit committee resolution results: All members of the Audit Committee agreed to adopt. The Company's handling of the opinions of the Audit Committee： All attendees agree to pass. 1. 2019 Accountant Appointment and Independence Assessment Discussion. v None Audit committee resolution results: All members of the Audit Committee agreed to adopt. The Company's handling of the opinions of the Audit Committee： All attendees agree to pass. 2. If there is any avoidance of motions in conflict of interest by Independent Director, the Independent Directors’ names, contents of motions, causes for avoidance and voting should be specified: None. 3. The communication between the independent director and the internal audit manager and the accountant (should include the company's financial, business conditions to communicate matters, methods and results): (1) The Company's accountant discussed with the independent directors on January 31, 2018, the review of the 2017 financial report before the review of the risk assessment. And for the combined financial report for the fourth quarter of 2017 and the first to third quarter of 2018 on March 14, 2018, May 14, 2018, August 8, 2018 and November 12, 2018, respectively Check or check results to communicate. (2) The internal audit supervisors of the Company regularly report with the independent directors on the implementation of the internal audit plan and the implementation of the tracking report, for the implementation of the audit business and the results are fully communicated. (3) The independent directors of the Company may at any time require the visa accountants to examine the financial statements (including the consolidated financial statements) and other relevant laws and regulations, report and communicate to independent directors. 19 3.3.3 Corporate Governance Implementation as Required by Taiwan Financial Supervisory Commission Item 1. Formulation of its own corporate governance principles 2. Shareholding Structure and Shareholders’ Rights 1) The way handling shareholders’ suggestions or disputes Y V V N Summary Implementation Status (Note 1) Sunplus and its subsidiaries Generalplus for the establishment of a good corporate governance system, participate in the "Code of Practice for Corporate Governance of Listed OTC", the Company's Code of Corporate Governance Practices, and has been disclosed at the Public Information Observatory and the company's website. The rest of the subsidiaries has not formulated the related principles, however all of our rules and procedures are based on laws and regulations stipulated by authorities in charge. Difference to “Corporate Governance Best Practice Principles for TWSE/GTSM Listed Companies” No major Difference (1) Sunplus and its subsidiaries Generalplus, Sunext and Sunplus Innovation Commission by the stock agency on behalf of the relevant business, and according to the law to establish a complete spokesman system. The Company and Generalplus and set up Investor Relations Responsible Personnel responsible for handling shareholder recommendations and disputes related matters. Unlisted Subsidiaries are responsible for handling shareholders' opinions, doubts and disputes. No major Difference 2) The Company’s possession of major shareholders list V (2) The Company and its subsidiaries Generalplus, and Sunplus Innovation through the shares of the agency, master and understand the structure No major Difference and the list of ultimate owners of these major shareholders of major shareholders, and regularly declare the directors and managers of equity changes, to master the ultimate controlling shareholder of the major shareholders and major shareholders. Other subsidiaries shares regularly view the register of members at the end of each month, to master the ultimate controlling shareholder of the major shareholders and major shareholders. 3) Risk management mechanism and fire wall between V (3) The Company and Sunplus Innovation have a " Relational transaction processing", Generalplus has a "Group Business and Related No major Difference the Company and its affiliates 4) Disclosure agreement to prohibit that those insiders V may not take advantage of undisclosed information of which they have learned to engage in insider trading. 3. Composition and Responsibilities of the BOD 1) Board diversity policy 2) Other Functional Committees than Audit committee and Compensation Committee 3) Regulations governing the board performance evaluation and implementation 4) Regular evaluation of external auditors’ independency V V V V No major Difference No major Difference No major Difference No major Difference No major Difference Transactions", the remaining subsidiaries also have various management methods, for the relationship between the business transactions are clearly defined, to achieve risk control mechanisms. (4) The Company and its subsidiaries, Generalplus have formulated the "Internal Significant Information Disclosure and Prevention of Insider Trading Management Procedures" and "Integrity Management Procedures and Behavior Guide”, and told the company insiders to strictly follow, it is forbidden for insiders to use the unlisted information on the market to buy and sell securities. (1) A. Article 20 of the Company's Code of Practice on Corporate Governance (the ability of the board of directors as a whole) has clearly defined the composition of the board of directors. In addition to being a director of a company manager, it is not appropriate to exceed one-third of the board of directors. Operational, operational and development needs to develop an appropriate diversification approach. The nomination and selection of the board of directors of the Company follows the requirements of the Articles of Association and adopts the nomination system for candidates. In addition to assessing the eligibility of each candidate's academic experience, it also complies with the "Director's Election Method" and the "Code of Corporate Governance" to ensure the directors. Diversity and independence of members. B. The current board of directors of the company has seven seats: (1) General directors: He holds a master's degree from the Institute of Electrical Engineering of Tsinghua University, a master's degree from the Institute of International Enterprise Management of the Taiwan University, a bachelor's degree in accounting from the Cultural University, and a Ph.D. in economics and taxation from Jinan University. (2) Independent directors: composed of members such as Dr. Motor of the University of Washington in Seattle, EMBA of the Institute of Finance and Finance of the Taiwan University of Science and Technology, and Master of Laws of Cornell University. (3) Those who are longer than leaders, operational judgment, management, crisis management, and have industrial knowledge and international market views include Huang Zhoujie, Zhan Wenxiong, and Shu Weiren; those who served as the chairman of the National Science Council are Wei Zhehe; those who are longer than financial accounting tax have Huang Zeren And Lin Weimin; who is longer than legal affairs, Xu Zhaoqing. C. The company has 14% of employees with employee status and 43% of independent directors. An independent director has a term of office of more than nine years, and the other two independent directors are appointed for a term of three to five years. One director is over 70 years old, one is 60 to 69 years old, and five are under 60 years old. The directors of each subsidiary also have different expertise in various fields, and indeed implement the policy of diversity of board members. (2) Sunplus and Genealplus have set up audit committee and compensation committee. The company shall set up other functional committee if needed anytime. (3) The Company and its subsidiaries have not yet established a performance appraisal method for the Board of Directors, but not regularly review the board function, the future will look at the law environment, company operating conditions and management needs, assess the feasibility of assessing the performance of the board of directors. (4) The accounting department of the company evaluates the independence of the visa accountant once a year. The company's accounting department evaluates the visa accountant's diligence. The company's accounting firm Huang Yufeng and Lin political accountant are in line with the company's independence evaluation criteria (Note 2). Adopted by the Audit Committee and the Board of Directors on December 26, 2018. Each subsidiary will assess the independence of the visa accountant at the end of the year, and the appointment of the accountant in the 20 4. Is the OTC Company listed in the Corporate Governance V Full-time (Part-time) unit or person responsible for corporate governance related matters (Including but not limited to providing information required by directors and supervisors to perform their business, to handle matters related to the meetings of the Board of Directors and the Shareholders' Meeting in accordance with the law, for company registration and change registration, production of Board of Directors and Shareholders' Meeting)? 5. Communication channel with Stakeholders (Including but not limited to shareholders, employees, customers and suppliers) 6. Engaging professional shareholder services agent to handle shareholders meeting matters 7. Information Disclosure 1) Establishment of corporate website to disclose information regarding the Company’s financials, business, and corporate governance status 2) Other information disclosure channels (ex. English website, appointing responsible people to handle information collection and disclosure, appointing spokesman, webcasting investors conference) V V V V resolution of the board of directors. The Company and its subsidiaries appoint the Chairman's Office to be responsible for corporate governance matters, to handle matters relating to the meetings of the Board of Directors and the Shareholders' Meeting, and assist the Company in complying with the relevant laws and regulations of the Board of Directors and the Shareholders' Association, provide information necessary for the directors to carry out their business, with the latest laws and regulations related to the development of the company, to assist the directors in following the decree No major Difference Sunplus and its subsidiaries maintain good relations with stakeholders including banks, suppliers, and other relevant parties. Sunplus, with a principle of honesty, provides sufficient information about the Company’s operations and defends the Company’s lawful rights and interests. The interests of the company's stakeholders are concerned about issues and communication methods (Note 3) The Company and Lingtong Technology have set up stakeholder areas on the company's website. The remaining subsidiaries also provide detailed contact information on the company's website. Interested parties can contact the phone, letter, fax and email at any time if necessary. Sunplus, Generalplus, Sunplus Innovation Technology : China Trust Commercial Bank Corporate Trust Operation and service Department Sunext: SinoPac Securities Corporate Trust Operation and service Department No major Difference No major Difference (1) Sunplus and Genealplus have established bilingual corporate website, managed by relevant departments to disclose Company’s financials, No major Difference business, and corporate governance status. Sunplus Innovation also have established bilingual corporate website to disclose the business and product information. (2) Sunplus and its subsidiaries have established English website. No major Difference Sunplus, Generalplus, and Sunplus Innovation Technology have assigned spokesperson, acting spokesperson and designated specialists to disclose and collect the company’s information. Other subsidiaries are responsible for the collection and disclosure of company information, there is currently no speaker yet. 8. Other important information to facilitate better V (1) Employee rights: Sunplus and its subsidiaries have made and followed the internal management procedures regarding employee rights under the No major Difference understanding of the Company’s corporate governance (such as human rights, employee rights, employee wellness, community participation, social contribution, community service, investor relations, supplier relations, shareholders’ rights, customer relations, the implementation of risk management policies and risk evaluation measures, the implementation of consumers/customers protection policies, and purchasing insurance for directors and supervisors. ): regulations of the Labor Standards Act and Gender Equality in Employment Act. (2) Employee wellness: Sunplus and its subsidiaries have made and followed the internal management procedures regarding employee wellness. (3) Investor relations: Sunplus and its subsidiaries have set a investor relations professionals to communicate with investors and disclose the operations and financials. (4) Supplier relations: Sunplus and its subsidiaries have good relationship with suppliers and manage the supply chains efficiently. (5) Stakeholders: Sunplus and its subsidiaries respect all stakeholders and have established the channels to communicate with stakeholders. (6) Continuing education record of directors and supervisors: Please refer to Market Observation Post System (7) Implementation of risk management policies and risk evaluation measures: Internal rules and procedures are based on laws and regulations stipulated by authorities in charge (8) Customer: Sunplus and its subsidiaries provide best service to Customers based on internal rules and procedures (9) Sunplus and Generalplus have taken liability insurance for directors and supervisors with respect to liabilities resulting from exercising their duties in Sunplus and subsidiaries. 9. Please review the results of the corporate governance evaluation issued by the Corporate Governance Center of the Taiwan Stock Exchange Co., Ltd. in recent years, and to give priority to matters and measures that have not yet been improved: The improvement of 2018 years is as follows: (1) The Company has established a policy of diversification of board members and disclosed the implementation of the diversification policy on the annual report and the company website. (2) The Company has set up special (part-time) units for promoting corporate social responsibility and corporate integrity management, and explains the operation and implementation of the set-up units in the annual report and company website, and reports to the board of directors regularly every December. (3) The company's annual report and website have disclosed the protection measures and implementation of employees' work environment and personal safety. The other part has not yet been improved and will actively research improvement. Note 1: Whether or not "yes" or "no" is checked, it should be stated in the summary description field. 21 Note 2: The evaluation criteria for the independence of the Company's accountants are as follows: Sunplus Technology Accountant Independence Assessment Criteria Evaluation items Evaluation result Whether it is independent 1. Whether the accountant has a direct or significant indirect financial interest relationship with the Company 2. Whether the accountant has a financing or guaranteeing action with the Company or the directors of the Company 3. Whether the accountant has a close business relationship or potential employment relationship with the Company 4. Whether the accountants and their members of the audit team are currently directors or managers in the current or the last two years or have a significant impact on the audit work 5. Whether the accountant has provided non-audit services to the Company that may directly affect the audit 6. Whether the accountant has any stock or other securities issued by the No No No No No No Company 7. Whether the accountant has a conflict with the defendant of the Company or No on behalf of the Company in coordination with other third parties 8. Whether the accountant has a kinship with the directors, managers or No persons who have a significant impact on the audit Yes Yes Yes Yes Yes Yes Yes Yes Note 3: The company's stakeholders pay attention to issues and communication methods: Stakeholder Concerns Communication route Communication frequen Related records Staff client Agent Salary, benefits, education, occupational health and safety Customer appeal Staff communication meeting High-level supervisor mailbox Employee welfare committee Labor Retirement Reserves Supervision Committee Once per season Internal promotion: E-mail, posters, electronic bulletin board Employee performance interview Customer complaints Once every six months Irregular Irregular 2 times a year Customer complaint case Irregular Customer satisfaction customer satisfaction survey 2 times a year Meeting record E-mail announcement Meeting record E-mail, posters, announcements Performance and Future Development Analysis Notes / Quality Assurance / Customer Appeal System Notes/Quality Insurance/Customer Satisfaction Survey System Foreign document control Product quality and hazardous substance requirements Bad quarters inventory mail Bad quarters inventory Green product requirements GPM system Outsourcing factory Supplier management approach Supplier management approach supplier Government agencies Instrument calibration Compliance Green environmental compliance Technology Exchange Outsourcing factory audit: For the new outsourcing factory, it will join the company before joining Outsourcing factory assessment: for the quality / environmental assessment of existing outsourcing plants Annual calibration plan Document round trip Official website announcement Meeting, E-mail 1 time a year Monthly schedule Irregular Irregular Irregular Irregular Notes / Quality Assurance / Customer Appeal System Quarterly Report deadlines, new product releases, new specification requirements When company's supply chain the new outsourcing factory joins the GPM system Notes / Quality Assurance / Audit Management System Notes / Quality Assurance / Audit Management System Notes / Quality Assurance Department / Instrument Calibration Management System Official document Website download E-mail, poster 22 3.3.4 Disclosure of Operations of the Company’s Compensation Committee: 1. Qualifications and Independence Analysis Status(Note 1) Name Independent Director Independent Director Che-Ho Wei Tse-Jen Huang Yao-Ching Hsu Independent Director Note 1: The Status is identified by director, independent director and other. Note 2: “” indicates the directors and supervisors meeting any of the following criteria during the term of office and two years before being elected. An instructor of higher position in a department of commerce, law, finance, accounting, or other departments related to the Company’s business in a public or private college or university A judge, public prosecutor, attorney, certified public accountant, or other professional or technical specialist who has passed a national examination and been awarded a certificate in a profession necessary for the Company’s business With an experience in commerce, law, finance, accounting or other specialties necessary to the Company’s business With over 5 years of working experience and one of the following professional requirements Independent Status (Note 2) 1 2 3 4 5 6 7 8 Numbers of other public companies concurrently serving on compensation committee Remark 1 2 0 (1) Not an employee of the company or its affiliates. (2) Not a director or supervisor of the company or its affiliates. (But as a company or its parent company, An independent director who is a subsidiary of the law or local law, not in this limit.) (3) Not the shareholder (with its relatives or under others’ names) who holds more than 1% shareholding of the total issued shares or ranked as the Top 10 shareholders. (4) Not a spouse, relative within the second-degree of consanguinity, or the lineal relative within the fifth-degree of consanguinity of any of the persons in the preceding three paragraphs. (5) Not a director, supervisor, or employee of a corporate shareholder that directly holds 5% or more of the total number of the company’s issued shares or that holds shares ranked as Top 5 in holdings. (6) Not a director, supervisor, officer, or shareholder holding 5% or more of the shares, of a specified company or institution, which has financial or business relationship with the Company. (7) Not a professional individual, owner, partner, director, supervisor, or officer (and a spouse thereof) of a sole proprietorship, partnership, company, or institution which provides commercial, legal, financial, accounting, and so on, services or consultation to the company or to its affiliates. (8) Not been a person of any condition as defined in Article 30 of the Company Law. 2. Operation 1. BOD appointed three independent director to be members of compensation committee. 2. The term of office is 3 years from June 11th 2018. The third salary remuneration committee of the 2018th meeting meets twice, and the fourth salary remuneration committee meets once, for a total of three times (A), membership qualifications and attendance are as follows: Title Name Convener Member Member Other information required to be disclosed: Che-Ho Wei i Tse-Jen Huang Yao-Ching Hsu Attendance in Person(B) 3 3 3 By Proxy 0 0 0 Attendance Rate(B/A) (%) (Note) 100 100 100 Remarks 1. The BOD has adopted the proposal by compensation committee without dissent 2. The participated members have approved the resolutions by compensation committee. without dissent Note 1: (a) If the member being relieved of office before year end, it shall be notified as a remark. The actual rate of attendance shall be calculated according to the meetings held when he/she is at the post. (b) If there is a re-appointment before year-end, the new member along with the original ones shall be disclosed, and the date of member being appointed shall be stated. The actual rate of attendance shall be calculated according to the meetings held when he/she is at the post. 3.3.5 Social Responsibilities Implementation Status (such as environment protection, community participation, contribution to community, social service, charity, consumer rights, human rights and other social responsibilities): Item Y N 1. Exercising Corporate Governance 1) The company declares its corporate social responsibility V policy and examines the results of the implementation. 2) The Company organizes education and training on the implementation of corporate social responsibility V Implementation Status (Note 1) Summary (Note 2) Deviations from “Corporate Social Responsibility Best Practice Principles for TWSE/GTSM Listed Companies” and reasons (1) The Company has established a Code of Practice for Corporate Social Responsibility to review its implementation effectiveness and continuous improvement at any time, and regularly publish corporate social responsibility reports and report the results of the year to the Board of Directors at the last annual board meeting. Although the subsidiaries have not established corporate social responsibility policies, they still continue to practice corporate social responsibility. In the future, relevant policies will be formulated as appropriate. No major Difference No major Difference 23 initiatives on a regular basis 3) The company establishes exclusively (or concurrently) dedicated units to be in charge of proposing and enforcing the corporate social responsibility policies, and reporting the BOD 4) The company adopts employee performance evaluation system combined with corporate social responsibility policies, and that a clear and effective incentive and discipline system be established. 2. Fostering a Sustainable Environment 1) The company endeavors to utilize all resources more efficiently and uses renewable materials which have a low impact on the environment. 2) The company establishes proper environmental management systems based on the characteristics of their industries. V V V V 3) The company monitors the impact of climate change on V its operations and should establish company strategies for energy conservation and carbon and greenhouse gas reduction. 3. Preserving Public Welfare 1) The company adopts relevant management policies and processes complying with relevant laws and regulations and the International Bill of Human Rights 2) The company provides an effective and appropriate grievance mechanism and channels with response to any employee's grievance in an appropriate manner. 3) The company provides safe and healthful work environments for their employees, and organizes training on safety and health for their employees on a regular basis. V V V 4) The company establishes a platform to facilitate regular V two-way communication between the management and the employees, and informs employees of operation changes that might have material impacts by reasonable means. 5) The company establishes effective training programs to V foster career skills of their employees' careers 6) In the process of research and development, procurement, V (2) The Company conducts regular education and training on corporate social responsibility, the subsidiaries do not have regular staff social responsibility education and training, but by the promotion of corporate social responsibility related to the core staff arrangements for external social responsibility education and training, training frequency in accordance with the staff changes, professional division of labor and standard revision frequency, in the day-to-day business, employees are also required to comply with the relevant regulations and ethical standards, with a view to achieving the goal of corporate social responsibility. (3) The Company for the sound management of corporate social responsibility, the company set up part-time units to promote corporate social responsibility, responsible for corporate social responsibility policy, system or related management policy and the specific promotion of the proposed and implemented, and report to the Board on a regular basis. The company's latest report to the board of directors was on December 26, 2018. Although the subsidiaries did not set up to promote social responsibility full-time(pare-time) units, but in environmental protection and related social responsibility activities are spare no effort. (4) The Company and its subsidiaries have formulated a reasonable remuneration policy, with the staff performance appraisal system to clear and effective implementation of incentives and disciplinary system. (1) The Company and its subsidiaries comply with the relevant environmental laws and regulations, actively respond to resource recovery and classification, and procurement of various high-performance equipment to enhance the energy, resource efficiency, the other to promote the use of renewable materials, to reduce the impact on the environment. But also to convey to employees the concept of energy saving and carbon reduction, and the implementation of education and training to achieve full environmental goals. (2) The company and its subsidiaries pay attention to environmental management. At present, the company has passed ISO14001, ISO45001 and TOSHMS environmental protection and occupational safety and health management system certification, and employs qualified management personnel with higher standards than the laws and regulations. The company and Lingtong Technology each have a qualified occupational safety and health business executive, a qualified occupational safety manager and occupational safety and health administrator. The company and its subsidiaries have promoted paperless operations and the use of energy-saving lamps and water-saving appliances, and actively promoted waste reduction activities, reduced environmental impact, and used environmentally friendly new refrigerants to avoid ozone layer damage and simultaneously implement Policy to turn off the lights and save water. (3) The Company conducts annual greenhouse gas inventory, the Company and the central air-conditioning of the subsidiaries are controlled by hand, in the temperature does not reach a certain high temperature before the use of reduction, and the use of intelligent control systems and frequency conversion devices to effectively control the amount of air conditioning, can immediately detect the environmental needs and automatically adjust the amount of air conditioning, avoid unnecessary waste. Equipped with electric power automatic control equipment, monitor the use of electricity at any time , to enhance the efficiency of energy use, reduce power consumption, to achieve energy conservation and carbon reduction and greenhouse gas reduction of the strategic objectives. No major Difference No major Difference No major Difference No major Difference No major Difference (1) The Company and its subsidiaries comply with the labor laws and regulations, and set relevant working rules, safeguard employees' rights and interests, and provide information to enable employees to understand their rights and interests. No major Difference (2) Sunplus, Generalplus, and Sunplus Innovation have a "Employee Appeals Scheme" setting out the complaint and handling procedures, construction of employee complaints mechanism and communication channels, to protect employees' rights. The remaining subsidiaries were held through a labor conference, staff communication will be coordinated, and set up online views exchange channels, understand the idea of both employers and employees, create a win-win situation. (3) The company and its subsidiaries provide facilities and environments that are better than the Occupational Safety and Health Act. Set up special organizations and personnel according to law, implement environmental safety and health management related matters, and pass ISO14001, ISO45001 and TOSHMS environmental and occupational safety and health management systems. The workplace is automatically inspected regularly to ensure the safety of employees, the environment and equipment. It also provides regular health checks that are better than the laws and regulations. Provide a good environment for employees to develop their careers and provide a variety of educational training and training programs. (4) The Company and its subsidiaries regularly handle the employee satisfaction survey and staff communication meeting, understand your colleagues' recognition and understanding of corporate policy. No major Difference No major Difference No major Difference No major Difference (5) The Company and the subsidiaries of the Ministry of Human Resources for the development of peer development of a complete training program, so that colleagues can perform their duties in the existing posts, at the same time, the No major Difference 24 production, operations, and services, the company establishes policies and grievance mechanism to protect on consumer rights and interests 7) The company follows relevant laws, regulations and international guidelines when marketing or labeling their products and services 8) Prior to engaging in commercial dealings, The company assess whether there is any record of a supplier's impact on the environment and society V V necessary skills for promotion. (6) The Company and its subsidiaries have customer service management procedures and customer complaints related treatment, effectively handle customer complaints and provide timely services. No major Difference (7) The Company and its subsidiaries are responsible for the marketing and labeling of products and services, comply with the relevant laws and regulations and international standards of our customers and suppliers. No major Difference (8) The Company and its subsidiaries preferred suppliers with environmental responsibility, And have relevant management 9) When The company enters into a contract with any of their V methods and conduct regular audits. No major Difference major suppliers, the content should include terms stipulating mutual compliance with corporate social responsibility policy, and that the contract may be terminated or rescinded any time if the supplier has violated such policy and has caused significant negative impact on the environment and society of the community of the supply source. 4. Enhancing Information Disclosure 1) The company discloses the relevant and reliable information relating to their corporate social responsibility on company website and Market Observation Post System. (9) All suppliers of the Company are subject to the Company's honest policies, do not receive gifts, rebates, and prohibit irregular transactions, if there is a breach of the break, in order to the most reasonable offer, the best quality, and the best service, to achieve the company and suppliers work together to enhance the purpose of corporate responsibility. Generalplus and suppliers signed by the contract, it is not clear if there is a breach of social responsibility, or other circumstances that have a significant adverse effect on society, the Company may terminate or terminate the terms of the Contract, but when the company has a need, the supplier shall cooperate with the terms of the Environmental and Social Responsibility Letter. Sunplus Innovation and Jumplux future contract with major suppliers, depending on the actual needs of the content will include compliance with both sides of the corporate social responsibility policy, and if the supplier is involved in a policy violation, and have a significant impact on the environment and society of the source community, may terminate or terminate the terms of the contract at any time. Sunplus, Generalplus and Sunplus Innovation in the annual report of shareholders to disclose the implementation of social responsibility information, upload annual report to public information station, You can also contact the public information station at the company's website. No major Difference 5. If the Company has its own Corporate Social Responsibility Code in accordance with the Code of Practice for Corporate Social Responsibility of Listed Companies, Please describe the difference between the operation and the code: The Company has established the Corporate Social Responsibility Code, for related issues such as sustainable management, environmental protection, employee rights, social welfare and related information, Are the internal system of norms. The subsidiaries have not yet defined the corporate social responsibility policy, but related issues such as sustainable management, environmental protection, employee rights, social welfare and related information, are the internal system of norms. To fulfill corporate social responsibility, the Company and its subsidiaries will from time to time contribute to environmental protection, social contribution, social services, social welfare, consumer rights, human rights, safety and health and other social responsibility activities. 6. Other important information to facilitate better understanding of the Company’s corporate social responsibility practices (1) Sunplus and the subsidiaries for the professional IC design company, IC research and development and design based, department of non-polluting industries, there is no environmental pollution situation. (2) Sunplus and its subsidiaries are actively involved in relevant activities related to social welfare from time to time. (3) Based on the concept of professional services, the Company and its subsidiaries have formulated the relevant guidelines for the implementation of the relevant customers, in order to seek the fastest solution to customer questions. (4) Sunplus and its subsidiaries are responsible for the management of the Company's employees in accordance with the Labor Standards Act, and by hand to deal with the work of employees, to protect its basic rights and interests. (5) The company and its subsidiaries refer to occupational safety and health related laws and regulations to handle safety and health work to ensure workers' health and safety. (6) The company implements workplace and worker health and safety care through ISO45001 international occupational safety and health management system and TOSHMS Taiwan occupational safety and health management system. Note 1: Operation Check whether "Yes" or "No" is checked, should be described in the summary description field. Note 2: The company has prepared corporate social responsibility report, the abstract statement can be used to indicate the way in which the corporate social responsibility report is reviewed and the index page is replaced. 3.3.6 Implementation of Ethical Corporate Management Sunplus discloses financial reports according to the regulations of the government. In order to enhance transparency and protect shareholders’ rights and interests, Sunplus announces financial results and business information on TSE and Sunplus’ websites regularly. Item Y N Summary Implementation Status (Note 1) 1. Promulgation ethical corporate management principles 1) The company shall clearly specify in their rules and external documents V the ethical corporate management policies and the commitment by the board of directors and the management on rigorous and thorough implementation of such policies 2) The company shall adopt programs to prevent unethical conduct and V setting out in each program the standard operating procedures, conduct (1) The Company and Generalplus have established the “Integrity Operation Procedures and Behavior Guidelines” as a policy and practice for expressly operating in good faith and a commitment by the Board of Directors and management to actively implement the operating policies. The Company and Lingtong Technology also publicly disclosed the "Integrity Operation Procedures and Behavior Guidelines" and related regulations on the public information observatory and the company's website. The rest of the subsidiaries uphold the "integrity", "creative", "quality", "service" business philosophy, the development of the company's internal management system and methods, implementation of the implementation of the review. 25 Deviations from “Ethical Corporate Management Best Practice Principles for TWSE/GTSM-Listed Companies” and reasons No major Difference No major Difference guidelines, penalties, and complaints with respect to the company's operations and business 3) The company shall establish the prevention programs which business V activities within their business scope which are possibly at a higher risk of being involved in an unethical conduct, and strengthen the preventive measures 2. Implementation of ethical corporate management 1) The Company shall gain a thorough knowledge of the status of the other party's ethical management, and shall make observance of the ethical management policy of this Company part of the terms and conditions of the contract 2) The Company shall designate the responsible unit with respect to ethical corporate management of implementation. The BOD shall monitor the implementation regularly. 3) The Company shall promulgate policies for preventing conflicts of interests and offer appropriate means to voluntarily explain whether their interests would potentially conflict with those of the companies. 4) The companies shall establish effective accounting systems and internal control systems and Internal auditors shall periodically examine the compliance 5) The company shall periodically organize or engage out-sourcing training programs of ethical corporate management 3. Whistle-blowing System (1) The Company shall have in place a formal channel for receiving reports on unethical conduct, and establish a well-defined disciplinary and complaint system to handle violation of the ethical corporate management rules. (2) The Company to handle with Whistle-blowing System and Confidentiality of the identity of whistle-blowers set up procedures shall (3) The Company shall have measures for protecting whistle-blowers from inappropriate disciplinary actions due to their whistle-blowing. 4. Disclose of its implementation of ethical corporate management 1) The company shall disclose the status of the enforcement of their own V V V V V V V V (2) Sunplus and Generalplus have separate "Reporting System", "Employees' Code of Ethics", "Director's and Managers' Code of Ethics", "Reports on Cases of Reporting Illegal and Unethical or Integrity" and "Integrity Management" "Operation Procedures and Behavior Guide", which clearly defines the relevant operational procedures and behavioral guidelines for preventing dishonesty, so that in order to keep colleagues aware of the integrity behaviors, the company publishes the regulatory documents on the ethics of the industry on the company's internal website for colleagues. In addition to the enquiries, the new colleagues will be promoted through educational courses. For any suspected violation of professional ethics, if it is confirmed to be true, the offender will take severe disciplinary measures including termination of employment or business relationship, and take legal action in due course. The "rules of work" of the subsidiaries are prohibited from breaches of dishonesty, for violation of the provisions of the punishment and appeals system. (3) Sunplus and Generalplus have a "Business Operation Procedures and Conduct Guide", it is forbidden to provide or receive improper benefits. Sunplus have a "prosecution system", Generalplus official website set up online "reporting system", encourage reporting of any unlawful or breaches of ethical code of conduct or code of conduct. In addition, the company also requires the employees of the line of management, production centers, business and information units with higher sensitivity to sign the “Integrity Commitment Letter”; when signing the annual dealer contract with the customer, they sign the “Declaration of Integrity Act” together; Define the “Integrity Statement” by the relevant supplier based on the annual transaction amount. The remaining subsidiaries are in the "working rules", the report of the integrity of employees and the disciplinary system, and through the internal control system effective implementation, to reduce the risk of dishonesty, to guard against the effect. No major Difference (1) Sunplus and Generalplus "Integrity Operation Procedures and Behavior Guide" clearly stipulate that the contract should fully understand the other party's integrity management status when necessary, and incorporate the company's integrity management policy into the contract terms. In addition, the company has signed an "Declaration of Integrity Act" when signing an annual distributor contract with a customer since 2006; the relevant supplier has also signed a "Declaration of Integrity" based on the annual transaction amount. The remaining subsidiaries use the customer credit line assessment and supplier management operations to carefully assess the legality of the parties to avoid untrustworthy business activities. (2) Sunplus and Generalplus for the sound management of the integrity of management, designated chairman of the room to promote business integrity management unit, responsible for the development and promotion of integrity management policies and preventive programs. The dedicated unit reports to the board of directors on a regular basis every year in December. (3) The communication channels between the Company and its subsidiaries and the management department are smooth, if any problems are found, can respond to management. In addition to that, responsible for the integrity of the business-related departments are in accordance with their duties according to the law related matters, to prevent conflicts of interest and to provide appropriate statements on the operation of the pipeline. No major Difference No major Difference No major Difference No major Difference (4) Sunplus, Generalplus and Sunplus Innovation have established an effective accounting system and internal control system for No major Difference the implementation of credit management, internal auditors regularly check the implementation of the internal control system, and through the implementation of self-inspection system, to ensure the effectiveness of the internal control system, as the basis for the declaration of internal control system, and reported to the board of directors. (5) Sunplus and Generalplus have a "Business Operation Procedures and Conduct Guide", built-in integrity business in the corporate culture, and from time to time in the meeting in the publicity. Also in the internal announcement to the company employees to guide the integrity of operating procedures and conduct guidelines, the implementation of the company in good faith based on the core values and business philosophy. In 2018, the company announced the company's integrity policy and conducted tests on its new colleagues, with a total of 46 training records. The remaining subsidiaries implement opportunity education in their daily business, and will organize educational training in the future according to the company's actual situation. (1) Sunplus have a "prosecution system", Generalplus has a "report on the handling of cases of unlawful and unethical or No major Difference dishonesty", the remaining subsidiaries have a "Employee Appeals Scheme", the Company and its subsidiaries are assigned to the appropriate admissibility of the person in charge, as a convenient report of the staff when the report. (2) The Company and its subsidiaries have the relevant reporting and appeals, the contents of the clear report of the operating No major Difference procedures and related confidentiality principles. (3) The procedures for the protection of the prosecutor in the relevant reporting and appeals of the Company and its subsidiaries No major Difference Sunplus and Generalplus have placed relevant specifications for integrity management on the company's internal website for the peers to inquire at any time. The company's external website and the public information observatory's annual report and corporate social No major Difference 26 ethical corporate management best practice principles on their company websites responsibility report also disclose the relevant policy requirements and information of integrity management. 5. If the Company has its own Code of Practice on the basis of the Code of Practice for the Listing of Goodwill Company on Listing, please describe the difference between the operation and the code: The Company and the subsidiaries and the manufacturers and organizations are uphold the principle of operating integrity. 6. Other important information that helps to understand the operation of the company's integrity: (Such as the company to review and amend the integrity of the business rules and regulations) The Company and the subsidiaries in good faith as a fundamental, to all employees uphold the spirit of good faith, responsible for investors, customers and society. The company has a complaint, the report letter box, employees who find any violation of the principle of good faith or harm the company's reputation, can be reported or reported through the Internet. In addition, the Company and the subsidiaries and related manufacturers and partners for long-term cooperation, and express contract, set up relevant full-time staff involved, Maintain long-term stable cooperative relations. Note 1: Operation Check whether "Yes" or "No" is checked, should be described in the summary description field. 3.3.7 Formulate Corporate Governance Rules and Regulations: (If the company has established corporate governance rules and related regulations, it should disclose its search methods) The Company has a Code of Corporate Governance Practices, to protect the interests of shareholders, strengthen the functions of the board of directors, respect for the interests of stakeholders, to enhance the transparency of information, etc. are relevant norms, also for the Taiwan Stock Exchange Co., Ltd. for corporate governance review one by one to review the actual implementation of the assessment indicators, hoping to help companies gradually build a good corporate governance system, to enhance the effectiveness of corporate governance. The Company's corporate governance operation, please refer to this Annual Report, Corporate Governance Report III, Corporate Governance Operations (pages 14-31), for the Code of Corporate Governance Practices, please contact our website. 3.3.8 Other Matters Needed to Improve the Company’s Implementation of Corporate Governance: None 27 3.3.9 Internal Control System Execution Status and Information a) Statement of Internal Control System Sunplus Technology Co., Ltd. Statement of Internal Control System Date: March 20th, 2019 Based on the findings of a self-assessment, Sunplus states the following with regard to our internal control system during January 1st – December 31st, 2018: Sunplus is fully aware that establishing, operating, and maintaining an internal control system are the responsibility of Board of Directors and management team. Sunplus has established such a system aimed at providing reasonable assurance regarding achievement of objectives in the following categories: (a) effectiveness and efficiency of operations (including profitability, performance, and protection of assets), (b) reliability of financial reporting, and (c) compliance with applicable laws and regulations. An internal control system has inherent limitations. No matter how perfectly designed, an effective internal control system can only reasonable assurance of accomplishment for the three objectives mentioned above. Moreover, the effectiveness of an internal control system may be subject to changes of environment and circumstances. Nevertheless, Sunplus’ internal control system contains self-monitoring mechanisms, and Sunplus takes corrective actions whenever a deficiency is identified. Sunplus evaluates the design and operating effectiveness of our internal control system based on “Regulations Governing the Establishment of Internal Control Systems by Public Companies” (herein below, the “Regulations”). The criteria adopted by the Regulations identify five components of internal control based on the process of management control: (a) control environment, (b) risk assessment, (c) control activities, (d) information and communication, and (e) monitoring. Each component further contains several items. Please refer to the Regulations for details. Sunplus has evaluated the design and operating effectiveness of our internal control system according to the aforesaid criteria. Based on the findings of the evaluation mentioned in the preceding paragraph, Sunplus believe that, during the year 2018, our internal control system (including the supervision and management of subsidiaries), as well as our internal control to monitor the achievement of our objectives concerning operational effectiveness and efficiency, reliability of financial reporting, and compliance with applicable laws and regulations, were effective in design and operation, and reasonably assured the achievement of the above-stated objectives. This statement is an integral part of Sunplus’ annual report for the year 2018 and prospectus, and would be made public. Any falsehood, concealment, or other illegality in the content made public will entail legal liability under Article 20, 32, 171, and 174 of the “Securities and Exchange Law”. This statement has been passed by the Board of Directors Meeting held on March 20th, 2019, with all six attending directors expressing dissenting opinions, and the remainder all affirming the content of this statement. Sunplus Technology Co., Ltd. Chou-Chye Huang Chairman& CEO 28 3.3.10 The Company’s Internal Control System Audit Report by External Auditors: Not applicable 3.3.11 Regulatory Authorities’ Legal Penalties to the Company, and the Company’s Resulting Punishment on Its Employees: None 3.3.12 Major Resolutions by the Shareholders’ Meetings and the Board of Directors Meetings 2018 The implementation of the resolution of the shareholders' meeting Date 2018.06.11 Decision Maker Shareholders’ Meeting 2018.09.12 First shareholder temporary meeting Resolution matters and implementation 1. To recognize the Company's 2017 annual business report and financial statements. Implementation of the situation: The relevant bibliography has been filed with the competent authority for filing and announcement in accordance with the relevant laws and regulations. 2. To recognize the Company's 2017 earnings distribution case. Implementation of the situation: Proposed on July 19, 2018 for the ex-dividend basis, August 09, 2018 is the date of payment (Cash dividend of $.5533 per share) 3. Through capital accumulation and cash. Implementation of the situation: Proposed on July 19, 2018 for distributing base date, August 09, 2018 is the date of payment (Distributary capital reserve of $.1467 per share). 4. Election of the 11th Board of Directors. Implementation of the situation: Director elected: Chou-Chye Huang, Wen-Shiung Jan, Global View Co., Ltd., Wei-Min Lin Independent director elected: Che-Ho Wei, Tse-Jen Huang, Yao-Ching Hsu The list was elected and announced on June 11, 107 at the public information observatory. 5. By lifting the restrictions on the new directors of the company. Implementation of the situation: Effective from the resolution of the shareholders' meeting. 1. Through the Company's shareholding of the subsidiary icatch, the shareholding and cash increase of the shareholding transfer to all shareholders of the company for discussion. Implementation of the situation: Effective from the resolution of the shareholders' meeting. 2018 and as of the date of publication of the annual report of the board of directors important matters Date Decision Maker Case Result 2018.05.14 Board Meeting 1. Discussion on the consolidated financial statements for the first quarter of 2018. 2018.06.11 Board Meeting 1. Chairman's selection. 2. The fourth session of the company's "payroll committee members" appointed discussion. 29 After the chairman's consultation, all the attending directors passed the case without objection. Mr. Wen-Shiung Jan, the director of the case, nominated Mr. Chou-Chye Huang as the chairman of the board of directors of the company. All the attending directors unanimously agreed that Mr. Chou-Chye Huang is the chairman of the company. 1. This case has its own interests with independent directors, and evades participation in discussions and voting according to law. 2. In addition to legally evading independent directors who did not participate in the discussion and voting, the case was approved by the chairman after consultation with the remaining attending directors without objection. After the chairman's consultation, all the attending directors passed the case without objection. 1. Upon the direction of the Chairman, Che-Ho Wei and the acting director of the independent directors, in addition to legally evading the general directors who did not participate in the discussion and voting, were consulted by the acting chairman to attend all the independent directors, and the general director’s remuneration was passed without objection. 2. Except for the independent directors who did not participate in the discussion and voting in accordance with the law, the chairman of the general committee was consulted by the chairman, and the remuneration of the independent directors was passed without objection. After the chairman asked all the attendees to pass the case without objection. After the chairman asked all the attendees to pass the case without objection. In this case, the remuneration of directors were determined as the total amount of compensation, there is no decision on the amount of personal compensation, so there is no need to avoid the benefits. After the chairman asked all the attendees to pass the case without objection. After the chairman asked all the attendees to pass the case without objection. 2018.07.26 Board Meeting 1. The Company transferred the shareholding of the shares and the cash increase of the shareholding of the subsidiary icatch to all shareholders of the company for discussion. 2. The company’s first shareholder temporary meeting in 2018 was discussed. 3. Discussion on the distribution of directors' compensation in 2017. 2018.08.08 Board Meeting 1. Consolidated financial statements for the second quarter of 2017. 2018.11.12 Board Meeting 1. Summary of financial statements for the third quarter of 2017. 2019.03.20 Board Meeting 1. Discussions on the remuneration of employees and the distribution of directors' remuneration in the year of 2018. 2. Discussion case of summary of consolidated financial statements for 2018. 3. Discussion case of Business Report for 2018. 4. Discussion case of Surplus distribution for 2018. 5. Deal with the capital reserve distribution cash discussion case. 6. Discussion on "Restrictions on Canceling the Competition of Directors of the Company". 7. Dissolution of the restrictions on the competition of managers of the company. 8. The convening of the ordinary shareholders 'meeting in 2019 and the discussion of the shareholders' proposal. 30 3.3.13 The most recent year and as of the date of report publication the directors have different opinions and record or written statements by the board of directors through important resolutions, its main content: None 3.3.14 The most recent year and as of the date of report publication, the person related with financial report that resignation of summary of the situation. None 3.4 Audit Fees Audit Firm Name of Auditor Deloitte & Touche Zheng-Zhi Lin Zheng-Zhi Lin Yi-Xin Gao Yu-Feng Huang Duration of auditing 2018.01.01~2018.09.30 2018.10.01~2018.12.31 Remarks Amount 1. Under NT$2,000,000 2. NT$2,000 ,000~ NT$4,000,000 3. NT$4,000,000 ~ NT$6,000,000 4. NT$6,000,000 ~ NT$8,000,000 5. NT$8,000,000 ~ NT$10,000,000 6. Over NT$10,000,000 Item Audit fee Non-audit fee Total 3.4.1 Payment of visa accountants, visa accountants and their relationship between the firm's non-audit fees accounted for the proportion of the audit fee of more than one-fourth per cent, should disclose the amount of audit and non-audit fees and non-audit services: Not applicable. 3.4.2 Replacement of accounting firms and replacement of annual audit fees paid to replace the previous year's audit fee reductions, should disclose the reduction, proportion and reason of the audit public expense: Not applicable. 3.4.3 The audit fee is reduced by more than 15% over the previous year, should reduce the amount of audit fees, the proportion and reason: Not applicable. 3.5 Replacement of Auditors 3.5.1 About the former accountant Change date November 12, 2018 Replace reason and explanation Deloitte & Touche internal business transfer The description was litigant terminated or not accepted situation by the appointor or Proactively terminate the accountant appointment Accountant Appointed person Not applicable No longer accept (continue) appointment 31 Opinions and Reasons for Examining Check Reports Other than Unqualified Opinions within the Latest Two Years The 2018 and 2017 annual review reports of the central bank issued reservations. The relevant information of the investee companies whose main series was included in the financial statements and equity methods of the some non-substantial subsidiaries in the consolidated financial statements were based on the financial reports unaudited by the accountants during the same period. Recognize and expose. Accounting principles or practices Financial report disclosure Yes Check the scope or steps Is there any disagreement with the issuer Others Other disclosures (The first to fourth heads of Article 10, paragraphs 6 to 7 should be disclosed) No Instructions No 32 3.5.2 About Succession Accountant Office name Deloitte & Touche Accountant's name Zheng-Zhi Lin、Yu-Feng Huang Date of appointment November 12, 2018 Pre-appointment accounting for specific transactions Treatment methods or accounting principles and No Financial report may issue opinions Consultation and results Successor Accountant to Former Accountant No Written opinions on different opinions 3.5.3 Reply from former accountants to the first and second items of Article 10, paragraph 5 of this standard: None. 3.6 Chairman, Presidents, and Managers in Charge of Finance and Accounting Who Held a Position in Sunplus’ Independent Audit Firm or Its Affiliates during the Recent Year: Not applicable. 33 3.7 Net Change in Shareholding and Net Changes in Shares Pledged by Directors, Management, and Shareholders with 10% Shareholding or More 3.7.1 Net Change in Shareholding and Net Changes in Shares Pledged by Directors, Management, and Shareholders with 10% Shareholding or More 2018 Ended of April 12th, 2019 Unit: Shares Title Name Shareholding Increased (decreased) Shares Pledged (Released) Chou-Chye Huang Chairman& CEO Global View Co., Ltd. Director Wen-Shiung Jan Director Wei-Min Lin Director Independent Director Che-Ho Wei Independent Director Tse-Jen Huang Independent Director Yao-Ching Hsu VP Director of Finance & Accounting Division AVP AVP AVP Wayne Shen Shu-Chen Cheng Alex Chang Jason Lin Michael Su (Date of appointment: March 15, 2018) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Shareholding Increased (decreased) 0 0 0 0 0 0 0 0 0 0 0 0 Shares Pledged (Released) 0 0 0 0 0 0 0 0 0 0 0 0 3.7.2 Stock Trade Name (Note 1) - Transfer Reason - Transaction Date - Name of Counter Party - Nature of Relationship - Amount of Shares - Transaction Price - Ended of April 12th, 2019 Percentage of Shares Pledge - Transaction Price - 3.7.3 Shares Pledge with Related Parties Name (Note 1) - Reason of Pledge (Note 2) - Date of Change - Name of Counter Party - Nature of Relationship Amount of Shares - - Percentage of Shareholding - Note 1: Including Directors, mangers and shareholders holding more than 10% Note 2: Reasons for shares pledged or released 34 3.8 Top 10 Shareholders & Related Parties Name Current Shareholding Shareholding under Spouse & Minor Amount of Shares Holding % Amount of Shares Holding % Shareholding under Others’ Name Amount of Shares Holding % Chou-Chye Huang De-Zhong Liu Global View Co., Ltd. 92,737,817 15.67% 1,370,993 0.23% 13,045,795 2.20% 2,006,943 0.34% 10,038,049 1.70% - - 0 8,083,160 0.00% 1.37% 0 771,433 0.00% 0.13% 7,732,825 1.31% - - 7,000,000 1.18% 1,647,542 0.28% 6,588,620 1.11% 6,073,153 1.03% - - - - Zhi-yuan Zhou (Representative of Legal Entity) Chih-Hao Gong Polunin Emerging Markets Small Cap Fund, LLC Wen-Qin Lee Dimensional Emerging Markets Value Fund Citigroup (Taiwan) Commercial Bank is entrusted with the DFA Investment Diversified Group's Emerging Markets Core Portfolio Investment Account Chase Managed Advanced Starlight Advanced General International Stock Index - - - - - - - - - - - - - - - - - - Relationship with related-parties Name Relationship Global View - Chou-Chye Huang Corporate Director - Corporate Director of Global View Co., Ltd. - - - - - - - - - - - - - - 5,294,000 0.89% - - - - 35 3.9 Long-term Investment Ownership Long-term Investments (Note) December 31st, 2018/Unit: thousand shares, % Sunplus Investment Shareholding of Director, Supervisor, Management or Subsidiary Synthetic Shareholding Amount of Shares Holding % Amount of Shares Holding% Amount of Shares Holding % 91 34 31,450 58,050 37,324 - 14,892 3,979 Sunext Technology Generalplus Technology Sunplus Innovation Technology iCatch Technology Inc. Sunplus mMedia Inc. Jumplux Technology Global View Co., Ltd. Broadcom Inc. Note: Except companies listed above, all other long-term investments are held by the parent company. 20,735 22,441 13,200 8,229 - 5,354 2,559 10,100 30 90 55 13 - 8 10 42 - - 173 - - 14 8 61 58,050 52,216 35,429 26,089 25,000 23,300 8,402 - 91 48 69 38 100 97 13 - 36 IV. Capital & Shares 4.1 Capitalization Month/Year Price (NT$) Authorized capital Shares (thousand shares) Amount (NT$K) Issued capital Shares (thousand shares) Amount (NT$K) Funding (NT$K) 08/1990 10 2,300 23,000 620 6,200 Cash 08/1990 10 2,300 23,000 1,150 03/1992 10 2,300 23,000 2,300 Offering 6,200 11,500 Cash Offering 5,300 23,000 Cash Offering 11,500 April 12th, 2019 Remark Funding Except Cash None Not IPO yet Note None Not IPO yet None Not IPO yet 12/1993 10 6,000 60,000 6,000 60,000 Cash None Not IPO yet Offering 20,900 Capitalization of Profits 16,100 09/1994 10 19,800 198,000 19,800 198,000 Cash None Not IPO yet 06/1995 10 39,600 396,000 39,600 Offering 60,000 Capitalization of Profits 78,000 396,000 Capitalization of Profits 198,000 None 06/28/1995 SFC No. 37335 06/1996 10 64,360 643,600 64,360 643,600 Capitalization None of Profits 247,600 06/1997 10 105,500 1,055,000 105,500 1,055,000 Capitalization None of Profits 411,400 06/1998 10 184,000 1,840,000 184,000 1,840,000 Capitalization None of Profits 785,000 06/1999 10 269,120 2,691,200 269,120 2,691,200 Capitalization None of Profits 851,200 06/2000 10 600,000 6,000,000 370,000 3,700,000 Capitalization None of Profits 1,008,800 09/2000 10 600,000 6,000,000 390,000 3,900,000 Cash None 06/2001 10 700,000 7,000,000 Offering for GDR 200,000 534,000 5,340,000 Capitalization of Profits 1,440,000 06/26/1996 SFC No. 40155 06/10/1997 SFC No.46641 06/08/1998 SFC No.49408 06/23/1999 SFC No.57760 06/03/2000 SFC No.48003 09/18/2000 SFC No 72620 None 06/27/2001 SFC No 140791 12/2001 10 700,000 7,000,000 544,742 5,447,424 Merger from None Grandtech 10,742 12/12/2001 SFC No 173137 06/2002 10 1,000,000 10,000,000 694,950 6,949,500 Capitalization None 05/30/2002 SFC 37 of Profits 957,334 And Capital Surplus 544,742 07/2003 10 1,000,000 10,000,000 777,504 7,775,040 Capitalization None of Profits 130,590 And Capital Surplus 694,950 06/2004 10 1,000,000 10,000,000 875,254 8,752,544 Capitalization None of Profits 355,500 And Capital Surplus 622,004 07/2005 10 1,050,000 10,500,000 945,570 9,455,700 Capitalization None of Profits 487,576 And Capital Surplus 175,051 Employee Stock Option 40,529 11/2005 10 1,050,000 10,500,000 948,147 9,481,472 Employee None Stock Option 25,772 03/2006 10 1,050,000 10,500,000 948,730 9,487,297 Employee None Stock Option 5,825 06/2006 10 1,050,000 10,500,000 949,784 9,497,844 Employee None Stock Option 10,547 06/2006 10 1,200,000 12,000,000 1,021,358 10,213,578 Capitalization None of Profits 508,844 And Capital Surplus 189,230 Employee Stock Option 17,660 11/2006 10 1,200,000 12,000,000 1,022,777 10,227,773 Employee None 01/2007 10 1,200,000 12,000,000 Stock Option 14,195 512,212 5,122,119 Capital Reduction 5,114,358 Employee Stock Option 8,703 No.129546 05/22/2003 SFC No.0920122560 06/15/2004 SFC No.0930126644 07/11/2005 FSC No. 0940127940 TSE No.09400288741 TSE No.09400340711 TSE No.09500052761 TSE No.09500116511 FSC No.0950126238 TSE No.0950030505 None FSC No.0950159014 03/2007 10 1,200,000 12,000,000 512,954 5,129,537 Employee None Stock Option 7,418 09/2007 10 1,200,000 12,000,000 554,240 5,542,399 Capitalization None of Profits 288,622 And Capital 38 TSE No.0960005441 FSC No.0960038299 Surplus 102,415 Employee Stock Option 21,825 11/2007 10 1,200,000 12,000,000 556,051 5,560,514 Employee None Stock Option 18,115 03/2008 10 1,200,000 12,000,000 556,750 5,567,504 Employee None Stock Option 6,990 05/2008 10 1,200,000 12,000,000 556,893 5,568,931 Employee None Stock Option 1,427 09/2008 10 1,200,000 12,000,000 598,203 5,982,028 Capitalization None of Profits 301,637 And Capital Surplus 111,092 Employee Stock Option 368 02/2009 10 1,200,000 12,000,000 596,910 5,969,099 Treasury None 03/2014 10 1,200,000 12,000,000 591,995 5,919,949 Stock write-off 12,929 Treasury Stock write-off 4,915 TSE No.0960037136 TSE No.09700075761 TSE No.09700142371 FSC No.0970036239 TSE No.0980003591 None TSE No.13000058351 Issued Shares Authorized Capital Treasury Stock Shares Un-issued Shares April 12th, 2019/Unit: shares Total Remark 591,994,919 0 608,005,081 1,200,000,000 Type Common Share 39 SHELF REGISTRATION Shares Expected to Issue Total Shares N/A N/A Type N/A Amount Amount Price N/A N/A Issued Shares Objective and Expected Benefit of Issued Shares Expected time of Un-issued Shares Remark N/A N/A N/A 4.1.1 Composition of Shareholders Shareholder Amount Governmen t Financial Institutions Others Juridical Person Foreign Institutions and natural Person Domestic Retail investors April 12th, 2019/Unit: share Treasury Stock Total 243 4 0 0 0.0% 69,414 101,048 23,290,373 72,748,075 495,855,423 83.76% Persons Shares Shareholding Note: The first-listed companies and cabinet companies should disclose their shareholdings in land-based capital; land-based capital refers to the people, legal persons, organizations, and other organizations in mainland China as stipulated in Article 3 of the People's Republic of China to Taiwan Investment Permit Measures, or its investment in a third region. 69,795 0 0 591,994,919 100.00% 12.29% 3.93% 0.02% 0.0% 134 4.1.2 Distribution Profile of Shareholder Ownership – Common Share April 12th, 2019/Par value per share: NT$10 Shareholding Ownership Number of Shareholders (persons) Shares Owned (shares) Holding (%) 1~999 1,000~5,000 5,001~10,000 10,001~15,000 15,001~20,000 20,001~30,000 30,001~40,000 40,001~50,000 50,001~100,000 100,001~200,000 200,001~400,000 400,001~600,000 600,001~800,000 800,001~1,000,000 Over 1,000,001 Total 32,496 25,386 5,977 1,645 1,392 1,032 460 370 555 277 111 27 15 15 37 69,795 2,482,505 58,349,509 48,679,201 20,822,296 26,275,357 26,761,174 16,637,635 17,286,584 41,028,198 38,843,864 31,828,781 13,434,860 10,649,780 13,902,221 225,012,954 591,994,919 0.42% 9.86% 8.22% 3.52% 4.44% 4.52% 2.81% 2.92% 6.93% 6.56% 5.38% 2.27% 1.80% 2.35% 38.00% 100.00% 4.1.3 Distribution Profile of Shareholder Ownership – Preferred Shares Not Applicable 40 4.1.4 Major Shareholders Shareholding Name Chou-Chye Huang De-Zhong Liu Norges Bank Global View Co., Ltd. Chih-Hao Gong Polunin Emerging Markets Small Cap Fund, LLC Wen-Qin Lee Dimensional Emerging Markets Value Fund Citigroup (Taiwan) Commercial Bank is entrusted with the DFA Investment Diversified Group's Emerging Markets Core Portfolio Investment Account Chase Managed Advanced Starlight Advanced General International Stock Index Shares Owned Holding % April 12th, 2019 92,737,817 13,045,795 11,426,000 10,038,049 8,253,160 7,732,825 7,000,000 6,588,620 6,073,153 15.67% 2.20% 1.93% 1.70% 1.39% 1.31% 1.18% 1.11% 1.03% 5,294,000 0.89% 4.1.5 Net Worth, Earnings, Dividends, and Market Price per Share Year 2017 2018 Item Market Price Net Worth Highest Lowest Average Before Distribution After Distribution Weighted Average Shares Earnings Per Share Dividends Per Share Return on Investment EPS (Note 2) Before Adjustment After Adjustment From Profits From Surplus Cash Dividends Stock Dividends Accumulated Undistributed Dividends Price/Earnings Ratio (Note 3) Price/Dividend Ratio (Note 4) Cash Dividends Yield Rate (Note 5) 20.20 11.00 14.52 15.15 14.45 588,434,923 0.72 0.72 0.70(Note6) - - - 20.17 20.74 0.05 19.00 9.66 14.24 14.30 (Note1) 588,434,923 0.01 (Note1) (Note1) (Note1) (Note1) (Note1) 1,424.00 (Note1) (Note1) Ended of March 31st, 2019 14.10 10.85 12.38 14.42 (Note1) 588,434,923 0.01 - - - - - 1,238.00 - - Note 1: Pending shareholders’ approval Note 2: Retroactively adjusted for stock dividends and stock remuneration to employees Note 3: Price/Earnings ratio=average market price/earnings per share Note 4: Price/dividends ratio=Average market price/cash dividends per share Note 5: Cash dividends yield rate=cash dividend per share/average market price per share Note 6: Capital reserve cash is NT$ 0.1467 per share, and the surplus is calculated as surplus NT$ 0.5533 per share, totaling NT$ 0.70 in cash per share 4.1.6 Dividend Policy a) Dividend policy in the “Article of Incorporation” Our dividend policy is made according to regulations set forth in the “Company Act” and the “Article of Incorporation”. The dividends can be in the form of cash or stock, which depends on the status of company’s capital, financial structure, operational needs, retained earnings and industrial environment. The dividend policy for this year will follow the aforementioned rules and maintain the policy of cash dividend with stock dividend, while cash part shall not be less than 10% of the total dividend. b) Stock dividends for 2018 Board’ proposal waiting for shareholders’ approval :(1).legal reserve NT$561,634 (2)Special reserve N$241,172,672 (3) No dividends are available for distribution this year c) The proposed capital reserve of the shareholders' meeting is cashed out The Company's capital reserve for the year 2018 was cashed out, was approved by the board of directors on March 20, 2019 (not yet passed by the shareholders' meeting), it is proposed to allocate more than NT$213,118,171 of the capital reserve of the excess amount of the issued amount of the 41 issued shares to the shareholders, shareholding of the cash register on the basis of the capital reserve, NT$0.36 in cash per share. d) Expected Variation: None 4.1.7 Impact to Profits and EPS Resulting from Dividend Distribution Due to no official financial guidance there is no related information to disclose. 4.1.8 Profits Distributed as Employee Rewards and Directors and Supervisors’ Compensation a) Regulations Concerning Rewards to Employees, Directors, and Supervisors in the “Article of Incorporation” If the Company has a profit for the year, should be raised not less than one percent for the staff and not more than one percent. Five for the directors reward. But the company still has accumulated losses (including the adjustment of undistributed surplus amount), should be kept in advance to make up the amount. The former employee is remunerated by stock or cash, which shall be made to include the employees of the subsidiary who meet the conditions set by the Board. The remuneration of the former directors is only in cash. The first two items should be resolved by the board of directors, and report to the shareholders' meeting. When allocating the net profits of each fiscal year, the Company should pay the taxes and make up the losses in previous years; and then shall set aside 10% of the rest after paying tax and making up loss as a legal capital reserve until the accumulated legal capital reserve has equaled the total capital of the Company; In accordance with the law or the competent authorities, to allocate or rotate the special surplus reserve, the surplus, together with the previous accumulated unallocated surplus, is the shareholder's dividend, the board of directors is proposing to assign a motion, to be circulated after the resolution of the shareholders' meeting. But the ratio of the distributions offered by the surplus and the cash dividends of the shareholders, depending on the actual profit and the state of the funds, adjusted by the shareholders' meeting. The above cash dividend shall not be less than 10% of the total dividend of the shareholders to be distributed, but the cash dividend per share is lower than NT$0.5 will not be issued. In the event that the previous year's accrued or current year occurred but the annual after-tax surplus was not included in the shareholders', accrual of the same amount of surplus reserve due from the previous year's accumulated unallocated surplus, and deducted before being allocated for distribution. b) BOD Proposal to Distribute Profits as Bonus to Employees, Directors, and Supervisors The BOD meeting proposed to distribute the profits in 2018 Cash bonus to Employee NT$79,590 Cash bonus to Directors NT$119,384 c) Bonus to Employees, Directors, and Supervisors for last fiscal year Approval by shareholders’ meeting on June 11th, 2018, the company decided to distribute the profits of 2016 Cash rewards to Employee NT$4,322,651 Cash bonus to Directors NT$6,483,975 The above distributions are not different from those of the Board of Directors of the Company dated 14 March 2018. 4.1.9 Buyback of Common Shares None 4.2 Issuance of Corporate Bonds None 4.3 Preferred Shares None 42 4.4 Issuance of GDR Item Issuing Date Issuance & Listing Total Amount Offering Price per Unit Issued Units Underlying Securities Common Shares Represented Rights and Obligations of GDR holders Trustee Depositary Bank Custodian Bank GDRs Outstanding Issuing Date March 16, 2001 March 31st, 2018 March 16, 2001 London Stock Exchange Listed US$191,400,000 US$9.57 14,737,222.5 Offering 20,000,000 new shares of common stock of par value NT$10 29,474,455 Common Shares Same as common share holders N/A The Bank of New York Mega International Commercial Bank 176,225 units All fees and expenses related to issuance of GDRs were borne to the selling shareholders and Sunplus, while the maintenance expenses such as annual listing fees, information disclosure fees and other expenses were borne by Sunplus Apportionment of the expenses for the issuance and maintenance Terms and Conditions in the Deposit Agreement and Custody Agreement - Closing price per GDRs 2018 January 1 to March 31, 2019 Highest Lowest Average Highest Lowest Average US$1.27 US$0.64 US$0.952 US$0.91 US$0.71 US$0.798 4.5 Employee Stock Options Plan 4.5.1 Issuance of Employee Stock Options and Its Impact to Shareholders Equity 4.5.2 Stock Option to Management Team and Top 10 Individual 4.6 Restricted Employees Stock Not applicable 4.7 Mergers and Acquisitions Not Applicable V. Financial Plan & Implementation Not Applicable 43 VI. Business Highlight 6.1 Business Activities 6.1.1 Business Scope a) Major Business CC01080 Manufacturing of electronic component I501010 Product Designing F401010 International Trading I301010 Software Design Services I301020 Data Processing Services R&D, Manufacturing, Testing, Selling of (1) ICs (2) modules (3) Application software (4) IPs (5) Trading and Agency Business of ICs 4 Product Segments and Sales Amount Product Categories Amount Percentage % 2018 Unit: NT$K, % IC income Other Total 5,663,059 414,674 6,077,733 93.18 6.82 100.00 6.1.2 Plan to develop new products (services) Company Plans to develop new products (1) Car entertainment system chip (2) Vehicle smart cockpit system chip (3) Vehicle navigation and driving assistance system flat Sunplus Technology (4) Medium and high-order Soundbar system Generalplus Technology chip (5) High-speed interface IP (6) High - performance data converter (7) Analog IP (1) Consumer product line More audio channel / voice and image output higher resolution / support higher data compression rate / built-in more standard interface (standard interface) / low operating voltage and low power (low power) of the product (2) Multimedia product line Provides high, medium and low order multimedia IC solutions, focusing on high-speed CPU / DSP performance, high-resolution image compression, playback and storage technology (3) MCU product line Home appliances, handheld devices, PC and other peripheral applications related to the microcontroller, charging microcontrollers, high-performance brushless motor microcontrollers and other related products (1) High integration, multi-function Sunplus Innovation Technology micro-controller (2) High-integration, multi-functional optical 44 mouse system integrated chip (3) Wireless mouse, wireless keyboard and intelligent remote control overall solution (4) USB3.0 Advanced 8Mp NB/Web Cam Controller IC (5) USB3.0 3D NB/Web Cam Controller IC (6) USB2.0 Low Power NB Cam Controller IC (1) H.265 UHD (4K) / SHV (8K) SoC chip products: used in ultra-high quality, high compression, high performance, low power image processing products (2) High-speed interface IC: to provide high-speed, high-quality transmission interface, to connect multiple video recorders. Used in 360-degree panoramic video car and monitor the market demand (1) Advanced high - end process ultra - high quality Blu-ray read - only storage control chip (2) Multi-channel optical storage servo motor drive control chip iCatch Technology Sunext Technology 6.1.3 Industry Overview a) Industry Status and Exhibition 2018 global IC design industry share to the highest in the United States, Taiwan second, China has grown fast and has risen to third place. According to the Institute of Industry Intelligence Research (MIC) estimates, Taiwan IC design industry in 2018 outstanding performance, 2019 will remain growing momentum, and because of the strong demand for high-end process, Taiwan wafer foundry output will grow. And driven by high-end packaging needs, Taiwan IC packaging and testing industry to restore growth momentum. In the IC design industry, ITRI IEK industry analyst Zhehao Fan pointed out, at present, the international semiconductor manufacturers emphasize life applications and user experience, technology layout direction will also be its own advantages of technology as the core, locking the wisdom of computing, wisdom, sensory transmission and other things required for the development of the three major technical direction, build a more open industrial ecology, more interoperable platform. b) Supply Chain In the product development flow, Sunplus focuses on IC design, system design, wafer testing and sales services but out-sources most of the manufacturing including mask making, wafer fabrication, wafer sawing, packaging and final testing. The infrastructure of semiconductor industry in Taiwan is very efficient; we have foundries like TSMC, UMC, etc., and backend assembly and testing houses such ASE, SPIL and KYEC. Since those factories are located in Hsinchu Science Park or nearby, the “Cluster” effect could enable high production efficiency. c) Market Trend and Competition Company Main Product Sunplus IC products used in DVD players, automotive information and entertainment systems, and authorized high-speed interface IP, high-performance data converter IP and analog IP 45 Product development trends and competitive situation Sunplus is currently focuses on the development of automotive chip products and systems platform, has been launched with advanced driving support system function (ADAS) of the wafer platform products, and car information entertainment system (IVI), BoomBox, SoundBar, portable entertainment systems and other products. There is also a high-speed interface, data converters and analog IP licenses. As depots gradually introduce ADAS applications, Goldman Sachs Research Department pointed out, the current ADAS penetration rate in Europe, America and Japan is only 8-12%, and estimated 2015~2025 ADAS annual compound growth rate up to 42%, Barclays Securities estimates that ADAS penetration will exceed 25% by 2020, future related applications will be more popular, Sunplus will become the main revenue and profit growth momentum. Foreign European and Japanese semiconductor manufacturers and domestic MediaTek as the main competitor. In the product development of car infotainment systems, it focuses on the application of mobile internet, such as Apple CarPlay and Google Android Auto. This application, as shown on Apple's official website, is currently available on more than 500 models, showing its growth trend. Extending Sunplus's IVI system advantages and customer channels, we are also developing smart cockpit applications to meet the trend of automotive integration and intelligent architecture design. In addition, we have also found that AI technology is maturing. It is expected that AI will be widely used on various devices, including consumer products and automotive products. So now Sunplus has also invested resources to explore the possibility of AI applications, so that future products can use AI. The introduction of technology provides consumers with a better experience. In the intelligent interactive toys and educational learning platform products and competitors compared, the company's special wisdom interactive technology and complete the total solution favored by customers, and technology leadership and response quickly known, will raise the threshold of competition, and leading the industry to launch 16/32 bit platform, and provide customers with complete development tools and libraries, it is easy to develop content , to achieve the competitor is not easy to achieve interactive features, the leading position in the industry. Optical mouse image sensor main suppliers to the original phase technology-based, MCU major suppliers to Holtek, Sonix, Elan and the company mainly. The company's leading industry has introduced a high-integrated wired optical mouse single chip, provide Total solution for customers with wired and wireless handsets, and become a major supplier of optical mouse optical chips. NB Camera IC leading manufacturers for the domestic Sonix Technology and Realtek, the company in the plug-in Webcam product competition, has been the major international manufacturers, including Logitech (Logitech) and other quality recognition, as its long-term Generalplus A.Consumer IC : 1. 8/16-bit LCD control IC 2. 8/16/32-bit voice / music control IC 3.16-bit SMS / caller ID B. Multimedia IC 1. 16/32-bit MCU/DSP JPEG/MPEG/H.263/H.264 Decoder/Encoder C. MCU IC 1.Remote control IC 2. Motor Control IC 3. Industrial Control IC Sunplus Innovation Technology Micro-control product line, used in computer and home appliances such as keyboard, mouse, and remote control; Image product line, used in external network camera, NB laptop built-in network camera 46 iCatch 1. H.264 FHD SoC chip products: Used in H.264 video compression, high resolution digital camera with high resolution and high frame rate (FHD DSC), wearable carriage, carriage recorder (Car Cameras), IP and Sport Security Cameras Cameras. 2. Mjpeg HD SoC chip products: For low-cost HD DSC, Sport Cameras, Car Cameras, IP Security Cameras, 3. ISP SoC chip products: Used in Tablet PC, Smart Phone required video recording function. Sunext Light storage control chip Multi-channel digital motor driven chip the public trend. But cooperation with the supplier. Medium and low order digital cameras are driven by mobile devices, resulting in global digital camera sales continue to show a downward for high-performance video and video products demand continues to introduce new, equipped with H.264 / H.265 video compression, high resolution and high frame rate of high-end digital camera, wearable camera, sports video recorder, driving recorder and IP camera growth of five applications can be expected. Digital video and imaging system single chip core technology threshold high, the main competitor is only Ambarella. and gradually With the Ultra HD Blu-ray (Ultra HD BD) standard specification, with 4K TV strong promotion popular, ultra-high-definition Blu-ray player will be 4K film and television content broadcast the main medium. Ultra-high-definition Blu-ray player servo control chip has been officially mass production, Sunext will become the opportunity to grow revenue. In addition, develop Hong Yang and chip multi-channel digital motor-driven final is products, integration and commercialization system core customer the technology will be the development of Sunext, and hope to become the automation industry integration program of the best supply partners. stage, the basis recognition entering actively the for 6.1.4 Technology and Development a) R&D expenditure Year 2018 Ended March 31st, 2019 Unit: NT$K, % 1,699,345 28% 357,494 30% Item Expense Percentage to Revenue b) R&D Accomplishment Company Sunplus Accomplishment H.264 decoder MPEG2/4 decoder Servo Control HDMI DVD JPEG decoder Video encoder 47 Applications 1. Automotive information and entertainment system chip 2. Car Play / Android Auto platform products 3. Automotive smart cockpit platform products 4. ADAS system platform 5. Medium and high-order Soundbar system chip 6. High-speed interface IP 7. High - performance data converter 4-ch Voice/Music IC LCD Controller 8-ch Voice synthesizer USB audio controller SoC for dash cam supporting HD 720p SoC for dash cam supporting HD 1080p Remote controller with LCD controller integrated High anti - interference touch IC Wireless charging controller 1.MCU for mouse/KB controller, remote controller 2.ISP for PC camera, NB cam, web cam, etc 3..Low power microcontrollers 4.Wireless transmission technology with voice input and 3D navigation 5. USB2.0 to SATAII bridge 6. Face and gesture identification IC JPEG encoding MPEG4 encoding H.264 encoding H.265 encoding USB DVD-RW SoC Optical servo controller for CD/DVD/BD consumption high integration 8. Analog IP RISC CPU ARM Coretex-M4 32bits CPU MCU for home appliance, wireless charger, etc. MCU, highly integrated optical mouse controller, wireless mouse/KB controller, USB3.0 Web cam controller , USB 2.0 low power NB cam controller, etc. H.265 UHD SoC high speed interface control UBD motor driver Generalplus Sunplus Innovation Technology iCatch Sunext 6.1.5 Business Plan Short-term business plan: Sunplus is focusing on developing automotive wafer products and system platforms, Has launched advanced driver assistance system (ADAS) wafer platform products. Successfully developed single-chip products and system solutions for audio products such as CarPlay/Android Auto AV system, Boombox, and Soundbar, and portable audio/video entertainment systems. It also provides IP authorization such as high-speed interface, data converter and analogy. As ADAS related systems have been successively included in the implementation of legislation in various countries, front-line depots have also introduced ADAS applications. Market adjustment agencies estimate that ADAS's annual compound growth rate can reach 35%. Barclays Securities further predicts ADAS penetration rate by 2020. Will exceed 25%, future related applications will become more popular, and will become the main growth driver for Sunplus's revenue and profit. In the product development of car infotainment systems, it focuses on the application of mobile internet, such as Apple CarPlay and Google Android Auto. Such applications, such as Apple's official website, have been carried by more than 500 models, showing its growth trend. Sunplus will successively launch its successor products to meet the needs of customers after loading and front loading. In addition, in the home market, Sunplus also supplies global well-known brand customers Soundbar and audio products system single chip, and continues to work closely with audio and audio codec manufacturers to integrate advanced audio processing technology into Sunplus' system platform. To provide a good experience for end consumers. Generalplus focuses on consumer electronics chips, product lines include voice, multimedia, and microcontroller chips, and product development ranks the market leader. The main applications include multimedia interactive toys, educational learning, voice and LCD control, MP3, consumer digital camcorders and MCU and other related applications. In the consumer product line, it is expected to maintain stable growth and profitability. In the multimedia product line, focusing on intelligent interactive robots, wearable devices, IoT start-up products, driving recorders, aerial recorders, sports DVs, etc., is expected to continue to grow in product development and market expansion. In the MCU product line, more emphasis will be placed on 48 the planning and development of new product lines and the establishment of new customers, investing more resources and accelerating the expansion of product lines. Sunplus Innovation Technology focuses on computer peripheral application development, products include PC man-machine interface chip, webcam chip, optical sensor, RF wireless transmission chip, remote control IC, etc. Most of the 2017 sales amount came from PC-related mouse keyboard and camera chip solutions, and a small percentage of it came from high-calibration and remote control chips. Because the PC and notebook market has shrunk and the competition in the industry is fierce, Sunplus Innovation Technology's 2017 earnings decline. After resource adjustment and expansion of new product lines, we hope to increase the proportion of non-PC-related products such as Gao Paiyi wireless remote control and on-vehicle cameras, and return to a stable growth track after 2018. Inc. product research and development focuses on low-power, iCatch Technology high-efficiency, superior HD video compression and image quality, combined with low-cost structure. R&D chips are widely used in smart phones, tablet PCs, wearable cameras, driving recorders, drones, digital cameras and IP cameras. Currently actively researching and developing OpenCV with 28nm low-power advanced process, 4K UHD ultra-high resolution, H.265 video compression and instant computer vision. Consumer demand for high-performance video and imaging products is constantly being improved, and the high-resolution and high-frame-rate related image processing chip market will have very large room for growth. This is also the main focus of the iCatch Technology Inc. future market and operational growth. And aiming to become a world-class leader in digital video and imaging system chip solutions. Sunext Technology has gradually adjusted its product lines, committed to the development of new technologies and new products, and strived to improve operational efficiency. In recent years, the company has been operating near profit and loss. Ultra-high-definition Blu-ray player servo control chip has been officially mass production, with the Ultra HD BD standard specification confirmed, consumer demand for 4K ultra-high-definition content, will become the growth of Sunext revenue opportunities. In addition, Sunext actively develops multi-channel digital motor drive chip products and is entering the stage of final commercialization system integration and customer recognition. This core technology will be the basis for the development of Hongyang, and it is expected to become the best supplier of automation industry integration solutions. Long-term development: Sunplus Technology includes all of the Group's consolidated entities, will continue to deepen its core competitiveness in all areas, strive to expand the market to increase market share, develop high value-added products to improve gross margin, observe the boom and market trends, adjust and optimize the product line Reinvestment to improve the performance of industry and industry investment, at the same time, it actively invests in the development of advanced technologies and products, expands the scale of operations, enriches the operating team and enhances the company’s visibility and image, in the hope of creating more profit for all shareholders. 6.2 Market Status 6.2.1 Market Analysis a) Market Analysis by Region Area Asia Taiwan Unit: NT$K, % Amount (NT$K) Percentage (%) 2018 4,067,191 1,908,470 66.92 31.40 49 Others Total b) Market Share 102,072 6,077,733 1.68 100 In the 2018 Taiwan IC design industry, the value of innovation in output value reached NT$625.1 billion, a 10.2% increase from the previous year. Digitimes Research analyst Chai Huanxin said that Taiwan's IC design output value is expected to continue in 2019, but the largest application of smart phone market shipments may not be easy to pick up, in contrast, panel driver IC and AI, 5G and other new applications will be relatively growth. The company's 2018 consolidated revenue was NT$6.08 billion, with a market share of approximately 9.7%. c) Demand and Growth According to the MIC, the demand for special application chips (ASIC) is rising in 2019, and Taiwan IC design related companies are expected to benefit. Senior industry analyst Ye Junxiu pointed out that ASIC chip demand has always existed, but from 2018, the demand increase has been observed. In the past, mainstream demand was centered on 3C, but with the development of the Internet of Things, the product category is moving towards diversified development, including AI. Development has also opened up the market demand for cloud and terminal inference of customized chips. Under this wave of demand, Taiwanese companies are expected to benefit from the simultaneous benefits. In addition to the existing IC design service providers, traditional IC design vendors can also accumulate the bottom layer in the past. IP provides the foundation for the development of ASIC services, with advanced process development experience to provide services. According to Ye Xixiu, senior industry analyst at MIC, the IC design service revenue in Taiwan has maintained a growth of about 10% year-on-year. This shows that demand is still growing steadily, although ASIC is not a high overall proportion, but customized services. Maori is also attracting many traditional IC design companies. Take Taiwanese factory dynamics as an example. In the past, IC design service providers such as Creative and Zhiyuan provided ASIC design services. Now, MediaTek and Sunplus have established ASIC departments to develop their own IP and high-end process chips through long-term accumulation. The ability to assist customers in the development of unique application chips, and further expansion of applications beyond the 3C market. In the process part, the package is transmitted through the SiP module type, integrating sensors of different processes such as sensors, memory, and processing cores to improve the efficiency of the wafer and bring about wafer diversity. In view of this, Lingyang has invested a relatively large amount of resources in the intelligent computing project (Plus1) IC development in the past few years, which can be applied to AI. As customers gradually understand acceptance and market demand increases, sales will have an opportunity to grow year by year. Company Product Demands With advanced ADAS related systems gradually listed in the legislation implementation regulations of various countries, first-line depots have also introduced ADAS applications, the market adjustment agency estimates that ADAS' compound annual growth rate can reach 35%, and Barclays expects ADAS penetration rate will exceed 25% by 2020, future related applications will become more popular, Strategy Analytics predicts ADAS output will exceed 26 billion U.S. dollars by 2020. Electronic education toys have been more than ten years of history, because of its excellent interaction and sound and light effects, can help children to learn from the shape, name, number to Sunplus Car infotainment &ADAS Generalplus Education and learning toys 50 text and so on, through fun games and interactive processes, due to the prevalence of smart phones and tablet PCs, for school age children and adolescents, in the electronic trend, manufacturers have also begun to launch such as Tablet PC learning platform, children in the subtle, but also because the learning effect is better than traditional books development of fast learning, so the market continues to grow rapidly. In recent years, the rapid development of electronic chips and a large number of various sensors used, so that toys are no longer just dull and passive amusement equipment, but with a lot of sound and light effects and interactive features of interesting products, at the same time in the smart phone, flat on the Apps game popular, toy manufacturers also follow the trend of the launch of interactive toys with Apps, but also caused another wave. At present, toy manufacturers are striving to develop the interactive electronic toys, at the same time with a variety of strong movies, TV animation, so that each year has a high degree of electronic toys growth, At present, the annual turnover of intelligent interactive toys of the Company can reach hundreds of millions of pieces, for the highest market share of IC design company. The development of wireless charging technology, has now gradually become standardized. According to the market regulator IHS iSuppli forecast 2015 will exceed 100 million units of electronic devices equipped with wireless charging function. IHS also statistics, Global Wireless Receiver and Transmitter Market, Is expected to grow from 25 million in 2013 to 1.7 billion in 2023, a number of mobile phone manufacturers have been imported wireless charging, the market will continue to be optimistic. Driving record total 720P market size in 2014 has exceeded 10 million units, while the 1080P Intelligent interactive toys Wireless charging Driving recorder market 51 part of the show doubled growth, 2014 has exceeded 8 million units, coupled with the demand for dual photographic lens gradually rise, it is expected that there will still be a lot of room for growth in the market in the next few years. PC laptop market shrunk by nearly 10%, Competition in the same industry is more intense, resulting in PC peripheral applications based HID man-machine interface device market, declining state. In the Tablet PC with smart home appliances will be very promising market direction. 5Mp and 8Mp Tablet PC with Internet Camera is a new demand and technical ability to upgrade, the company has been in this direction of high-end video products into research and development, create new products and applications for tablets. Also actively increase the non-PC-related product lines such as high-shot wireless remote control and car camera, reduce the dependence on the PC market. The public for high-performance video and video products to improve demand, equipped with H.264 / H.265 video compression, high resolution and high frame rate of high-end digital cameras, wearable cameras, driving recorders and IP camera growth of the four applications can be expected, the four major application market from 2013 to 2017 annual growth rate will be more than 35%. Major TV manufacturers strongly promote of 4K TV, in order to maintain the 4K video content playback quality and consumer viewing effect, Ultra-high-definition Blu-ray player (UHD BD Player) will be 4K film and television content broadcast the main media. So ultra-high-definition Blu-ray servo control chip will have the opportunity to gradually grow in the future. Sunplus Innovation Keyboard, mouse, and remote control PC / NB cam iCatch High - order digital camera Wearable camera Driving recorder IP camera Sunext Ultra HD Blu-ray player 52 d) Advantages and disadvantages of competitive advantages and development prospects (1) Competition Analysis (a) Accumulation and impartation of the experience of the R&D team The company since its inception in 1990 that is positioned as IC design company, management team has established a complete product development, technology management, marketing and other systems, and passed on to the backward employees, so that technology without fault, customers less complain, the staff personal growth achievements. In addition, Sunplus and actively establish a patent layout, so that the core IP research and development can create more value. (b) Focus on high-level consumer IC market, enlarge the distance from competitors Since the IC market is extremely competitive and stagnation is an ever-present trap, we keep on bringing in a large number of R&D resources to develop new high-level consumer products and widening the distance between us and other competitors. Meanwhile, Sunplus’ numerous product lines give us a tremendous advantage over our competitors. We are the kind of customer that prized by most wafer foundries because our wafer demand does not fluctuate when a few products are eliminated. Due to our steady stream orders to our wafer suppliers, we enjoy more consistent wafer supply during peak seasons over our competitors. This also allows us to keep our wafer costs at a competitive rate. (c) Strategic cooperation with upper stream and down- stream factories In recent years, Sunplus has increased cooperation between our upper stream and down-stream factories. We believe that this new strategic and more dynamic cooperation relationship will bring positive contributions to our production and marketing in the long term. (d) Maintain long-term and stable cooperative relationship with customers Consumer electronic products rely on IC to raise their added-on value; consequently the manufacturers and brand-names choose their IC suppliers with extreme caution by evaluating their product specification, features, delivery term, yield rate, and sales service. IC design houses have to work in coordination with customers to build up long-term relationship and facilitate the cooperation. Sunplus is always devoted itself to cutting-edge technology development and have accumulated IC design expertise. We also adopted distributors as expanding sales channels to reach more customers with strongly support and best service. Till today, we have sustained a strong relationship with a lot of end-product manufacturers worldwide. (2) Advantages (a) Sunplus offers high value-added products to enable customer to win the market. (b) The growing demand for SoC complicates IC product development and raises the entry barrier, which benefits IC design companies with rich resources like Sunplus. (c) Sunplus has strong IC design capability to meet customers’ requirements for time to market and costs reduction. (d) Sunplus has built up long-term relationship with wafer foundries due to our steady demand for wafers, and therefore we can get stable supply and lower prices from wafer foundries. (e) Sunplus have developed a strong technology and customer base on car entertainment IC that makes Sunplus easier to get into automotive ADAS applications (3) Disadvantages (a) The competitors are mainly international and big IC design companies. (b) Revenue and growth are slowing down due to poor PC demands. (c) SoC design and integration of features and functions, which developing products costs are a lot more than before, has become the trend of IC design. (d) Consumer application demands link to world economics. (e) There is high entry-barrier to get into automotive market. (4) Business Strategy (a) Developing new and high value-added products. (b) Process migration to make per wafer productivity higher and drive cost down. (c) Expanding strategic partnership with clients to create win-win situation. (d) Collaboration with partners to broaden IP licensing sources. 53 6.2.2 Product Applications and Development Flow a) IC Development Flow In the product development flow, Sunplus focuses on IC design, system design, wafer testing and sales services but out-sources most aspects of the manufacturing including mask making, wafer fabrication, wafer sawing, packaging, and final testing. 6.2.3 Major Suppliers The major materials are wafers, at present the main suppliers for domestic and foreign wafer foundry manufacturers, whose wafer supplements are sufficient and stable. Main raw material name Major suppliers Supply status Quality and supply stability, long-term cooperation, the supply situation is good. Wafer A, B, D 54 Product Spec.Product Spec.IC Design& LayoutIC Design& LayoutSystem Design& CodingSystem Design& CodingTape OutTape OutMask MakingWafer FoundryWaferC.P. TestingWaferC.P. TestingPackagingFinal TestingAfter SalesServiceAfter SalesServiceProduct Spec.Product Spec.IC Design& LayoutIC Design& LayoutSystem Design& CodingSystem Design& CodingTape OutTape OutMask MakingWafer FoundryWaferC.P. TestingWaferC.P. TestingPackagingFinal TestingAfter SalesServiceAfter SalesService 6.2.4 Major Customers and Suppliers in the Recent Two Years a) Major Customers 2017 2018 End of March, 31, 2019 Unit: NT$K Customer Sales Amount % of Total Sales Relation with Sunplus Customer Sales Amount % of Total Sales Relation with Sunplus Customer Sales Amount % of Total Sales Relation with Sunplus A B C Others Net sales 1,083,925 798,635 658,358 4,279,319 6,820,237 15.89 11.71 9.65 62.75 100.00 No No No B C A Others Net sales 763,906 652,318 622,701 4,038,808 6,077,733 12.57 10.73 10.25 66.45 100.00 No No No C B D Others Net sales 176,974 141,158 116,392 745,076 1,179,600 15.00 11.97 9.87 63.16 100.00 No No No b) Major Supplier 2017 2018 End of March, 31, 2018 Supplier Purchasing Value % of Total Purchasing Relation with Sunplus Supplier Purchasing Value % of Total Purchasing Relation with Sunplus Supplier Purchasing Value % of Total Purchasing A B C Others Net purchase 1,098,986 324,802 222,943 1,116,224 2,762,955 39.78 11.76 8.07 40.39 100.00 No No No A B C Others Net purchase 953,504 233,065 192,493 1,075,991 2,455,053 No No No 38.84 9.49 7.84 43.83 100.00 A C B Others Net purchase 150,156 35,312 34,234 161,984 381,686 39.34 9.25 8.97 42.44 100.00 Unit: NT$K Relation with Sunplus No No No 55 6.2.5 Production Year Capacity Product Multimedia ICs IC income Total Note: Sunplus out-sourced production to wafer foundries, so there is no capacity limitation. 714,121 18 714,139 - - - 2017 Output Value Capacity 4,134,661 20,307 4,154,968 Unit: thousand pcs, NT$K 2018 Output 643,298 17 643,315 - - - Value 3,670,886 23,111 3,693,997 6.2.6 Sales Product IC income Other ICs Total Year 2017 Unit: thousand pcs, NT$K 2018 Local Export Local Export Quantity Sales Quantity Sales Quantity Sales Quantity Sales 227,505 - 227,505 2,104,660 49,630 2,154,290 477,832 - 477,832 4,049,749 616,198 4,665,947 189,206 - 189,206 1,894,980 13,490 1,908,470 386,708 52 386,760 3,768,079 401,184 4,169,263 6.3 Personnel Structure Workforce Structure by Job Function Year R&D Production Administration Total Average Age Average Years Served Workforce Structure by Education Degree Ph.D. Master Bachelor Other Higher Education High School Total 2017 911 115 392 1,418 32.7 5.14 1% 40% 48% 7% 4% 100% 56 2018 757 72 333 1,162 36.9 6.88 1% 38% 50% 7% 4% 100% End of March 31, 2019 746 73 328 1,147 37.6 7.86 1% 38% 47% 10% 4% 100% 6.4 Environmental Protection & Expenditures 6.4.1 Environmental Protection The company is a high-tech integrated circuit professional IC design firms, in the Hsinchu Science and Technology Industrial Park in the semiconductor research and development, all products commissioned at home and abroad well-known integrated circuit manufacturers manufacturing wafer, relevant aspects of the environmental pollution regulations and the losses caused by non-violation of environmental regulations. The vast majority of the company's office operations, no facilities and equipment to produce harmful pollution sources, no expenditure on environmental protection operations. On the product, the foundry, package, and test foundry with the best combination of quality, cost, and production efficiency are entrusted to reduce the consumption of defective products and effectively reduce environmental expenditure directly and indirectly. If defective products are produced, they are currently qualified manufacturers. Unpaid cleaning, no clean-up costs. Sunplus does not violate any EPA regulation regarding pollutants and environmental protection. To adhere to the conception of Earth Vision, Sunplus has established the environment protection system for fulfilling policies, social responsibilities and obligations, and been ISO-14001 certified. To reduce the environmental impact of E-Waste, Sunplus supplies customers with hazardous substances free (HSF) and satisfying products, and has been IECQ QC080000 certified. In order to reduce the impact of the greenhouse effect on the climate, Sunplus Technology conducts independent investigation of greenhouse gas emissions in accordance with the ISO14064 standard and 100 years as the base year of inspections in the Republic of China, and exposes it in the Corporate Social Responsibility Report (CSR Report), according to the results of the self-examination, the annual greenhouse gas emissions in the past three years (2015-2017) were 4957.23, 4681.77, and 4283.61 (tons of CO2 equivalent), of these, those that belonged to [Scope 1] and those directly emitting emissions (such as official vehicle fuel consumption and generator oil) accounted for only about 0.06% (2017 category 1 was 2.94 tons of CO2 equivalent). Yu Jun is an Scope II, and the indirect emission of energy such as purchased electricity. Sunplus is an IC design industry. More than 99.9% of greenhouse gas emissions are indirect emissions. The emission sources mainly come from the water and electricity required by air-conditioning and office lighting. They have passed the plant monitoring system, making air-conditioning equipment more efficient. , At the same time, to promote energy-saving concepts and actions to colleagues, with a goal of reducing the amount by more than 2% annually, reducing unnecessary waste. In addition, it also actively strengthens employees’ awareness of environmental protection, promotes waste reduction, recycling, energy conservation and water saving, and saves energy resource consumption in order to reduce the impact on the environment. 6.4.2 Working Environment As the leading company in IC design, it is the company's primary responsibility to care for and care for the company's workers. We provide facilities and environments that are better than the Occupational Safety and Health Act, and set up dedicated organizations and personnel to implement environmental safety and health management related matters. Employee's workplace is automatically checked and monitored on a regular basis to ensure the safety of employees, the environment and equipment. In addition, new employees are free of physical examination, and work related to labor health check according to Article 20 of the Occupational Safety and Health Act and the Labor Health Protection Rules, providing employees with comprehensive health checks to ensure that each employee can master their own health. Since April 2018, the occupational safety and health management system has been promoted, and the management system verification audit has been completed. At the same time, ISO 45001:2018 (Occupational Health and Safety Management Systems) and CNS15506:2011 (TOSHMS, Taiwan Occupational Safety and Health Management System) Taiwan Occupational Safety and Health Management System, two occupational safety and health management systems certification. 57 6.5 Employees 6.5.1 Employee Welfare We strive to provide a clean and supportive environment for our employees. We established an Employee Welfare Committee to operate welfare activities including emergency aid, educational grants, book purchase subsidies, social club activities and overseas trips. We also comply with the Labor Standards Law to conduct labor insurance and retirement system programs, and participation with the National Health Insurance plan according to the National Health Insurance Act. Moreover, we also handle group insurance and insurance for employees’ family to ensure security for our employees. 6.5.2 Pension Plan Sunplus has a pension plan for all regular employees, which provides benefits according to the Labor Standard Law. The Company makes monthly contributions, equal to 2% of salaries, to the pension fund, which is administered by a pension fund monitoring committee. The contributions are deposited in the committee’s name in the Central Trust of China. Since July 1, 2005, employees who choose Labor Pension Act Implementation Rules of the Labor Pension, the Company makes monthly contributions, equal to 6% of salaries to the personal pension fund of Bureau of Labor Insurance. 6.5.3 Other Affairs Sunplus have smooth commutation channels with employees. Employees could address their opinions to management team directly. All operations are based on the Labor Standard Law. Sunplus’ labor relations are outstanding. We are proud to say that there has not been a single loss resulting from a labor dispute since the establishment of the company. 6.5.4 Training The Company provides various kinds of external professional training courses & internal training regarding management, professional skills, general skills, special skills, and self-development. 6.5.5 Loss from Controversy between Labor and Management None 6.6 Important Contracts Contract Lease of Land Lease of office Counter Party Hsinchu Science Park Administration Hsinchu Science Park Administration Term Content Restriction 1995/8/01-2034/12/31 Lease of Land Self-use 2012/01/01~2018.12.31 Lease of office - Licensing KPENV 2006.Feb ~ IP Licensing Licensing Broadcom International 2008.Feb ~ IP Licensing Licensing ARM Limited 2007.12.27 ~ ARM7 TDMI-Score Licensing ARM Limited 2010.06.01 ~ CORETEX-A8 Score Licensing ARM Limited 2008.03.09 ~ ARM926EJ-Score Subject to agreement Subject to agreement Only license Generalplus Only license Generalplus Only license Generalplus 58 VII. Financial Statements 7.1 Condensed Financial Statement and Auditors’ Opinions by adopting IFRSs 7.1.1 Condensed Balance Sheet by adopting IFRSs-Consolidated Year Recent 5 Years (Note 1) 2014 (Note 3) 2015 2016 2017 2018 Unit: NT$K End of March 31, 2019 (Note 4) 278,188 196,131 191,024 193,481 8,037,727 8,705,229 8,792,142 8,561,910 6,638,302 6,362,687 3,490,672 3,563,095 2,265,910 2,164,154 2,052,359 2,059,763 169,359 3,012,857 3,137,202 3,379,946 2,557,784 3,057,802 3,380,721 14,819,444 15,599,007 14,629,022 13,479,979 11,926,984 11,972,530 2,709,677 2,740,858 3,045,403 2,190,116 1,684,729 1,399,863 (Note 2) 2,709,677 3,267,733 3,134,084 2,517,667 1,070,564 1,632,909 603,710 646,578 3,836,100 4,373,767 3,940,845 2,836,694 2,059,378 2,003,573 (Note 2) 3,836,100 4,900,642 4,029,526 3,164,245 (Note 2) 374,649 (Note 2) 178,521 895,442 Item Current Assets Fixed Assets Intangible Assets Other Assets Total Assets Current Liabilities Non-Current Liabilities Total Liabilities Equity Attributed to Before Distribution After Distribution Before Distribution After Distribution Shareholder of the parent Before Distribution After Distribution Capital Stock Capital Surplus Retain Earnings Unrealized Gain (Loss) on Financial Merchandise Cumulative translation adjustments Unrealized Net Loss on the Costs of Pensions Total Equity Before Distribution After Distribution 9,324,318 9,530,012 9,024,254 8,966,236 8,465,942 8,538,080 5,919,949 5,919,949 5,919,949 5,919,949 5,919,949 5,919,949 805,187 1,813,177 2,444,655 2,012,196 2,336,709 2,250,839 2,255,899 (Note 2) 1,813,177 1,917,780 1,923,515 2,009,158 (Note 2) 801,398 897,317 911,110 936,051 835,241 309,932 331,492 244,400 (62,262) (442,843) (379,554) (63,401) (63,401) (63,401) (63,401) (63,401) (63,401) 1,598,388 1,695,228 1,663,923 1,677,049 1,401,664 1,430,877 10,365,512 11,225,240 10,688,177 10,643,285 9,867,606 9,968,957 (Note 2) 10,365,512 10,698,365 10,599,496 10,315,734 (Note 2) Note 1: Figures are audited by adopting IFRSs Note 2: Distribution is waiting to be approved in Shareholders’ Meeting Note 3: Figures are audited and adjusted by adopting IAS19 Note 4: Figures are reviewed by CPA adopting IFRSs 59 7.1.2 Balance Sheet by adopting IFRSs- Standalone Year Recent 5 Years (Note 1) Unit: NT$K Item Current Assets Fixed Assets Intangible Assets Other Assets Total Assets Current Liabilities Before Distribution After Distribution Non-Current Liabilities Total Liabilities Before Distribution After Distribution Equity Attributed to Shareholder of the parent Capital Stock Capital Surplus Retain Earnings Before Distribution After Distribution Unrealized Gain (Loss) on Financial Merchandise Cumulative translation adjustments Unrealized Net Loss on the Costs of Pensions 2014 (Note 3) 3,213,839 775,098 200,631 7,055,589 11,245,157 1,154,078 2015 2016 2017 2018 3,273,115 744,937 67,742 7,279,247 11,365,041 836,984 3,267,397 722,145 68,497 6,465,991 10,524,030 898,923 2,942,735 682,943 62,141 6,055,212 9,743,031 604,818 1,909,420 687,187 86,495 6,268,285 8,951,387 413,663 1,509,276 766,761 1,920,839 1,363,859 998,045 1,835,029 987,604 600,853 1,499,776 932,369 （Note 2） 71,782 171,977 485,445 776,795 2,276,037 2,361,904 1,588,457 1,104,346 （Note 2） 5,919,949 936,051 2,221,787 5,919,949 897,317 2,444,655 5,919,949 911,110 2,012,196 5,919,949 835,241 2,336,709 5,919,949 801,398 2,250,839 1,866,589 309,932 1,917,780 331,492 1,923,515 244,400 2,009,158 （Note 2） (442,843) (62,262) (63,401) (63,401) (63,401) (63,401) (63,401) - - - - - 9,324,318 Total Equity Before Distribution After Distribution Note 1: Figures are audited by adopting IFRSs Note 2: Distribution is waiting to be approved in Shareholders’ Meeting Note 3: Figures are reviewed and adjusted by adopting IAS19 9,003,137 9,530,012 8,969,120 9,024,254 8,935,573 8,966,236 8,465,942 8,638,685 （Note 2） 60 Unit: NT$K End of March 31, 2019 (Note 4) 7.1.3 Condensed Income Statement adopting IFRSs -Consolidated Year Recent 5 Years (Note 1) 2014 (Note 2&3) 2015 2016 2017 2018 7,871,515 8,465,833 7,556,045 6,820,237 6,077,733 1,179,600 504,577 3,314,401 3,522,625 3,202,488 2,736,766 2,429,384 236,391 (43,558) (89,790) - - - 47,185 272,506 551,228 886,956 552,876 856,125 566,540 272,506 554,115 551,228 828,280 142,323 (27,845) (332,841) 587,470 634,655 129,776 366,167 390,694 943,570 371,467 938,007 293,780 203,990 Item Net Sales Gross Profit (Loss) Income from Operation (Loss) Non-operating Income (Expense) Income (Loss)Before Tax Income (Loss) From Operations of Continued Segments (Loss) Income (Loss) From Operations of Discontinued Segments Consolidated Net Income (Loss) Other comprehensive income (Loss) for the period, net of income tax Total Comprehensive Income (Loss) for the Period Net Profit (Loss) Attributable to: Owner of the Company Net Profit (Loss) Attributable to: Non-controlling interests Total Comprehensive Income (Loss) Attributable to: Owner of the Company Total Comprehensive Income (Loss) Attributable to: Non-controlling interests Earnings per share (Loss) Note 1: Figures are audited for the past-5 years by CPA adopting IFRSs Note 2: Figures are reviewed and adjusted by adopting IAS19 Note 3: Figures are adjusted because Sunplus decided to dispose STB center to Availink Inc.by Board Meeting on 2015/1/20 Note4: Figures are audited by adopting IFRSs. 131,695 0.01 237,359 1.00 132,373 0.20 142,367 0.72 121,887 0.72 (131,361) (120,733) (113,556) (320,167) 136,707 142,323 609,203 238,932 846,562 589,348 678,986 422,852 120,187 129,770 158,950 131,263 109,174 421,458 536,619 231,061 152,319 124,871 18,282 10,962 26,577 5,616 79,891 36,333 28,349 - 28,349 69,343 97,692 7,103 21,246 70,392 27,300 0.01 61 7.1.4 Condensed Income Statement adopting IFRSs -Standalone Year Recent 5 Years (Note 1) Unit: NT$K 2014 (Note 2&3) 2015 2016 2017 2018 - - (27,845) (332,841) 121,076 120,187 760,808 755,693 422,852 113,767 589,348 19,855 621,500 617,193 421,458 421,458 120,187 (93,610) 421,458 (312,284) 2,577,171 944,754 178,340 582,468 1,904,224 767,713 (79,166) 200,242 2,671,392 1,011,207 167,996 453,504 1,365,802 473,255 (273,494) 694,952 Item Net Sales Gross Profit(Loss) Income from Operation(Loss) Non-operating Income (Expense) Income (Loss)Before Tax Income(Loss) From Operations of Continued Segments(Loss) Income(Loss) From Operations of Discontinued Segments Net Income (Loss) Other comprehensive income (Loss) for the period, net of income tax Total Comprehensive Income(Loss) for the Period Net Profit(Loss) Attributable to: Owner of the Company Net Profit (Loss)Attributable to: Non-controlling interests Total Comprehensive Income (Loss)Attributable to: Owner of the Company Total Comprehensive Income (Loss)Attributable to: Non-controlling interests Earnings per share (Loss) 1.00 Note 1: Figures are audited for the past-5 years by CPA adopting IFRSs Note 2: Figures are reviewed and adjusted by adopting IAS19 Note 3: Figures are adjusted because Sunplus decided to dispose STB center to Availink Inc.by Board Meeting on 2015/1/20 109,174 609,203 421,458 109,174 589,348 609,203 536,619 536,619 422,852 120,187 26,577 26,577 0.20 0.72 0.72 - - - - - - - - 1,238,780 429,308 (239,614) 247,374 7,760 5,616 - 5,616 (126,349) (120,733) 5,616 - (120,733) - 0.01 62 7.1.5 Auditors’ Opinions Year 2014 2015 2016 2017 2018 CPA Audit Opinion Tung-Hui Yeh, Hung-Peng Lin Tung-Hui Yeh, Shu-Jay Huang Zheng-Zhi Lin, Shu-Jay Huang Zheng-Zhi Lin, Shu-Jay Huang Zheng-Zhi Lin, Yu-Feng Huang An unqualified opinion An unqualified opinion An unqualified opinion An unqualified opinion An unqualified opinion 63 7.2 Financial Analysis for recent 5 years 7.2.1 Financial Analysis (consolidated by IFRSs) Unit: NT$K End of March 31, 2019 (Note 2) 16.73 Recent 5 years (Note 1) 2014 (Note 7&8) Analysis Item 2017 26.29 21.04 17.26 26.93 28.03 Year 2015 2018 2016 Capital Structure Liquidity Operating Performan ce Profitabilit y Cash Flow Leverage Debts ratio (%) Long-term fund to Property, plant and equipment (%) Current ratio (%) Quick ratio (%) Times interest earned (times) Average collection turnover (times) Average collection days Inventory turnover (times) Payment turnover (times) Average inventory turnover days Fixed assets turnover (times) Property, plant and equipment turnover (times) Return on total assets (%) Return on stockholders’ equity (%) Profit before tax to paid-in capital (%) (Note 6) Profit after tax to net sales (%) Earnings per share (NT$) Cash flow ratio (%) Cash flow adequacy ratio (%) (Note3) Cash flow reinvestment ratio (%) Operating leverage Financial leverage 331.73 350.30 495.04 503.31 480.79 483.98 284.40 317.60 288.70 390.93 394.02 454.52 228.76 257.15 251.00 319.47 326.66 378.13 1,853.7 0 4.82 76 4.02 5.87 91 2.79 2,519.9 4 5.49 66 4.37 5.60 83 3.07 1,020.2 0 5.29 69 4.18 6.23 87 2.59 2,518.7 7 5.13 71 3.84 7.09 95 2.40 5.64 65 3.99 6.03 91 2.88 5.17 71 3.36 5.57 108 2.29 956.27 707.88 0.54 4.01 5.20 0.56 5.65 7.47 0.50 2.02 2.48 0.48 4.07 5.16 0.47 1.27 1.38 10.32 15.37 6.19 10.72 3.44 0.39 0.27 0.28 0.61 7.03 0.72 10.64 49.41 1.30 6.07 1.07 9.78 1.00 36.73 46.54 3.64 5.55 1.07 2.34 8.08 3.60 0.01 0.72 0.20 16.85 14.37 40.69 54.36 56.71 77.50 4.08 Note 4 Note 4 11.54 1.20 2.40 0.01 2.12 76.47 0.24 49.66 Note 5 Note 5 2.25 Note 5 Note 5 Variation Analysis 2018 vs. 2017 1. The decrease in interest coverage ratio is mainly due to the decrease in net profit before interest expense for the year. 2. The decrease in the rate of return on assets and the rate of return on equity was mainly due to the decrease in net profit after tax reduction for the disposal of investment interests during the year. 3. The decrease in the ratio of net profit and pre-tax net profit to the amount of paid-in capital was mainly due to the decrease in investment interests during the year. 4. The decrease in basic earnings per share was mainly due to the decrease in net profit after tax for the year. 5. The decrease in the cash flow rate is mainly due to the decrease in net cash inflows from operating activities in the last five years. Note 1: Figures have been audited by adopting IFRSs. Note 2: Figures 1Q’19ave been audited by adopting IFRSs. Note 3: Cash flow adequacy ratio of 2014o 2016 is calculated based on the data by Taiwan GAAP. Note 4: Figures not listed due to cash flow from operating less than cash dividends. Note 5: Figures not listed due to operating loss. Note 6: for those stock without par value or par value not equal to NT$10, the ratio of Operating income to paid-in capital (%) is calculated by ratio to attributable to Owner of the Company. Note 7: Figures are reviewed and adjusted by adopting IAS19. 64 Note 8: Figures are adjusted because Sunplus decided to dispose STB center to Availink Inc.by Board Meeting on 2015/1/20. 7.2.2 Financial Analysis (Standalone) by IFRSs Unit: NT$K Analysis Item Year 2014 (Note 5&6) Recent 5 years (Note 1) 2015 2016 2017 2018 7.97 17.08 14.25 16.14 Liquidity Profitability 278.47 212.16 4.01 4.67 7.22 1.25 1.29 2.04 Capital Structure 5.39 6.25 10.02 Operating Performance 3.30 111 2.84 4.54 129 3.23 0.23 4.26 86 3.23 8.57 113 2.59 0.17 461.58 393.47 259.53 6.65 55 3.03 6.61 120 1.80 0.13 5.42 1,287.75 1,400.06 1,322.92 1,327.52 1,231.97 486.54 363.47 319.86 426.00 687.97 5,155.27 4.95 74 3.34 6.33 109 1.94 0.13 391.06 334.88 3,120.87 2,662.46 4.00 91 2.86 7.26 128 3.51 0.23 Debts ratio (%) Long-term fund to Property, plant and equipment (%) Current ratio (%) Quick ratio (%) Times interest earned (times) Average collection turnover (times) Average collection days Inventory turnover (times) Payment turnover (times) Average inventory turnover days Fixed assets turnover (times) Property, plant and equipment turnover (times) Return on total assets (%) Return on stockholders’ equity (%) Profit before tax to paid-in capital (%) (Note 4) Profit after tax to net sales (%) Earnings per share (NT$) Cash flow ratio (%) (Note2) Cash flow adequacy ratio (%) Cash flow reinvestment ratio (%) Operating leverage Financial leverage Variation Analysis 2017 vs. 2016 1. The decrease in debt-to-asset ratio due to the decrease in borrowings during the year. 2. The decrease in the interest protection ratio was mainly due to the decrease in net profit before tax for the current year. 3. The increase in accounts receivable turnover and the decrease in average collection days were mainly due to the decrease in accounts receivable during the year. 4. The decrease in return on assets and return on equity was mainly due to the decrease in net profit after taxation as a result of the decrease in investment interest during the year and the decrease in the share of profits of subsidiaries, affiliates, and joint ventures using the equity method. 5. Pre-tax net profit as a percentage of paid-in capital ratio, net income ratio, and earnings per share was mainly attributable to the decrease in net profit after taxation as a result of the decrease in the disposal of investment interests during the year and the decrease in the share of subsidiaries, affiliates, and joint ventures using the equity method. 6. The decrease in the cash flow allowance rate was mainly due to the decrease in net cash inflows from operating activities in the last five years. 1. Capital Structure Analysis 0.45 22.06 0.01 1.00 54.00 70.01 92.68 97.84 Note 7 2.10 5.42 Note 3 Note 3 Note 3 1.17 Note 3 Note 3 Note 3 16.40 0.72 24.04 100.10 2.63 4.48 1.16 30.85 0.72 51.41 137.53 0.15 6.31 0.20 86.72 84.41 2.49 0.10 0.06 0.13 4.22 4.68 7.11 Cash Flow Leverage (1) Debts ratio (2) Long term fund to Property, plant and equipment = Total Liabilities/Total Assets = (Total Equity + Non-Current Liabilities)/ Property, plant and equipment 65 2. Liquidity Analysis (1) Current Ratio (2) Quick Ratio (3) Times Interest Earned 3. Operating Performance Analysis (1) Average Collection Turnover (2) Average Collection Days (3) Average Inventory Turnover (4) Average Payment Turnover (5) Average Inventory Turnover Days (6) Property, plant and equipment Turnover (7) Total Assets Turnover 4. Profitability Analysis (1) Return on Total Assets (2) Return Ratio on Stockholders’ Equity (3) Profit after Tax to Net Sales (4) Earnings Per Shares 5. Cash Flow (1) Cash Flow Rate (2) Cash Flow Adequacy Ratio (3) Cash flow reinvestment ratio = Current Assets/Current Liabilities = (Current Assets – Inventories – Prepaid Expenses)/Current Liabilities = Earnings before Interest and Taxes/Interest Expenses = Net Sales/Average Trade Receivables = 365/Receivables Turnover Rate = Cost of Sales/Average Inventory = Cost of Sales/Average Trade Payables = 365/Average Inventory Turnover = Net Sales/ Average Property, plant and equipment = Net Sales/Average Total Assets = {Net Income + Interest Expense × (1 – Effective tax rate)}/Average Total Assets = Net Income/Average Total Equity = Net Income/Net Sales = (Net Profit Attributable to Owner of the Company – Preferred Stock Dividend)/ Weighted Average Number of Shares Outstanding = Net Cash Provided by Operating Activities/Current Liabilities = Five-Year Cash from Sum of Operations /(Five-Year Capital Expenditure + Inventory Increase + Cash Dividend) = (Net Cash Provided by Operating Activities – Cash Dividend)/( Property, plant and equipment + Long-term Investment + Other Non-current Assets + Working Capital) (Note3) 6. Leverage (1) Operating Leverage (2) Financial Leverage = (Net Sales – Operating Expenses & Cost)/Operating Income (Note4) = Operating Income/(Operating Income – Interest Expenses) Note 1: Figures have been audited by adopting IFRSs. Note 2: The calculation of the cash flow tonnage ratio from 2014 to 2016 is calculated using the previous year's ROC information. Note 3: Net operating loss, it is not listed Note 4: for those stock without par value or par value not equal to NT$10, the ratio of Operating income to paid-in capital (%) is calculated by ratio to attributable to Owner of the Company Note 5: Figures are reviewed and adjusted by adopting IAS19 Note 6: Figures are adjusted because Sunplus decided to dispose STB center to Availink Inc.by Board Meeting on 2015/1/20 Note 7: The net cash flow from operating activities is less than the number of cash dividends issued, so it is not listed. 66 7.3 Audit Committee’s Report Sunplus Technology Co., Ltd. Audit Committee’s Report Sunplus’ Board has submitted the 2018 business report, financial statements and distribution of 2017 earnings. The Deloitte & Touche CPA firm has audited the financial statements, and issued an audit report. The Audit Committee has reviewed the 2017 business report, financial statements and distribution of 2017 earnings, and verified that they comply with the Company Law and relevant regulations. According to Article14-4of Securities Exchange Law and Article 219 of the Company Law, I hereby submit this report. To Sunplus 2019 Annual General Shareholders’ Meeting Sunplus Technology Co., Ltd. Audit Committee Convener, Che-Ho Wei March 20th, 2019 67 7.4 Consolidated Financial Statements and Auditors' Audit Report Sunplus Technology Company Limited and Subsidiaries Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017 and Independent Auditors’ Report 68 DECLARATION OF CONSOLIDATION OF FINANCIAL STATEMENTS OF AFFILIATES The companies required to be included in the consolidated financial statements of affiliates in accordance with the “Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises” for the year ended December 31, 2018 are all the same as the companies required to be included in the consolidated financial statements of parent and subsidiary companies as provided in International Financial Reporting Standard No. 10 “Consolidated Financial Statements”. Relevant information that should be disclosed in the consolidated financial statements of affiliates has all been disclosed in the consolidated financial statements of parent and subsidiary companies. Hence, we do not prepare a separate set of consolidated financial statements of affiliates. Very truly yours, Sunplus Technology Company Limited By CHOU-CHYE HUANG Chairman March 20, 2019 69 INDEPENDENT AUDITORS’ REPORT The Board of Directors and Shareholders Sunplus Technology Company Limited Opinion We have audited the accompanying consolidated balance sheets of Sunplus Technology Company Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) as of December 31, 2018 and 2017 and the related consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2018 and 2017, and its consolidated financial performance and its consolidated cash flows for the years then ended, in conformity with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed by the Financial Supervisory Commission of the Republic of China. 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 Consolidated Financial Statements section of our report. We are independent of the Group 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. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2018. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Revenue recognition Integrated circuit chip sales accounted for 94% of the Group’s total revenue. Operating income declined in 2018, but sales to some customers increased significantly. Therefore, we deem revenue recognition as a key audit matters. For a detailed explanation of revenue, refer to Notes 4 and 25 to the accompanying consolidated financial statements. 1. We understood the related internal control and operating procedures in the sales transaction cycle, and we evaluated and confirmed the operatung effectiveness of the internal control and operating procedures. 2. We selected samples from the sales details, and we examined customers’ original orders, sales electronic orders, delivery orders, logistics receipt documents or export declaration, and sales invoices for any abnormal situations and confirmed the validity of the revenue. Other Matter 70 We have also audited the parent company only financial statements of Sunplus Technology Company Limited as of and for the years ended December 31, 2018 and 2017 on which we have issued an unmodified opinion. Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance, including the audit committee, are responsible for overseeing the Group’s financial reporting process. Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an 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 consolidated 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 consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. 3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 4. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group to cease to continue as a going concern. 5. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 71 6. Obtain sufficient and appropriate audit evidence regarding the financial information of entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision, and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements 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 Cheng-Chih Lin and Yu-Feng Huang. Deloitte & Touche Taipei, Taiwan Republic of China March 20, 2019 Notice to Readers The accompanying consolidated financial statements are intended only to present the consolidated financial position, financial performance and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally applied in the Republic of China. For the convenience of readers, the independent auditors’ report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent auditors’ report and consolidated financial statements shall prevail. 72 SUNPLUS TECHNOLOGY COMPANY LIMITED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars) ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 3, 4 and 6) Financial assets at fair value through profit or loss - current (Notes 3, 4, 7 and 35) Available-for-sale financial assets - current (Notes 3, 4 and 9) Notes and accounts receivable, net (Notes 3, 4, 5, 11, 25 and 36) Other receivables (Notes 3, 4 and 6) Inventories (Notes 4 and 12) Other financial assets - current (Notes 3, 18 and 37) Other current assets (Note 18) Total current assets NON-CURRENT ASSETS Financial assets at fair value through profit or loss - non-current (Notes 3, 4, 7 and 35) Financial assets at fair value through other comprehensive income - non-current (Notes 3, 4, 8 and 35) Available-for-sale financial assets - non-current (Notes 3, 4, 9 and 35) Financial assets carried at cost (Notes 3, 4 and 10) Investments accounted for using the equity method (Notes 4 and 14) Property, plant and equipment (Notes 4, 5, 15 and 37) Investment properties (Notes 4 and 16) Intangible assets (Notes 4, 5 and 17) Deferred tax assets (Notes 4 and 27) Other financial assets - non-current (Notes 3, 18 and 37) Other non-current assets (Notes 18 and 36) Total non-current assets TOTAL LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term borrowings (Notes 19 and 37) Contract liabilities - current (Notes 3 and 25) Accounts payable (Note 20) Current tax liabilities (Notes 4 and 27) Provisions - current (Notes 4 and 21) Deferred revenue - current (Notes 4, 22 and 30) Current portion of long-term loans bank (Notes 19 and 37) Other current liabilities (Notes 3 and 22) Total current liabilities NON-CURRENT LIABILITIES Long-term borrowings (Notes 19 and 37) Deferred revenue - non-current, net of current portion (Notes 4, 22 and 30) Net defined benefit liabilities - non-current (Notes 4 and 23) Guarantee deposits received (Notes 33 and 36) Other liabilities Total non-current liabilities Total liabilities EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY (Notes 4, 24 and 29) Share capital Common shares Capital surplus Retained earnings Legal reserve Special reserve Unappropriated earnings Total retained earnings Other equity Treasury shares (Note 37) 2018 2017 Amount % Amount % $ $ 3,235,721 1,313,747 - 954,030 70,960 818,948 153,575 91,321 27 11 - 8 1 7 1 1 4,156,277 9,468 1,633,531 1,197,626 164,712 1,007,962 291,373 100,961 31 - 12 9 1 8 2 1 6,638,302 56 8,561,910 64 737,867 6 89,280 1 246,208 - - 729,219 2,052,359 1,039,314 178,521 30,254 127,215 147,725 2 - - 6 17 9 2 - 1 1 - 189,263 519,259 379,351 2,164,154 1,139,051 196,131 31,215 84,426 125,939 - 1 4 3 16 8 1 - 1 1 5,288,682 44 4,918,069 36 $ 11,926,984 100 $ 13,479,979 100 $ 311,215 7,511 484,810 56,972 - 1,629 250,046 572,546 $ 3 - 4 - - - 2 5 444,111 - 723,983 60,946 11,555 1,663 175,000 772,858 3 - 5 1 - - 1 6 1,684,729 14 2,190,116 16 - 61,894 79,313 230,177 3,265 374,649 - - 1 2 - 3 249,143 64,844 101,000 230,702 889 646,578 2 - 1 2 - 5 2,059,378 17 2,836,694 21 5,919,949 801,398 50 7 5,919,949 835,241 44 6 16 1 2 19 1,941,826 67,279 241,734 2,250,839 (442,843) (63,401) (4) 1 1,900,505 22,995 413,209 2,336,709 (62,262) (63,401) 14 - 3 17 - - Total equity attributable to owners of the Company 8,465,942 71 8,966,236 67 NON-CONTROLLING INTERESTS (Notes 4, 13, 24 and 32) 1,401,664 12 1,677,049 12 Total equity TOTAL 9,867,606 83 10,643,285 79 $ 11,926,984 100 $ 13,479,979 100 The accompanying notes are an integral part of the consolidated financial statements. 73 SUNPLUS TECHNOLOGY COMPANY LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) 2018 2017 Amount % Amount % NET OPERATING REVENUE (Notes 4, 25, and 36) $ 6,077,733 100 $ 6,820,237 100 OPERATING COSTS (Notes 12 and 26) 3,648,349 60 4,083,471 60 GROSS PROFIT 2,429,384 40 2,736,766 40 OPERATING EXPENSES (Notes 26 and 36) Selling and marketing expenses General and administrative expenses Research and development expenses 286,562 532,943 1,699,345 5 9 28 308,054 599,899 1,779,383 4 9 26 Total operating expenses 2,518,850 42 2,687,336 39 OTHER OPERATING INCOME AND EXPENSES (324) - (2,245) (LOSS) PROFIT FROM OPERATIONS (89,790) (2) 47,185 - 1 1 6 - 1 8 9 1 8 116,463 246,002 (23,823) (44,862) 293,780 203,990 61,667 142,323 2 4 - (1) 5 3 1 2 97,685 424,967 (26,226) 91,044 587,470 634,655 83,427 551,228 1,845 - (5,947) - (103,685) (2) - (Continued) - NON-OPERATING INCOME AND EXPENSES (Notes 4, 14, 26, 30 and 36) Other income Other gains and losses Finance costs Share of profit of associates Total non-operating income and expenses PROFIT BEFORE INCOME TAX INCOME TAX EXPENSE (Notes 4 and 27) NET PROFIT FOR THE YEAR OTHER COMPREHENSIVE INCOME (LOSS) Items that will not be reclassified subsequently to profit or loss (Notes 4 and 24): Remeasurement of defined benefit plans Unrealized gain (loss) on investments in equity instruments at fair value through other comprehensive income 74 SUNPLUS TECHNOLOGY COMPANY LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) 2018 2017 Amount % Amount % Share of the other comprehensive loss of associates accounted for using the equity method Items that may be reclassified subsequently to profit or loss (Notes 4 and 24): Exchange differences on translating foreign operations Unrealized (loss) gain on available-for-sale financial assets (8,556) (18,061) - Share of other comprehensive income (loss) of associates accounted for using the equity method (2,904) - - - - (75) - (62,931) (256,849) 5,635 (1) (4) - Other comprehensive loss income for the year, net of income tax (131,361) (2) (320,167) (5) TOTAL COMPREHENSIVE INCOME FOR THE YEAR $ 10,962 - $ 231,061 NET PROFIT ATTRIBUTABLE TO: Owners of the Company Non-controlling interests TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO: Owners of the Company Non-controlling interests EARNINGS PER SHARE (Note 28) Basic Diluted $ 5,616 136,707 $ - 2 421,458 129,770 $ 142,323 2 $ 551,228 $ (120,733) 131,695 (2) $ 2 109,174 121,887 $ 10,962 - $ 231,061 $ $ 0.01 0.01 $ $ 0.72 0.72 3 6 2 8 1 2 3 The accompanying notes are an integral part of the consolidated financial statements. (Concluded) 75 SUNPLUS TECHNOLOGY COMPANY LIMITED AND SUBSIDIARIES STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars) Equity Attributable to Owners of the Company Other Equity Unrealized Gain (Loss) on Financial Assets Share Capital Issued and Outstanding Share Retained Earnings Differences on Gain (Loss) on Through Other Exchange Unrealized at Fair Value Unappropriated Translating Available-for-sale Comprehensive Noncontrolling (Thousands) Amount Capital Surplus Legal Reserve Special Reserve Earnings Foreign Operations Financial Assets Income Treasury Shares Total Interests Total Equity BALANCE, JANUARY 1, 2017 591,995 $ 5,919,949 $ 911,110 $ 1,890,531 $ 21,927 $ 99,738 $ (62,062 ) $ 306,462 $ - $ (63,401 ) $ 9,024,254 $ 1,663,923 $ 10,688,177 Offset of the 2016 deficit Legal reserve Special reserve Cash dividends for common shares Difference between stock price and book value from disposal of subsidiaries, associates and joint ventures accounted for using the equity method Issuance of share dividends from capital surplus Difference between share price and book value from disposal of subsidiaries Net profit for the year ended December 31, 2017 Other comprehensive loss for the year ended December 31, 2017, net of income tax Total comprehensive income (loss) for the year ended December 31, 2017 Changes of equity of subsidiaries Adjustment of capital surplus for the Company Cash dividends received by subsidiaries Decrease in non-controlling interests - - - - - - - - - - - - - - - - - - - - - - - - - - - - (207,317 ) 129,668 - - - - 1,780 - 9,974 - - - - - - - - - - - - 1,068 - - - - - - - - - - (9,974 ) (1,068 ) (88,681 ) (18 ) - - 421,458 - - - - - - - - - - - - - - (5,622 ) (60,038 ) (246,624 ) 415,836 (60,038 ) (246,624 ) (2,624 ) - - - - - - - - BALANCE, DECEMBER 31, 2017 591,995 5,919,949 835,241 1,900,505 22,995 413,209 (122,100 ) 59,838 - - - - - - - - - - - - - - - - - - - - - - - - - - - (88,681 ) (18 ) (207,317 ) 129,668 - - - - - - - - (88,681 ) (18 ) (207,317 ) 129,668 421,458 129,770 551,228 (312,284 ) (7,883 ) (320,167 ) 109,174 121,887 231,061 (2,624 ) 1,780 - - (2,624 ) 1,780 - (108,761 ) (108,761 ) (63,401 ) 8,966,236 1,677,049 10,643,285 Effect of retrospective application and retrospective restatement - - - - - 294,288 - (59,838 ) (230,011 ) - 4,439 1,478 5,917 BALANCE, JANUARY 1, 2018 AS RESTATED 591,995 5,919,949 835,241 1,900,505 22,995 707,497 (122,100 ) Offset of the 2017 deficit Legal reserve Special reserve Cash dividends for common shares Changes in capital surplus from investments in associates accounted for using the equity method - - - - - - - - - - - 50,782 41,321 - - - (41,321 ) (44,284 ) (327,551 ) - - - - - - 44,284 - - 76 - - - - - (230,011 ) (63,401 ) 8,970,675 1,678,527 10,649,202 - - - - - - - - - - (327,551 ) 50,782 - - - - - - (327,551 ) 50,782 Issuance of share dividends from capital surplus Difference between share price and book value from disposal of subsidiaries Changes of equity of subsidiaries Net profit for the year ended December 31, 2018 Other comprehensive income (loss) for the year ended December 31, 2018, net of income tax Total comprehensive income (loss) for the year ended December 31, 2018 Adjustment of capital surplus for the Company Cash dividends received by subsidiaries Disposals of investments in equity instruments designated as at fair value through other comprehensive income Decrease in noncontrolling interests - - - - - - - - - - - - - - - - - - (86,846 ) (271 ) - - - - 2,492 - - - - - - - - - - - - - - - - - - - - - - (22,606 ) 5,616 1,453 7,069 - (37,070 ) - - - - - (16,775 ) (16,775 ) - - - BALANCE, DECEMBER 31, 2018 591,995 $ 5,919,949 $ 801,398 $ 1,941,826 $ 67,279 $ 241,734 $ (138,875 ) $ - - - - - - - - - - - - - - (111,027 ) (111,027 ) - 37,070 - - - - - - - - - - (86,846 ) (271 ) (22,606 ) - - - (86,846 ) (271 ) (22,606 ) 5,616 136,707 142,323 (126,349 ) (5,012 ) (131,361 ) (120,733 ) 131,695 10,962 2,492 - - - - 2,492 - (408,558 ) (408,558 ) $ (303,968 ) $ (63,401 ) $ 8,465,942 $ 1,401,664 $ 9,867,606 The accompanying notes are an integral part of the consolidated financial statements. 77 SUNPLUS TECHNOLOGY COMPANY LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars) CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax Adjustments for: Depreciation expenses Amortization expenses Bad-debt expenses Net gain on fair value change of financial assets designated as of fair value through profit or loss Finance costs Interest income Dividend income Compensation costs of employee share options Share of profits of associates Loss on disposal of property, plant and equipment Gain on disposal of subsidiaries Gain on disposal of investments Impairment loss recognized on financial assets Impairment loss recognized non-financial assets Net loss on foreign currency exchange Amortization of prepaid lease payments Changes in operating assets and liabilities: Decrease in financial assets held for trading Decrease in trade receivables Decrease (increase) in other receivables Increase in inventories (Increase) decrease in other current assets Decrease in trade payables Increase in contract liabilities Decrease in provisions Decrease in deferred revenue Decrease in other current liabilities Decrease in accrued pension liabilities Cash generated from operations Interest received Dividends received Interest paid Income tax paid 2018 2017 $ 203,990 $ 634,655 275,786 82,237 - (67,736) 23,823 (26,314) (23,564) 37 44,862 324 (170,897) (11,724) - - 34,248 2,810 - 114,488 11,333 (17,157) (6,368) (89,495) 27,331 - (3,659) (151,849) (4,309) 248,197 25,125 97,629 (21,745) (65,287) 259,983 97,645 29,376 (4,901) 26,226 (22,111) (23,230) 220 (91,044) 2,245 - (642,140) 203,363 25,190 9,184 2,778 15,053 48,582 (90,911) (149,572) 41,058 (6,586) - (779) (1,641) (38,882) (3,213) 320,548 24,445 64,377 (27,065) (67,373) Net cash generated from operating activities 283,919 314,932 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of available-for-sale financial assets Proceeds of the sale of available-for-sale financial assets Purchases of financial assets measured at cost Proceeds of the disposal of financial assets measured at cost Returned capital to the Company - financial assets measured at cost Purchase of financial assets at FVTOCI Purchase of financial assets at FVTPL Proceeds from the sale of financial assets at FVTPL Proceeds from the sale of financial assets at FVTOCI 78 - - - - - (105,213) (1,764,316) 2,060,690 4,930 (1,921,210) 2,745,491 (89,341) 54,099 3,183 - - - - (Continued) 79 SUNPLUS TECHNOLOGY COMPANY LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars) Acquisition of associates Proceeds from disposal of subsidiaries Payments for property, plant and equipment Proceeds of the disposal of property, plant and equipment Increase in refundable deposits Decrease in refundable deposits Payments for intangible assets Payments for investment properties Decrease in investment properties Decrease (increase) on other non-current assets Decrease in other assets - non-current 2018 2017 (110,368) (159,571) (173,729) 568 (2,039) 62 (84,655) (3,891) 10,016 10,635 3,570 - 219,242 (99,960) 162 - 748 (124,521) (6,592) - (143,170) 1,476 Net cash (used in) generated from investing activities (313,311) 639,607 CASH FLOWS FROM FINANCING ACTIVITIES Repayments of short-term borrowings Repayments of long-term borrowings Proceeds of guarantee deposits received Refunds of guarantee deposits received Dividends paid to interests Dividends paid to non-controlling interests Decrease in non-controlling interests Net cash used in financing activities (132,566) (179,088) 47,914 (18,331) (411,905) (169,798) (31,266) (105,832) (1,021,586) 107,187 (77,857) (294,218) (200,179) (1,000) (895,040) (1,593,485) EFFECT OF EXCHANGE RATE CHANGES ON THE BALANCE OF CASH HELD IN FOREIGN CURRENCIES 3,876 (8,272) NET DECREASE IN CASH AND CASH EQUIVALENTS (920,556) (647,218) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 4,156,277 4,803,495 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR $ 3,235,721 $ 4,156,277 The accompanying notes are an integral part of the consolidated financial statements. (Concluded) 80 SUNPLUS TECHNOLOGY COMPANY LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) 1. GENERAL INFORMATION Sunplus Technology Company Limited (“Sunplus” or the “Company”) was established in August 1990. It researches, develops, designs, tests and sells high quality, high value-added consumer integrated circuits (ICs). Its products are based on core technologies in such areas as multimedia audio/video, single-chip microcontrollers and digital signal processors. These technologies are used to develop hundreds of products including various ICs: liquid crystal display, microcontroller, multimedia, voice/music, and application-specific. Sunplus’ shares have been listed on the Taiwan Stock Exchange since January 2000. Some of its shares have been issued in the form of global depositary receipts (GDRs), which have been listed on the London Stock Exchange since March 2001 (refer to Note 24). Following is a diagram of the relationship and ownership percentages between Sunplus and its subsidiaries (collectively, the “Group”) as of December 31, 2018: Sunplus Technology Company 0.00% 55% 13.69% 2.09% 100% 100% 100% 100% 100% 100% 100% 91.40% 61.13% 34.30% 100% 100% 100% Award Sunplus Ventureplus Sunplus HK Glory Management 100% Consulting 100% Sunplus Venture Sunny Fancy Ventureplus Mauritius 70% 100% Han Yuang 100% 100% Ventureplus Giant Giant Cayman Kingdom Rock 8.16% 68.80% 100% 93.33% 100% 100% 100% Ytrip Sunplus Sunplus App Sunplus Technology Technology Technology Prof-tek Sunplus SunMedia Shanghai Technology Co., Ltd. 100% (Beijing) Co., Ltd. 44.08% (Shenzhen) 1culture Sunplus Jumplux Sunplus Russell Magic Sky Lin Shih mMobile Technology Sunext Innovation Generalplus Wei-Young 42.08% 5.64% 100% 7.64% Sunplus mMedia 2.60% Generalplus Samoa 100% Generalplus Mauritius 100% 100% Generalplus Shenzhen Generalplus HK 89.76% The consolidated financial statements are presented in the Company’s functional currency, the New Taiwan dollar. Communication Co., Ltd 2. APPROVAL OF FINANCIAL STATEMENTS The consolidated financial statements were approved by the Company’s board of directors and authorized for issue on March 20, 2019. 81 3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC) endorsed and issued into effect by the Financial Supervisory Commission (FSC) Except for the following, the initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs endorsed and issued into effect by the FSC did not have any material impact on the Group’s accounting policies: 1) Amendment to IFRS 2 “Classification and Measurement of Share-based Payment Transactions” The amendment requires that market conditions and non-vesting conditions should be taken into account and vesting conditions, other than market conditions, should not be taken into account when estimating the fair value of the cash-settled share-based payments at the measurement date. Instead, they should be taken into account by adjusting the number of awards included in the measurement of the liability arising from the transaction. The amendment should be applied to cash-settled share-based payment transactions that are unvested at January 1, 2018. 2) IFRS 9 “Financial Instruments” and related amendments 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 the classification, measurement and impairment of financial assets and hedge accounting. Refer to Note 4 for information relating to the relevant accounting policies. The requirements for the classification, measurement and impairment of financial assets and hedging cost have been applied retrospectively starting from January 1, 2018, and the other requirements for hedge accounting have been applied prospectively. IFRS 9 is not applicable to items that have already been derecognized as of December 31, 2017. Classification, measurement and impairment of financial assets On the basis of the facts and circumstances that existed as at January 1, 2018, the Group has performed an assessment of the classification of recognized financial assets and has elected not to restate prior reporting periods. The following table shows the original measurement categories and carrying amounts under IAS 39 and the new measurement categories and carrying amounts under IFRS 9 for each class of the Group’s financial assets and financial liabilities as at January 1, 2018. Financial Assets IAS 39 IFRS 9 IAS 39 IFRS 9 Remark Measurement Category Carrying Amount Cash and cash equivalents Loans and receivables Equity securities Available‑for‑sale Mutual funds Available‑for‑sale Amortized cost Fair value through profit or loss - equity instruments Fair value through other comprehensive income - equity instruments Fair value through profit or loss - current $ 4,156,277 $ 4,156,277 708,522 533,487 (a) (b) - 279,700 (b) 1,633,531 1,633,531 (c) (Continued) 82 Financial Assets IAS 39 IFRS 9 IAS 39 IFRS 9 Remark Measurement Category Carrying Amount Time deposits with Loans and receivables Amortized cost $ 73,040 $ 73,040 (a) original maturities of more than 3 months Notes receivable, trade receivables and other receivables Restricted assets Loans and receivables Amortized cost 1,362,338 1,362,338 (a) Loans and receivables Amortized cost 302,759 302,759 (a) (Concluded) IAS 39 Carrying Amount as of IFRS 9 Carrying Retained Earnings Other Equity Amount as of Effect on Effect on Financial Assets 2018 cations surements 2018 2018 2018 Remark January 1, Reclassifi- Remea- January 1, January 1, January 1, FVTPL $ 98,748 $ - $ - $ 98,748 $ - $ - Add: Reclassification from - 2,053,783 14,487 2,068,270 67,898 (53,412 ) (b), (c) available-for-sale (IAS 39) FVTOCI Add: Reclassification from available-for-sale (IAS 39) 98,748 2,053,783 14,487 2,167,018 67,898 (53,412 ) - - - - - - - - 288,270 (8,570) 279,700 226,390 (236,437 ) (b), (c) 288,270 (8,570) 279,700 226,390 (236,437 ) $ 98,748 $ 2,342,053 $ 5,917 $ 2,446,718 $ 294,288 $ (289,849 ) a) Cash and cash equivalents, time deposits with original maturities of more than 3 months, trade receivables (including related parties), other receivables and restricted assets that were previously classified as loans and receivables under IAS 39 were classified as at amortized cost with an assessment of expected credit losses under IFRS 9. b) The Group elected to classify all of listed company and unlisted company investments previously classified as available-for-sale under IAS 39 as at FVTPL under IFRS 9. As a result, the related other equity - unrealized gain (loss) on available-for-sale financial assets was reclassified to retained earnings in the amount of $6,416 thousand and to other equity - unrealized gain (loss) on financial assets at FVTOCI in the amount of $(6,146) thousand. Investments in unlisted shares previously measured at cost under IAS 39 have been classified at FVTPL and at FVTOCI under IFRS 9 and were remeasured at fair value. Consequently, an increase of $352,224 and $278,613 thousand was recognized in financial assets at FVTPL and retained earnings, respectively, on January 1, 2018; consequently, an increase of $171,568 and a decrease of $275,558 thousand was recognized in financial assets at FVTOCI and other equity - unrealized gain (loss) on financial assets at FVTOCI, respectively, on January 1, 2018. c) Mutual funds previously classified as available-for-sale under IAS 39 were classified mandatorily as at FVTPL under IFRS 9, because the contractual cash flows are not solely payments of principal and interest on the principal outstanding and they are not equity instruments. The retrospective adjustment resulted in a decrease of $8,145 thousand in other equity - unrealized gain (loss) on available-for-sale financial assets and an increase of $8,145 83 thousand in retained earnings on January 1, 2018. 3) IFRS 15 “Revenue from Contracts with Customers” and related amendments IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers and supersedes IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number of revenue-related interpretations. Refer to Note 4 for the related accounting policies. Currently, the estimate of allowances for sales returns which may occur in the year are recognized as provisions. Under IFRS 15, such provisions are recognized as other current liabilities. Impact on assets, liabilities and equity for the current period Contract liabilities - current Provisions - current Other current liabilities December 31, 2017 Carrying Amount $ - 11,555 772,858 Adjustments Arising from Initial Application $ 37,384 (11,555) (25,829) January 1, 2018 Adjusted Carrying Amount $ 37,384 - 747,029 Total effect on liabilities $ 784,413 $ - $ 784,413 4) Amendments to IAS 12 “Recognition of Deferred Tax Assets for Unrealized Losses” The amendments clarify that the difference between the carrying amount of a debt instrument measured at fair value and its tax base gives rise to a temporary difference, even though there are unrealized losses on that asset, irrespective of whether the Group expects to recover the carrying amount of the debt instrument by sale or by holding it and collecting contractual cash flows. In addition, in determining whether to recognize a deferred tax asset, the Group should assess a deductible temporary difference in combination with all of its other deductible temporary differences, unless the tax law restricts the utilization of losses as a deduction against income of a specific type, in which case, a deductible temporary difference is assessed in combination only with other deductible temporary differences of the appropriate type. The amendments also stipulate that, when determining whether to recognize a deferred tax asset, the estimate of probable future taxable profit may include some of the Group’s assets for more than their carrying amount if there is sufficient evidence that it is probable that the Group will achieve the higher amount and that the estimate for future taxable profit should exclude tax deductions resulting from the reversal of deductible temporary differences. 5) Amendments to IAS 40 “Transfers of Investment Property” The amendments clarify that the Group should transfer to, or from, investment property when, and only when, the property meets, or ceases to meet, the definition of investment property and there is evidence of a change in use. In isolation, a change in management’s intentions for the use of a property does not provide evidence of a change in use. The amendments also clarify that evidence of a change in use is not limited to those illustrated in IAS 40. 6) IFRIC 22 “Foreign Currency Transactions and Advance Consideration” IAS 21 stipulates that a foreign currency transaction shall be recorded on initial recognition in the functional currency by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction. IFRIC 22 further explains that the date of the transaction is the date on which an entity recognizes a non-monetary 84 asset or non-monetary liability from payment or receipt of advance consideration. If there are multiple payments or receipts in advance, the entity shall determine the date of the transaction for each payment or receipt of advance consideration. The Group applied IFRIC 22 prospectively to all assets, expenses and income recognized on or after January 1, 2018 within the scope of the interpretation. b. New IFRSs in issue but not yet endorsed and issued into effect by the FSC New IFRSs Effective Date Announced by IASB (Note 1) Annual Improvements to IFRSs 2015-2017 Cycle Amendments to IFRS 9 “Prepayment Features with Negative Compensation” January 1, 2019 (Note 2) IFRS 16 “Leases” Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement” Amendments to IAS 28 “Long-term Interests in Associates and Joint January 1, 2019 January 1, 2019 (Note 3) January 1, 2019 January 1, 2019 Ventures” IFRIC 23 “Uncertainty over Income Tax Treatments” 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 FSC permits the election for early adoption of the amendments starting from 2018. Note 3: The Group shall apply these amendments to plan amendments, curtailments or settlements occurring on or after January 1, 2019. 1) IFRS 16 “Leases” IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number of related interpretations. Definition of a lease Upon initial application of IFRS 16, the Group will elect to 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 Group as lessee Upon initial application of IFRS 16, lease assets and liabilities are recognized for all leases on the consolidated balance sheets except for those whose payments under low-value and short-term leases will be recognized as expenses on a straight-line basis. On the consolidated statements of comprehensive income, the Group will present the depreciation expense charged on right-of-use assets separately from the interest expense accrued on lease liabilities; interest is computed using the effective interest method. On the consolidated statements of cash flows, cash payments for the principal portion of lease liabilities will be classified within financing activities; cash payments for the interest portion will be classified within operating activities. 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 consolidated statements of cash flows. The Group anticipates applying IFRS 16 retrospectively with the cumulative effect of the initial 85 application of this standard recognized on January 1, 2019. Comparative information will not be restated. 86 Anticipated impact on assets, liabilities and equity Carrying Amount as of December 31, 2018 Adjustments Arising from Initial Application Adjusted Carrying Amount as of January 1, 2019 $ $ $ $ - - - - - $ 249,727 $ 249,727 $ 249,727 $ 249,727 $ 10,907 238,820 $ 10,907 238,820 $ 249,727 $ 249,727 Right-of-use assets Total effect on assets Lease liabilities - current Lease liabilities – non-current Total effect on liabilities The Group as lessor Except for sublease transactions, the Group will not make any adjustments for leases in which it is a lessor and will account for those leases with the application of IFRS 16 starting from January 1, 2019. 2) IFRIC 23 “Uncertainty over Income Tax Treatments” IFRIC 23 clarifies that when there is uncertainty over income tax treatments, the Group should assume that the taxation authority will have full knowledge of all related information when making related examinations. If the Group concludes that it is probable that the taxation authority will accept an uncertain tax treatment, the Group should determine the taxable profit, tax bases, unused tax losses, unused tax credits or tax rates consistently with the tax treatments used or planned to be used in its income tax filings. If it is not probable that the taxation authority will accept an uncertain tax treatment, the Group should make estimates using either the most likely amount or the expected value of the tax treatment, depending on which method the entity expects to better predict the resolution of the uncertainty. The Group has to reassess its judgments and estimates if facts and circumstances change. 3) Amendments to IAS 28 “Long-term Interests in Associates and Joint Ventures” The amendments clarify that IFRS 9 shall be applied to account for other financial instruments in an associate or joint venture to which the equity method is not applied. These include long-term interests that, in substance, form part of the entity’s net investment in an associate or joint venture. 4) Amendments to IFRS 9 “Prepayment Features with Negative Compensation” IFRS 9 stipulates that if a contractual term of a financial asset permits the issuer (i.e. the debtor) to prepay a debt instrument or permits the holder (i.e. the creditor) to put a debt instrument back to the issuer before maturity and the prepayment amount substantially represents unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable compensation for early termination, the financial asset has contractual cash flows that are solely payments of principal and interest on the principal amount outstanding. The amendments further explain that reasonable compensation may be paid or received by either of the parties, i.e. a party may receive reasonable compensation when it chooses to terminate the contract early. 87 When the amendments become effective, the Group shall apply the amendments retrospectively. However, the Group may elect to recognize the cumulative effect of the initial application of the amendments in the opening carrying amount at the date of initial application, or to restate prior periods if, and only if, it is possible without the use of hindsight. 5) Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement” The amendments stipulate that, if a plan amendment, curtailment or settlement occurs, the current service cost and the net interest for the remainder of the annual reporting period are determined using the actuarial assumptions used for the remeasurement of the net defined benefit liabilities (assets). In addition, the amendments clarify the effect of a plan amendment, curtailment or settlement on the requirements regarding the asset ceiling. The amendment shall be applied prospectively. Except for the above impact, as of the date the consolidated financial statements were authorized for issue, the Group is continuously assessing the possible impact that the application of other standards and interpretations will have on the Group’s financial position and financial performance and will disclose the relevant impact when the assessment is completed. c. New IFRSs in issue but not yet endorsed and issued into effect by the FSC New IFRSs Effective Date Announced by IASB (Note 1) Amendments to IFRS 3 “Definition of a Business” Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between January 1, 2020 (Note 2) To be determined by IASB an Investor and its Associate or Joint Venture” IFRS 17 “Insurance Contracts” Amendments to IAS 1 and IAS 8 “Definition of Materiality” January 1, 2021 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 Group 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 the period. Note 3: The Group shall apply these amendments prospectively for annual reporting periods beginning on or after January 1, 2020. 1) Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture” The amendments stipulate that, when the Group sells or contributes assets that constitute a business (as defined in IFRS 3) to an associate or joint venture, the gain or loss resulting from the transaction is recognized in full. Also, when the Group loses control of a subsidiary that contains a business but retains significant influence or joint control, the gain or loss resulting from the transaction is recognized in full. Conversely, when the Group sells or contributes assets that do not constitute a business to an associate or joint venture, the gain or loss resulting from the transaction is recognized only to the extent of the Group’s interest as an unrelated investor in the associate or joint venture, i.e. the Group’s share of the gain or loss is eliminated. Also, when the Group loses control of a subsidiary that does not contain a business but retains significant influence or joint control over an associate or a joint venture, the gain or loss resulting from the transaction is recognized only to the extent of the 88 Group’s interest as an unrelated investor in the associate or joint venture, i.e. the Group’s share of the gain or loss is eliminated. Except for the above impact, as of the date the consolidated financial statements were authorized for issue, the Group is continuously assessing the possible impact that the application of other standards and interpretations will have on the Group’s financial position and financial performance and will disclose the relevant impact when the assessment is completed. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Statement of Compliance The consolidated financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, or other regulations and IFRSs as endorsed by the FSC. b. Basis of preparation The Group financial statements have been prepared on the historical cost basis except for financial instruments that are measured at fair values, and net defined benefit liabilities which are measured at the present value of the defined benefit obligation less the fair value of plan assets. The fair value measurements are grouped into Levels 1 to 3 based on the degree to which the fair value measurement inputs are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: 1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; 2) Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and 3) Level 3 inputs are unobservable inputs for the asset or liability. c. Classification of current and noncurrent assets and liabilities Current assets include: 1) Assets held primarily for the purpose of trading; 2) Assets expected to be realized within 12 months after the reporting period; and 3) Cash and cash equivalents unless the asset is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. Current liabilities include: 1) Liabilities held primarily for the purpose of trading; 2) Liabilities due to be settled within 12 months after the reporting period, and 3) Liabilities for which the Group does not have an unconditional right to defer settlement for at least 12 months after the reporting period. Assets and liabilities that are not classified as current are classified as noncurrent. 89 d. Basis of consolidation 1) Principles for preparing consolidated financial statements The consolidated financial statements incorporate the financial statements of the Company and the entities controlled by the Company (i.e. its subsidiaries). Income and expenses of subsidiaries acquired or disposed of during the period are included in the consolidated statement of profit or loss and other comprehensive income from the effective date of acquisition up to the effective date of disposal, as appropriate. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Company. All intra-group transactions, balances, income and expenses are eliminated in full upon consolidation. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the no controlling interests even if this results in the no controlling interests having a deficit balance. Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s interests and the no controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the no controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to the owners of the Company. When the Group loses control of a subsidiary, a gain or loss is recognized in profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and any investment retained in the former subsidiary at its fair value at the date when control is lost and (ii) the assets (including any goodwill) and liabilities and any no controlling interests of the former subsidiary at their carrying amounts at the date when control is lost. The Group accounts for all amounts recognized in other comprehensive income in relation to that subsidiary on the same basis as would be required if the Group had directly disposed of the related assets or liabilities. Starting from 2018, the fair value of investment retained in a former subsidiary at the date when control is lost is regarded as the fair value on the initial recognition of the investment in an associate. Before 2018, the fair value of investment retained in the former subsidiary at the date when control was lost was regarded as the cost on initial recognition of an investment in an associate or a joint venture. See Note 13 and Tables 5 and 6 for detailed information on subsidiaries (including percentages of ownership and main businesses). e. Foreign currencies In preparing the financial statements of each group entity, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Exchange differences on monetary items arising from settlement or translation are recognized in profit or loss in the period. Nonmonetary 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 nonmonetary items are included in profit or loss for the period except for exchange differences arising from the retranslation of nonmonetary 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. Nonmonetary items that are measured at historical cost in a foreign currency are not retranslated. 90 For the purposes of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations (including of the subsidiaries, associates, joint ventures or branches operations in other countries or currencies used different with the Company) are translated into New Taiwan dollars using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising are recognized in other comprehensive income (attributed to the owners of the Company and no controlling interests as appropriate). On the disposal of a foreign operation (i.e. a disposal of the Group’s entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, a disposal involving loss of joint control over a jointly controlled entity that includes a foreign operation, or a disposal involving loss of significant influence over an associate that includes a foreign operation), all of the exchange differences accumulated in equity in respect of that operation attributable to the owners of the Group are reclassified to profit or loss. f. Inventories Inventory write-downs are made by item, except where it may be appropriate to group similar or related items. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and costs necessary to make the sale. The inventories of Sunplus Technology Company Limited, Generalplus Technology Inc., Sunplus Innovation Technology Inc., Sunplus mMobile Inc., iCatch Technology Inc., Sunplus mMedia Inc., Jumplux Technology and Sunext Technology Co., Ltd. are generally recorded at standard cost. On the balance sheet date, the cost is adjusted to approximate weighted-average cost method. Other subsidiaries’ inventories are recorded at the weighted-average cost. g. Investments in associates and jointly controlled entities An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Joint venture arrangements that involve the establishment of a separate entity in which ventures have joint control over the economic activity of the entity are referred to as jointly controlled entities. The results and assets and liabilities of associates and jointly controlled entities are incorporated in these consolidated financial statements using the equity method of accounting. Under the equity method, an investment in an associate and jointly controlled entity is initially recognized at cost and adjusted thereafter to recognize the Group’s share of the profit or loss and other comprehensive income of the associate and jointly controlled entity. The Group also recognizes the changes in the Group’s share of equity of associates and jointly controlled entity. When the Group subscribes for additional new shares of the associate and jointly controlled entity at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment differs from the amount of the Group’s proportionate interest in the associate and jointly controlled entity. The Group records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus. If the Group’s ownership interest is reduced due to the additional subscription of the new shares of associate and jointly controlled entity, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate and jointly controlled entity is reclassified to profit or loss on the same basis as would be required if the investee had directly disposed of the related assets or liabilities. When the adjustment should be debited to capital surplus, but the capital surplus recognized from investments accounted for by the equity method is insufficient, the shortage is debited to retained earnings. When the Group’s share of losses of an associate and jointly controlled entity equals or exceeds its interest in that associate and jointly controlled entity (which includes any carrying amount of the investment accounted for by the equity method and long-term interests that, in substance, form part of 91 the Group’s net investment in the associate and jointly controlled entity), the Group discontinues recognizing its share of further losses. Additional losses and liabilities are recognized only to the extent that the Group has incurred legal obligations, or constructive obligations, or made payments on behalf of that associate and jointly controlled entity. Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets and liabilities of an associate and jointly controlled entity recognized at the date of acquisition is recognized as goodwill, which is included within the carrying amount of the investment and is not amortized. Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of acquisition, after reassessment, is recognized immediately in profit or loss. The entire carrying amount of the investment (including goodwill) is tested for impairment as a single asset by comparing its recoverable amount with its carrying amount. Any impairment loss recognized forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized to the extent that the recoverable amount of the investment subsequently increases. The Group discontinues the use of the equity method from the date on which it ceases to have significant influence and joint control. Any retained investment is measured at fair value at that date and the fair value is regarded as its fair value on initial recognition as a financial asset. The difference between the previous carrying amount of the associate (and the jointly controlled entity attributable to the retained interest and its fair value is included in the determination of the gain or loss on disposal of the associate and the jointly controlled entity. The Group accounts for all amounts previously recognized in other comprehensive income in relation to that associate and the jointly controlled entity on the same basis as would be required if that associate had directly disposed of the related assets or liabilities. When a group entity transacts with its associate (and jointly controlled entity, profits and losses resulting from the transactions with the associate are recognized in the Group’ consolidated financial statements only to the extent of interests in the associate and the jointly controlled entity that are not related to the Group. h. Property, plant and equipment Property, plant and equipment are stated at cost, less accumulated depreciation and accumulated impairment loss. Depreciation is recognized using the straight-line method. Each significant part is depreciated separately. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. 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. i. Investment properties Investment properties are properties held to earn rentals or for capital appreciation. 92 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. Any gain or loss arising on derecognition of the property is calculated as the difference between the net disposal proceeds and the carrying amount of the asset and is included in profit or loss in the period in which the property is derecognized. j. Goodwill Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment loss. For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired, by comparing its carrying amount, including the attributable goodwill, with its recoverable amount. However, if the goodwill allocated to a cash-generating unit was acquired in a business combination during the current annual period, that unit shall be tested for impairment before the end of the current annual period. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated at first to reduce the carrying amount of any goodwill allocated to the unit, and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss is recognized directly in profit or loss. The impairment loss recognized for goodwill is not reversible in subsequent periods. k. Intangible assets 1) Intangible assets acquired separately 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. 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. The residual value of an intangible asset with a finite useful life shall be assumed to be zero unless the Group expects to dispose of the intangible asset before the end of its economic life. Intangible assets with indefinite useful lives that are acquired separately are measured at cost less accumulated impairment loss. 2) Derecognition of intangible assets Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, and are recognized in profit or loss when the asset is derecognized. l. Impairment of tangible and intangible assets other than goodwill At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets, excluding goodwill, to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. 93 Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. When an impairment loss is subsequently reversed, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amount that would have been determined had no impairment loss been recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized in profit or loss. m. Financial instruments 1) Financial instruments Financial assets and financial liabilities are recognized when a group entity becomes a party to the contractual provisions of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at FVTPL) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognized immediately in profit or loss. a) Financial assets All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. i. Measurement category 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. i) Financial assets at FVTPL A financial asset is classified as at FVTPL when such a 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 at FVTPL are subsequently measured at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any dividends or interest earned on the financial assets. Fair value is determined in the manner described in Note 35. 94 ii) Financial assets at amortized cost Financial assets that meet the following conditions are subsequently measured at amortized cost: The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Subsequent to initial recognition, financial assets at amortized cost, including cash and cash equivalents, other financial assets, notes and accounts receivable and other receivables, are measured at amortized cost, which equals the gross carrying amount determined using the effective interest method less any impairment loss. Exchange differences are recognized in profit or loss. Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset, except for: Purchased or originated credit-impaired financial assets, for which interest income is calculated by applying the credit-adjusted effective interest rate to the amortized cost of such financial assets; and Financial assets that have subsequently become credit-impaired, for which interest income is calculated by applying the effective interest rate to the amortized cost of such financial assets. Cash equivalents include time deposits, which are highly liquid, readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments. iii) Investments in equity instruments at FVTOCI On initial recognition, the Group 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 are recognized in profit or loss when the Group’s right to receive the dividends is established, unless the dividends clearly represent a recovery of part of the cost of the investment. 2017 Financial assets are classified into the following categories: Financial assets at fair value through profit or loss, available-for-sale financial assets and loans and receivables. 95 i) Financial assets at fair value through profit or loss Financial assets are classified as at fair value through profit or loss when such financial assets are either held for trading or designated as at fair value through profit or loss. A financial asset may be designated as at fair value through profit or loss upon initial recognition if: Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or The financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and has performance evaluated on a fair value basis in accordance with the Group’s documented risk management or investment strategy, and information about the Group is provided internally on that basis; or The financial asset is a contract which contains one or more embedded derivatives so that the entire hybrid (combined) contract can be designated as at fair value through profit or loss. Financial assets at fair value through profit or loss are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any dividends or interest earned on the financial assets. ii) Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated as available-for-sale or are not classified as loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss. Available-for-sale financial assets are measured at fair value. Changes in the carrying amounts of available-for-sale monetary financial assets (relating to changes in foreign currency exchange rates, interest income calculated using the effective interest method and dividends on available-for-sale equity investments) are recognized in profit or loss. Other changes in the carrying amount of available-for-sale financial assets are recognized in other comprehensive income and will be reclassified to profit or loss when such investments are disposed of or are determined to be impaired. Dividends on available-for-sale equity instruments are recognized in profit or loss when the Group’s right to receive the dividends is established. Available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity investments are measured at cost less any identified impairment loss at the end of each reporting period and presented as a separate line item as financial assets carried at cost. If, in a subsequent period, the fair value of the financial assets can be reliably measured, the financial assets are remeasured at fair value. The difference between the carrying amount and the fair value is recognized in other comprehensive income on financial assets. Any impairment loss is recognized in profit and loss. iii) Loans and receivables Loans and receivables (including notes and accounts receivable, other receivables and cash and cash equivalents) are measured using the effective interest method at amortized 96 cost less any impairment, except for short-term receivables when the effect of discounting is immaterial. Cash equivalents include time deposits, which are highly liquid, readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments. ii. Impairment of financial assets 2018 The Group recognizes a loss allowance for expected credit losses on financial assets at amortized cost (including trade receivables). The Group always recognizes lifetime expected credit losses (i.e. ECLs) for trade receivables. For all other financial instruments, the Group recognizes lifetime ECLs when there has been a significant increase in credit risk since initial recognition. If, on the other hand, the credit risk on a financial instrument has not increased significantly since initial recognition, the Group measures the loss allowance for that financial instrument at an amount equal to 12-month ECLs. Expected credit losses reflect the weighted average of credit losses with the respective risks of a default occurring as the weights. Lifetime ECLs represent the expected credit losses that will result from all possible default events over the expected life of a financial instrument. In contrast, 12-month ECLs represent the portion of lifetime ECLs that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date. The Group recognizes an impairment gain or loss in profit or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account. 2017 Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence, as a result of one or more events that occurred after the initial recognition of the financial assets, that the estimated future cash flows of the investment have been affected. For financial assets at amortized cost, such as trade receivables and other receivables, such assets are assessed for impairment on a collective basis even if they were assessed not to be impaired individually. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience with collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 60 days, as well as observable changes in national or local economic conditions that correlate with defaults on receivables. For a financial asset at amortized cost, the amount of the impairment loss recognized is the difference between such an asset’s carrying amount and the present value of its estimated future cash flows, discounted at the financial asset’s original effective interest rate. For financial assets at amortized cost, 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 was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment (at the date the 97 impairment is reversed) does not exceed what the amortized cost would have been had the impairment not been recognized. For available-for-sale equity investments, a significant or prolonged decline in the fair value of a security below its cost is considered to be objective evidence of impairment. For all other financial assets, objective evidence of impairment could include significant financial difficulty of the issuer or counterparty, breach of contract such as a default or delinquency in interest or principal payments, it becoming probable that the borrower will enter bankruptcy or financial re-organization, or the disappearance of an active market for those financial assets because of financial difficulties. When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss in the period. In respect of available-for-sale equity securities, impairment loss previously recognized in profit or loss is not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized in other comprehensive income. In respect of available-for-sale debt securities, impairment loss is subsequently reversed through profit or loss if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss. For financial assets carried at cost, the amount of the impairment loss is measured as the difference between such an asset’s carrying amount and the present value of its estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods. The carrying amount of a financial asset is reduced by the impairment loss directly for all financial assets, with the exception of trade receivables and other receivables, where the carrying amount is reduced through the use of an allowance account. When trade receivables and other receivables are considered uncollectible, they are written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss except for uncollectible trade receivables and other receivables that are written off against the allowance account. iii. Derecognition of financial assets The Group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. Before 2018, on derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income is recognized in profit or loss. Starting from 2018, on derecognition of a financial asset at amortized cost in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss. On derecognition of an investment in a debt instrument at FVTOCI, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income is recognized in profit or loss. However, on derecognition of an investment in an equity instrument at FVTOCI, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss, and the cumulative 98 gain or loss that had been recognized in other comprehensive income is transferred directly to retained earnings, without recycling through profit or loss. c) Financial liabilities i. Subsequent measurement All financial liabilities are measured at amortized cost using the effective interest method. ii. Derecognition of financial liabilities The difference between the carrying amount of a financial liability derecognized and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss. n. Provisions For the best estimate of provisions, the discounted cash flows need to consider the risk and uncertainties of obligations. Provisions are measured by the discounted value of the estimated cash flows for the liquidation of the obligation. o. Revenue recognition 2018 The Group identifies a contract with a customer, allocates the transaction price to the performance obligations, and recognizes revenue when performance obligations are satisfied. Unearned receipts for merchandise sales would be recognized as contract liabilities before the Group fulfills its performance obligations. Revenue from the sale of goods Revenue from the sale of goods comes from the sale of ICs. Sales of ICs are recognized as revenue when the goods are shipped because it is the time when the customer has full discretion over the manner of distribution and the price to sell the goods, has the primary responsibility for sales to future customers, and bears the risks of obsolescence. Trade receivables are recognized concurrently. The Group does not recognize revenue on materials delivered to subcontractors because this delivery does not involve a transfer of control. Other Other mainly comes from software development. 2017 Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar provisions. Provisions for sales returns and liabilities for returns are recognized at the time of sale based on the seller’s reliable estimate of future returns and based on past experience and other relevant factors. 99 1) Sale of goods Revenue from the sale of goods is recognized when all the following conditions are satisfied: a) The Group has transferred to the buyer the significant risks and rewards of ownership of the goods; b) The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; c) The amount of revenue can be measured reliably; d) It is probable that the economic benefits associated with the transaction will flow to the Group; and e) The costs incurred or to be incurred in respect of the transaction can be measured reliably. The Group does not recognize sales revenue on materials delivered to subcontractors because this delivery does not involve a transfer of risks and rewards of the materials’ ownership. 2) Dividend and interest income 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 Group and the amount of income can be measured reliably. Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. p. Leasing 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. 1) The Group as lessor Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. 2) The Group as lessee Contingent rents arising under operating leases are recognized as an expense in the year in which they are incurred. q. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, 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. 100 Except the circumstances stated above, all the other borrowing costs are recognized in profit or loss in the period in which the borrowing costs are incurred. r. Government grants Government grants are not recognized until there is reasonable assurance that the Group will comply with the conditions attached to the grants and that the grants will be received. Government grants are recognized in profit or loss on a systematic basis over the periods in which the Group recognizes as expenses the related costs for which the grants are intended to compensate. Specifically, government grants whose primary condition is that the Group should purchase, construct or otherwise acquire noncurrent assets are recognized as a deduction from the carrying amount of the relevant asset and recognized in profit or loss over the useful lives of the related assets. Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognized in profit or loss in the period in which they become receivable. s. Employee benefits 1) Short-term employee benefits Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related services. 2) Retirement benefits Payments to defined contribution retirement benefit plans are recognized as expenses when employees have rendered service entitling them to the contributions. Defined benefit costs (including service cost, net interest and remeasurement) under the defined benefit retirement benefit plans are determined using the projected unit credit method. Service cost (including current service cost and past service cost) and net interest on the net defined benefit liabilities (assets) are recognized as employee benefits expense in the period in which they occur, and the return on plan assets (excluding interest), is recognized in other comprehensive income in the period in which it occurs. Remeasurement recognized in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to profit or loss. Net defined benefit liabilities (assets) represent the actual deficit (surplus) in the Group’s defined benefit plans. Any surplus resulting from this calculation is limited to the present value of any refunds from the plans or reductions in future contributions to the plans. t. Share-based payment arrangements Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at the grant date. The fair value determined at the grant date of the employee share options is expensed on a straight-line basis over the vesting period, based on the Group's estimate of employee share options that will eventually vest, with a corresponding increase in capital surplus - employee share options. The fair value determined at the grant date of the employee share options is recognized as an expense in full at the grant date when the share options granted vest immediately. When restricted shares for employees are issued, other equity - unearned employee benefits is recognized on the grant date, with a corresponding increase in capital surplus - restricted shares for employees. If restricted shares for employees are granted for consideration and should be returned, they 101 are recognized as payables. Dividends paid to employees on restricted shares that do not need to be returned if employees resign in the vesting period are recognized as expenses when the dividends are declared with a corresponding adjustment in capital surplus - restricted shares for employees. At the end of each reporting period, The Group revises its estimate of the number of employee share options expected to vest. The impact of the revision of the original estimates is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the capital surplus - employee share options. u. Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. 1) Current tax According to the Income Tax Law, an additional tax of inappropriate earnings is provided for as income tax in the year the shareholders approve to retain the earnings. Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision. 2) Deferred tax Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences, unused loss carry forward and unused tax credits for purchases of machinery, equipment and technology, research and development expenditures, and personnel training expenditures to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. A previously unrecognized deferred tax asset is also reviewed at the end of each reporting period and recognized to the to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liabilities are settled or the assets are realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which The Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. 102 3) Current and deferred tax for the period Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination. 5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY a. Estimated impairment of financial assets - 2018 The provision for impairment of trade receivables is based on assumptions about the risk of default and expected loss rates. The Group uses judgment in making these assumptions and in selecting the inputs to the impairment calculation based on the Group’s past history, existing market conditions as well as forward-looking estimates as at the end of each reporting period. Where the actual future cash inflows are less than expected, a material impairment loss may arise. b. Estimated impairment of trade receivables - 2017 When there is objective evidence of impairment loss of receivables, the Group takes into consideration the estimation of the future cash flows of such assets. The amount of impairment loss is measured as the difference between such an asset’s carrying amount and the present value of its estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. Where the actual future cash flows are less than expected, a material impairment loss may arise. c. Estimated impairment of tangible assets and intangible assets (excluding goodwill) The Group relies on subjective judgments and depends on industry usage patterns and related characteristics to determine cash flows, asset useful lives, and future revenues and expenses. Any change in the operating environment and corporate strategy may cause significant impairment loss. For the year ended December 31, 2018 and 2017, the Group recognized impairment losses on intangible assets of $0 and $25,190 thousand, respectively. 6. CASH AND CASH EQUIVALENTS Cash on hand Checking accounts and demand deposits Cash equivalent Time deposits in banks Repurchase agreements collateralized by bonds December 31 2018 2017 $ 7,521 1,338,553 $ 10,220 1,535,059 1,881,214 8,433 2,602,835 8,163 $ 3,235,721 $ 4,156,277 103 The market rate intervals of cash in bank and bank overdrafts at the end of the reporting period were as follows: Bank balance Repurchase agreement collateralized by bonds December 31 2018 2017 0.01%-1.55% 1.00% 0.01%-3.60% 1.00% 7. FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS Financial assets at FVTPL - current Financial assets classified as at FVTPL Non-derivative financial assets - Mutual funds - Securities listed in the ROC - CB - Securities listed in the ROC Financial assets held for trading Non-derivative financial assets - Securities listed in the ROC - CB Financial liabilities at FVTPL – non-current Financial assets classified as at FVTPL Non-derivative financial assets - Unlisted shares and emerging market shares - Private funds - Mutual funds - Listed shares and emerging market shares Financial assets held for trading Non-derivative financial assets December 31 2018 2017 $ 1,280,668 28,718 4,361 $ - - - - 9,468 $ 1,313,747 $ 9,468 $ $ 462,387 160,226 75,432 39,822 - - - - - Unlisted debt securities in other countries - CB - 89,280 $ 737,867 $ 89,280 104 8. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME - 2018 Non-current Domestic and foreign investments Listed shares and emerging market shares Unlisted shares and emerging market shares Private funds 9. AVAILABLE-FOR-SALE FINANCIAL ASSETS - 2017 Current Domestic and foreign investments - Mutual funds - Listed shares and emerging market shares Non-current Domestic investments - Listed shares and emerging market shares - Mutual funds 10. FINANCIAL ASSETS MEASURED AT COST - 2017 Non-current Unlisted shares and emerging market shares Private funds Classification according to financial asset measurement categories Classified as available for sale December 31, 2018 $ 78,246 127,991 39,971 $ 246,208 December 31, 2017 $ 1,321,681 311,850 $ 1,633,531 $ 114,828 74,435 $ 189,263 December 31, 2017 $ 382,170 137,089 $ 519,259 $ 519,259 Management believed that the above unlisted equity investments held by the Group, whose fair value cannot be reliably measured due to the range of reasonable fair value estimates was so significant; therefore they were measured at cost less impairment at the end of reporting period. The Group recognized impairment losses of $203,363 thousand for the above financial assets carried at cost for December 31, 2017. 105 11. NOTES AND ACCOUNTS RECEIVABLE, NET Notes receivable Notes receivable - operating $ 16 $ 57 December 31 2018 2017 Trade receivables At amortized cost Gross carrying amount Less: Allowance for impairment loss Accounts receivable 2018 954,518 (504) 954,014 1,305,313 (107,744) 1,197,569 $ 954,030 $ 1,197,626 The average credit period on sales of goods was 30 to 60 days without interest. The Group's exposure to credit risk and external credit ratings are continuously monitored. In order to minimize credit risk, the management of the Group has delegated a team responsible for determining credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual trade debt at the end of the reporting period to ensure that adequate allowance is made for possible irrecoverable amounts. In this regard, the management believes the Group’s credit risk was significantly reduced. The Group applies the simplified approach to providing for expected credit losses prescribed by IFRS 9, which permits the use of lifetime expected loss provision for all trade receivables. The expected credit losses on trade receivables are estimated using a provision matrix by reference to past default experience of the debtor and an analysis of the debtor’s current financial position, the forecast direction of economic conditions at the reporting date. As the Group’s historical credit loss experience does not show significantly different loss patterns for different customer segments, the provision for loss allowance based on past due status is not further distinguished according to the Group’s different customer base. The Group 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. Where recoveries are made, these are recognized in profit or loss. The Group’s current credit risk grading framework is shown in the following table: December 31, 2018 Not Overdue Overdue 1- 60 days Overdue 61-90 days Overdue 91-120 days Overdue 121 days or More Total Gross carrying amount Expected credit losses $ 953,258 - $ $ 691 - $ - - $ - - 569 (504 ) $ 954,518 (504 ) Amortized cost at December 31, 201 $ 953,258 $ 691 $ - $ - $ 65 $ 954,014 The movements of the loss allowance of trade receivables were as follows: Balance at January 1, 2018 per IAS 39 106 December 31, 2018 $ 107,744 Adjustment on initial application of IFRS 9 Balance at January 1, 2018 per IFRS 9 Less: Amounts written off (Note) Exchange differences Balance at December 31, 2018 - 107,744 (107,257) 17 $ 504 Note: The accounts receivable from one customer that were overdue for 2 years and determined to be uncollectible and the accounts receivable from another customer that was declared bankrupt by court ruling were both written off. The written-off receivables and allowance were both $107,257. December 31, 2017 The average credit period on sales of goods was the same as 2018. In determining the recoverability of a trade receivable, the Group considered any change in the credit quality of the trade receivable since the date on which credit was initially granted until the end of the reporting period. An allowance for impairment loss was recognized against trade receivables based on the estimated irrecoverable amounts determined by reference to past default experience with the counterparties and an analysis of their respective current financial positions. For some trade receivables balances that were past due at the end of the reporting period, the Group did not recognize an allowance for the impairment for notes and trade receivables as of December 31, 2017, because there had been no significant change in credit quality and the amounts were still considered recoverable. The Group did not hold any collateral or other credit enhancements over these balances nor did it have a legal right to make offsets against any amounts owed by the Group to any respective counterparty. The aging of receivables was as follows: 0-60 days 61-90 days 91-120 days 121-360 days More than and including 361 days Total The above aging schedule was based on the invoice date. December 31, 2017 $ 1,008,766 102,429 86,891 - 107,257 $ 1,305,313 107 The aging of the receivables that are past due but not impaired was as follows: Less than and including 60 days More than and including 91 days Total December 31, 2017 $ $ 636 - 636 The above aging schedule was based on the past due date from end of credit term. Movements of the allowance for impairment loss recognized on notes receivable and trade receivables were as follows: Individually Impaired Collectively Impaired Balance at January 1, 2017 Add: Impairment losses recognized on receivable Foreign exchange translation gains $ 78,394 29,376 (26) $ Balance at December 31, 2017 $ 107,744 $ - - - - Total $ 78,394 29,376 (26) $ 107,744 12. INVENTORIES Finished goods Work in progress Raw materials December 31 2018 2017 $ $ 321,099 290,973 206,876 401,352 302,298 304,312 $ 818,948 $ 1,007,962 The costs of inventories recognized as cost of goods sold for the years ended December 31, 2018 and 2017 were $3,563,885 thousand and $3,563,885 thousand, respectively. The costs of inventories recognized as costs of goods sold for the years ended December 31, 2018 and 2017 were as follows: Inventory write - downs (reversed) Income from scrap sales Years Ended December 31 2017 2018 $ (35,411) 361 $ (11,426) 94 $ (35,050) $ (11,332) 108 13. SUBSIDIARIES a. The subsidiaries included in the consolidated financial statements The information of the subsidiaries at the end of reporting period was as follows: Name of Investor Name of Investee Main Businesses and Products 2018 2017 Note Percentage of Ownership December 31 Sunplus Sunplus Management Consulting Management Ventureplus Group Inc. Investment Sunplus Technology (H.K.) International trade Sunplus Venture Lin Shih Investment Investment Investment Sunplus mMobile Inc. Design of ICs Sunext Technology Co., Ltd. Design of ICs Sunplus Innovation Technology Design of ICs Generalplus Technology Inc. Design of ICs (“Generalplus”) 100.00 100.00 100.00 100.00 100.00 100.00 91.40 61.13 34.30 100.00 100.00 100.00 100.00 100.00 100.00 61.15 61.13 34.30 - - - - - - - - Sunplus and its subsidiaries had a 47.99% stake in Generalplus Technology, Inc. and the Group had controlling interest over Generalplus Technology, Inc.; the investee is included in the consolidated financial statements iCatch Technology Inc. Design of ICs - 37.64 The Group lost controlling interest Wei-Young Investment Inc. Investment Russell Holdings Limited Investment Magic Sky Limited Investment Sunplus mMedia Inc. Design of ICs Award Glory Investment Jumplux Technology Design of ICs Ventureplus Ventureplus Mauritius Ventureplus Mauritius Ventureplus Cayman Investment Investment Ventureplus Cayman Ytrip Technology Web research and development over iCatch as of July 31, 2018; thus the investee is no longer included in the consolidated financial statements; refer to Note 14 for the details. 100.00 100.00 100.00 87.20 100.00 - - - - - - Sunplus and its subsidiaries owned 97.08% of the equity in Jumplux Technology. 100.00 100.00 - - 68.80 Sunplus's subsidiaries had a 90.71% stake in Ytrip. 100.00 100.00 100.00 89.76 100.00 55.00 100.00 100.00 38.47 Sunplus App Technology Manufacturing and sale of 93.33 93.33 computer software; system integration services and information management and education. Sunplus Prof-tek Technology Development of computer 100.00 100.00 (Shenzhen) software, system integration services, building rental services and property management Sunplus Technology (Shanghai) Development of computer 100.00 100.00 software, system integration services and building rental services SunMedia Technology Development of computer 100.00 100.00 software, system integration 109 - - - - services and building rental services Sunplus Technology (Beijing) Development of computer 100.00 100.00 - software, system integration services and building rental services Sunplus Technology (Shanghai) Xiamen Xm-plus Manufacturing and sale of - 100.00 The Group lost controlling interest computer software and system integration services over Xiamen Xm-plus as of March 31, 2018; thus, the investee was not included in the consolidated financial statements; refer to Note 14 for the details. Ytrip Technology Web research and development 44.08 - Sunplus's subsidiaries had a 90.71% Ytrip Technology 1culture Communication Development and sale Sunplus Venture Jumplux Technology Design of ICs Han Young Technology Design of ICs Sunext Technology Co., Ltd. Design of ICs (“Sunext”) 100.00 42.08 70.00 - stake in Ytrip. 100.00 - 72.14 Sunplus and its subsidiaries owned 97.08% of the equity in Jumplux 70.00 Technology. - 6.98 Sunplus and its subsidiaries had 91.40% equity in Sunext. Sunplus mMedia Design of ICs 7.64 9.55 Sunplus and its subsidiaries had 100% Sunplus Innovation Design of ICs 5.64 5.64 Sunplus and its subsidiaries had equity in Sunplus mMedia. iCatch Technology, Inc. Design of ICs - 6.05 The Group lost controlling interest 68.86% equity in Sunplus Innovation over iCatch as of July 31, 2018; thus the investee is no longer included in the consolidated financial statements; refer to Note 14 for the details. (Continued) 110 Percentage of Ownership December 31 Name of Investor Name of Investee Main Businesses and Products 2018 2017 Note Lin Shih Generalplus Technology Inc. Design of ICs 13.69 13.69 Sunplus and its subsidiaries had Sunext Technology Design of ICs - 5.29 Due to organizational restructuring, 47.99% equity in Generalplus. Sunplus mMedia Design of ICs 2.60 3.25 Sunplus and its subsidiaries had 100% Sunplus Innovation Design of ICs 2.09 2.09 Sunplus and its subsidiaries had equity in Sunplus mMedia. the company transferred its equity to Sunplus in 2018. iCatch Technology Design of ICs - 1.75 The Group lost controlling interest 68.86% equity in Sunplus Innovation over iCatch as of July 31, 2018; thus the investee is no longer included in the consolidated financial statements; refer to Note 14 for the details. Generalplus Generalplus Samoa Generalplus Samoa Generalplus Mauritius Investment Investment Generalplus Mauritius Generalplus Shenzhen IC product development, after 100.00 100.00 100.00 100.00 100.00 100.00 sales service and market research Generalplus HK Sales 100.00 100.00 - - - - Wei-Young Sunext Technology Co., Ltd. Design of ICs Russell Sunext Technology Co., Ltd. Design of ICs Sunplus mMedia Inc. Jumplux Technology Design of ICs Award Glory Sunny Fancy Sunny Fancy Giant Kingdom Giant Rock Investment Investment Investment Giant Kingdom Ytrip Technology Web research and development - - - 100.00 100.00 100.00 8.16 0.03 Due to organizational restructuring, the company transferred its equity to Sunplus in 2018. 0.70 Due to organizational restructuring, the company transferred its equity to Sunplus in 2018. 22.86 Due to organizational restructuring, the company transferred its equity to Sunplus in 2018. 100.00 100.00 100.00 - - - 14.60 Sunplus's subsidiaries had a 90.71% stake in Ytrip. (Concluded) The financial statements as of and for the years ended December 31, 2017 of the above subsidiaries except Sunplus Management Consulting had been audited by the auditors. The management of the Company believes that the financial statements of Sunplus Management Consulting will not be subject to major adjustments if it were audited. b. Subsidiary excluded from the consolidated financial statements The Voting Ratio of Noncontrolling Equity December 31 2018 2017 Company name Generalplus Technology Inc. 52.01% 52.01% 111 Sunplus Innovation Technology iCatch Technology 31.14% - 31.14% 54.56% Refer to attachment 6 for registered countries and company information: Company Name Profits Attributed to Noncontrolling Interests Years Ended December 31 2018 2017 Noncontrolling Interests December 31 2018 2017 Generalplus Technology Inc. Sunplus Innovation Technology iCatch Technology $ $ 147,898 18,906 (20,889) 176,445 (635) (38,445) $ 1,109,947 283,063 - $ 1,138,500 261,835 250,584 The summarized financial information below represents amounts before intragroup eliminations. Current assets Noncurrent assets Current liabilities Noncurrent liabilities Equity Equity attributable to: Owners of the Company Noncontrolling interests Operating revenue Net income Other comprehensive income December 31 2018 2017 $ 3,201,689 760,401 828,965 175,669 $ 3,959,132 783,624 1,137,685 201,562 $ 2,957,456 $ 3,403,509 $ 1,564,446 1,393,010 $ 1,752,590 1,650,919 $ 2,957,456 $ 3,403,509 For the Years Ended December 31 2018 2017 $ 4,223,670 $ 4,756,231 $ 306,710 (10,077) $ 286,739 (18,398) Total other comprehensive income $ 296,633 $ 268,341 Equity attributable to: Owners of the Company Noncontrolling interests Total other comprehensive attributable to: Owners of the Company Noncontrolling interests Cash flows Cash flows from operating activities Cash flows used in investing activities Cash flows used in financing activities 112 $ 160,795 145,915 $ 149,374 137,365 $ 306,710 $ 286,739 $ 156,526 140,107 $ 138,712 129,629 $ 296,633 $ 268,341 $ $ 414,702 (146,496) (296,520) 241,873 (52,177) (340,361) Effect of exchange rate changes on the balance of cash held in foreign currencies Net cash outflow Dividend paid to noncontrolling interests Generalplus Technology Inc. (1,649) 3,970 $ (29,963) $ 146,695 $ (169,798) $ (200,179) 113 14. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD Investments in associates a. Investments in associates Listed companies Global View Co., Ltd. iCatch Technology Autsys Co., Ltd. December 31 2018 2017 $ 729,219 $ 379,351 December 31 2018 2017 $ 307,106 350,859 71,254 $ 379,351 - - $ 729,219 $ 379,351 As the end of the reporting period, the proportion of ownership and voting rights in associates held by the Group were as follows: Name of Associate Global View Co., Ltd. iCatch Technology Autsys Co., Ltd. December 31 2018 2017 13% 36% 19% 13% - - Refer to Table 5 following these Notes to Consolidated Financial Statements for information on the associates’ business types, main operating locations and registered countries, and Table 6 following these Notes for the information on investments in mainland China. In March 2018, the Company did not participate in the capital increase in cash of Sunplus Technology Xiamen Xm-plus in accordance with the shareholding ratio, resulting in the company’s shareholding ratio decreasing from 100% to 45%, and the number of directors was less than half the usual number, hence they lost control of Sunplus Technology Xiamen Xm-plus. As a result, the Company's equity investment in Xiamen Xm-plus was reclassified to “investments accounted for using the equity method” on March 31, 2018 and the equity investment was re-measured at fair value, and a disposal gain of $27,061 thousand was recognized. In July 2018, the Company did not participate in the capital increase in cash of Sunplus Technology Xiamen Xm-plus in accordance with the shareholding ratio, resulting in the company’s shareholding ratio decreasing from 45% to 19%. The board of directors of Xiamen Xm-plus Technology Ltd. was re-elected on December 19, 2018. The Company had lost significant influence on Xiamen Xm-plus Technology Ltd. As a result, the “investments accounted for using the equity method” is classified as “financial assets at fair value through profit or loss”. iCatch Technology Inc. has independently operated its financial activities since July 31, 2018 due to operational needs, thus the Company assessed that the control of iCatch Technology Inc. was lost. As a result, the Company reclassified its equity in iCatch Technology Inc. as “investments accounted for using the equity method” on July 31, 2018 and the equity investment was re-measured at fair value, and a disposal gain of $143,836 thousand was recognized. The fair values of publicly traded investments accounted for using the equity method were based on the closing prices of those investments at the balance sheet date, as follows: Name of Associate December 31 2018 2017 114 Global View, Co., Ltd. $ 248,530 $ 392,134 The summarized financial information of the Group’s associates is set out below: Total assets Total liabilities Revenue Profit for the period Comprehensive income Group’s share of profits of associates December 31 2018 2017 $ 2,569,477 369,039 $ $ 2,062,675 129,672 $ Years Ended December 31 2017 2018 $ 1,005,661 (45,428) $ (103,126) $ (44,862) $ $ $ $ $ 188,461 53,596 739,555 91,044 The investments accounted for by the equity method and the share of profit or loss and other comprehensive income of those investments for the year ended December 31, 2018 and 2017 was based on the associates’ financial statements audited by the auditors for the same years. 15. PROPERTY, PLANT AND EQUIPMENT Machinery Prepayments Auxiliary and Testing Transportation Furniture and Leasehold Other Construction for Year Ended December 31, 2017 Buildings Equipment Equipment Equipment Equipment Fixtures Improvements Equipment in Progress Equipment Total Cost Balance at January 1, 2017 $ 2,420,928 $ 202,883 $ 16,161 $ 581,209 $ 7,020 $ 260,976 $ 3,284 $ 21,278 $ 25 $ - $ 3,513,764 Additions Disposals Reclassified to investment - - 14,060 1,144 74,072 1,612 10,862 640 (8,772 ) (2,430 ) (53,855 ) (221 ) (12,586 ) (506 ) 698 (62 ) property - (23,676 ) - 25 - - 23,676 - Effect of exchange rate changes (13,579 ) (6 ) 256 (35,001 ) (565 ) (1,369 ) (742 ) (142 ) - - (25 ) - - 103,086 - - - (78,432 ) - (51,148 ) Balance at December 31, 2017 $ 2,407,349 $ 184,489 $ 15,131 $ 566,450 $ 7,846 $ 257,883 $ 26,352 $ 21,772 $ - $ - $ 3,487,272 Accumulated depreciation Balance at January 1, 2017 $ 404,240 $ 95,601 $ 15,329 $ 480,895 $ 3,282 $ 216,976 $ 2,269 $ 17,764 $ - $ - $ 1,236,356 Depreciation expense 53,059 25,593 702 84,445 977 22,113 453 1,099 Disposals - (8,772 ) (2,353 ) (53,190 ) (216 ) (10,926 ) (506 ) (62 ) Reclassified to investment property - (2,762 ) - - - - 2,762 Effect of exchange rate changes (497 ) (163 ) (178 ) (33,737 ) (487 ) (1,839 ) (283 ) - 32 - - - - - 188,441 - (76,025 ) - - - (37,152 ) Balance at December 31, 2017 $ 456,802 $ 107,497 $ 13,500 $ 478,413 $ 3,556 $ 226,324 $ 4,695 $ 18,833 $ - $ - $ 1,311,620 Accumulated impairment Balance at December 31, 2017 $ - $ - $ - $ 11,498 $ - $ - $ - $ - $ - $ - $ 11,498 Carrying amounts at December, 2017 $ 1,950,547 $ 74,992 $ 1,631 $ 76,539 $ 4,290 $ 31,559 $ 21,657 $ 2,939 $ - $ - $ 2,164,154 115 116 Machinery Payable for Auxiliary and Testing Transportation Furniture and Leasehold Other Construction purchases of Year Ended December 31, 2018 Buildings Equipment Equipment Equipment Equipment Fixtures Improvements Equipment in Progress Equipment Total Cost Balance at January 1, 2018 Additions Disposals Reclassified to investment property Consolidated changes Effect of exchange rate changes $ 2,407,349 - - $ 184,489 882 (9,476 ) $ 15,131 1,576 (1,836 ) $ 566,450 133,708 (5,908 ) $ 7,846 - (1,790 ) $ 257,883 19,426 (6,625 ) $ - - (24,104 ) 23,676 - (5,697 ) - - (1,142 ) - (77,014 ) (707 ) - - (152 ) 45 (1,224 ) (3,174 ) 26,352 125 - (23,676 ) (516 ) 497 $ $ 21,772 253 (1,237 ) - - 3,171 - 45 - (45 ) - - $ - 2,940 - $ 3,487,272 158,955 (26,872 ) - - - - (78,754 ) (31,308 ) Balance at December 31, 2018 $ 2,383,245 $ 193,874 $ 13,729 $ 616,529 $ 5,904 $ 266,331 $ 2,782 $ 23,959 $ - $ 2,940 $ 3,509,293 Accumulated depreciation Balance at January 1, 2018 Depreciation expense Disposals Reclassified to investment property Consolidated charges Effect of exchange rate changes $ 456,802 53,993 - $ 109,497 21,608 (9,476 ) $ 13,500 3,612 (1,115 ) $ 478,413 101,194 (6,389 ) $ $ 3,556 1,348 (22 ) $ 226,324 15,746 (7,741 ) - - (2,977 ) 2,762 - 2,466 - - (3,238 ) - (34,174 ) 1,551 - - (1,249 ) - (505 ) (1,828 ) 4,695 5,272 - (2,762 ) (473 ) (4,401 ) $ $ 18,833 773 (1,237 ) - - 1,078 $ - - - - - - - - - - - - $ 1,311,620 203,546 (25,980 ) - (35,152 ) (8,598 ) Balance at December 31, 2018 $ 507,818 $ 126,857 $ 12,759 $ 540,595 $ 3,633 $ 231,996 $ 2,331 $ 19,447 $ - $ - $ 1,445,436 Accumulated impairment Balance at December 31, 2018 $ - $ - $ - $ 11,498 $ - $ - $ - $ - $ - $ - $ 11,498 Balance at December 31, 2017 and January 1, 2018 Carrying amounts at December, 2018 $ 1,950,547 $ 74,992 $ 1,631 $ 76,539 $ 4,290 $ 31,559 $ 21,657 $ 2,939 $ $ 1,875,427 $ 67,017 $ 970 $ 64,436 $ 2,271 $ 34,335 $ 451 $ 4,512 $ - - $ $ - $ 2,164,154 2,940 $ 2,052,359 The above items of property, plant and equipment are depreciated on a straight-line basis over the following estimated useful lives: Buildings Auxiliary equipment Machinery and equipment Testing equipment Transportation equipment Furniture and fixtures Leasehold improvements Other equipment 10-56 years 3-11 years 3-10 years 1-5 years 4-10 years 3-5 years 5-11 years 3-10 years Refer to Note 35 for the carrying amounts of property, plant and equipment that had been pledged by the Group to secure borrowings. 16. INVESTMENT PROPERTIES Investment Properties 117 Cost Balance at January 1, 2017 Additions Reclassified Effect of exchange rate differences Balance at December 31, 2017 Accumulated depreciation Balance at January 1, 2017 Depreciation expense Effect of exchange rate differences Balance at December 31, 2017 $ 1,444,993 6,592 (268) (16,256) 1,435,061 (226,089) (71,542) 1,621 (296,010) $ 1,139,051 (Continued) 118 Cost Balance at January 1, 2018 Additions Reclassified Effect of exchange rate differences Balance at December 31, 2018 Accumulated depreciation Balance at January 1, 2018 Depreciation expense Effect of exchange rate differences Balance at December 31, 2018 Investment Properties $ 1,435,061 3,891 (10,016) (28,801) 1,400,135 $ (296,010) (72,240) 7,429 (360,821) $ 1,039,314 (Concluded) The investment properties held by the Group are depreciated over their useful lives of 5 to 20 years, using the straight-line method. The fair value of the investment properties of SunMedia Technology had been determined on the basis of valuations carried out on December 31, 2018 and 2017 by Sichuan Zongli Real Estate Land Assets Evaluation Co., Ltd. and Beijing Great Wall Joint Property Assessment LLC. The fair value was measured by using Level 3 inputs. The evaluation adopted the income method, and the important unobservable input values used include the discounted value. The evaluated fair value is as follows: December 31 2018 2017 Fair value $ 1,267,909 $ 1,755,274 The fair value of the investment properties of Sunplus Technology (Shanghai) Co., Ltd. had been determined on the basis of valuations carried out at the reporting dates by Suzhou Feng-Zheng valuation firm. The evaluation adopted the income method, and the important unobservable input values used include the discounted value. The evaluated fair value is as follows: Fair value $ 2,471,410 $ 2,310,166 December 31 2018 2017 119 17. INTANGIBLE ASSETS Technology License Fees Software Patents Goodwill Technological Know-how Total Year Ended December 31, 2017 Cost Balance at January 1 Additions Decrease Reclassified Effect of exchange rate differences $ 716,741 $ 393,456 $ 114,229 $ 30,596 $ 99,512 (99,113) 44,922 29,101 (65,129) (45,695) 370 (999) - - 271 10 - - - 2,460 $ 1,257,482 128,613 (168,124) (502) - (3,882) - - 1,422 803 Balance at December 31 $ 762,432 $ 310,734 $ 114,510 $ 30,596 $ - $ 1,218,272 Accumulated amortization Balance at January 1 Amortization expense Decrease Reclassified Effect of exchange rate differences $ 527,506 $ 346,256 $ 63,947 (99,113) 36,268 30,978 (65,129) (36,302) 64 (515) 79,091 $ 2,720 - 34 1 - $ - - - 2,460 $ 955,322 97,645 (168,124) - - (3,882) - - 1,422 972 Balance at December 31 $ 528,672 $ 275,297 $ 81,846 $ - $ - $ 885,815 Accumulated deficit Balance at January 1 Addition $ 111,136 $ 3,613 $ - - $ - 21,577 $ - - - - $ 111,136 25,190 Balance at December 31 $ 114,749 $ - $ 21,577 $ - $ - $ 136,326 Carrying amounts at December 31, 2017 $ 119,011 $ 35,437 $ 11,087 $ 30,596 $ - $ 196,131 Technology License Fees Software Patents Goodwill Technological Know-how Total Year Ended December 31, 2018 Cost Balance at January 1 Additions Decrease Effect of exchange rate differences Consolidated changes $ 762,432 $ 310,734 $ 114,510 $ 30,596 $ 66,784 (20,568) 24,736 (22,271) - - - - (500) (29,641) (3,439) (11,151) (6) - - - - $ 1,218,272 91,520 - (42,839) - - - (3,945) (40,792) Balance at December 31 $ 778,507 $ 298,609 $ 114,504 $ 30,596 $ - $ 1,222,216 Accumulated amortization Balance at January 1 Amortization expense Decrease Effect of exchange rate differences $ 528,672 $ 275,297 $ 54,526 (20,568) 26,340 (22,271) 81,846 $ 1,371 - - $ - - - $ 885,815 82,237 - (42,839) - (181) (375) (2) - - (558) 120 Consolidated changes (5,534) (8,139) - - - (13,673) Balance at December 31 $ 556,915 $ 270,852 $ 83,215 $ - $ - $ 910,982 (Continued) 121 Technology License Fees Software Patents Goodwill Technological Know-how Total Year Ended December 31, 2018 Accumulated deficit Balance at January 1 Consolidated changes $ 114,749 $ (3,613) $ - - 21,577 $ - $ - - - - $ 136,326 (3,613) Balance at December 31 $ 111,136 $ - $ 21,577 $ - $ - $ 132,713 Carrying amounts at December 31, 2018 $ 110,456 $ 27,757 $ 9,712 $ 30,596 $ - $ 178,521 (Concluded) Impairment loss recognized on the above intangible assets was $25,190 thousand for the year ended December 31, 2017. These intangible assets are amortized on a straight-line basis over the useful lives of the assets, estimated as follows: Technology license fees Software Patents Technological know-how An analysis of depreciation by function Operating costs Selling and marketing expenses General and administrative expenses Research and development expenses 18. OTHER ASSETS Current Other financial assets Pledged time deposits (a) Other assets Pledged for EDA tools Finance lease payables (c) Others 1-10 years 1-10 years 8-18 years 5 years For the Year Ended December 31 2018 2017 $ 228 110 6,743 75,156 $ 629 100 7,067 89,849 $ 82,237 $ 97,645 December 31 2018 2017 $ 153,575 $ 291,373 $ 17,194 2,756 71,371 $ 25,929 2,814 72,218 $ 91,321 $ 100,961 (Continued) December 31 2018 2017 122 Noncurrent Other financial assets Pledged time deposits (a) Time deposits (b) Other assets Finance lease payables (c) Refundable deposits Prepaid long-term investment Others $ 10,943 116,272 $ 11,386 73,040 $ 127,215 $ 84,426 $ 102,175 7,749 30,001 7,800 $ 107,113 7,456 - 11,370 $ 147,725 $ 125,939 (Concluded) a. Refer to Notes 33 and 37 for information on pledged time deposits. b. Generalplus Shenzhen invested RMB26,000 thousand and RMB16,0000 thousand in long-term certificates of deposit with the bank in August 2016 and July 2018 (for durations of two to three years). The interest rates for such certificates of deposit are at fixed rates. c. The amounts of the Group’s finance lease payables for land grants in China as of December 31, 2018 and 2017 were $104,931 thousand and $109,927 thousand, respectively. 19. LOANS Short-term borrowings Secured borrowings Bank loans Unsecured borrowings Bank loans December 31 2018 2017 $ 122,769 $ 208,800 188,446 235,311 $ 311,215 $ 444,111 The weighted average effective interest rates for bank loans from January 1, 2018 to December 31, 2018 and from January 1, 2017 to December 31, 2017 were 2.500%-3.594% and 1.800%-2.650% per annum, respectively. 123 Long-term borrowings The borrowings of the Group were as follows: Maturity Date Significant Covenant 2018 2017 December 31 Floating rate borrowings Unsecured bank borrowings Unsecured bank borrowings Unsecured bank borrowings 2019.10.14 2019.11.10 2019.2.14 Repayable in October 2019 Repayable semiannually from November 2016 Repayable quarterly from February 2014 $ 135,046 100,000 15,000 250,046 250,046 $ 149,143 200,000 75,000 424,143 175,000 $ - $ 249,143 Less: Current portion Long-term borrowings The effective borrowing rates as of December 31, 2018 and 2017 were 1.545%-3.959% and 1.545%-2.655%. According to the loan contract, the consolidated financial statements of the company for 107 and 106 years are limited by current ratio, debt ratio, interest guarantee multiple and current ratio, debt ratio and a restriction on net tangible assets. However, the Company’s inability to meet the ratio requirements would not be deemed as a violation of the contracts. As of 2018 and 2017, the Company was in compliance with these financial ratio requirements. 20. TRADE PAYABLES Accounts payable Payable - operating December 31 2018 2017 $ 484,810 $ 723,983 The average credit period on purchases of certain goods was 30-60 days. The Group has financial risk management policies in place to ensure that all payables are paid within the pre-agreed credit terms. 21. PROVISIONS Customer returns and rebates December 31, 2017 $ 11,555 The provision for customer returns and rebates was based on historical experience, management’s judgments and other known reasons estimated product returns and rebates may occur in the year. The provision was recognized as a reduction of operating income in the periods of the related goods sold. 124 22. OTHER LIABILITIES Current Other payables Salaries or bonuses Compensation due to directors Payable for royalties Commissions payable Labor/health insurance Refund liabilities (Note 25) Payables for purchases of equipment Payables for labor Receipt in advance Others Deferred revenue Deferred revenue December 31 2018 2017 $ 299,445 59,190 42,261 39,772 29,424 14,796 8,670 6,403 3,767 68,818 $ 347,067 85,979 38,743 36,667 28,702 - 23,444 8,615 51,096 152,545 $ 572,546 $ 772,858 Arising from government grants (Note 30) $ 1,629 $ 1,663 Non-current Other payable Payables for purchases of equipment Decommissioning liabilities $ 2,376 889 $ 3,265 $ $ - 889 889 Deferred revenue Arising from government grants (Note 30) $ 61,894 $ 64,844 23. RETIREMENT BENEFIT PLANS a. Defined contribution plans Sunplus, Generalplus, Sunext, Sunplus Innovation, Sunplus mMedia and Jumplux Technology of the Group adopted a pension plan under the Labor Pension Act (LPA), which is a state-managed defined contribution plan. Under the LPA, the Group makes monthly contributions to employees’ individual pension accounts at 6% of monthly salaries and wages. b. Defined benefit plans Before the promulgation of the LPA, Sunplus, Generalplus, Sunext, Sunplus Innovation and Jumplux Technology of the Group had a defined benefit pension plan under the Labor Standards Law. Under this plan, employees should receive either a series of pension payments with a defined annuity or a lump sum that is payable immediately on retirement and is equivalent to 2 base units for each of the first 15 years of service and 1 base unit for each year of service thereafter. The total retirement benefit is subject to a maximum of 45 units. The pension benefits are calculated on the basis of the length of service and average monthly salaries of the six month before retirement. In addition, the Group makes monthly contributions, equal to 2% of salaries, to a pension fund, which is administered by a fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan in the committee’s name and are 125 managed by the Bureau of Labor Funds, Ministry of Labor (“the Bureau”); the company has no right to influence the investment policy and strategy. The actuarial valuations of plan assets and the present value of the defined benefit obligation were carried out by qualifying actuaries. The principal assumptions used for the purposes of the actuarial valuations were as follows: December 31 2018 2017 Present value of funded defined benefit obligation Fair value of plan assets $ 268,025 (188,770) $ 290,833 (191,869) Net liabilities arising from defined benefit obligation $ 79,255 $ 98,964 Movements in net defined benefit liabilities were as follows: Present Value of Funded Defined Benefit Obligation Fair Value of Plan Assets Net Defined Benefit Liabilities (Assets) $ 278,239 $ 185,639 $ 92,600 Balance at January 1, 2017 Service cost Current service cost Net interest expense (income) Recognized gain and loss Remeasurement Return on plan assets Actuarial (gain) loss-experience adjustment Actuarial (gain) loss-changes in demographic assumptions Actuarial loss-changes in financial assumptions Recognized in other comprehensive income Benefit paid 771 4,357 5,128 - 64 2,530 4,872 7,466 - - 2,993 2,993 (1,589) - - - (1,589) 4,826 771 1,364 2,135 1,589 64 2,530 4,872 9,055 (4,826) Balance at December 31, 2017 $ 290,833 $ 191,869 $ 98,964 Balance at January 1, 2018 Service cost Current service cost Net interest expense (income) Recognized gain and loss Remeasurement Return on plan assets Actuarial (gain) loss-experience adjustment Actuarial (gain) loss-changes in demographic assumptions Actuarial loss-changes in financial assumptions Recognized in other comprehensive income $ 290,833 $ 191,869 $ 98,964 789 3,587 4,376 - (4,068) (53) 5,222 1,101 - 2,513 2,513 4,596 - - - 4,596 789 1,074 1,863 (4,596) (4,068) (53) 5,222 (3,495) (Continued) 126 Contributions from the employer Consolidated changes Liabilities extinguished on settlement Present Value of Funded Defined Benefit Obligation $ - (24,373) (3,912) Fair Value of Plan Assets $ 5,932 (8,609) (7,531) Balance at December 31, 2018 $ 268,025 $ 188,770 Net Defined Benefit Liabilities (Assets) $ (5,932) (15,764) 3,619 $ 79,255 (Concluded) An analysis by function of the amounts recognized in profit or loss in respect of the benefit plans is as follows: Operating costs Selling and marketing expenses General and administrative expenses Research and development expenses For the Year Ended December 31 2018 2017 $ 215 234 453 904 $ 273 251 522 1,147 Net liability arising from defined benefit obligation $ 1,806 $ 2,193 Through the defined benefit plans under the Labor Standards Law, the Group is exposed to the following risks: 1) Investment risk: The plan assets are invested in domestic and foreign equity and debt securities, bank deposits, etc. The investment is conducted at the discretion of the Bureau or under the mandated management. However, in accordance with relevant regulations, the return generated by plan assets should not be below the interest rate for a 2-year time deposit with local banks. 2) 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 plan’s debt investments. 3) 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. The actuarial valuations of the present value of the defined benefit obligation were carried out by qualified actuaries. The significant assumptions used for the purposes of the actuarial valuations were as follows: Discount rate(s) Expected rate(s) of salary increase Resignation rate December 31 2018 2017 1.10%-1.20% 4.00%-5.00% 0%-28% 1.25%-1.50% 3.50%-6.25% 0%-29% 127 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: Discount rate(s) 0.25% increase 0.25% decrease Expected rate(s) of salary increase 1% increase 1% decrease December 31, 2018 December 31, 2017 $ $ $ $ (8,405) 8,761 35,932 (31,147) $ $ $ $ (9,901) 10,306 40,268 (35,114) The sensitivity analysis presented above may not be representative of the actual change in the present value of 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. Expected contributions to the plan for the next year $ 9,106 $ 4,829 Average duration of the defined benefit obligation 14-17 years 14-18 years December 31 2018 2017 24. EQUITY a. Share capital 1) Common shares: December 31 2018 2017 Number of shares authorized (in thousands) Shares authorized Number of shares issued and fully paid (in thousands) Shares issued 1,200,000 $ 12,000,000 591,995 5,919,949 $ 1,200,000 $ 12,000,000 591,995 5,919,949 $ Fully paid common shares, which have a par value of $10, carry one vote per share and carry a right to dividends. Of the Group’s authorized shares, 80,000 thousand shares had been reserved for the issuance of convertible bonds and employee share options. 2) Global depositary receipts In March 2001, Sunplus issued 20,000 thousand units of global depositary receipts (GDRs), representing 40,000 thousand common shares that consisted of newly issued and originally outstanding shares. The GDRs are listed on the London Stock Exchange (code: SUPD) with an issuance price of US$9.57 per unit. As of December 31, 2018, the outstanding 175 thousand units of GDRs represented 350 thousand common shares. 128 b. Capital surplus December 31 2018 2017 May be used to offset a deficit, distributed as cash dividends, or transferred to share capital (a) Arising from the issuance of common shares Arising from the acquisition of a subsidiary The difference between consideration received or paid and the carrying amount of the subsidiaries’ net assets during actual disposal or acquisition $ 409,213 157,423 $ 496,059 157,423 140,022 140,293 May be used to offset a deficit only From treasury share transactions Changes in net equity of associates or joint ventures accounted for using the equity method 43,958 50,782 41,466 - $ 801,398 $ 835,241 a) When the Company has no deficit, such capital surplus may be distributed as cash dividends, or may be transferred to share capital once a year and within a certain percentage of the Company’s capital surplus. c. Retained earnings and dividend policy Under the dividend policy as set forth in the amended Articles, Sunplus shall appropriate from annual net income less any accumulated deficit: (a) 10% as legal reserve; and (b) special reserve equivalent to the debit balance of any accounts shown in the shareholders’ equity section of the balance sheet, other than deficit. Under the approved shareholders’ resolution, the current year’s net income less all the foregoing appropriations and distributions, plus the prior years’ unappropriated earnings may be distributed as additional dividends. Sunplus’ policy is that cash dividends should be at least 10% of total dividends distributed. However, cash dividends will not be distributed if these dividends are less than NT$0.5 per share. Under the regulations promulgated, a special reserve equivalent to the debit balance of any account shown in the shareholders’ equity section of the balance sheet (for example, unrealized loss on financial assets and cumulative translation adjustments) should be allocated from unappropriated retained earnings. For the policies on distribution of employees’ compensation and remuneration to directors before and after amendment, refer to Note 26-g. Appropriation of earnings to legal reserve shall be made until the legal reserve equals the Company’s paid-in capital. Legal reserve may be used to offset deficit. If the Company has no deficit and the legal reserve has exceeded 25% of the Company’s paid-in capital, the excess may be transferred to capital or distributed in cash. 129 The Company appropriates or reverses a special reserve in accordance with Rule No. 1010012865 and Rule No. 1010047490 issued by the FSC and the directive entitled “Questions and Answers on Special Reserves Appropriated Following the Adoption of IFRSs”. Distributions can be made out of any subsequent reversal of the debit to other equity items. The appropriations from the 2017 and 2016 earnings were approved at the shareholders’ meetings in June 11, 2018 and on June 13, 2017, respectively. The appropriations, including dividends, were as follows: Appropriation of Earnings Dividends Per Share (NT$) For Year 2017 For Year 2016 For Year 2017 For Year 2016 Legal reserve Special reserve Cash dividend $ 41,321 44,284 327,551 $ 9,974 1,068 88,681 $ 0.5333 $ 0.1498 The Company’s shareholders also proposed in the shareholders’ meeting on June 11, 2018 to issue cash dividends from capital surplus of $86,846 thousand. The Company’s shareholders also proposed in the shareholders’ meeting on June 13, 2017 to issue cash dividends from capital surplus of $207,317 thousand. The appropriations of earnings, the bonuses for employees, and the remuneration of directors for 2018 are subject to resolution in the shareholders’ meeting to be held on March 20, 2016. Legal reserve Special reserve Appropriation of Earnings Dividends Per Share (NT$) 561 $ 241,173 $ - - The Company’s board of directors also proposed in the shareholders’ meeting on March 20, 2019 to issue cash dividends from capital surplus of $213,118 thousand. The appropriation of earnings for 2018 is subject to resolution in the shareholders’ meeting to be held on June 10, 2019. d. Special reserve Beginning at January 1 Appropriations to the special reserve Balance at December 31 For the Year Ended December 31 2018 2017 $ 22,995 44,284 $ 21,927 1,068 $ 67,279 $ 22,995 130 e. Other equity items 1) Foreign currency translation reserve: Balance at January 1 Exchange differences on translating foreign operations Share of exchange differences of associates accounted for using equity method Balance at December 31 2) Unrealized gain (loss) from available-for-sale financial assets: For the Year Ended December 31 2018 2017 $ (122,100) (13,871) $ (62,062) (59,220) (2,904) (818) $ (138,875) $ (122,100) For the Year Ended December 31, 2017 Balance at January 1, 2017 Changes in fair value of available-for-sale financial assets Cumulative (gain)/loss reclassified to profit or loss on sale of available-for-sale financial $ 306,462 356,999 assets Share of unrealized gain on revaluation of available-for-sale financial assets of associates accounted for using the equity method Balance at December 31, 2018 Effect of retrospective application and retrospective restatement - IFRS 9 Balance at January 1, 2018 (IFRS 9) (610,076) 6,453 59,838 (59,838) $ - 3) Unrealized gain (loss) from investments in equity instruments measured at fair value through other comprehensive income: Balance at January 1 (IAS 39) Effect of retrospective application and retrospective restatement - IFRS 9 Balance at January 1 (IFRS 9) Current Unrealized gain (loss) Cumulative unrealized gain (loss) of equity instruments transferred to retained earnings due to disposal Share of unrealized gain (loss) on associates accounted for using the equity method Balance at December 31 For the Year Ended December 31, 2018 $ - (230,011) (230,011) (104,028) 37,070 (6,999) $ (303,968) 131 f. Non-controlling interests For the Year Ended December 31 2018 2017 Balance at January 1 Effect of retrospective application and retrospective restatement - IFRS $ 1,677,049 $ 1,663,923 9 Attributable to no controlling interests: Share of profit for the year Exchange difference on translation foreign operations Unrealized losses on available-for-sale financial assets Unrealized gain (loss) on financial assets at FVTOCI Actuarial gains on defined benefit plans Distribution of dividends by associates Partial disposal of subsidiaries Noncontrolling interests - restricted shares options held by subsidiaries’ employees Noncontrolling interests related to outstanding vested share options held by the employees of subsidiaries Disposal of subsidiaries (Note 31) Others 1,478 136,707 (4,190) - 343 (1,165) (169,798) - - 37 (229,844) (8,953) - 129,770 (3,711) (3,772) - (400) (200,179) 88,842 142 78 - 2,356 Balance at December 31 $ 1,401,664 $ 1,677,049 g. Treasury shares Purpose of Buyback Number of shares as of January 1, 2017 Decrease Number of shares as December 31, 2017 Number of shares as of January 1, 2018 Decrease Number of shares as December 31, 2018 Shares Transferred to Employees (In Thousands of Shares) Shares Held by Its Subsidiaries (In Thousands of Shares) Total (In Thousands of Shares) - - - - - - 3,560 - 3,560 3,560 - 3,560 3,560 - 3,560 3,560 - 3,560 The Group’s shares held by its subsidiaries at the end of the reporting periods were as follows: Purpose of Buyback December 31, 2018 Shares Transferred to Employees (in Thousands of Shares) Shares Held by Its Subsidiaries (in Thousands of Shares) Total (in Thousands of Shares) Lin Shin Investment Co., Ltd 3,560 $ 63,401 $ 40,050 (Continued) 132 Purpose of Buyback December 31, 2017 Shares Transferred to Employees (in Thousands of Shares) Shares Held by Its Subsidiaries (in Thousands of Shares) Total (in Thousands of Shares) Lin Shin Investment Co., Ltd 3,560 $ 63,401 $ 58,384 (Concluded) Under the Securities and Exchange Act, Sunplus should neither pledge treasury shares nor exercise shareholders’ rights on these shares, such as rights to dividends and to vote. 25. REVENUE Revenue from contracts with customers Rental income from property Other a. Contract information Revenue from the sale of goods For the Year Ended December 31 2018 2017 $ 5,663,059 199,184 215,490 $ 6,419,659 216,055 184,523 $ 6,077,733 $ 6,820,237 IC products are sold to agents and customers. The Company determines the sales price of products based on orders. It takes into consideration the past purchases of agents and customers in order to estimate the most likely discount amount and return rate. Based on the determination of revenue, the Company recognizes the amount and the liabilities for refunds (accounted for as other current liabilities). Other Other mainly come from software development. b. Disaggregation of revenue For the Year Ended December 31, 2018 Primary geographical markets Asia Taiwan Others 133 Reportable Segments Direct Sales $ 4,067,191 1,908,470 102,072 $ 6,077,733 (Continued) Reportable Segments Direct Sales Timing of revenue recognition Satisfied at a point in time Satisfied over time c. Contract balances Note and trade receivables (Note 11) Contract liabilities - current $ 5,812,317 265,416 $ 6,077,733 (Concluded) December 31, 2018 $ 954,030 7,511 $ The variation of contract liabilities is mainly due to the difference between the time when the performance obligation is met and the payment schedule of the customer. 26. NET PROFIT Net profit included the following items: a. Other income Dividend income Interest income Others b. Other gains and losses Gain on disposal of investment Gain on disposal of subsidiary/associates Net gain (loss) on financial assets and liabilities Net gain (loss) on financial assets designated as at FVTPL (Note 7) Net foreign exchange loss Loss on reversal of impairment loss on financial assets Loss on non-financial assets Others c. Finance costs Interest on bank loans Other finance costs 134 For the Year Ended December 31 2018 2017 $ 23,564 26,314 66,585 $ 23,230 22,111 52,344 $ 116,463 $ 97,685 For the Year Ended December 31 2018 2017 $ - 182,621 $ 642,140 - 67,736 (15,895) - - 11,540 4,901 (64) (25,190) (203,363) 6,543 $ 246,002 $ 424,967 For the Year Ended December 31 2018 2017 $ 21,239 2,584 $ 24,530 1,696 d. Depreciation and amortization An analysis of depreciation by function Operating costs Operating expenses An analysis of amortization by function Operating costs Operating expenses e. Operating expenses directly related to investment properties $ 23,823 $ 26,226 For the Year Ended December 31 2018 2017 $ 79,758 196,028 $ 79,327 180,656 $ 275,786 $ 259,983 $ 228 82,009 $ 629 97,016 $ 82,237 $ 97,645 For the Year Ended December 31 2018 2017 Direct operating expenses from investment property that generated rental income $ 76,191 $ 77,210 f. Employee benefit expense Short-term benefits Post-employment benefits Defined contribution plans Defined benefit plans (Note 23) Other employee benefits Share-based payments Equity-settled Other employee benefits For the Year Ended December 31 2018 2017 $ 1,716,303 $ 1,833,142 56,066 1,806 57,872 37 28,418 54,695 2,193 56,888 220 27,157 Total employee benefit expense $ 1,802,630 $ 1,917,407 An analysis of employee benefit expense by function Operating costs Operating expenses $ 136,269 1,666,361 $ 157,293 1,760,114 $ 1,802,630 $ 1,917,407 g. Employees’ compensation and remuneration of directors The Company resolved amendments to its Articles of Incorporation to distribute employees’ compensation and remuneration directors at rates of no less than 1% and no higher than 1.5%, respectively, of net profit before income tax, employees’ compensation, and remuneration of directors. The employees’ compensation and remuneration of directors for the years ended December 31, 2018 and 2017, which have been approved by the Company’s board of directors on March 20, 2019 and March 14, 2018, respectively, were as follows: Accrual rate 135 Employees’ compensation Remuneration of directors Amount For the Year Ended December 31 2018 1.00% 1.50% 2017 1.00% 1.50% For the Year Ended December 31 2018 2017 Cash Shares Cash Shares Employees’ compensation Remuneration of directors $ $ 80 119 $ - - 4,323 6,484 $ - - If there is a change in the proposed amounts after the annual consolidated financial statements are authorized for issue, the differences are recorded as a change in accounting estimate. There was no difference between the actual amounts of employees’ compensation and remuneration of directors paid and the amounts recognized in the consolidated financial statements for the years ended December 31, 2017 and 2016. Information on the employees’ compensation and remuneration of directors resolved by the Company’s board of directors in 2019 and 2018 is available at the Market Observation Post System website of the Taiwan Stock Exchange. h. Gain or loss on exchange rate changes Exchange rate gains Exchange rate losses For the Year Ended December 31 2018 2017 $ 140,569 (156,464) $ 181,405 (181,469) $ (15,895) $ (64) 136 27. INCOME TAXES a. Income tax recognized in profit or loss The major components of tax expense were as follows: Current tax In respect of the current year Adjustments for prior periods Consolidated changes Deferred tax In respect of the current year For the Year Ended December 31 2018 2017 $ 86,720 (24,496) (1,518) 60,706 $ 92,937 (7,310) - 85,627 961 (2,200) Income tax expense recognized in profit or loss $ 61,667 $ 83,427 A reconciliation of accounting profit and current income tax expenses is as follows: Profit before tax Income tax expense at the 17% statutory rate Different statutory rate in other jurisdictions Tax effect of adjusting items: Nondeductible expenses in determining taxable income Temporary differences Unrecognized temporary differences Additional income tax under the Alternative Minimum Tax Act Current investment credit Effects of consolidated income tax filing Current income tax expense Deferred income tax expense Temporary differences Unrecognized loss carryforwards Adjustments for prior years’ tax Foreign income tax expense Consolidated changes Years Ended December 31 2017 2018 $ 203,990 $ 634,655 $ 40,798 1,710 $ 107,891 3,258 (11,962) (22,380) (885) - - (47) 7,234 961 77,806 (24,496) 1,680 (1,518) (125,363) 37,484 (876) 9,471 (3,306) (40) 28,519 (2,200) 64,418 (7,310) - - Income tax expense recognized in profit or loss $ 61,667 $ 83,427 Based on the Income Tax Act in the ROC, the applicable corporate tax rate used by the Group in 2017 was 17%. In February 2018, the Income Tax Act in the ROC was amended and, starting from 2018, the corporate income tax rate has been adjusted from 17% to 20%. In addition, the rate of the corporate surtax applicable to the 2018 unappropriated earnings has been reduced from 10% to 5%. As the status of the appropriation of earnings in 2019 is uncertain, the potential income tax consequences of the 2018 unappropriated earnings are not reliably determinable. 137 b. Current tax assets and liabilities December 31 2018 2017 Current tax assets Tax refund receivable (classified as other receivable) $ 871 $ 3,431 Current tax liabilities Income tax payable c. Deferred tax assets and liabilities $ 56,972 $ 60,946 The Group offset certain deferred tax assets and deferred tax liabilities that met the offset criteria. The movements of deferred tax assets and deferred tax liabilities were as follows: For the year ended December 31, 2018 Deferred Tax Assets Opening Balance Recognized in Profit or Loss Closing Balance Temporary differences Unrealized loss on inventories Fixed assets Unrealized sales Exchange (gains) losses Other For the year ended December 31, 2017 $ 19,913 864 658 (924) 10,704 $ (7,811) 3,199 17 (79) 3,713 $ 12,102 4,063 675 (1,003) 14,417 $ 31,215 $ (961) $ 30,254 Deferred Tax Assets Opening Balance Recognized in Profit or Loss Closing Balance Temporary differences Unrealized loss on inventories Fixed assets Unrealized sales Exchange (gains) losses Other $ 18,669 2,992 622 (1,326) 8,058 $ 1,244 (2,128) 36 402 2,646 $ 19,913 864 658 (924) 10,704 $ 29,015 $ 2,200 $ 31,215 138 d. Deductible temporary differences, unused loss carryforwards and unused investment credits for which no deferred tax assets have been recognized in the consolidated balance sheets Loss Carryforwards Expiry in 2018 Expiry in 2019 Expiry in 2020 Expiry in 2021 Expiry in 2022 Expiry in 2023 Expiry in 2024 Expiry in 2025 Expiry in 2026 Expiry in 2027 Expiry in 2027 Expiry in 2028 December 31 2018 2017 $ $ - 257,108 251,700 551,637 536,364 1,467,084 65,199 49,489 55,551 88,194 132,947 200,391 257,108 251,700 551,637 536,364 1,486,011 65,199 49,489 139,632 130,842 - $ 3,455,273 $ 3,668,373 Deductible temporary differences $ 177,411 $ 510,560 e. Unused loss carryforwards and tax-exemptions Loss carryforwards as of December 31, 2018 pertaining to Sunplus: Unused Amount $ 190,618 211,457 322,509 394,894 1,144,831 24,228 $ 2,288,537 Loss carryforwards as of December 31, 2018 pertaining to Sunplus Venture: Unused Amount $ 30,907 17,891 4,863 92,197 $ 145,858 Expiry Year 2019 2020 2021 2022 2023 2027 Expiry Year 2019 2020 2022 2023 139 Loss carryforwards as of December 31, 2018 pertaining to Lin Shin: Unused Amount $ 9,864 39,908 $ 49,772 Loss carryforwards as of December 31, 2018 pertaining to Sunext: Unused Amount $ 120,088 100,760 159,490 31,147 975 2,618 $ 415,078 Expiry Year 2019 2023 Expiry Year 2021 2022 2023 2024 2025 2028 Loss carryforwards as of December 31, 2018 pertaining to Sunplus mMedia: Unused Amount Expiry Year $ 25,719 22,352 109,040 35,847 30,658 29,360 27,164 11,155 9,369 57,436 $ 358,100 Loss carryforwards as of December 31, 2018 pertaining to Jumplux: Unused Amount $ 4,692 21,350 44,396 54,597 72,893 $ 197,928 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Expiry Year 2024 2025 2026 2027 2028 140 The income from the following projects is exempt from income tax for five years. The related tax-exemption periods are as follows: Project Tax Exemption Period Sunplus Fourteenth expansion Fifteenth expansion Income tax assessments January 1, 2015 to December 31, 2019 January 1, 2015 to December 31, 2019 The income tax returns of Sunplus and Sunplus mMobile through 2015 and Generalplus, Sunplus Innovation, Sunext, Sunplus mMedia, Sunplus management Consulting, Wei-Yough, Lin Shih, Sunplus Venture and Jumplus through 2016 had been assessed by the tax authorities. 28. EARNINGS PER SHARE Basic gain per share Diluted earnings per share Unit: NT$ Per Share For the Year Ended December 31 2018 2017 $ $ 0.01 0.01 $ $ 0.72 0.72 The earnings and weighted average number of common shares outstanding in the computation of earnings per share were as follows: Net profit for the year Profit for the year attributable to owners of the Company Effect of potentially dilutive common shares Bonuses for employees Years Ended December 31 2017 2018 $ 5,616 $ 421,458 - - Earnings used in the computation of diluted EPS from continuing operations $ 5,616 $ 421,458 The weighted average number of common shares outstanding (in thousand shares) is as follows: For the Year Ended December 31 2018 2017 Weighted average number of common shares used in the computation of basic earnings per shares Effect of dilutive potential common shares: Bonuses issued to employees 588,435 588,435 60 284 Weighted average number of common shares used in the computation of diluted earnings per share 588,495 588,719 If the Company offered to settle bonus or remuneration to employees in cash or shares. If the Company decides to use shares in settling the entire amount of the bonus or remuneration the resulting potential shares will be included in the weighted average number of shares outstanding to be used in computation of diluted earnings per share, if the effect is dilutive. This dilutive effect of the potential shares will be included in the computation of diluted earnings per share until the number of shares to be distributed to employees is determined in the following year. 141 29. SHARE-BASED PAYMENT ARRANGEMENTS Employee share option plan In their meeting on June 28, 2012, the shareholders of Sunplus Innovation Technology Inc. (SITI) approved a plan on a restricted employee share option plan (ESOP), through which employees would receive 2,400 thousand shares amounting to $24,000 thousand, with no up-front cost and at a par value of $10.00; the Financial Supervisory Commission approved this plan on June 28, 2013. On August 7, 2013, under the board of directors’ approval, SITI executed the restricted ESOP, through which employees received 1,000 thousand shares at a par value of $10.00 with no up-front cost. The shares were issued and granted on August 15, 2013, with the fair value of $8.7699. In their meeting on April 18, 2014, the shareholders of Sunplus Innovation Technology Inc. (SITI) approved the second plan of the restricted employee share option plan (ESOP), through which employees would receive 1,400 thousand shares amounting to $14,000 thousand, with no up-front cost and at a par value of $10.00. The shares were issued and granted on April 19, 2014, with the fair value of $6.0599. Under the restricted ESOP, employees who are still employed by SITI and pass the annual performance appraisal are eligible for a certain percentage of shareholding, as stated below. a. 50% shareholding ratio after the second anniversary from the grant date; b. 50% of the shareholding ratio after the third anniversary from the grant date. The restrictions under the ESOP are as follows: a. During the duration of the restricted ESOP, the employee may not sell, discount, transfer, grant, enact, or by any other method dispose of the shares. b. During the duration of the restricted ESOP, employees will still receive share and/or cash dividends, and also have rights to join the capital increase by cash plan (if any). c. Shares must be handed over to the trustees after the publication of the ESOP, and the Company may not request a return of the ESOP before the realization of the vesting conditions. If employees fail to meet the vesting conditions, SITI has the right to take back and cancel the limited employee share options, but the Company will still grant employees share and cash dividends generated during the vesting period. 142 Information about the Sunplus Innovation’s restricted share option plan for the year ended December 31, 2018 and 2017 was as follows: Balance at January 1 Vested Balance at December 31 30. GOVERNMENT GRANTS Number of Restricted Shares (In Thousands) 2018 2017 - - - 234 (234) - In August 2013, Sun Media Technology Co., Ltd. received a government grant amounting to RMB 16,390 thousand ($79,213 thousand) for the purchase of land on which to build a plant. The amount was recognized as deferred revenue and subsequently transferred to profit or loss over the useful life of the related asset. The total revenue recognized as profit for the years ended December 31, 2018 and 2017 was $1,661 and $1,641 thousand, respectively. 31. DISPOSAL OF SUBSIDIARIES In March 2018, the Company did not participate in the capital increase in cash of Sunplus Technology Xiamen Xm-plus in accordance with the shareholding ratio, resulting in the company’s shareholding ratio decreasing from 100% to 45%, and the number of directors was less than half the usual number, hence the control of Sunplus Technology Xiamen Xm-plus was lost. In addition, iCatch Technology has independently operated its financial activities on July 31, 2018, so the Company assessed it has lost control. a. Analysis of assets and liabilities on the date control was lost Current assets Cash and cash equivalents Accounts receivables Inventories Other receivables Other current assets Noncurrent assets Property, plant and equipment Intangible assets Refundable deposits Deferred income tax - noncurrent Sunplus Technology Xiamen Xm-plus iCatch Technology $ 187 - 971 63 1,009 595 77 - - $ 159,384 130,898 205,200 5,686 94,941 43,007 25,427 1,674 1,518 (Continued) 143 Current liabilities Trade payables Accrued expenses Other current liabilities Accrued pension liabilities Deposits received Contract liabilities Net liabilities disposed of b. Gain on disposal of subsidiaries Collection price of investments accounted for using the equity method Disposed of net liabilities (assets) Reclassification of net assets and related hedging instruments to accumulated exchange differences on profit (loss) due to loss of control of subsidiaries Non-controlling interests Sunplus Technology Xiamen Xm-plus iCatch Technology $ (170) - (20,710) - - - $ (148,922) (28,812) (606) (15,533) (33,053) (19,637) $ (17,978) $ 421,172 (Concluded) Sunplus Technology Xiamen Xm-plus iCatch Technology $ 9,294 17,978 $ 335,164 (421,172) (211) - - 229,844 Gain on disposals $ 27,061 $ 143,836 32. EQUITY TRANSACTIONS WITH NON-CONTROLLING INTERESTS In June 2017, Sunplus Venture purchased equity from employees of Jumplux Technology Co., Ltd., increasing its controlling interest from 94.29% to 95.00%. In October 2017, Sunplus Venture disposed of 3.66% of its interest in Generalplus Technology Inc., reducing its controlling interest from 51.65% to 47.99%. In July 2018, Sunplus subscribed for the capital increase in cash of Jumplux Technology Co., Ltd., increasing its controlling interest from 95.00% to 97.08%. In August 2018, Sunplus Technology (Shanghai) subscribed for the capital increase in cash of Ytrip Technology Co., Ltd., increasing its controlling interest from 83.40% to 90.71%. From October to December, 2018, Sunplus purchased the equity from the external shareholders of Sunext Technology Co., Ltd. increasing its controlling interest from 74.15% to 91.40%. 144 The above transactions were accounted for as equity transactions since the Group did not cease to have control over these subsidiaries. 2018 Cash consideration paid The proportionate share of the carrying amount of the net assets of the subsidiary transferred to non-controlling interests Reattribution of other equity to (from) non-controlling interests -Exchange differences on translating the financial statements of foreign operations Jumplux Technology Co., Ltd. Ytrip Technology Co., Ltd. Sunext Technology Co., Ltd. $ (100,000) $ (120,150) $ (31,571) 96,333 101,403 31,300 - 212 - Differences recognized from equity transactions $ (3,667) $ (18,535) $ (271) Jumplux Technology Co., Ltd. Ytrip Technology Co., Ltd. Sunext Technology Co., Ltd. Total Line items adjusted for equity transactions Capital surplus - changes in percentage of ownership interests in subsidiaries $ (3,667) $ (18,535) $ - $ (22,202) Capital surplus - difference between consideration received or paid and the carrying amount of the subsidiaries’ net assets during actual disposal or acquisition Retained earnings - - (271) (271) $ (3,667) $ (18,535) $ (271) $ (22,473) 33. OPERATING LEASE ARRANGEMENTS The Group as lessee Operating leases relate to leases of land with lease terms between 2 and 20 years. The Group does not have a bargain purchase option to acquire the leased land at the expiry of the lease periods. Sunplus The Company leases lands from Science-Based Industrial Park Administration (SBIPA) under renewable agreements expiring in December 2020, December 2021 and December 2034. The SBIPA has the right to adjust the annual lease amount. The amount was $8,318 thousand for the period ended. The Company had pledged $6,100 thousand time deposits (classified as other noncurrent financial assets) as collateral for the land lease agreements. 145 Future annual minimum rentals under the leases are as follows: Up to 1 year Over 1 year to 5 years Over 5 years Sunplus Innovation December 31 2018 2017 $ 8,318 21,079 36,576 $ 8,259 23,855 39,901 $ 65,973 $ 72,015 Sunplus Innovation leases office from Science-Based Industrial Park Administration (SBIPA) under renewable agreements expiring in December 2018. The SBIPA has the right to adjust the annual lease amount of $5,459 thousand. The future lease payables are as follows: Up to 1 year Over 1 year to 5 years Refundable deposits Generalplus Technology Inc. December 31 2018 2017 $ 5,549 22,196 $ 5,489 - $ 27,745 $ 5,489 $ 910 $ 910 Generalplus leases land from Science-Based Industrial Park Administration under renewable agreements expiring in December 2020. The SBIPA has the right to adjust the annual lease amount of $1,532 thousand. Generalplus deposited $3,000 thousand (classified as other noncurrent financial assets) as collateral for the land lease agreements. Future annual minimum rentals under the leases are as follows: Up to 1 year Over 1 year to 5 year The Group as lessor Sunplus Technology (Shanghai) December 31 2018 2017 $ 1,491 1,491 $ 1,458 2,916 $ 2,982 $ 4,374 Operating leases relate to the investment property owned by the Group with lease terms between 1 and 5 years. All operating lease contracts contain market review clauses in the event that the lessee exercises its option to renew. The lessee does not have a bargain purchase option to acquire the property at the expiry of the lease period. As of December 31, 2018 and 2017, deposits received under operating leases amounted to $39,899 thousand and $37,439 thousand, respectively. The future minimum lease payments for non-cancellable operating lease are as follows: December 31 2018 2017 146 Up to 1 year Over 1 year to 5 years SunMedia Technology $ 142,129 133,209 $ 97,784 37,218 $ 275,338 $ 135,002 Operating leases relate to the investment property owned by the Group with lease terms 15 years. All operating lease contracts contain market review clauses in the event that the lessee exercises its option to renew. The lessee does not have a bargain purchase option to acquire the property at the expiry of the lease period. As of December 31, 2018 and 2017, deposits received under operating leases amounted to $7,379 thousand and $6,848 thousand, respectively. The future minimum lease payments of non-cancellable operating lease were as follows: Up to 1 year Over 1 to 5 years Over 5 years 34. CAPITAL MANAGEMENT December 31 2018 2017 $ $ 84,521 435,290 581,826 83,978 440,026 684,521 $ 1,101,637 $ 1,208,525 The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximizing the return to stakeholders through the optimization of the debt and equity balance. The capital structure of the Group consists of net debt (borrowings offset by cash and cash equivalents) and equity of the Group (comprising issued capital, reserves, retained earnings and other equity) attributable to owners of the Group. The Group is not subject to any externally imposed capital requirements. 35. FINANCIAL INSTRUMENTS a. Fair value of financial instruments that are not measured at fair value The management of the Company considers that the fair values of financial assets and financial liabilities that are not measured at fair value approximate their fair values. 147 b. Fair value of financial instruments that are measured at fair value on recurring basis. 1) Fair value hierarchy December 31, 2018 Financial assets at FVTPL Mutual funds Listed shares and emerging market shares Unlisted shares and emerging market shares Securities listed in the ROC - CB Private funds Financial assets at FVTOCI Listed shares and emerging market shares Unlisted shares and emerging market shares Private funds December 31, 2017 Financial assets at FVTPL Unlisted debt securities Level 1 Level 2 Level 3 Total $ 1,356,100 $ - $ - $ 1,356,100 44,183 - 28,718 - - - - - - 44,183 462,387 462,387 - 160,226 28,718 160,226 $ 1,429,001 $ - $ 622,613 $ 2,051,614 $ 78,246 $ - $ - $ 78,246 17,320 - - - 110,671 39,971 127,991 39,971 $ 95,566 $ - $ 150,642 $ 246,208 Level 1 Level 2 Level 3 Total other countries $ Securities listed in ROC 9,468 - - 89,280 $ - - 9,468 89,280 $ 9,468 $ 89,280 $ - $ 98,748 Available-for-sale financial assets Mutual funds Quoted shares $ 1,396,116 426,678 $ $ - - - - $ 1,396,116 426,678 $ 1,822,794 $ - $ - $ 1,822,794 There were no transfers between Levels 1 and 2 in the current and prior periods. 148 2) Reconciliation of Level 3 fair value measurements of financial instruments For the Year Ended December 31, 2018 Financial Assets Financial Assets at FVTPL Financial Assets at FVTOCI Balance at January 1, 2018 Recognized in profit or loss Recognized in other comprehensive income Purchases Sales Transfers out of Level 3 Effect of exchange rate changes $ 442,888 15,589 - 276,125 (111,996) - 7 $ 171,568 - (77,563) 75,212 (4,930) (13,593) (52) Total $ 614,456 15,589 (77,563) 351,337 (116,926) (13,593) (45) Balance at December 31, 2018 $ 622,613 $ 150,642 $ 773,255 3) Valuation techniques and inputs applied for Level 3 fair value measurement a) The fair values of unlisted shares and emerging market shares were determined using the market approach. The significant unobservable inputs used are listed in the table below. An increase in the price-to-book ratio or price-sales ratio or a decrease in the discount for lack of marketability used in isolation would result in increases in fair value. Price-to-book ratio Price-to-sales ratio Discount for lack of marketability December 31 2018 2017 0.66-4.16 0.69-7.52 10%-30% 0.94-3.37 1.25-1.38 10%-50% b) The fair values of unlisted shares and emerging market shares were determined using the asset-based approach. The Group assesses that the amount of its net assets attributable to its investment approaches the fair value of the equity investment. The Group assesses the total value of the individual assets and liabilities covered by the target to reflect the overall value of the business. c) The fair values of unlisted shares and emerging market shares were determined using the income approach. In this approach, the discounted cash flow method was used to capture the present value of the expected future economic benefits to be derived from the ownership of these investees. The significant unobservable inputs used are listed in the table below. An increase in long-term revenue growth rates or a decrease in the weighted average cost of capital (WACC) or discount for lack of marketability used in isolation would result in increases in fair value. 149 c. Categories of financial instruments Financial assets Fair value through profit or loss (FVTPL) Held for trading Fair value through profit or loss (FVTPL) Loans and receivables (i) Available-for-sale financial assets (ii) Financial assets at amortized cost (iii) Financial assets at fair value through other comprehensive income Equity instruments Financial liabilities December 31 2018 2017 $ $ - 2,051,614 - - 4,549,250 246,208 98,748 - 5,901,870 2,342,053 - - Measured at amortized cost (iv) 1,276,248 1,822,939 i) The balances included loans and receivables measured at amortized cost, which comprise cash and cash equivalents, note and trade receivables, other financial assets and refundable deposit. ii) The balance included available - for - sale financial assets carried at cost. iii) The balances include financial assets measured at amortized cost, which comprise cash and cash equivalents, refundable deposits, trade and other receivables and other financial assets. Those reclassified to held-for-sale disposal groups are also included. iv) The balances included financial liabilities measured at amortized cost, which comprised short-term and long-term loans, note and trade payables, long-term liabilities -current portion and guarantee deposits. d. Financial risk management objectives and policies The Group's major financial instruments included equity and debt investments, convertible notes, trade receivable, trade payables, bonds payable and borrowings. The Group's corporate treasury function provides services to the business, coordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Group through internal risk reports which analyze exposures by degree and magnitude of risks. These risks include market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk. The Corporate Treasury function reported quarterly to the Group's risk management committee. 1) Market risk The Group's activities exposed it primarily to the financial risks of changes in foreign currency exchange rates (see (a) below) and interest rates (see (b) below). The Group entered into a variety of derivative financial instruments to manage its exposure to foreign currency risk and interest rate risk, including: 150 a) Foreign currency risk A part of the Group’s cash flows is in foreign currency, and the use by management of derivative financial instruments is for hedging adverse changes in exchange rates, not for profit. For exchange risk management, each foreign-currency item of net assets and liabilities is reviewed regularly. In addition, before obtaining foreign loans, the Group considers the cost of the hedging instrument and the hedging period. The carrying amounts of the Group's foreign currency-denominated monetary assets and monetary liabilities (including those eliminated on consolidation) at the end of the reporting period were refer to Note 38. Sensitivity analysis The Group was mainly exposed to the USD and RMB. The following table details the Company sensitivity to a US$1.00 and RMB1.00 increase and decrease in the New Taiwan dollar (the functional currency) against the relevant foreign currencies. The sensitivity analysis considers the currencies of USD and RMB in circulation, and adjusts the end-of-term conversion to exchange rate change of $1.00. The sensitivity analysis covers cash and cash equivalents, notes and accounts receivable, other receivables, other financial assets, long-term and short-term loans, accounts payable, other accounts payable and deposit margins. A negative number below indicates a decrease in post-tax profit associated with the New Taiwan dollar strengthening $1.00 against USD and RMB. For a $1.00 weakening of the New Taiwan dollar against the relevant currency, there would be an equal and opposite impact on post-tax profit, and the balances below would be positive. Profit or loss $ (9,525) $ (17,986) USD Impact Years Ended December 31 2017 2018 Profit or loss b) Interest rate risk RMB Impact Years Ended December 31 2017 2018 $ (107) $ (1,159) The Group was exposed to interest rate risk because entities in the Group borrowed funds at both fixed and floating interest rates. The risk is managed by the Group by maintaining an appropriate mix of fixed and floating rate borrowings, and using interest rate swap contracts and forward interest rate contracts. Hedging activities are evaluated regularly to align with interest rate views and defined risk appetite, ensuring the most cost-effective hedging strategies are applied. 151 The carrying amounts of the Group’s financial assets and financial liabilities with exposure to interest rates at the end of the reporting period were as follows: Fair value interest rate risk Financial assets Financial liabilities Cash flow interest rate risk Financial assets Financial liabilities Sensitivity analysis December 31 2018 2017 $ 2,025,410 311,215 $ 2,878,159 191,761 1,367,150 250,046 1,566,070 676,493 The sensitivity analyses below were determined based on the Group’s exposure to interest rates for both derivatives and non-derivative instruments at the end of the reporting period. For floating rate liabilities, the analysis was prepared assuming the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year. Basis points of 0.125% increase or decrease was used when reporting interest rate risk internally to key management personnel and represents management's assessment of the reasonably possible change in interest rates. Had interest rates increased/decreased by 0.125% and all other variables held constant, the Group’s post-tax profit for the years ended December 31, 2018 and 2017 would increase/decrease by $1,396 thousand and $1,122 thousand, respectively. c) Other price risk The Group was exposed to equity price risk through its investments in listed equity securities. Equity investments are held for strategic rather than trading purposes. The Group does not actively trade these investments. The sensitivity analyses below were determined based on the exposure to equity price risks at the end of the reporting period. Had the prices of financial assets at FVTPL been 1% higher/lower, post-tax profit for the year ended December 31, 2018 would have increased/decreased by $20,516 thousand, respectively. Had the prices of financial assets at FVTOCI been 1% higher/lower, post-tax profit for the year ended December 31, 2018 would have increased/decreased by $2,462 thousand, respectively. Had equity prices been 1% higher/lower, post-tax profit for the year ended December 31, 2017 would have increased/decreased by $18,228 thousand, respectively. 2) Credit risk Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Group. As at the end of the reporting period, the Group’s maximum exposure to credit risk which will cause a financial loss to the Group due to failure to discharge an obligation by the counterparties and financial guarantees provided by the Group is arising from the carrying amount of the respective recognized financial assets as stated in the balance sheets. 152 In order to minimize credit risk, the management of the Group has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual trade debt at the end of the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Group consider that the Group’s credit risk was significantly reduced. The credit risk on liquid funds and derivatives was limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies. Trade receivables consisted of a large number of customers, spread across diverse industries and geographical areas. Ongoing credit evaluation is performed on the financial condition of trade receivables and, where appropriate, credit guarantee insurance cover is purchased. The Group’s concentration of credit risk of 59% and 61% in total trade receivables as of December 31, 2018 and 2017, respectively, was related to the five largest customers within the property construction business segment. 3) Liquidity risk The Group manages liquidity risk by monitoring and maintaining a level of cash and cash equivalents deemed adequate to finance the Group’s operations and mitigate the effects of fluctuations in cash flows. In addition, management monitors the utilization of bank borrowings and ensures compliance with loan covenants. The Group relies on bank borrowings as a significant source of liquidity. As of December 31, 2018 and 2017, the Group had available unutilized overdraft and financing facilities refer to the following instruction. a) Liquidity and interest risk rate tables The following table details the Group's remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The tables had been drawn up based on the undiscounted cash flows of financial liabilities from the earliest date on which the Group can be required to pay. The tables included both interest and principal cash flows. December 31, 2018 Nonderivative financial liabilities On Demand or Less than 1 Month 1-3 Months More than 3 Months to 1 Year Over 1 Year to 5 Years 5+ Years Noninterest bearing Variable interest rate liabilities Fixed interest rate liabilities $ 274,169 $ 105 117,896 85,001 $ 561,988 $ 15,000 - 235,046 193,361 38,504 $ - 7,685 63,523 - 152,292 $ 392,170 $ 100,001 $ 990,395 $ 46,189 $ 215,815 153 December 31, 2017 Nonderivative financial liabilities On Demand or Less than 1 Month 1-3 Months More than 3 Months to 1 Year Over 1 Year to 5 Years 5+ Years Noninterest bearing Variable interest rate liabilities Fixed interest rate liabilities $ 497,278 $ 383,305 $ 752 $ 39,605 $ 246 59,533 - - 175,000 - 100,000 11,090 - - 153,723 $ 557,057 $ 383,305 $ 175,752 $ 150,695 $ 153,723 b) Financing facilities Unsecured bank overdraft facility Amount used Amount unused December 31 2018 2017 $ 561,504 4,479,716 $ 710,776 4,829,399 $ 5,041,220 $ 5,540,175 36. TRANSACTIONS WITH RELATED PARTIES Balances and transactions between the Company and its subsidiaries had been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below. a. Name and relationship of related parties Name Relationship with the Group Beijing Golden Global View Co., Ltd. Xiamen Xm-plus Technology Ltd. iCatch Technology, Inc. Advanced Vehicle Systems Co., Ltd. Associate (Note 1) Associate (Note 2) Associate (Note 3) Associate (Note 4) Note 1： It is an associate of the Company; subsidiary of Global View Co., Ltd. Note 2： The board of directors of Xiamen Xm-plus Technology Ltd. was re-elected on December 19, 2018. The Company judged that it had lost significant influence on Xiamen Xm-plus Technology Ltd. Note 3： On July 31, 2018, the Company assessed that it had lost control of iCatch Technology, Inc.; therefore, it is classified as an associate. Note 4： It is an associate of the company; subsidiary of AutoSys Co., Ltd. 154 b. Sales of goods Line Items Related Party Categories 2018 2017 For the Year Ended December 31 Sales Associates $ 51,833 $ 296 Sales price to related parties is based on cost and market price. The sales terms to related parties were similar to those with external customers. c. Receivables from related parties (excluding loans to related parties) Account Item Related Party Trade receivables Associates Other trade receivable Associates December 31 2018 2017 $ 17,941 $ 1,358 $ $ - - There were no guarantees on outstanding receivables from related parties. For the years ended December 31, 2018 and 2017, no impairment loss was recognized for trade receivables from related parties. d. Other transactions with related parties Account Item Related Parties Types 2018 2017 December 31 Refundable deposits Associates Deposits received Associates $ $ 871 393 $ $ 888 - Operating expenses Associates $ 4,539 $ 5,017 Non-operating income and Associates $ 9,009 $ - expenses Administrative support services price between the Company and the related parties were negotiated and were thus not comparable with those in the market. The pricing and the payment terms of the lease contract between the Company and the related parties were similar to those with external customers. e. Compensation of key management personnel Short-term employee benefits Post-employment benefits For the Years Ended December 31 2018 2017 $ 61,183 1,562 $ 59,185 1,515 $ 62,745 $ 60,700 The remuneration of directors and other key management personnel was determined by the Compensation Committee in accordance with individual performance and market trends. 37. PLEDGED OR MORTGAGED ASSETS 155 The following assets of the Company have been pledged or mortgaged as guarantees for endorsement, loan, purchase quota, leased land and customs clearance: Buildings, net Pledged time deposits (classified as other financial assets, including current and non-current) December 31 2018 2017 $ 615,136 $ 634,538 164,518 302,759 $ 779,654 $ 937,297 38. EXCHANGE RATE OF FINANCIAL ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES The Group’s group entities’ significant financial assets and liabilities denominated in foreign currencies aggregated by the foreign currencies other than functional currencies and the related exchange rates between foreign currencies and respective functional currencies were as follows: December 31, 2018 Financial assets Monetary items USD CNY JPY HKD GBP EUR Nonmonetary items USD CHF Financial liabilities Monetary items USD CNY Foreign Currencies (In Thousands) Exchange Rate Carrying Amount $ 42,724 2,388 352 152 3 1 28 786 30.715 4.472 0.278 3.921 38.880 35.200 30.715 31.190 $ 1,312,268 10,679 98 596 117 35 848 24,513 33,199 2,281 30.715 4.472 1,019,707 10,201 156 December 31, 2017 Financial assets Monetary items USD HKD CNY JPY GBP EUR Nonmonetary items USD USD CHF Financial liabilities Monetary items USD CNY EUR Foreign Currencies (In Thousands) Exchange Rate Carrying Amount $ 47,338 13,832 5,011 607 3 1 3,000 501 510 29.760 3.807 4.565 0.264 40.110 35.570 29.760 30.571 30.179 $ 1,408,779 52,658 22,875 160 120 36 89,280 15,316 15,391 29,352 3,852 29.760 4.565 873,516 17,584 The foreign currency exchange loss and gain (realized and unrealized) were amounted to $15,895 thousand and $64 thousand for the ended December 31, 2018 and 2017, respectively. Due to the diversity of the functional currencies of the Group, it is unable to disclose foreign currency with significant influence. 39. ADDITIONAL DISCLOSURES a. Following are the additional disclosures required for the Group and its investees by the Securities and Futures Bureau: 1) Financings provided: Table 1 (attached) 2) Endorsement/guarantee provided: Table 2 (attached) 3) Marketable securities held: Table 3 (attached) 4) Marketable securities acquired and disposed of at costs or prices of at least NT$300 million or 20% of the paid-in capital. 5) Intercompany relationships and significant intercompany transactions: Table 4 (attached) 6) Information on investee: Table 5 (attached) 157 b. Information on investments in mainland China 1) Information on any investee company in mainland China, showing the name, principal business activities, paid-in capital, method of investment, inward and outward remittance of funds, ownership percentage, net income of investees, investment income or loss, carrying amount of the investment at the end of the period, repatriations of investment income, and limit on the amount of investment in the mainland China area. (Table 6) 2) Any of the following significant transactions with investee companies in mainland China, either directly or indirectly through a third party, and their prices, payment terms, and unrealized gains or losses: (Table 7) a) The amount and percentage of purchases and the balance and percentage of the related payables at the end of the period. b) The amount and percentage of sales and the balance and percentage of the related receivables at the end of the period. c) The amount of property transactions and the amount of the resultant gains or losses. d) The balance of negotiable instrument endorsements or guarantees or pledges of collateral at the end of the period and the purposes. e) The highest balance, the end of period balance, the interest rate range, and total current period interest with respect to financing of funds. f) Other transactions that have a material effect on the profit or loss for the period or on the financial position, such as the rendering or receiving of services. Except for Table 1 to Table 6, there’s no further information about other significant transactions. 40. SEGMENT INFORMATION Information reported to the chief operating decision maker for the purpose of resource allocation and assessment of segment performance focuses on types of goods provided. Since all products have similar economic characteristics and product selling is centralized, the Group reports information as referring to one segment. Thus, the information of the operating segment is the same as that presented in the accompanying financial statements. That is, the revenue by sub segment and operating results for the years ended December 31, 2018 and 2017 are shown in the accompanying consolidated income statements, and the assets by segment as of December 31, 2018 and 2017 are shown in the accompanying consolidated balance sheets. a. Segment revenues and results The following was an analysis of the Group’s operating revenue and results by reportable segment. Segment Revenue For the Year Ended December 31 2018 2017 $ 5,663,059 199,184 215,490 $ 6,419,659 216,055 184,523 $ 6,077,733 $ 6,820,237 IC design Income from lease of property, plant, and equipment Other income b. Geographical information 158 The Group operates in two principal geographical areas - the Asia and Taiwan. The Group’s revenue from external customers by location of operations and information about its non-current assets by location of assets is detailed below. Revenue from External Customers For the Year Ended December 31 Noncurrent Assets For the Year Ended December 31 2018 2017 2018 2017 Asia Taiwan Others $ 4,067,191 1,908,470 102,072 $ 4,594,885 2,154,290 71,062 $ 2,192,346 1,077,848 $ 2,356,138 1,143,198 - - $ 6,077,733 $ 6,820,237 $ 3,270,194 $ 3,499,336 Noncurrent assets exclude noncurrent assets held for sale, financial instruments, deferred tax assets, post-employment benefits assets, and assets result from insurance contracts. c. Information about major customers Single customers contributing 10% or more to the Group’s revenue were as follows: Customer A Customer B Customer C For the Year Ended December 31 2018 2017 $ $ 763,906 652,318 622,701 798,635 658,358 1,083,925 159 SUNPLUS TECHNOLOGY COMPANY LIMITED AND SUBSIDIARIES FINANCINGS PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) No. Lender Borrower Financial Statement Account Related Party Highest Balance for the Period Ending Balance Actual Borrowing Amount Interest Rate Nature of Financing Business Transaction Amounts Reasons for Short-term Financing Allowance for Bad Debt Collateral Item Value Financing Limit for Each Borrower Aggregate Financing Limit TABLE 1 1 Ventureplus Cayman Inc. Sun Media Technology Other receivables Yes $ 40,027 $ - $ 6,900 - - - 3.1971% Note 1 $ 1.8% Note 1 Co., Ltd. 2 Sunplus Technology (Shanghai) Sunplus Technology Co., Ltd. 2 Sunplus Technology (Shanghai) Co., Ltd. (Beijing) Sunplus APP Technology 2 Sunplus Technology (Shanghai) Sun Media Technology Co., Ltd. Co., Ltd. 3 Russell Holdings Ltd. Sun Media Technology Co., Ltd. 4 Sunplus Venture Capital Co., Sun Media Technology Ltd. Co., Ltd. 5 Sunplus Prof-tek Technology Ytrip Technology Co., (Shenzhen) Ltd. 5 Sunplus Prof-tek Technology Sunplus APP (Shenzhen) Technology Receivables from related parties Receivables from related parties Receivables from related parties Receivables from related parties Receivables from related parties Receivables from related parties Receivables from related parties Yes Yes Yes Yes Yes Yes Yes 29,959 25,108 25,108 1.8% Note 1 219,120 91,300 91,300 1.8% Note 1 381,320 256,923 256,923 2.35% Note 1 321,321 230,061 168,561 2.2% Note 1 1,963 - - 1.8% Note 1 41,086 29,673 29,673 1.8% Note 1 - - - - - - - - Note 2 $ Note 3 Note 4 Note 5 Note 6 Note 7 Note 8 Note 9 - - - - - - - - - - - - - - - - $ - $ - - - - - - - $ 135,431 (Note 10 ) 259,645 (Note 12 ) 21,637 (Note 11 ) 259,645 (Note 12 ) 463,230 (Note 13 ) 411,427 (Note 14 ) 40,850 (Note 15 ) 40,850 (Note 15 ) 270,862 (Note 10 ) 259,645 (Note 12 ) 43,274 (Note 11 ) 259,645 (Note 12 ) 463,230 (Note 13 ) 411,427 (Note 14 ) 81,700 (Note 15 ) 81,700 (Note 15 ) Note 1: Short-term financing. Note 2: Ventureplus Cayman Inc. provided funds for the operating needs of Sun Media Technology Co., Ltd. Note 3: Sunplus Technology (Shanghai) Co., Ltd. provided funds for the operating needs of Sunplus Technology (Beijing). Note 4: Sunplus Technology (Shanghai) Co., Ltd. provided funds for the operating needs of Sunplus APP Technology. Note 5: Sunplus Technology (Shanghai) Co., Ltd. provided funds for the operating needs of Sun Media Technology Co., Ltd. Note 6: Russell Holdings Ltd. provided funds for the operating needs of Sun Media Technology Co., Ltd. Note 7: Sunplus Venture Capital provided funds for the operating needs of Sun Media Technology Co., Ltd. Note 8: Sunplus Prof-tek Technology (Shenzhen) provided funds for the operating needs of Ytrip Technology Co., Ltd. Note 9: Sunplus Prof-tek Technology (Shenzhen) provided funds for the operating needs of Sunplus APP Technology. Note 10: The foreign company has voting shares that are directly and indirectly wholly owned by the Company’s parent company. The total amount of all guarantees issued should not exceed 20% of Ventureplus Cayman Inc.’s net equity based on its latest financial statements, and the individual amount of each guarantee should not exceed 10% of Ventureplus Cayman Inc.’s net equity based on its latest financial statements; in addition, each guarantee period should not exceed two years. Note 11: The aggregate amount of all guarantees issued should not exceed 10% of the net equity of Sunplus Technology (Shanghai) Co., Ltd. (“Sunplus Shanghai”), and the individual amount of each guarantee should not exceed 5% of Sunplus Shanghai’s net equity, with net equity based on its latest financial statements. Note 12: The foreign company has voting shares that are directly and indirectly wholly owned by the Company’s parent company. The total amount of all guarantees issued and the individual amount of each guarantee should not exceed 60% of Sunplus Technology (Shanghai) Co., Ltd.’s net equity as of its latest financial statements; in addition, each guarantee period should not exceed two years. Note 13: The foreign company has voting shares that are directly and indirectly wholly owned by the Company’s parent company. The total amount of all guarantees issued and the individual amount of each guarantee should not exceed 80% of Russell Holdings Ltd.’s net equity as of its latest financial statements; in addition, each guarantee period should not exceed two years. Note 14: The total amount of all guarantees issued and the individual amount of each guarantee should not exceed 40% of Sunplus Venture Capital Co., Ltd.’s net equity as of its latest financial statements. Note 15: The total amount of all guarantees issued and the individual amount of each guarantee should not exceed 10% of the net equity of Sunplus Prof-tek Technology (Shenzhen); and the individual amount of each guarantee should not exceed 5% of Sunplus Shanghai’s net equity. 160 SUNPLUS TECHNOLOGY COMPANY LIMITED AND SUBSIDIARIES ENDORSEMENT/GUARANTEE PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) Endorsee/Guarantee No. Endorser/ Guarantor Name Nature of Relationship Limits on Endorsement/ Guarantee Given on Behalf of Each Party Maximum Balance for the Period Ending Balance Actual Borrowing Amount Value of Collateral (Property, Plant, or Equipment) TABLE 2 Percentage of Accumulated Amount of Collateral to Net Equity as of the Latest Financial Statements Maximum Collateral/Guara ntee Amounts Allowable Provided by the Company Guarantee Provided by the Subsidiary Guarantee Provided to a Subsidiary Located in Mainland China 0 (Note 1) Sunplus Technology Company Limited (“Sunplus”) Ventureplus Cayman Inc. 3 (Note 4) Sun Media Technology Co., Ltd. 3 (Note 4) Ytrip Technology Co., Ltd. 3 (Note 4) Sunext Technology Co., Ltd. 2 (Note 3) 1 (Note 2) Russell Holdings Ltd. Sun Media Technology Co., Ltd. 3 (Note 4) $ 846,594 (Note 5) 846,594 (Note 5) 846,594 (Note 5) 846,594 (Note 5) 347,423 (Note 7) $ 160,075 $ - $ - $ 417,528 417,528 219,960 121,780 - - 20,000 10,000 10,000 - - - - - 4.93 - 0.12 316,025 156,725 125,380 156,725 27.07 $ 1,693,188 (Note 6) 1,693,188 (Note 6) 1,693,188 (Note 6) 1,693,188 (Note 6) 347,423 (Note 7) Yes Yes Yes Yes No No No No No No No Yes Yes No Yes Note 1: Issuer. Note 2: Investee. Note 3: The endorser directly holds more than 50% of the common shares of the endorsee. Note 4: Sunplus and its subsidiaries jointly hold more than 50% of the common shares of the endorsee. Note 5: For each transaction entity, the guarantee amount should not exceed 10% of the endorsement/guarantee provider’s net equity based on the provider’s latest financial statements. Note 6: The guarantee amount should not exceed 20% of the endorsement/guarantee provider’s net equity based on the provider’s latest financial statements. Note 7: Russell Holdings Ltd. and the endorsement guaranty object are the parent company which holds 100% voting rights directly or indirectly. For each transaction entity, the guarantee amount should not exceed 60% of the endorsement/guarantee provider’s net equity, i.e. Russell Holdings Ltd. provider’s latest financial statements. 161 SUNPLUS TECHNOLOGY COMPANY LIMITED AND SUBSIDIARIES MARKETABLE SECURITIES HELD FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise, U.S. Dollars and Renminbi in Thousands) Holding Company Name Type and Name of Marketable Security Relationship with the Holding Company Financial Statement Account Shares or Units (In Thousands) Carrying Amount Percentage of Ownership (%) Market Value or Net Asset Value Note December 31, 2018 TABLE 3 Sunplus Technology Company Limited Nomura Taiwan Money Market (the “Company”) Mega RMB Money Market RMB FSITC RMB Money Market TWD Yuanta AUD Money Market Taishin China-US Money Market Yuanta USD Money Market TWD Yuanta RMB Money Market CNY Mega Diamond Money Market PineBridge Preferred Securities UPAMC James Bond Money Market Yuanta USD Money Market USD PineBridge Multi-Income Jih Sun Money Market Prudential Financial RMB Money Market TWD Yuanta RMB Money Market TWD Pictet-Security RI Yuanta Emerging Indonesia and India 4 years Bond Fund Broadcom Inc. Triknight Capital Corporation - - - - - - - - - - - - - - - - - - - Financial assets at fair value through 616 $ 10,043 profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current 466 5,387 2,000 3,000 4,396 470 24,408 53,267 18,518 30,287 42,367 24,253 Financial assets at fair value through 13,197 165,249 profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current 2,946 1,851 247 3,000 3,420 5,810 1,702 2 1,500 - 28,431 30,887 78,532 28,955 50,589 57,669 18,039 61,430 14,002 672 - - - - - - - - - - - - - - - - - - $ 10,043 Note 3 24,408 Note 3 53,267 Note 3 18,518 Note 3 30,287 Note 3 42,367 Note 3 24,253 Note 3 165,249 Note 3 28,431 Note 3 30,887 Note 3 78,532 Note 3 28,955 Note 3 50,589 Note 3 57,669 Note 3 18,039 Note 3 61,430 Note 3 14,002 Note 3 672 Note 2 Financial assets at fair value through 21,000 190,050 5 190,050 Note 1 profit or loss - non-current (Continued) 162 Holding Company Name Type and Name of Marketable Security Relationship with the Holding Company Financial Statement Account Shares or Units (In Thousands) Carrying Amount Percentage of Ownership (%) Market Value or Net Asset Value Note December 31, 2018 Sunplus Technology Company Limited Availink Inc. (the “Company”) Network Capital Global Fund Lin Shih Investment Co., Ltd. CTBC Global iSport Fund Yuanta Multi-Income Paradigm Pion Money Market Fund Ruentex Material Co., Ltd. Taiwan Mask Corp. Global Pmx Co., Ltd. - CB Laster Tech Corporation Ltd. - CB Everlight Electronics Co., Ltd. - CB Genius Vision Digital Co., Ltd. Ortery Technologies, Inc. Chain Sea Information Integration Co., Ltd. Sanjet Technology Corporation Minton Optic Industry Co., Ltd. Ability Enterprise Co., Ltd. - - - - - - - - - - - - - - - - Sunplus Technology Co., Ltd. Parent company Lead Sun Corporation Prine Rich International Co., Ltd. Russell Holdings Limited Synerchip Inc. OZ Optics Limited - - - - 9,039 $ 590 380 1,000 3,000 870 20 101 200 15 80 600 103 69 8 4,272 5,434 3,560 1,000 33 6,452 1,000 3,747 9,410 25,680 10,042 526 1,853 19,300 1,466 7,952 - - 1,121 - - 78,246 40,050 30,756 3,380 - - - 7 - - - - - - - - 4 1 - - 7 2 1 - - 12 8 $ 590 Note 1 3,747 Note 1 9,410 Note 3 25,680 Note 3 10,042 Note 3 526 Note 2 1,853 Note 2 19,300 Note 2 1,466 Note 2 7,952 Note 2 - Note 1 - Note 1 1,121 Note 1 - Note 1 - Note 1 78,246 Note 2 40,050 Note 2 30,756 Note 1 3,380 Note 1 - Note 1 - Note 1 (Continued) Financial assets at fair value through other comprehensive income - non-current Financial assets at fair value through other comprehensive income - non-current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss – non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through other comprehensive income - non-current Financial assets at fair value through other comprehensive income - non-current Financial assets at fair value through other comprehensive income - non-current Financial assets at fair value through other comprehensive income - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current 163 Holding Company Name Type and Name of Marketable Security Relationship with the Holding Company Financial Statement Account Shares or Units (In Thousands) Carrying Amount Percentage of Ownership (%) Market Value or Net Asset Value Note December 31, 2018 Russell Holdings Limited Ortega InfoSystem, Inc. Innobrige International Inc. Ether Precision Inc. Asia Tech Taiwan Venture, L.P. Asia B2B on Line Inc. AMED Ventures I, L.P. Availink Inc. GeneOne Diagnostics Corporation Intudo Ventures II, L.P. Sunplus Venture Capital Co., Ltd. Taiwan Mask Corp. Fubon Financial Holding Co., Ltd. Cathay China A50 Cyberon Corporation Grand Fortune Venture Capital Co., Ltd. Ortery Technologies, Inc. Book4u Company Limited Sanjet Technology Corp. Simple Act Inc. Information Technology Total Services Minton Optic Industry Co., Ltd. Raynergy Tek Inc. Genius Vision Digital CDIB Capital Growth Partners L.P. 2,557 $ 4,000 1,250 - 1,000 - 9,920 1,710 - 108 1,900 2,900 786 5,000 68 9 49 1,900 51 5,000 4,500 750 - - - - - - 6,143 31,280 21,113 9,215 1,982 47,937 47,995 28,820 54,500 - - - - - - 64,890 - 36,970 - 15 1 5 3 - 8 - - - - - 8 7 1 - - 10 - 8 16 5 2 $ - Note 1 - Note 1 - Note 1 - Note 1 - Note 1 6,143 Note 1 31,280 Note 1 21,113 Note 1 9,215 Note 1 1,982 Note 2 47,937 Note 2 47,995 Note 2 28,820 Note 1 54,500 Note 1 - Note 1 - Note 1 - Note 1 - Note 1 - Note 1 - Note 1 64,890 Note 1 - Note 1 36,970 Note 1 (Continued) - - - - - - - - - - - - - - - - - - - - - - - Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through other comprehensive income Financial assets at fair value through other comprehensive income - non-current Financial assets at fair value through other comprehensive income - non-current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current 164 Holding Company Name Type and Name of Marketable Security Relationship with the Holding Company Financial Statement Account Shares or Units (In Thousands) Carrying Amount Percentage of Ownership (%) Market Value or Net Asset Value Note December 31, 2018 Sunplus Venture Capital Co., Ltd. VenGlobal International Fund TIEF Fund LP San Neng Group Holding Co., Ltd. Intudo Ventures I, L.P. eWave System, Inc. Feature Integration Technology Inc. Qun-Kin Venture Capital Sunplus Technology (Shanghai) Co., Ltd. GF B Type Money Market Fund GF Every Day The Red Haired Type Money Market Fund B Chongqing CYIT Communication Technology Co., Ltd. Ready Sun Investment Group Fund Xiamen Xm-plus Technology Ltd. Generalplus Technology Inc. Franklin Templeton SinoAm Money Market Sunplus Innovation Technology Inc. Mega Diamond Money Market Yuanta De-Li Money Market Fund Yuanta USD Money Market USD Yuanta RMB Money Market Yuanta USD Money Market TWD Fuh Hwa You Li Money Market Yuanta De-Li Money Market Yuanta De-Bao Money Market Advanced Silicon SA - - - - - - - - - - - - - - - - - - - - Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through other comprehensive income - non-current Financial assets at fair value through other comprehensive income - non-current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through other comprehensive income - non-current 165 - 900 - 1,833 1,386 3,000 6,400 5,700 - - - 5,721 2,601 810 150 3,679 6,712 2,235 4,333 5,000 1,000 1 $ - 43,742 39,150 29,663 - 7 2 8 $ - Note 1 43,742 Note 1 39,150 Note 2 29,663 Note 1 - 22 - Note 1 17,320 25,200 29,162 25,587 - 43,708 8,076 59,048 42,347 10,143 47,512 38,982 64,694 30,072 70,553 60,010 24,513 4 6 - - 3 16 4 - - - - - - - - - 17,320 Note 2 25,200 Note 1 29,162 Note 3 25,587 Note 3 - Note 1 43,708 Note 1 8,076 Note 1 59,048 Note 3 42,347 Note 3 10,143 Note 3 47,512 Note 3 38,982 Note 3 64,694 Note 3 30,072 Note 3 70,553 Note 3 60,010 Note 3 10 24,513 Note 1 (Continued) Holding Company Name Type and Name of Marketable Security Relationship with the Holding Company Financial Statement Account Sunplus Innovation Technology Inc. Advanced NuMicro System, Inc. Point Grab Ltd. Magic Sky Limited GTA Co., Ltd. - CB Giant Rock Inc. Xiamen Xm-plus Technology Ltd. - - - Financial assets at fair value through other comprehensive income - non-current Financial assets at fair value through other comprehensive income - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Shares or Units (In Thousands) 2,000 182 - - December 31, 2018 Carrying Amount Percentage of Ownership (%) Market Value or Net Asset Value Note $ 848 - 82,623 32,306 8 1 - 15 $ 848 Note 1 - Note 1 82,623 Note 1 32,306 Note 1 Note 1: The market value was based on the carrying amount as of December 31, 2018. Note 2: The market value was based on the closing price as of December 31, 2018. Note 3: The market value was based on the net asset value of the fund as of December 31, 2018. Note 4: The exchange rate was based on the exchange rate as of December 31, 2018. (Concluded) 166 SUNPLUS TECHNOLOGY COMPANY LIMITED AND SUBSIDIARIES INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT INTERCOMPANY TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) Company Name Counterparty Sunplus Technology Co., Ltd. (the “Company”) Generalplus Technology Inc. Sunext Technology Co., Ltd. Sunplus Innovation Technology Inc. iCatch Technology, Inc. Jumplux Technology Co., Ltd. Sunplus mMedia Inc. Sunplus Innovation Technology Inc. Sun Media Technology Co., Ltd. Sunplus Prof-tek (Shenzhen) Co., Ltd. Generalplus Technology Inc. Generalplus Technology (Hong Kong) Inc. Generalplus Technology (Shenzhen) Inc. iCatch Technology, Inc. Sunext Technology Co., Ltd. Sunplus Innovation Technology Inc. Sunplus Prof-tek (Shenzhen) Co., Ltd. Sun Media Technology Co., Ltd. Sunplus Technology (Beijing) TABLE 4 Flow of Transaction (Note 5) Financial Statement Account Item Amount Terms Percentage of Consolidated Total Gross Sales or Total Assets Intercompany Transactions 1 1 1 1 1 1 2 2 2 2 2 2 2 2 Sales Nonoperating income and gains Notes and trade receivables Sales Nonoperating income and gains Notes and trade receivables Other receivables Sales Nonoperating income and gains Notes and trade receivables Other receivables Sales Nonoperating income and gains Sales Nonoperating income and gains Notes and trade receivables Other receivables Nonoperating income and gains Other receivables Sales Accrued expenses Marketing expenses Accrued expenses Marketing expenses Marketing expenses Other accrued expenses Sales Research and development expenses Notes and trade receivables Other accrued expenses Sales Marketing expenses Marketing expenses Accrued expenses Research and development expenses 167 $ 3,105 Note 1 137 Note 2 375 Note 1 1,500 Note 1 10,580 Notes 2 and 4 187 Note 1 1,226 Note 3 427 Note 1 3,828 Note 2 78 Note 1 642 Note 3 4,843 Note 1 8,601 Notes 2 and 4 6,857 Note 1 13,111 Notes 2 and 4 1,407 Note 1 2,084 Note 3 8,250 Notes 2 and 4 1,388 Note 3 2,728 Note 1 608 Note 3 2,688 Note 2 5,370 Note 3 23,271 Note 2 11,087 Note 2 2,322 Note 3 2,211 Note 2 94,261 Note 2 1,505 Note 3 43,030 Note 3 80 Note 1 7,821 Note 2 17,597 Note 2 25 Note 3 26 Note 2 0.05% - - 0.02% 0.17% - 0.01% 0.01% 0.06% - 0.01% 0.08% 0.14% 0.11% 0.22% 0.01% 0.02% 0.14% 0.01% 0.04% 0.01% 0.04% 0.05% 0.38% 0.18% 0.01% 0.03% 1.55% 0.01% 0.36% - 0.13% 0.29% - - (Continued) Company Name Counterparty Sunplus Technology (Shanghai) Co., Ltd. SunMedia Technology Co., Ltd. Sunplus App Technology Sunplus Technology (Beijing) Jumplux Technology Co., Ltd. Jumplux Technology Co., Ltd. Sunplus Technology (Beijing) Sunplus Venture Sun Media Technology Co., Ltd. Ventureplus Cayman Inc. Russell Holdings Ltd. Sun Media Technology Co., Ltd. Sun Media Technology Co., Ltd. SunMedia Technology Co., Ltd. Sunplus App Technology Sunplus Technology (Beijing) Ytrip Technology Co., Ltd. 1culture Communication Co., Ltd. Sunplus Technology (Beijing) Sunplus Prof-tek (Shenzhen) Co., Ltd. Xinamen Xm-plus Technology Ltd. Ytrip Technology Co., Ltd. Sunplus App Technology Flow of Transaction (Note 5) Financial Statement Account Item Amount Terms Percentage of Consolidated Total Gross Sales or Total Assets Intercompany Transactions 2 2 2 2 2 2 2 2 2 2 2 2 2 2 Other receivables Other payable Nonoperating income and gains Research and development expenses Nonoperating income and gains Other receivables Research and development expenses Nonoperating income and gains Account receivables Sales Other accrued expenses Research and development expenses Nonoperating income and gains Other receivables Nonoperating income and gains Other receivables Nonoperating income and gains Research and development expenses Management expenses Accounts payable Sales Management expenses Sales Nonoperating income and gains Other receivables Nonoperating income and gains $ 89,440 Note 3 345 Note 3 2,161 Note 2 319 Note 3 399 Note 2 24,596 Note 3 477 Note 2 33 Note 2 125 Note 2 320 Note 1 4,084 Note 3 5,323 Note 2 3,816 Note 2 172,133 Note 3 307 Note 2 261,358 Note 3 5,180 Note 2 210 Note 2 65 Note 2 64 Note 1 510 Note 1 31 Note 2 427 Note 2 3 Note 2 29,068 Note 3 272 Note 2 0.75% - 0.04% 0.01% 0.01% 0.21% 0.01% - - 0.01% 0.03% 0.09% 0.06% 1.44% 0.01% 2.19% 0.09% - - - 0.01% - 0.01% - 0.24% - Note 1: The transactions were based on normal commercial prices and terms. Note 2: The prices were based on negotiations, and the payment period and related terms were not comparable to market terms. Note 3: The transaction payment terms were at normal commercial terms. Note 4: Lease transaction terms were based on negotiations and, thus, were not comparable to market terms. The transactions between the Company and the counterparty were at normal terms. Note 5: The directional flow of the transactions are indicated by the following numerals: 1 - From parent company to subsidiary. 2 - Between subsidiaries. (Concluded) 168 SUNPLUS TECHNOLOGY COMPANY LIMITED AND SUBSIDIARIES NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES ON WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCES DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) Investor Investee Location Main Businesses and Products Investment Amount Balance as of December 31, 2018 December 31, 2018 December 31, 2017 Shares (Thousands) Percentage of Ownership (%) Carrying Amount Net Income (Loss) of the Investee Investment Gain (Loss) Note TABLE 5 Sunplus Technology Company Limited Ventureplus Group Inc. Award Glory Ltd. Belize Belize Investment Investment GLOBAL VIEW CO., LTD. Hsinchu, Taiwan Consumer electronics, components and rental 2,460,981 $ ( US$ 74,605 RMB 37,900 ) 62,720 2,042 ) 315,658 ( US$ 2,451,767 $ ( US$ 74,305 RMB 37,900 ) 23,712 772 ) 315,658 ( US$ Lin Shih Investment Co., Ltd. Generalplus Technology Inc. Sunplus Venture Capital Co., Ltd. Sunplus Innovation Technology Inc. Russell Holdings Limited iCatch Technology, Inc. Sunext Technology Co., Ltd. Sunplus mMedia Inc. Sunplus Management Consulting Inc. Sunplus Technology (H.K.) Co., Ltd. Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Cayman Islands, British West Indies Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Kowloon Bay, Hong Kong Magic Sky Limited Samoa Sunplus mMobile Inc. Wei-Young Investment Inc. Jumplux Technology Co., Ltd. Generalplus Technology Inc. Sunext Technology Co., Ltd. Sunplus Innovation Technology Inc. iCatch Technology, Inc. Sunplus mMedia Inc. Jumplux Technology Co., Ltd. Sunplus Innovation Technology Inc. iCatch Technology, Inc. Sunext Technology Co., Ltd. Sunplus mMedia Inc. Han Young Technology Co., Ltd. Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Taipei, Taiwan of buildings Investment Design of ICs Investment Design of ICs Investment Design of ICs Design of ICs Design of ICs Management International trade Investment Design of ICs Investment Design of ICs Design of ICs Design of ICs Design of ICs Design of ICs Design of ICs Design of ICs Design of ICs Design of ICs Design of ICs Design of ICs Design of ICs Lin Shih Investment Co., Ltd. Sunplus Venture Capital Co., Ltd. Russell Holdings Limited Sunext Technology Co., Ltd. Hsinchu, Taiwan Design of ICs Autosys Co., Ltd. Cayman Islands, British west Indies Investment ( US$ ( US$ 699,988 281,001 999,982 414,663 757,432 24,660 ) 207,345 924,730 357,565 5,000 43,425 11,075 ) 308,133 10,032 ) 2,596,792 70,157 132,000 699,988 281,001 999,982 414,663 739,003 24,060 ) 207,345 924,730 357,565 5,000 43,425 11,075 ) 305,921 9,960 ) 2,596,792 30,157 - ( HK$ ( HK$ ( US$ ( US$ 86,256 - 15,701 9,645 19,408 101,000 57,388 33,439 - 44,878 4,200 - - ) ( US$ 76,788 2,500 ) ( US$ ( US$ 86,256 369,316 15,701 9,645 19,408 101,000 57,388 33,439 385,709 44,878 4,200 65,085 2,119 ) - - - 100 $ 1,354,351 $ (79,793 ) $ (79,793 ) Subsidiary 100 33,116 (7,932 ) (7,932 ) Subsidiary 8,229 13 307,106 82,960 10,837 Investee 70,000 37,324 100,000 31,450 24,660 20,735 58,050 22,441 500 11,075 100 34 100 61 100 30 91 90 100 100 750,558 704,549 1,028,567 523,083 579,038 289,419 174,391 46,128 3,910 39 64,080 284,344 55,005 60,709 1,965 (103,184 ) 1,808 (1,647 ) (41 ) - 61,556 Subsidiary 97,531 Subsidiary 55,005 Subsidiary 37,109 Subsidiary 1,965 Subsidiary (28,936 ) Investee 2,746 Subsidiary (58,822 ) Subsidiary (41 ) Subsidiary - Subsidiary - 100 82,747 (14,459 ) (14,459 ) Subsidiary 16,240 5,400 13,200 14,892 - 1,075 965 650 10,100 2,904 3,332 - 1,909 420 - 5,000 100 100 55 14 - 2 1 3 42 6 5 - 8 70 - 19 29,785 56,947 17,475 282,537 - 15,662 13,793 6,000 13,370 49,298 47,647 - 2,371 1,780 (417 ) 2,338 (73,126 ) (417 ) Subsidiary 2,339 Subsidiary (17,085 ) Subsidiary 284,344 1,808 60,709 (103,184 ) (1,647 ) (73,126 ) 60,709 (103,184 ) 1,808 (1,647 ) - 38,915 Subsidiary 54 Subsidiary 1,268 Subsidiary (1,016 ) Investee (2,186 ) Investee (43,067 ) Subsidiary 3,426 Subsidiary (3,510 ) Investee 128 Subsidiary (6,419 ) Subsidiary - Subsidiary - 1,808 ( US$ Subsidiary 11 - ) 71,254 (14,214 ) (4,738 ) Investee Wei-Young Investment Inc. Sunext Technology Co., Ltd. Hsinchu, Taiwan Design of ICs - 350 - - - 1,808 2 Subsidiary 169 Ventureplus Group Inc. Ventureplus Mauritius Inc. Mauritius Investment Ventureplus Mauritius Inc. Ventureplus Cayman Inc. Cayman Islands, British West Indies Investment Generalplus Technology Inc. Generalplus International (Samoa) Inc. Samoa Investment Generalplus International (Samoa) Inc. Generalplus (Mauritius) Inc. Mauritius Investment 2,460,981 ( US$ 74,605 RMB 37,900 ) 2,451,767 ( US$ 74,305 RMB 37,900 ) 2,460,981 ( US$ 74,605 RMB 37,900 ) 2,460,981 ( US$ 74,305 RMB 37,900 ) 586,349 19,090 ) ( US$ 586,349 19,090 ) ( US$ 586,349 19,090 ) ( US$ 586,349 19,090 ) ( US$ - - 100 1,354,332 (79,794 ) (79,794 ) Subsidiary 100 1,354,309 (79,795 ) (79,795 ) Subsidiary 19,090 100 480,817 14,211 14,211 Subsidiary 19,090 100 480,815 14,211 14,211 Subsidiary (Continued) 170 Investor Investee Location Main Businesses and Products Generalplus (Mauritius) Inc. Generalplus Technology (Hong Kong) Inc. Hong Kong Sales Investment Amount Balance as of December 31, 2018 December 31, 2018 December 31, 2017 Shares (Thousands) Percentage of Ownership (%) Carrying Amount Net Income (Loss) of the Investee Investment Gain (Loss) Note $ (US$ 11,979 390 ) $ (US$ 11,979 390 ) 390 100 $ 5,253 $ (462 ) $ (462 ) Subsidiary Sunplus mMedia Inc. Jumplux Technology Co., Ltd. Hsinchu, Taiwan Design of ICs - 32,000 Award Glory Ltd. Sunny Fancy Ltd. Seychelles Investment Sunny Fancy Ltd. Giant Kingdom Ltd. Giant Rock Inc. Seychelles Anguilla Investment Investment 62,720 2,042 ) (US$ 23,712 772 ) (US$ 23,712 772 ) 39,008 1,270 ) (US$ (US$ 23,712 772 ) - - ) (US$ (US$ - - - - - 100 100 100 - (48,781 ) (10,034 ) Subsidiary 33,116 (7,932 ) (7,932 ) Subsidiary 811 (3,121 ) (3,121 ) Subsidiary 32,306 (4,812 ) (4,812 ) Subsidiary Note 1: The initial exchange rate was based on the exchange rate as of December 31, 2018. (Concluded) 171 SUNPLUS TECHNOLOGY COMPANY LIMITED AND SUBSIDIARIES INFORMATION ON INVESTMENTS IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) Investee Company Name Main Businesses and Products Total Amount of Paid-in Capital Investment Type Sunplus Technology Development of computer software, system (Shanghai) Co., Ltd. Sunplus Prof-tek (Shenzhen) integration services and building rental services Development of computer software, system Co., Ltd. integration services, building rental services and property management $ (US$ (US$ 528,298 17,200) 990,559 32,250) Sun Media Technology Co., Development of computer software, system Ltd. Sunplus App Technology Co., Ltd. integration services and building rental services Manufacturing and sale of computer software, system integration services and information management and education (US$ (RMB Ytrip Technology Co., Ltd. Computer system integration services, supply of general advertising and other information services (RMB Sunplus Technology (Beijing) Development of computer software, system integration services and building rental services (RMB 1culture Communication Co., System development Ltd. (RMB Xiamen Xm-plus Technology Development of computer software, system Ltd. integration services and building rental services (RMB 614,300 20,000) 67,080 15,000) 273,910 61,250) 120,744 27,000) 14,534 3,250) 232,544 52,000) Note 1 Note 1 Note 1 Note 1 Note 1 Note 1 Note 3 Note 1 Accumulated Outflow of Investment from Taiwan as of January 1, 2018 $ (US$ (US$ 542,273 17,665) 990,559 32,250) (US$ (US$ RMB (US$ (RMB 614,300 20,000) 62,719 586 10,000) 138,555 4,511) 120,744 27,000) - Investment Flows Outflow Inflow $ - $ - - - - - - - (US$ 39,008 1,270) Accumulated Outflow of Investment from Taiwan as of December 31, 2018 $ (US$ (US$ 542,273 17,655) 990,559 32,250) (US$ (US$ RMB (US$ (RMB 614,300 20,000) 62,719 586 10,000) 138,555 4,511) 120,744 27,000) - (US$ 39,008 1,270) - - - - - - - - Accumulated Investment in Mainland China as of December 31, 2018 Investment Amounts Authorized by Investment Commission, MOEA Limit on Investment 2,508,158 $ ( US$ 76,272 and 37,000 ) RMB 2,580,950 $ ( US$ 75,002 and RMB 62,000 ) $ 5,079,565 Sunplus Venture Capital Co., Ltd. Accumulated Investment in Mainland China as of December 31, 2018 Investment Amounts Authorized by Investment Commission, MOEA Limit on Investment $ ( US$ 38,701 1,260 ) $ ( US$ 38,701 1,260 ) $ 617,140 172 TABLE 6 % Ownership of Direct or Indirect Investment Net Income (Loss) of the investee Investment Loss Carrying Amount as of December 31, 2018 Accumulated Inward Remittance of Earnings as of December 31, 2018 100% $ 39,671 $ 39,671 $ 432,741 $ 100% (3,070) (3,070) 817,000 100% (80,976) (80,976) 102,178 93% (23,514) (21,947) (53,034) 91% (25,374) (21,852) (1,026) 100% 100% 1,041 1,041 48,076 18 11 19% (65,610) (32,089) 112 - - - - - - - - - (Continued) Generalplus Technology Inc. (Nature of Relationship: 1) Investee Company Name Main Businesses and Products Total Amount of Paid-in Capital Investment Type (e.g. Direct or Indirect) Accumulated Outflow of Investment from Taiwan as of January 1, 2018 Investment Flows Outflow Inflow Accumulated Outflow of Investment from Taiwan as of December 31, 2018 % Ownership of Direct or Indirect Investment Net Loss of the investee Investment Loss (Note 2) Carrying Amount as of December 31, 2018 Accumulated Inward Remittance of Earnings as of December 31, 2018 Generalplus Shenzhen IC product development, after sales service and market research $ (US$ 574,371 18,700) Note 1 $ (US$ 574,371 18,700) $ - $ - $ (US$ 574,371 18,700) 100% $ 14,673 $ 14,673 $ 475,542 $ - Accumulated Investment in Mainland China as of December 31, 2018 Investment Amount Authorized by Investment Commission, MOEA $ ( US$ 574,371 18,700 ) $ ( US$ 574,371 18,700 ) Limit on Investment $ 1,250,480 Note 1: Indirect investment in a company located in mainland China through a company located in a third country. Note 2: Based on the investee’s reviewed financial statements for the same period. Note 3: Ytrip Technology Co., Ltd. indirectly invested in a company located in mainland China. Note 4: The initial exchange rate was based on the exchange rate as of December 31, 2018. (Concluded) 173 SUNPLUS TECHNOLOGY COMPANY LIMITED AND SUBSIDIARIES SIGNIFICANT TRANSACTIONS WITH INVESTEE COMPANIES IN MAINLAND CHINA, EITHER DIRECTLY OR INDIRECTLY THROUGH A THIRD PARTY, AND THEIR PRICES, PAYMENT TERMS, AND UNREALIZED GAINS OR LOSSES FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) Investee Company Transaction Type Research and Development Expense Amount % Price Transaction Details Payment Term Comparison with Market Transactions Other Payable To Related Parties Ending Balance % Unrealized (Gain) Loss Note Generalplus Technology (Shenzhen) Development and $ 94,261 19.18% Based on contract Based on contract Not comparable with market $ 43,030 94.88 $ - NA Corp. processing services transactions TABLE 7 174 7.5 The Company's individual financial report for the past year has been audited by the accountant Sunplus Technology Company Limited Financial Statements for the Years Ended December 31, 2018 and 2017 and Independent Auditors’ Report 175 INDEPENDENT AUDITORS’ REPORT The Board of Directors and Shareholders Sunplus Technology Company Limited Opinion We have audited the accompanying parent company only financial statements of Sunplus Technology Company Limited (the “Company”), which comprise the parent company only balance sheets 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, 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 the parent company only financial performance and the 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. 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, and we do not provide a separate opinion on these matters. Revenue recognition Integrated circuit chip sales accounted for 90% of the Company’s total revenue. Operating income declined in 2018, but sales to some customers increased significantly. Therefore, we deem revenue recognition as a key audit matter. For a detailed explanation of revenue, refer to Notes 4 and 23 to the accompanying consolidated financial statements. 1. We understood the related internal control and operating procedures in the sales transaction cycle, and we evaluated and confirmed the operatung effectiveness of the internal control and operating procedures. 176 2. We selected samples from the sales details, and we examined customers’ original orders, sales electronic orders, delivery orders, logistics receipt documents or export declaration, and sales invoices for any abnormal situations and confirmed the validity of the revenue. 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, including 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. 2. 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. 3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 4. 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. 5. 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. 177 6. 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 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 Cheng-Chih Lin and Yu-Feng Huang. Deloitte & Touche Taipei, Taiwan Republic of China March 20, 2019 Notice to Readers The accompanying financial statements are intended only to present the parent company only financial position, financial performance and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such parent company only financial statements are those generally applied in the Republic of China. For the convenience of readers, the independent auditors’ report and the accompanying parent company only financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent auditors’ report and the parent company only financial statements shall prevail. 178 SUNPLUS TECHNOLOGY COMPANY LIMITED BALANCE SHEETS DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Par Value) ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 3, 4 and 6) Financial assets at fair value through profit or loss (FVTPL) - current (Notes 3, 4, 7 and 31) Available-for-sale financial assets - current (Notes 3, 4, 5 and 9) Accounts receivable, net (Notes 3, 4, 5, 11 and 32) Other receivables (Notes 3, 4, 25 and 32) Inventories (Notes 4 and 12) Other financial assets (Notes 3, 16 and 33) Other current assets (Note 16) Total current assets NON-CURRENT ASSETS Financial assets at fair value through profit or loss (FVTPL) - non-current (Notes 3, 4, 7 and 31) Financial assets at fair value through other comprehensive income (FVTOCI) - non-current (Notes 3, 4, 8 and 31) Available-for-sale financial assets - non-current (Notes 3, 4, 9 and 31) Financial assets carried at cost (Notes 3, 4, 5 and 10) Investments accounted for using the equity method (Notes 4, 13 and 32) Property, plant and equipment (Notes 3, 4, 5, 14 and 33) Intangible assets (Notes 4, 5 and 15) Deferred tax assets (Notes 4, 5 and 25) Other financial assets (Notes 3, 16 and 33) Other non-current assets (Note 16) Total non-current assets TOTAL LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term bank borrowings (Note 17) Contract liabilities - current (Note 23) Account payable (Note 18) Provisions - current (Notes 3, 4 and 19) Current portion of long-term bank loans (Notes 17 and 33) Other current liabilities (Notes 3 and 20) Total current liabilities NON-CURRENT LIABILITIES Long-term bank loans, net of current portion (Notes 17 and 33) Net defined benefit liabilities (Notes 4 and 21) Guarantee deposits Other non-current liabilities, net of current portion (Note 23) Total non-current liabilities Total liabilities EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY Share capital (Notes 4 and 22) Common shares Capital surplus Retained earnings Legal reserve Special reserve Unappropriated earnings Total retained earnings Other equity Treasury shares (Note 22) Total equity TOTAL The accompanying notes are an integral part of the financial statements. 179 2018 2017 Amount % Amount % $ 780,555 9 $ 1,722,569 18 661,494 - 171,387 14,226 256,907 - 24,851 7 - 2 - 3 - - - 602,003 200,733 51,268 276,908 59,520 29,734 - 6 2 - 3 1 - 1,909,420 21 2,942,735 30 266,154 3 - - 4,337 - - 5,981,209 687,187 86,495 2,485 6,100 8,000 - - - 67 8 1 - - - - 74,435 201,923 5,762,269 682,943 62,141 2,485 6,100 8,000 - 1 2 59 7 1 - - - 7,041,967 79 6,800,296 70 $ 8,951,387 100 $ 9,743,031 100 $ - 2,547 108,075 - 115,000 188,041 413,663 - 5,275 64,131 2,376 71,782 485,445 $ - - 1 - 1 2 4 - - 1 - 1 5 59,520 - 136,811 7,300 175,000 226,187 604,818 100,000 10,864 61,113 - 171,977 776,795 1 - 1 - 2 2 6 1 - 1 - 2 8 5,919,949 801,398 66 9 5,919,949 835,241 61 9 21 1 3 25 1,941,826 67,279 241,734 2,250,839 (442,843) (63,401) (5) - 1,900,505 22,995 413,209 2,336,709 (62,262) (63,401) 20 - 4 24 (1) (1) 8,465,942 95 8,966,236 92 $ 8,951,387 100 $ 9,743,031 100 SUNPLUS TECHNOLOGY COMPANY LIMITED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) 2018 2017 Amount % Amount % NET OPERATING REVENUE (Notes 4, 23 and 32) $ 1,238,780 100 $ 1,365,802 100 OPERATING COSTS (Notes 12, 21 and 24) 809,472 66 892,547 65 GROSS PROFIT 429,308 34 473,255 35 OPERATING EXPENSES (Notes 21, 24 and 32) Selling and marketing expenses General and administrative expenses Research and development expenses 31,670 176,445 460,807 3 14 37 43,754 220,785 482,210 3 16 36 Total operating expenses 668,922 54 746,749 55 LOSS FROM OPERATIONS (239,614) (20) (273,494) (20) NONOPERATING INCOME AND EXPENSES (Notes 4, 13, 24, 27 and 32) Other income Other gains and losses Finance costs Share of profit of associates and joint ventures 52,856 152,227 (4,864) 47,155 4 12 - 4 39,506 424,700 (8,337) 239,083 3 31 (1) 18 Total nonoperating income and expenses 247,374 20 694,952 51 PROFIT BEFORE INCOME TAX INCOME TAX EXPENSE (Notes 4 and 25) NET PROFIT FOR THE YEAR OTHER COMPREHENSIVE INCOME (LOSS) Items that will not be reclassified subsequently to profit or loss (Notes 4 and 22) Remeasurement of defined benefit plans Unrealized losses from investments in equity instruments at FVTOCI Share of other comprehensive loss of subsidiaries, associates and joint ventures accounted for using equity method Items that may be reclassified subsequently to profit or loss (Notes 4 and 22) 421,458 31 - - 421,458 31 7,760 2,144 5,616 3,443 - - - - (4,088) (94,350) (8) - (18,667) (1) (1,534) - - - (Continued) 180 SUNPLUS TECHNOLOGY COMPANY LIMITED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) Exchange differences on translating foreign operations Unrealized loss on available-for-sale financial assets Share of other comprehensive (loss) income of associates and joint ventures accounted for using equity method Other comprehensive loss for the year, net of income 2018 2017 Amount % Amount % 18,919 - 2 - (42,119) (278,167) (3) (21) (35,694) (3) 13,624 1 tax (126,349) (10) (312,284) (23) TOTAL COMPREHENSIVE INCOME FOR THE YEAR $ (120,733) (10) $ 109,174 8 EARNINGS PER SHARE (Note 26) Basic Diluted $ $ 0.01 0.01 $ $ 0.72 0.72 The accompanying notes are an integral part of the financial statements. (Concluded) 181 SUNPLUS TECHNOLOGY COMPANY LIMITED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars) Share Capital Issued and Outstanding Retained Earnings Translating Gain (Loss) on from Investments Share Unappropriated Foreign Available-for-sale in Equity Instruments (Thousands) Amount Capital Surplus Legal Reserve Special Reserve Earnings Operations Financial Assets Measured at FVTOCI Treasury Shares Total Equity Other Equity Exchange Differences on Unrealized Unrealized Losses BALANCE, JANUARY 1, 2017 591,995 $ 5,919,949 $ 911,110 $ 1,890,531 $ 21,927 $ 99,738 $ (62,062 ) $ 306,462 $ - $ (63,401 ) $ 9,024,254 Appropriation of the 2016 earnings Legal reserve Special reserve Cash dividends for common shares Difference between share price and book value from disposal of subsidiaries, associates and joint ventures accounted for using the equity method Issuance of share dividends from capital surplus Difference between share price and book value from disposal of subsidiaries Changes of equity of subsidiaries Net profit for the year ended December 31, 2017 Other comprehensive loss for the year ended December 31, 2017, net of income tax Total comprehensive income (loss) for the year ended December 31, 2017 Disposal of treasury shares - - - - - - - - - - - - - - - - - - - - - - - - - - (207,317 ) 129,668 - - - - 1,780 9,974 - - - - - - - - - - - 1,068 - - - - - - - - - (9,974 ) (1,068 ) (88,681 ) (18 ) - - (2,624 ) 421,458 - - - - - - - - - - - - - - - - (5,622 ) (60,038 ) (246,624 ) 415,836 (60,038 ) (246,624 ) - - - BALANCE, DECEMBER 31, 2017 591,995 5,919,949 835,241 1,900,505 22,995 413,209 (122,100 ) 59,838 - - - - - - - - - - - - - - - - - - - - - - - - - (88,681 ) (18 ) (207,317 ) 129,668 (2,624 ) 421,458 (312,284 ) 109,174 1,780 (63,401 ) 8,966,236 Effect of retrospective application and retrospective restatement - - - - - 294,288 - (59,838 ) (230,011 ) - 4,439 BALANCE, JANUARY 1, 2018 AS RESTATED 591,995 5,919,949 835,241 1,900,505 22,995 707,497 (122,100 ) Appropriation of the 2017 earnings Legal reserve Special reserve Cash dividends for common shares Changes in capital surplus from investments in associates and joint ventures accounted for using the equity method Issuance of share dividends from capital surplus Difference between share price and book value from disposal of subsidiaries Changes of equity of subsidiaries Net profit for the year ended December 31, 2018 - - - - - - - - - - - - - - - - - - - 50,782 (86,846 ) (271 ) - - 41,321 - - - - - - - 182 - 44,284 - - - - - - (41,321 ) (44,284 ) (327,551 ) - - - (22,606 ) 5,616 - - - - - - - - - - - - - - - - - (230,011 ) (63,401 ) 8,970,675 - - - - - - - - - - - - - - - - - - (327,551 ) 50,782 (86,846 ) (271 ) (22,606 ) 5,616 Other comprehensive income (loss) for the year ended December 31, 2018, net of income tax Total comprehensive income (loss) for the year ended December 31, 2018 Adjustments to capital surplus due to the distribution of cash dividends to subsidiaries Disposals of investments in equity instruments designated as at fair value through other comprehensive income - - - - - - - - - - 2,492 - - - - - - - - - 1,453 7,069 - (37,070 ) (16,775 ) (16,775 ) - - BALANCE, DECEMBER 31, 2018 591,995 $ 5,919,949 $ 801,398 $ 1,941,826 $ 67,279 $ 241,734 $ (138,875 ) $ - - - - - (111,027 ) (111,027 ) - 37,070 - - - - (126,349 ) (120,733 ) 2,492 - $ (303,968 ) $ (63,401 ) $ 8,465,942 The accompanying notes are an integral part of the financial statements. 183 SUNPLUS TECHNOLOGY COMPANY LIMITED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars) CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax Adjustments for: Depreciation expenses Amortization expenses Bad-debt expense Net gain on the fair value change of financial assets designated as at fair value through profit or loss Financial costs Interest income Dividend income Share of profit of subsidiaries, associates and joint ventures Gain on disposal of investments Gain on disposal of subsidiaries Impairment loss recognized on financial assets Impairment loss recognized on non-financial assets Realized gain on the transactions with subsidiaries Net loss on foreign currency exchange Changes in operating assets and liabilities: Decrease (increase) in other receivables Decrease in trade receivables Decrease (increase) in inventories Decrease in other current assets Decrease in contract liabilities Decrease in trade payables Decrease in provisions Decrease in other current liabilities Decrease in defined benefit liabilities Cash generated from operations Interest received Dividends received Interest paid Income tax paid 2018 2017 $ 7,760 $ 421,458 45,232 42,802 - 13,218 4,864 (6,885) (4,568) (47,155) - (119,154) - - (2,287) 203 22,170 29,387 20,001 4,883 (996) (28,717) - (34,475) (2,146) (55,863) 7,398 278,568 (5,018) (1,680) 45,365 32,582 30,558 - 8,337 (5,379) (6,559) (239,083) (516,435) - 96,567 21,577 (404) 6,494 (3,563) 117,072 (19,678) 40,071 - (7,993) (1,854) (55,517) (2,229) (38,613) 5,422 353,024 (8,888) - Net cash generated from operating activities 223,405 310,945 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of financial assets at FVTPL Proceeds from the sale of financial assets at FVTPL Purchases of available-for-sale financial assets Proceeds of the sale of available-for-sale financial assets Capital returned to the Company - financial assets carried at cost Purchase of investments accounted for using the equity method Payments for property, plant and equipment Payments for intangible assets (454,704) 313,976 - - - (346,554) (41,358) (65,360) - - (275,420) 1,128,917 3,183 (393,281) (14,568) (48,365) (Continued) 184 SUNPLUS TECHNOLOGY COMPANY LIMITED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars) Decrease in other assets - non-current Decrease in refundable deposits 2018 2017 59,520 - 4,980 58 Net cash (used in) generated from investing activities (534,480) 405,504 CASH FLOWS FROM FINANCING ACTIVITIES (Repayments) proceeds of short-term borrowings Repayments of long-term borrowings Proceeds from guarantee deposits received Refunds of guarantee deposits received Dividends paid to owners of the Company (59,520) (160,000) 1,860 (752) (414,397) 22,020 (670,832) 48,146 (48,249) (295,998) Net cash used in financing activities (632,809) (944,913) EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE OF CASH HELD IN FOREIGN CURRENCIES 1,870 (6,712) NET DECREASE IN CASH AND CASH EQUIVALENTS (942,014) (235,176) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 1,722,569 1,957,745 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR $ 780,555 $ 1,722,569 The accompanying notes are an integral part of the financial statements. (Concluded) 185 SUNPLUS TECHNOLOGY COMPANY LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) 1. GENERAL INFORMATION Sunplus Technology Company Limited (“Sunplus” or the “Company”) was established in August 1990. It researches, develops, designs, tests and sells high quality, high value-added consumer integrated circuits (ICs). Its products are based on core technologies in such areas as multimedia audio/video, single-chip microcontrollers and digital signal processors. These technologies are used to develop hundreds of products including various ICs: liquid crystal display, microcontroller, multimedia, voice/music, and application-specific devices. Sunplus’ shares have been listed on the Taiwan Stock Exchange since January 2000. Some of its shares have been issued in the form of global depositary receipts (GDRs), which have been listed on the London Stock Exchange since March 2001 (refer to Note 22). The parent financial statements are presented in the Company’s functional currency, the New Taiwan dollar. 2. APPROVAL OF FINANCIAL STATEMENTS The parent company only financial statements were approved by the board of directors and authorized for issue on March 20, 2019. 3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC) endorsed and issued into effect by the Financial Supervisory Commission (FSC) Except for the following, the initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs endorsed and issued into effect by the FSC did not have any material impact on the Company’s accounting policies: 1) IFRS 9 “Financial Instruments” and related amendments 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 the classification, measurement and impairment of financial assets and hedge accounting. Refer to Note 4 for information relating to the relevant accounting policies. The requirements for the classification, measurement and impairment of financial assets and hedging cost have been applied retrospectively starting from January 1, 2018, and the other requirements for hedge accounting have been applied prospectively. IFRS 9 is not applicable to items that have already been derecognized as of December 31, 2017. 186 Classification, measurement and impairment of financial assets On the basis of the facts and circumstances that existed as at January 1, 2018, the Company has performed an assessment of the classification of recognized financial assets and has elected not to restate prior reporting periods. The following table shows the original measurement categories and carrying amounts under IAS 39 and the new measurement categories and carrying amounts under IFRS 9 for each class of the Company’s financial assets and financial liabilities as at January 1, 2018. Financial Assets IAS 39 IFRS 9 IAS 39 IFRS 9 Remark Measurement Category Carrying Amount Cash and cash equivalents Loans and receivables Equity securities Available‑for‑sale Mutual funds Available‑for‑sale Loans and receivables Notes receivable, trade receivables and other receivables Restricted assets Amortized cost Mandatorily at FVTPL Fair value through other comprehensive income - equity instruments Mandatorily at FVTPL - current Amortized cost $ 1,722,569 $ 1,722,569 (a) 201,923 - 186,286 98,687 (b) 676,438 602,003 (c) 252,001 252,001 (a) Loans and receivables Amortized cost 65,620 65,620 (a) IAS 39 Carrying Amount as of IFRS 9 Carrying Retained Earnings Other Equity Amount as of Effect on Effect on Financial Assets 2018 cations surements 2018 2018 2018 Remark January 1, Reclassifi- Remea- January 1, January 1, January 1, FVTPL $ Add: Reclassification from available-for-sale (IAS 39) FVTOCI Add: Reclassification from available-for-sale (IAS 39) $ - - - - - - - $ - $ - $ - $ - $ - 781,438 6,851 788,289 10,841 (3,990 ) (b), (c) 781,438 - 6,851 - 788,289 10,841 (3,990 ) - - - 96,923 1,764 98,687 201,877 (200,113 ) (b), (c) 96,923 1,764 98,687 201,877 (200,113 ) $ 878,361 $ 8,615 $ 886,976 $ 212,718 $ (204,103 ) IAS 39 Adjustments IFRS 9 Carrying Arising from Carrying Retained Earnings Effect on Other Equity Effect on Amount as of Initial Amount as of January 1, January 1, January 1, 2018 Application January 1, 2018 2018 2018 Remark Investments accounted for using the $ 5,762,269 $ (4,176 ) $ 5,758,093 $ 81,570 $ (85,746 ) (d) equity method a) Cash and cash equivalents, time deposits with original maturities of more than 3 months, trade receivables (including related parties), other receivables and restricted assets that were previously classified as loans and receivables under IAS 39 were classified as at amortized cost with an assessment of expected credit losses under IFRS 9. 187 b) Investments in unlisted shares previously measured at cost under IAS 39 have been classified at FVTPL and at FVTOCI under IFRS 9 and were remeasured at fair value. Consequently, an increase of $111,851 and $6,851 thousand was recognized in financial assets at FVTPL and retained earnings, respectively, on January 1, 2018; consequently, an increase of $98,687 and $1,764 thousand was recognized in financial assets at FVTOCI and other equity - unrealized gain (loss) on financial assets at FVTOCI, respectively, on January 1, 2018. The Company recognized under IAS 39 impairment loss on certain investments in equity securities previously measured at cost and the loss was accumulated in retained earnings. Since those investments were designated as at FVTOCI under IFRS 9 and no impairment assessment is required, an adjustment was made that resulted in a decrease of $201,877 thousand in other equity - unrealized gain (loss) on financial assets at FVTOCI and an increase of $201,877 thousand in retained earnings on January 1, 2018. c) Mutual funds previously classified as available-for-sale under IAS 39 were classified mandatorily as at FVTPL under IFRS 9, because the contractual cash flows are not solely payments of principal and interest on the principal outstanding and they are not equity instruments. The retrospective adjustment resulted in a decrease of $3,990 thousand in other equity - unrealized gain (loss) on available-for-sale financial assets and an increase of $3,990 thousand in retained earnings on January 1, 2018. d) As a result of the retrospective application of IFRS 9 by Investments accounted for using the equity method, there was a decrease in investments accounted for using the equity method of $4,176 thousand, a decrease in other equity - unrealized gain (loss) on available-for-sale financial assets of $55,848 thousand, a decrease in other equity - unrealized gain (loss) on financial assets at FVTOCI of $85,746 thousand and an increase in retained earnings of $81,570 thousand on January 1, 2018. 2) IFRS 15 “Revenue from Contracts with Customers” and related amendments IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers and supersedes IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number of revenue-related interpretations. Refer to Note 4 for the related accounting policies. Currently, the estimate of allowances for sales returns which may occur in the year are recognized as provisions. Under IFRS 15, such provisions are recognized as other current liabilities. Impact on assets, liabilities and equity for the current period Contract liabilities - current Provisions - current Other current liabilities January 1, 2018 Carrying Amount $ - 7,300 226,187 Adjustments Arising from Initial Application $ 3,543 (7,300) 3,757 January 1, 2018 Adjusted Carrying Amount $ 3,543 - 229,944 Total effect on liabilities $ 233,487 $ - $ 233,487 3) Amendments to IAS 12 “Recognition of Deferred Tax Assets for Unrealized Losses” The amendments clarify that the difference between the carrying amount of a debt instrument measured at fair value and its tax base gives rise to a temporary difference, even though there are unrealized losses on that asset, irrespective of whether the Company expects to recover the carrying amount of the debt instrument by sale or by holding it and collecting contractual cash flows. 188 In addition, in determining whether to recognize a deferred tax asset, the Company should assess a deductible temporary difference in combination with all of its other deductible temporary differences, unless the tax law restricts the utilization of losses as a deduction against income of a specific type, in which case, a deductible temporary difference is assessed in combination only with other deductible temporary differences of the appropriate type. The amendments also stipulate that, when determining whether to recognize a deferred tax asset, the estimate of probable future taxable profit may include some of the Company’s assets for more than their carrying amount if there is sufficient evidence that it is probable that the Company will achieve the higher amount and that the estimate for future taxable profit should exclude tax deductions resulting from the reversal of deductible temporary differences. 4) IFRIC 22 “Foreign Currency Transactions and Advance Consideration” IAS 21 stipulates that a foreign currency transaction shall be recorded on initial recognition in the functional currency by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction. IFRIC 22 further explains that the date of the transaction is the date on which an entity recognizes a non-monetary asset or non-monetary liability from payment or receipt of advance consideration. If there are multiple payments or receipts in advance, the entity shall determine the date of the transaction for each payment or receipt of advance consideration. The Company applied IFRIC 22 prospectively to all assets, expenses and income recognized on or after January 1, 2018 within the scope of the interpretation. b. Amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC) (collectively, the “IFRSs”) endorsed by the FSC for application starting from 2019 New IFRSs Effective Date Announced by IASB (Note 1) Annual Improvements to IFRSs 2015-2017 Cycle Amendments to IFRS 9 “Prepayment Features with Negative Compensation” January 1, 2019 (Note 2) IFRS 16 “Leases” Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement” Amendments to IAS 28 “Long-term Interests in Associates and Joint January 1, 2019 January 1, 2019 (Note 3) January 1, 2019 January 1, 2019 Ventures” IFRIC 23 “Uncertainty Over Income Tax Treatments” 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 FSC permits the election for early adoption of the amendments starting from 2018. Note 3: The Company shall apply these amendments to plan amendments, curtailments or settlements occurring on or after January 1, 2019. 1) IFRS 16 “Leases” IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number of related interpretations. Definition of a lease Upon initial application of IFRS 16, the Company will elect to apply the guidance of IFRS 16 in determining whether contracts are, or contain, a lease only to contracts entered into (or changed) on 189 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. 190 The Company as lessee Upon initial application of IFRS 16, lease liabilities for all leases on the parent company only balance sheets except for those whose payments under low-value and short-term leases will be recognized as expenses on a straight-line basis. 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; interest is computed using the effective interest method. On the parent company only statements of cash flows, cash payments for the principal portion of lease liabilities will be classified within financing activities; cash payments for the interest portion will be classified within operating activities. 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 statements of cash flows. The Company anticipates applying IFRS 16 retrospectively with the cumulative effect of the initial application of this standard recognized on January 1, 2019. Comparative information will not be restated. Anticipated impact on assets, liabilities and equity Carrying Amount as of December 31, 2018 Adjustments Arising from Initial Application Adjusted Carrying Amount as of January 1, 2019 $ $ $ $ - - - - - $ 185,344 $ 185,344 $ 185,344 $ 185,344 $ 3,913 181,431 $ 3,913 181,431 $ 185,344 $ 185,344 Right-of-use assets Total effect on assets Lease liabilities - current Lease liabilities – non-current Total effect on liabilities The Company as lessor Except for sublease transactions, the Company will not make any adjustments for leases in which it is a lessor and will account for those leases with the application of IFRS 16 starting from January 1, 2019. 2) IFRIC 23 “Uncertainty Over Income Tax Treatments” IFRIC 23 clarifies that when there is uncertainty over income tax treatments, the Company should assume that the taxation authority will have full knowledge of all related information when making related examinations. If the Company concludes that it is probable that the taxation authority will accept an uncertain tax treatment, the Company should determine the taxable profit, tax bases, unused tax losses, unused tax credits or tax rates consistently with the tax treatments used or planned to be used in its income tax filings. If it is not probable that the taxation authority will accept an uncertain tax treatment, the Company should make estimates using either the most likely amount or the expected value of the tax treatment, depending on which method the entity expects to better predict the resolution of the uncertainty. The Company has to reassess its judgments and estimates if facts and circumstances change. 191 3) Amendments to IFRS 9 “Prepayment Features with Negative Compensation” IFRS 9 stipulated that if a contractual term of a financial asset permits the issuer (i.e. the debtor) to prepay a debt instrument or permits the holder (i.e. the creditor) to put a debt instrument back to the issuer before maturity and the prepayment amount substantially represents unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable compensation for early termination, the financial asset has contractual cash flows that are solely payments of principal and interest on the principal amount outstanding. The amendments further explained that reasonable compensation may be paid or received by either of the parties, i.e. a party may receive reasonable compensation when it chooses to terminate the contract early. 4) Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement” The amendments stipulate that, if a plan amendment, curtailment or settlement occurs, the current service cost and the net interest for the remainder of the annual reporting period are determined using the actuarial assumptions used for the remeasurement of the net defined benefit liabilities (assets). In addition, the amendments clarify the effect of a plan amendment, curtailment or settlement on the requirements regarding the asset ceiling. The amendment shall be applied prospectively. Except for the above impact, as of the date the financial statements were authorized for issue, the Company is continuously assessing the possible impact that the application of other standards and interpretations will have on the Company’s financial position and financial performance, and will disclose the relevant impact when the assessment is completed. c. New IFRSs in issue but not yet endorsed and issued into effect by the FSC New IFRSs Effective Date Announced by IASB (Note 1) Amendments to IFRS 3 “Definition of a Business” Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between January 1, 2020 (Note 2) To be determined by IASB an Investor and its Associate or Joint Venture” IFRS 17 “Insurance Contracts” Amendments to IAS 1 and IAS 8 “Definition of Materiality” January 1, 2021 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 the period. Note 3: The Company shall apply these amendments prospectively for annual reporting periods beginning on or after January 1, 2020. 1) Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture” The amendments stipulate that, when the Company sells or contributes assets that constitute a business (as defined in IFRS 3) to an associate or joint venture, the gain or loss resulting from the transaction is recognized in full. Also, when the Company loses control of a subsidiary that contains a business but retains significant influence or joint control, the gain or loss resulting from the transaction is recognized in full. 192 Conversely, when the Company sells or contributes assets that do not constitute a business to an associate or joint venture, the gain or loss resulting from the transaction is recognized only to the extent of the Company’s interest as an unrelated investor in the associate or joint venture, i.e. the Company’s share of the gain or loss is eliminated. Also, when the Company loses control of a subsidiary that does not contain a business but retains significant influence or joint control over an associate or a joint venture, the gain or loss resulting from the transaction is recognized only to the extent of the Company’s interest as an unrelated investor in the associate or joint venture, i.e. the Company’s share of the gain or loss is eliminated. Except for the above impact, as of the date the financial statements were authorized for issue, the Company is continuously assessing the possible impact that the application of other standards and interpretations will have on the Company’s financial position and financial performance and will disclose the relevant impact when the assessment is completed. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Statement of Compliance The accompanying parent company only financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, or other regulations and IFRSs as endorsed by the FSC. b. Basis for Preparation The Company financial statements have been prepared on the historical cost basis except for financial instruments that are measured at fair values, and net defined benefit liabilities which are measured at the present value of the defined benefit obligation less the fair value of plan assets. The fair value measurements are grouped into Levels 1 to 3 based on the degree to which the fair value measurement inputs are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: 1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; 2) Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and 3) Level 3 inputs are unobservable inputs for the asset or liability. When preparing these parent company only financial statements, the Company used the equity method to account for its investments in subsidiaries, associates and joint ventures. In order for the amounts of the net profit for the year, other comprehensive income for the year and total equity in the parent company only financial statements to be the same with the amounts attributable to the owners of the Company in its financial statements, adjustments arising from the differences in accounting treatments between the parent company only basis and the basis were made to investments accounted for using the equity method, the share of profit or loss of subsidiaries, associates and joint ventures, the share of other comprehensive income of subsidiaries, associates and joint ventures and the related equity items, as appropriate, in these parent company only financial statements. c. Classification of current and non-current assets and liabilities Current assets include: 1) Assets held primarily for the purpose of trading; 2) Assets expected to be realized within twelve months after the reporting period; and 193 3) Cash and cash equivalents unless the asset is restricted from being exchanged or used to settle a Current liabilities include: 1) Liabilities held primarily for the purpose of trading; 2) Liabilities due to be settled within twelve months after the reporting period, even if an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the reporting period and before the parent company only financial statements are authorized for issue; and 3) Liabilities for which the Company does not have an unconditional right to defer settlement for at least twelve months after the reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification. Assets and liabilities that are not classified as current are classified as non-current. d. Foreign currencies In preparing the financial statements of the Company, transactions in currencies other than the Company’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Exchange differences on monetary items arising from settlement or translation are recognized in profit or loss in the period. Nonmonetary 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 nonmonetary items are included in profit or loss for the period except for exchange differences arising from the retranslation of nonmonetary 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. Nonmonetary items that are measured at historical cost in a foreign currency are not retranslated. For the purposes of presenting parent company only financial statements, the assets and liabilities of the Company’s foreign operations (including of the subsidiaries, associates, joint ventures or branches operations in other countries or currencies used different with the Company) are translated into New Taiwan dollars using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising are recognized in other comprehensive income. e. Inventories Inventory write-downs are made by item, except where it may be appropriate to group similar or related items. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and costs necessary to make the sale. Inventories are recorded at weighted-average cost on the balance sheet date. 194 f. Investments accounted for using the equity method The Company uses the equity method to account for investments in subsidiaries, associates and joint ventures. 1) Investment in subsidiaries Subsidiaries are the entities controlled by the Company. Under the equity method, the investment is initially recognized at cost and the carrying amount is increased or decreased to recognize the Company's share of the profit or loss and other comprehensive income of the subsidiary after the date of acquisition. Besides, the Company also recognizes the Company’s share of the change in other equity of the subsidiary. Changes in the Company’s ownership interests in subsidiaries that do not result in the Company’s loss of control over the subsidiaries are accounted for as equity transactions. Any difference between the carrying amounts of the investment and the fair value of the consideration paid or received is recognized directly in equity. When the Company’s share of losses of a subsidiary equals or exceeds its interest in that subsidiary (which includes any carrying amount of the investment in subsidiary accounted for by the equity method and long-term interests that, in substance, form part of the Company’s net investment in the subsidiary), the Company continues recognizing its share of further losses. The acquisition cost in excess of the acquisition-date fair value of the identifiable net assets acquired is recognized as goodwill. Goodwill is not amortized. The acquisition-date fair value of the net identifiable assets acquired in excess of the acquisition cost is recognized immediately in profit or loss. When testing for impairment, the cash-generating unit is determined based on the financial statements as a whole by comparing its recoverable amount with its carrying amount. If the recoverable amount of the asset subsequently increases, the reversal of the impairment loss is recognized as a gain, but the increased carrying amount of an asset after a reversal of an impairment loss shall not exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized on the asset in prior years. An impairment loss recognized for goodwill shall not be reversed in a subsequent period. When the Company ceases to have control over a subsidiary, any retained investment is measured at fair value at that date and the difference between the previous carrying amount of the subsidiary attributable to the retained interest and its fair value is included in the determination of the gain or loss. Furthermore, the Company accounts for all amounts previously recognized in other comprehensive income in relation to that subsidiary on the same basis as would be required if the Company had directly disposed of the related assets or liabilities. Profits and losses from downstream transactions with a subsidiary are eliminated in full. Profits and losses from upstream with subsidiary and side stream transactions between subsidiaries are recognized in the Company’s financial statements only to the extent of interests in the subsidiary that are not related to the Company. 2) Investments in associates An associate is an entity over which the Company has significant influence and that is neither a subsidiary nor an interest in a joint venture. 195 The results and assets and liabilities of associates are incorporated in these parent company only financial statements using the equity method of accounting. Under the equity method, an investment in an associate is initially recognized at cost and adjusted thereafter to recognize the Company’s share of the profit or loss and other comprehensive income of the associate. The Company also recognizes the changes in the Company’s share of equity of associates. When the Company subscribes for additional new shares of the associate at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment differs from the amount of the Company’s proportionate interest in the associate. The Company records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus. If the Company’s ownership interest is reduced due to the additional subscription of the new shares of associate, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate is reclassified to profit or loss on the same basis as would be required if the investee had directly disposed of the related assets or liabilities. When the adjustment should be debited to capital surplus, but the capital surplus recognized from investments accounted for by the equity method is insufficient, the shortage is debited to retained earnings. When the Company’s share of losses of an associate equals or exceeds its interest in that associate (which includes any carrying amount of the investment accounted for by the equity method and long-term interests that, in substance, form part of the Company’s net investment in the associate), the Company discontinues recognizing its share of further losses. Additional losses and liabilities are recognized only to the extent that the Company has incurred legal obligations, or constructive obligations, or made payments on behalf of that associate and jointly controlled entity. Any excess of the cost of acquisition over the Company’s share of the net fair value of the identifiable assets and liabilities of an associate recognized at the date of acquisition is recognized as goodwill, which is included within the carrying amount of the investment and is not amortized. Any excess of the Company’s share of the net fair value of the identifiable assets and liabilities over the cost of acquisition, after reassessment, is recognized immediately in profit or loss. The entire carrying amount of the investment (including goodwill) is tested for impairment as a single asset by comparing its recoverable amount with its carrying amount. Any impairment loss recognized forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized to the extent that the recoverable amount of the investment subsequently increases. The Company discontinues the use of the equity method from the date on which it ceases to have significant influence. Any retained investment is measured at fair value at that date and the fair value is regarded as its fair value on initial recognition as a financial asset. The difference between the previous carrying amount of the associate (attributable to the retained interest and its fair value is included in the determination of the gain or loss on disposal of the associate. The Company accounts for all amounts previously recognized in other comprehensive income in relation to that associate on the same basis as would be required if that associate had directly disposed of the related assets or liabilities. When the Company transacts with its associate (profits and losses resulting from the transactions with the associate are recognized in the Company’s parent company only financial statements only to the extent of interests in the associate and the jointly controlled entity that are not related to the Company. g. Property, plant and equipment Property, plant and equipment are stated at cost, less subsequent accumulated depreciation and subsequent accumulated impairment loss. 196 Depreciation is recognized using the straight-line method. Each significant part is depreciated separately. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. 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. h. Intangible assets 1) Intangible assets acquired separately 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. 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. The residual value of an intangible asset with a finite useful life shall be assumed to be zero unless the Company expects to dispose of the intangible asset before the end of its economic life. Intangible assets with indefinite useful lives that are acquired separately are measured at cost less accumulated impairment loss. 2) Derecognition of intangible assets 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. i. Impairment of tangible and intangible assets At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets, excluding goodwill, to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually. Recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. When an impairment loss is subsequently reversed, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amount that would have been determined had no impairment loss been recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized in profit or loss. j. Financial instruments Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of the instruments. 197 Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. 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 All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. a) Measurement category 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. i. Financial assets at FVTPL A financial asset is classified as at FVTPL when such a 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 at FVTPL are subsequently measured at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any dividends or interest earned on the financial assets. Fair value is determined in the manner described in Note 31. ii. Financial assets at amortized cost Financial assets that meet the following conditions are subsequently measured at amortized cost: i) The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and ii) The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Subsequent to initial recognition, financial assets at amortized cost, including cash and cash equivalents, other financial assets, notes and accounts receivable and other receivables, are measured at amortized cost, which equals the gross carrying amount determined using the effective interest method less any impairment loss. Exchange differences are recognized in profit or loss. Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset, except for: i) Purchased or originated credit-impaired financial assets, for which interest income is calculated by applying the credit-adjusted effective interest rate to the amortized cost of such financial assets; and 198 ii) Financial assets that are not credit-impaired on purchase or origination but have subsequently become credit-impaired, for which interest income is calculated by applying the effective interest rate to the amortized cost of such financial assets in subsequent reporting periods. Cash equivalents include time deposits, which are highly liquid, readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments. iii. 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 are recognized in profit or loss when the Company’s right to receive the dividends is established, unless the dividends clearly represent a recovery of part of the cost of the investment. 2017 Financial assets are classified into the following categories: Available-for-sale financial assets and loans and receivables. i. Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated as available-for-sale or are not classified as loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss. Available-for-sale financial assets are measured at fair value. Changes in the carrying amount of available-for-sale monetary financial assets relating to changes in foreign currency exchange rates, interest income calculated using the effective interest method and dividends on available-for-sale equity investments are recognized in profit or loss. Other changes in the carrying amount of available-for-sale financial assets are recognized in other comprehensive income and will be reclassified to profit or loss when the investment is disposed of or is determined to be impaired. Dividends on available-for-sale equity instruments are recognized in profit or loss when the Company’s right to receive the dividends is established. Available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity investments are measured at cost less any identified impairment loss at the end of each reporting period and are presented in a separate line item as financial assets carried at cost. If, in a subsequent period, the fair value of the financial assets can be reliably measured, the financial assets are remeasured at fair value. The difference between carrying amount and fair value is recognized in profit or loss or other comprehensive income on financial assets. Any impairment losses are recognized in profit and loss. 199 ii. Loans and receivables Loans and receivables (including notes and trade receivables, other receivables, cash and cash equivalents, debt investments with no active market, and other receivables) are measured using the effective interest method at amortized cost less any impairment, except for short-term receivables when the effect of discounting is immaterial. Cash equivalents includes time deposits and bonds with repurchase agreements with original maturities from the date of acquisition, which are highly liquid, readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments. b) Impairment of financial assets 2018 The Company recognizes a loss allowance for expected credit losses on financial assets at amortized cost (including trade receivables). The Company always recognizes lifetime expected credit losses (i.e. ECLs) for trade receivables. For all other financial instruments, the Company recognizes lifetime ECLs when there has been a significant increase in credit risk since initial recognition. If, on the other hand, the credit risk on a financial instrument has not increased significantly since initial recognition, the Company measures the loss allowance for that financial instrument at an amount equal to 12-month ECLs. Expected credit losses reflect the weighted average of credit losses with the respective risks of a default occurring as the weights. Lifetime ECLs represent the expected credit losses that will result from all possible default events over the expected life of a financial instrument. In contrast, 12-month ECLs represent the portion of lifetime ECLs that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date. The Company recognizes an impairment gain or loss in profit or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account. 2017 Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence, as a result of one or more events that occurred after the initial recognition of the financial assets, that the estimated future cash flows of the investment have been affected. For financial assets at amortized cost, such as trade receivables and other receivables, such assets are assessed for impairment on a collective basis even if they were assessed not to be impaired individually. Objective evidence of impairment for a portfolio of receivables could include the Company’s past experience with collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 60 days, as well as observable changes in national or local economic conditions that correlate with defaults on receivables. For a financial asset at amortized cost, the amount of the impairment loss recognized is the difference between such an asset’s carrying amount and the present value of its estimated future 200 cash flows, discounted at the financial asset’s original effective interest rate. For financial assets at amortized cost, 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 was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment (at the date the impairment is reversed) does not exceed what the amortized cost would have been had the impairment not been recognized. For available-for-sale equity investments, a significant or prolonged decline in the fair value of a security below its cost is considered to be objective evidence of impairment. For all other financial assets, objective evidence of impairment could include significant financial difficulty of the issuer or counterparty, breach of contract such as a default or delinquency in interest or principal payments, it becoming probable that the borrower will enter bankruptcy or financial re-organization, or the disappearance of an active market for those financial assets because of financial difficulties. When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss in the period. In respect of available-for-sale equity securities, impairment loss previously recognized in profit or loss is not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized in other comprehensive income. In respect of available-for-sale debt securities, impairment loss is subsequently reversed through profit or loss if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss. For financial assets carried at cost, the amount of the impairment loss is measured as the difference between such an asset’s carrying amount and the present value of its estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods. The carrying amount of a financial asset is reduced by the impairment loss directly for all financial assets, with the exception of trade receivables and other receivables, where the carrying amount is reduced through the use of an allowance account. When trade receivables and other receivables are considered uncollectible, they are written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss except for uncollectible trade receivables and other receivables that are written off against the allowance account. c) Derecognition of financial assets The Company derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. Before 2018, on derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income is recognized in profit or loss. Starting from 2018, on derecognition of a financial asset at amortized cost in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss. On derecognition of an investment in a debt instrument at FVTOCI, the difference between the asset’s carrying amount and the sum of 201 the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income is recognized in profit or loss. However, on derecognition of an investment in an equity instrument at FVTOCI, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss, and the cumulative gain or loss that had been recognized in other comprehensive income is transferred directly to retained earnings, without recycling through profit or loss. 2) Financial liabilities a) Subsequent measurement All the financial liabilities are measured at amortized cost using the effective interest method: b) Derecognition of financial liabilities The difference between the carrying amount of the financial liability derecognized and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss. k. Provisions For the best estimate of provisions, the discounted cash flows need to consider the risk and uncertainties of obligations. Provisions are measured by the discounted value of the estimated cash flows for the liquidation of the obligation. l. Revenue recognition 2018 The Company identifies a contract with a customer, allocates the transaction price to the performance obligations, and recognizes revenue when performance obligations are satisfied. Unearned receipts for merchandise sales would be recognized as contract liabilities before the company fulfills its performance obligations. Revenue from the sale of goods Revenue from the sale of goods comes from the sale of ICs. Sales of ICs are recognized as revenue when the goods are shipped because it is the time when the customer has full discretion over the manner of distribution and the price to sell the goods, has the primary responsibility for sales to future customers, and bears the risks of obsolescence. Trade receivables are recognized concurrently. The Company does not recognize revenue on materials delivered to subcontractors because this delivery does not involve a transfer of control. Other Other mainly comes from software development and royalties. 202 2017 Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar provisions. Provisions for sales returns and liabilities for returns are recognized at the time of sale based on the seller’s reliable estimate of future returns and based on past experience and other relevant factors. 1) Sale of goods Revenue from the sale of goods is recognized when the goods are delivered and titles have passed, at which time all the following conditions are satisfied: a) The Company has transferred to the buyer the significant risks and rewards of ownership of the goods; b) The Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; c) The amount of revenue can be measured reliably; d) It is probable that the economic benefits associated with the transaction will flow to the Company; and e) 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. 2) Dividend and interest income 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. Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. m. Leasing 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. 1) The Company as lessor Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. 2) The Company as lessee Contingent rents arising under operating leases are recognized as an expense in the year in which they are incurred. 203 n. Employee benefits 1) Short-term employee benefits Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related services. 2) Retirement benefits Payments to defined contribution retirement benefit plans are recognized as expenses when employees have rendered service entitling them to the contributions. Defined benefit costs (including service cost, net interest and remeasurement) under the defined benefit retirement benefit plans are determined using the projected unit credit method. Service cost (including current service cost and past service cost) and net interest on the net defined benefit liabilities (assets) are recognized as employee benefits expense in the period in which they occur, or when the plan amendment or curtailment occurs. Remeasurement, comprising actuarial gains and losses, and the return on plan assets (excluding interest), is recognized in other comprehensive income in the period in which it occurs. Remeasurement recognized in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to profit or loss. Net defined benefit liabilities (assets) represent the actual deficit (surplus) in the Company’s defined benefit plans. Any surplus resulting from this calculation is limited to the present value of any refunds from the plans or reductions in future contributions to the plans. p. Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. 1) Current tax According to the Income Tax Law, an additional tax of inappropriate earnings is provided for as income tax in the year the shareholders approve to retain the earnings. Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision. 2) Deferred tax Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences, unused loss carry forward and unused tax credits for purchases of machinery, equipment and technology, research and development expenditures, and personnel training expenditures to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. 204 Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. A previously unrecognized deferred tax asset is also reviewed at the end of each reporting period and recognized to the to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liabilities are settled or the assets are realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which The Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. 3) Current and deferred tax for the period Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination. 5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY In application of the Company's accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. a. Estimated impairment of financial assets - 2018 The provision for impairment of trade receivables is based on assumptions about the risk of default and expected loss rates. The Company uses judgment 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 as at the end of each reporting period. Where the actual future cash inflows are less than expected, a material impairment loss may arise. 205 b. Estimated impairment of receivable - 2017 When there is objective evidence of impairment loss of receivables, the Company takes into consideration the estimation of the future cash flows of such assets. The amount of impairment loss is measured as the difference between such an asset’s carrying amount and the present value of its estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. Where the actual future cash flows are less than expected, a material impairment loss may arise. c. Estimated impairment of tangible assets and intangible assets (excluding goodwill) The Company relies on subjective judgments and depends on industry usage patterns and related characteristics to determine cash flows, asset useful lives, and future revenues and expenses. Any change in the operating environment and corporate strategy may cause significant impairment loss. For the year ended December 31, 2018 and 2017, the Company recognized impairment losses on intangible assets of $0 and $21,577 thousand, respectively. 6. CASH AND CASH EQUIVALENTS Cash on hand Checking accounts and demand deposits Cash equivalents Time deposits December 31 2018 2017 $ $ 424 522,131 258,000 479 724,090 998,000 $ 780,555 $ 1,722,569 The market rate intervals of cash in bank and bank overdrafts at the end of the reporting period were as follows: December 31 2018 2017 Bank balance 0.01%-0.65% 0.01%-0.63% 7. FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS Financial assets at FVTPL - current Financial assets classified as at FVTPL Non-derivative financial assets - Mutual funds December 31 2018 2017 $ 661,494 $ - (Continued) 206 Financial liabilities at FVTPL - non-current Financial assets classified as at FVTPL Non-derivative financial assets - Unlisted debt securities - ROC - Mutual funds - Securities listed in other countries December 31 2018 2017 $ 190,050 75,432 672 $ $ 266,154 $ - - - - (Concluded) 8. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME - 2018 Non-current Domestic and foreign investments - Unlisted shares and emerging market shares 9. AVAILABLE-FOR-SALE FINANCIAL ASSETS - 2017 Current Domestic investments - Mutual funds Non-current Domestic investments - Mutual funds 10. FINANCIAL ASSETS MEASURED AT COST - 2017 Non-current Unlisted shares and emerging market shares Classified according to financial asset measurement categories Classified as available for sale December 31, 2018 $ 4,337 December 31, 2017 $ 602,003 $ 74,435 December 31, 2017 $ 201,923 $ 201,923 Management believed that the above unlisted equity investments held by the Company, whose fair value cannot be reliably measured due to the range of reasonable fair value estimates was so significant; therefore they were measured at cost less impairment at the end of reporting period. 207 The Company believed that the above financial asset carried at cost had impairment losses of $96,567 as of December 31, 2017. 11. ACCOUNTS RECEIVABLE, NET Trade receivables At amortized cost Gross carrying amount Less: Allowance for impairment loss 2018 December 31 2018 2017 $ 171,387 - $ 307,990 (107,257) $ 171,387 $ $ 200,733 The average credit period on sales of goods was 30 to 60 days without interest. The Company's exposure to credit risk and external credit ratings are continuously monitored. In order to minimize credit risk, the management of the Company has delegated a team responsible for determining credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Company reviews the recoverable amount of each individual trade debt at the end of the reporting period to ensure that adequate allowance is made for possible irrecoverable amounts. In this regard, the management believes the Company’s credit risk was significantly reduced. The Company applies the simplified approach to providing for expected credit losses prescribed by IFRS 9, which permits the use of lifetime expected loss provision for all trade receivables. The expected credit losses on trade receivables are estimated using a provision matrix by reference to past default experience of the debtor and an analysis of the debtor’s current financial position, the forecast direction of economic conditions at the reporting date. As the Company’s historical credit loss experience does not show significantly different loss patterns for different customer segments, the provision for loss allowance based on past due status is not further distinguished according to the Company’s different customer base. 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. Where recoveries are made, these are recognized in profit or loss. The Company’s current credit risk grading framework is shown in the following table: December 31, 2018 Not Overdue Overdue 1- 60 days Overdue 61-90 days Overdue 91-120 days Overdue 121 days or More Total Gross carrying amount Expected credit losses $ 171,387 - $ $ - - $ - - $ - - - - $ 171,387 - Amortized cost at December 31, 2018 $ 171,387 $ - $ - $ - $ - $ 171,387 208 The movements of the loss allowance of trade receivables were as follows: Balance at January 1, 2018 per IAS 39 Adjustment on initial application of IFRS 9 Balance at January 1, 2018 per IFRS 9 Less: Amounts written off (Note) Balance at December 31, 2018 December 31, 2018 $ 107,257 - 107,257 (107,257) $ - Note: The accounts receivable from one customer that were overdue for 2 years and determined to be uncollectible and the accounts receivable from another customer that was declared bankrupt by court ruling were both written off. The written-off receivables and allowance were both $107,257. December 31, 2017 The average credit period on sales of goods was the same as 2018. In determining the recoverability of a trade receivable, the Company considered any change in the credit quality of the trade receivable since the date on which credit was initially granted until the end of the reporting period. An allowance for impairment loss was recognized against trade receivables based on the estimated irrecoverable amounts determined by reference to past default experience with the counterparties and an analysis of their respective current financial positions. Of the trade receivables balance that were past due at the end of the reporting period, the Company did not recognize an allowance for the impairment for notes and trade receivables as of December 31, 2017, because there had been no significant change in credit quality and the amounts were still considered recoverable. The Company did not hold any collateral or other credit enhancements over these balances nor did it have a legal right to make offsets against any amounts owed by the Company to any respective counterparty. The aging of receivables is as follows: 0-60 days 61-90 days 91-120 days 121-360 days More than 361 days Total The above aging schedule was based on the invoice date. December 31, 2017 $ 184,337 16,396 - - 107,257 $ 307,990 209 Movements of the allowance for impairment loss recognized on notes receivable and trade receivables are as follows: Balance at January 1, 2017 Add: Impairment losses recognized on receivables Balance at December 31, 2017 Individually Impaired Collectively Impaired $ 76,699 30,558 $ 107,257 $ $ - - - Total $ 76,699 30,558 $ 107,257 12. INVENTORIES Finished goods Work in progress Raw materials December 31 2018 2017 $ 98,872 129,316 28,719 $ 126,860 130,703 19,345 $ 256,907 $ 276,908 The costs of inventories recognized as cost of goods sold for the years ended December 31, 2018 and 2017 were $809,472 thousand and $892,547 thousand, respectively. The costs of inventories recognized as costs of goods sold for the years ended December 31, 2018 and 2017 were as follows: (Loss) gains on inventory value recoveries Income from scrap sales 13. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD Years Ended December 31 2017 2018 $ (17,880) 87 $ 14,308 69 $ (17,793) $ 14,377 Investments in subsidiaries Investments in associates December 31 2018 2017 $ 5,384,684 596,525 $ 5,382,918 379,351 $ 5,981,209 $ 5,762,269 210 a. Investments in subsidiaries Listed companies Generalplus Technology Corp. Non-listed Company Ventureplus Group Inc. Sunplus Venture Capital Co., Ltd. Lin Shih Investment Co., Ltd. Russell Holdings Limited Sunplus Innovation Technology Sunext Technology Co., Ltd. Magic Sky Limited Wei-Young Investment Inc. Sunplus mMedia Inc. Award Glory Ltd. Sunplus mMobile Inc. Jumplux Technology Co., Ltd. Sunplus Management Consulting Sunplus Technology (H.K.) iCatch Technology Inc. December 31 2018 2017 $ 704,549 $ 723,246 1,354,351 1,028,567 750,558 579,038 523,083 174,391 82,747 56,947 46,128 33,116 29,785 17,475 3,910 39 - 1,489,741 915,693 799,259 520,859 481,414 115,593 89,418 17,870 24,886 - 30,202 - 3,951 38 170,748 $ 5,384,684 $ 5,382,918 Credit balances on the carrying values of long-term investments (recorded as other current liabilities) Award Glory Ltd. $ - $ 12,990 Except for Sunplus Management Consulting, the investments accounted for using 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 the Company’s auditors for the same reporting periods as those of the Company. Refer to Note 35 for the detail list of investments in subsidiaries. The percentage subsidiaries’ ownerships and voting right held by the Company: December 31 2018 34% 100% 100% 100% 100% 61% - 91% 100% 100% 2017 34% 100% 100% 100% 100% 61% 38% 61% 100% 100% (Continued) Listed companies Generalplus Technology Corp. Non-listed Company Ventureplus Group Inc. Sunplus Venture Capital Co., Ltd. Lin Shih Investment Co., Ltd. Russell Holdings Limited Sunplus Innovation Technology iCatch Technology Inc. Sunext Technology Co., Ltd. Magic Sky Limited Sunplus mMobile Inc. 211 Sunplus mMedia Inc. Wei-Young Investment Inc. Sunplus Management Consulting Sunplus Technology (H.K.) Jumplux Technology Award Glory Ltd. b. Investments in associates Associates Global View Co., Ltd. iCatch Technology Inc. Name of Associate Global View Co., Ltd. iCatch Technology Inc. December 31 2018 90% 100% 100% 100% 55% 100% 2017 87% 100% 100% 100% - 100% (Concluded) December 31 2018 2017 $ 307,106 289,419 $ 379,351 - $ 596,525 $ 379,351 Proportion of Ownership and Voting Rights December 31 2018 13% 30% 2017 13% - Refer to Table 5 and Table 6 “Information on Investees” “Information on Investments in Mainland China” for the nature of activities, principal places of business and countries of incorporation of the associates. iCatch Technology Inc. has independently operated its financial activities since July 31, 2018 due to operational needs; thus, the Company assessed that the control of iCatch Technology Inc. was lost. On July 31, 2018 the equity investment was remeasured at fair value, and a disposal gain of $119,154 thousand was recognized. The fair values of publicly traded investments accounted for using the equity method, which were based on the closing prices of those investments at the balance sheet date, are summarized as follows: Global View Co., Ltd. $ 248,530 $ 392,134 All the associates are accounted for using the equity method. The summarized financial information of the Company’s associates is set out below: December 31 2018 2017 Total assets Total liabilities Revenue December 31 2018 2017 $ 2,346,302 365,599 $ $ 2,062,675 129,672 $ Years Ended December 31 2017 2018 $ 1,005,661 $ 188,461 212 Profit for the period Comprehensive income Share of profits of associates accounted for using the equity method $ $ $ (35,177) (95,076) (18,098) 53,596 $ $ 739,555 91,044 $ The amounts of share of profits of associates are based on the associates’ financial statements audited by the auditors. 14. PROPERTY, PLANT AND EQUIPMENT Year Ended December 31, 2017 Machinery Auxiliary and Testing Furniture and Prepayments Buildings Equipment Equipment Equipment Fixtures for Equipment Total Cost Balance, beginning of year $ 969,205 $ 47,321 $ 1,168 $ 171,272 $ 27,551 $ Additions Disposals - - 2,843 (8,772 ) 1,144 (87 ) 100 (7,227) 2,076 (1,547 ) Balance, end of year $ 969,205 $ 41,392 $ 2,225 $ 164,145 $ 28,080 $ Accumulated depreciation and impairment Balance, beginning of year $ 303,220 $ 29,533 $ Depreciation expense Disposals 19,721 - 4,415 (8,772 ) 570 520 (87 ) $ 149,504 $ 11,545 $ 14,390 (7,227) 6,319 (1,547 ) Balance, end of year $ 322,941 $ 25,176 $ 1,003 $ 156,667 $ 16,317 $ Net, end of year $ 646,264 $ 16,216 $ 1,222 $ 7,478 $ 11,763 $ - - - - - - - - - $ 1,216,517 6,163 (17,633 ) $ 1,205,047 $ 494,372 45,365 (17,633 ) $ 522,104 $ 682,943 Year Ended December 31, 2018 Machinery Auxiliary and Testing Furniture and Prepayments Buildings Equipment Equipment Equipment Fixtures for Equipment Total Cost Balance, beginning of year $ 969,205 $ 41,392 $ 2,225 $ 164,145 $ 28,080 $ - $ 1,205,047 Additions Disposals - - 275 (9,476 ) - (455 ) 36,552 (1,791 ) 9,709 (2,787 ) 2,940 - 49,476 (14,509 ) Balance, end of year $ 969,205 $ 32,191 $ 1,770 $ 198,906 $ 35,002 $ 2,940 $ 1,240,014 Accumulated depreciation and impairment Balance, beginning of year $ 322,941 $ 25,176 $ 1,003 $ 156,667 $ 16,317 $ Depreciation expense Disposals 19,721 - 3,954 (9,476 ) 537 (455 ) 14,699 (1,791 ) 6,321 (2,787 ) Balance, end of year $ 342,662 $ 19,654 $ 1,085 $ 169,575 $ 19,851 $ - - - - $ 522,104 45,232 (14,509 ) $ 552,827 Net, end of year $ 626,543 $ 12,537 $ 685 $ 29,331 $ 15,151 $ 2,940 $ 687,187 The above items of property, plant and equipment were depreciated on a straight-line basis over the following estimated 213 useful lives: Buildings Auxiliary equipment Machinery and equipment Testing equipment Furniture and fixtures 35-56 years 4-11 years 4 years 1-5 years 4-5 years Refer to Note 33 for the carrying amounts of property, plant and equipment that had been pledged by the Company to secure borrowings. 15. INTANGIBLE ASSETS Cost Balance at January 1 Additions Disposals Year Ended December 31, 2017 Technology License Fees Software Patents Total $ $ 235,447 43,398 (7,263) $ 19,759 4,405 (7,782) 97,099 - - $ 352,305 47,803 (15,045) Balance at December 31 $ 271,582 $ 16,382 $ 97,099 $ 385,063 Accumulated amortization Balance at January 1 Amortization expense Disposals $ $ 86,429 25,749 (7,263) $ 12,070 5,484 (7,782) 74,173 1,349 - $ 172,672 32,582 (15,045) Balance at December 31 $ 104,915 $ 9,772 $ 75,522 $ 190,209 Accumulated deficit Balance at January 1 Additions $ 111,136 - $ $ - - - 21,577 $ 111,136 21,577 Balance at December 31 $ 111,136 $ - $ 21,577 $ 132,713 Carrying amounts at December 31, 2017 $ 55,531 $ 6,610 $ - $ 62,141 Year Ended December 31, 2018 Technology License Fees Software Patents Total Cost Balance at January 1 Additions Disposals $ $ 271,582 63,880 (20,568) $ 16,382 3,276 (8,538) 97,099 - - $ 385,063 67,156 (29,106) Balance at December 31 $ 314,894 $ 11,120 $ 97,099 $ 423,113 (Continued) 214 Year Ended December 31, 2018 Technology License Fees Software Patents Total Accumulated amortization Balance at January 1 Amortization expense Disposals $ $ 104,915 38,036 (20,568) $ 9,772 4,766 (8,538) 75,522 - - $ 190,209 42,802 (29,106) Balance at December 31 $ 122,383 $ 6,000 $ 75,522 $ 203,905 Accumulated deficit Balance at January 1 Additions $ 111,136 - $ $ - - 21,577 - $ 132,713 - Balance at December 31 $ 111,136 $ - $ 21,577 $ 132,713 Carrying amounts at December 31, 2018 $ 81,375 $ 5,120 $ - $ 86,495 (Concluded) The company recognized impairment loss on above intangible assets $21,577 thousand as of December 31, 2017, respectively. These intangible assets were depreciated on a straight-line basis at the following rates per annum: Technology license fees Software Patents An analysis of the amortization by function: Operating costs Selling and marketing expenses General and administrative expenses Research and development expenses 1-10 years 1-5 years 18 years December 31 2018 2017 $ 191 3 3,933 38,675 $ 483 6 4,392 27,701 $ 42,802 $ 32,582 215 16. OTHER ASSETS Current Other financial assets Pledged time deposits (a) Other assets Prepayments for EDA tools Prepaid royalty Others Non-current Other financial assets Pledged time deposits (a) Other assets Refundable deposits Others a. Refer to Notes 29 and 33 for information on pledged time deposits. 17. LOANS a. Short-term borrowings Unsecured borrowings Bank loans December 31 2018 2017 $ - $ 59,520 $ 16,019 5,170 3,662 $ 18,986 5,627 5,121 $ 24,851 $ 29,734 $ 6,100 $ 6,100 $ 200 7,800 $ 200 7,800 $ 8,000 $ 8,000 December 31 2018 2017 $ - $ 59,520 The weighted average effective interest rate on the bank loans as of December 31, 2017 were 2.65%. b. Long-term borrowings The borrowings of the Company were as follows: Loans on credit Less: Current portion December 31 2018 2017 $ 115,000 115,000 $ 275,000 175,000 Long-term borrowings - non-current $ - $ 100,000 The effective rate borrowings as of December 31 2018 and 2017 were 1.545%-1.600%, and 1.545%-1.925%. According to the loan contract, the financial statements of the company for 107 and 106 years are limited by current 216 ratio, debt ratio, interest guarantee multiple and current ratio, debt ratio and a restriction on net tangible assets. However, the Company’s inability to meet the ratio requirements would not be deemed as a violation of the contracts. As of 2018 and 2017, the Company was in compliance with these financial ratio requirements. 18. ACCOUNTS AND NOTES PAYABLE Accounts payable Payable - operating December 31 2018 2017 $ 108,075 $ 136,811 The average credit period on purchases of certain goods was 30-60 days. The Company has financial risk management policies in place to ensure that all payables are paid within the pre-agreed credit terms. 19. PROVISIONS Customer returns and rebates December 31, 2017 $ 7,300 The provision for customer returns and rebates was based on historical experience, management’s judgments and other known reasons such as estimated product returns and rebates that may occur in the following year. The provision is recognized as a reduction of operating income in the period the related goods are sold. 20. OTHER LIABILITIES Current Other liabilities Salaries or bonuses Payable for royalties Payable on machinery and equipment Refund liabilities (Note 23) Labor/health insurance Compensation due to directors Credit balances on the carrying values of long-term investments Others December 31 2018 2017 $ 102,634 19,459 7,770 9,014 7,491 199 - 41,474 $ 112,458 38,501 2,028 - 7,302 10,807 12,990 42,101 $ 188,041 $ 226,187 Non-current Payable on machinery and equipment $ 2,376 $ - 21. RETIREMENT BENEFIT PLANS Defined contribution plans The Company adopted a pension plan under the Labor Pension Act (LPA), which is a state-managed defined contribution plan. Under the LPA, the Company makes monthly contributions to employees’ individual pension accounts at 6% of monthly salaries and wages. Defined benefit plans 217 Before the promulgation of the LPA, Sunplus, Generalplus, Sunext, Sunplus Innovation, Jumplux Technology, Sunplus mMedia and iCatch of the Company had a defined benefit pension plan under the Labor Standards Law. Under this plan, employees should receive either a series of pension payments with a defined annuity or a lump sum that is payable immediately on retirement and is equivalent to 2 base units for each of the first 15 years of service and 1 base unit for each year of service thereafter. The total retirement benefit is subject to a maximum of 45 units. The pension benefits are calculated on the basis of the length of service and average monthly salaries of the six month before retirement. In addition, the Company makes monthly contributions, equal to 2% of salaries, to a pension fund, which is administered by a fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan in the committee’s name and are managed by the Bureau of Labor Funds, Ministry of Labor (“the Bureau”); the Company has no right to influence the investment policy and strategy. The amounts included in the balance sheets in respect of the Company’s defined benefit plans were as follows: December 31 2018 2017 Present value of funded defined benefit obligation Fair value of plan assets $ 169,342 (164,067) $ 165,832 (154,968) Net defined benefit liabilities $ 5,275 $ 10,864 Amounts recognized in profit or loss in respect of these defined benefit plans are as follows: Balance at January 1, 2017 Service cost Current service cost Interest expense Recognized in profit or loss Remeasurement Return on plan assets Actuarial (gain) loss-changes in financial assumptions Adjustment on actuarial (gain) loss-experience adjustment Recognized in other comprehensive income Contributions from employer Present Value of Funded Defined Benefit Obligation Fair Value of Plan Assets Net Liabilities (Assets) Arising from Defined Benefit Obligation $ 159,999 $ 150,994 $ 9,005 573 2,560 3,133 - 4,553 (1,853) 2,700 - - 2,438 2,438 (1,388) - - (1,388) 2,924 573 122 695 (1,388) 4,553 (1,853) 4,088 (2,924) Balance at December 31, 2017 $ 165,832 $ 154,968 Present Value of Funded Defined Benefit Obligation Fair Value of Plan Assets $ 10,864 (Continued) Net Liabilities (Assets) Arising from Defined Benefit Obligation Balance at January 1, 2018 Service cost Current service cost Interest expense Recognized in profit or loss Remeasurement Return on plan assets $ 165,832 $ 154,968 $ 10,864 587 2,322 2,909 - - 2,190 2,190 4,044 587 132 719 (4,044) 218 Actuarial (gain) loss-changes in financial assumptions Adjustment on actuarial (gain) loss-experience adjustment Recognized in other comprehensive income Contributions from employer 5,484 (4,883) 601 - - - 4,044 2,865 Balance at December 31, 2018 $ 169,342 $ 164,067 5,484 (4,883) (3,443) (2,865) $ 5,275 (Concluded) An analysis by function of the amounts recognized in profit or loss in respect of the benefit plans is as follows: Operating costs Selling and marketing expenses General and administrative expenses Research and development expenses For the Year Ended December 31 2018 2017 $ 153 6 232 328 $ 186 5 221 283 $ 719 $ 695 Through the defined benefit plans under the Labor Standards Law, the Company is exposed to the following risks: a. Investment risk: The plan assets are invested in domestic and foreign equity and debt securities, bank deposits, etc. The investment is conducted at the discretion of the Bureau or under the mandated management. However, in accordance with relevant regulations, the return generated by plan assets should not be below the interest rate for a 2-year time deposit with local banks. 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 plan’s debt investments. 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. 219 The actuarial valuations of the present value of the defined benefit obligation were carried out by qualified actuaries. The significant assumptions used for the purposes of the actuarial valuations were as follows: Discount rate(s) Expected rate(s) of salary increase Resignation rate December 31 2018 2017 1.15% 4.00% 0%-28% 1.40% 4.00% 0%-28% 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: Discount rate(s) 0.25% increase 0.25% decrease Expected rate(s) of salary increase 1% increase 1% decrease December 31 2018 2017 $ $ (5,484) 5,726 $ 23,638 $ (20,348) $ $ (5,666) 5,924 $ 24,545 $ (21,012) The sensitivity analysis presented above may not be representative of the actual change in the present value of 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. The expected contributions to the plan for the next year $ 2,866 $ 2,923 The average duration of the defined benefit obligation 15 years 16 years December 31 2018 2017 22. EQUITY a. Share capital 1) Common shares: December 31 2018 2017 Numbers of shares authorized (in thousands) Shares authorized 1,200,000 $ 12,000,000 1,200,000 $ 12,000,000 Number of shares issued and fully paid (in thousands) Shares issued 591,995 5,919,949 $ 591,995 5,919,949 $ Fully paid common shares, which have a par value of $10.00, carry one vote per share and a right to dividends. Of the Company’s authorized shares, 80,000 thousand shares had been reserved for the issuance of convertible bonds and employee share options. 2) Global depositary receipts 220 In March 2001, Sunplus issued 20,000 thousand units of global depositary receipts (GDRs), representing 40,000 thousand common shares that consisted of newly issued and originally outstanding shares. The GDRs are listed on the London Stock Exchange (code: SUPD) with an issuance price of US$9.57 per unit. As of December 31, 2018, the outstanding 175 thousand units of GDRs represented 350 thousand common shares. b. Capital surplus A reconciliation of the carrying amount at the beginning and at the end of 2018 and 2017 for each component of capital surplus was as follows: December 31 2018 2017 May be used to offset a deficit, distributed as cash dividends, or transferred to share capital (1) From the issuance of common shares From the acquisition of a subsidiary The difference between consideration received or paid and the carrying amount of the subsidiaries’ net assets during actual disposal or acquisition $ 409,213 157,423 $ 496,059 157,423 140,022 140,293 May be used to offset a deficit only From treasury share transactions Changes in net equity of associates or joint ventures accounted for using the equity method 43,958 50,782 41,466 - $ 801,398 $ 835,241 1) Such capital surplus may be used to offset a deficit; in addition, when the Company has no deficit, such capital surplus may be distributed as cash dividends or transferred to share capital (limited to a certain percentage of the Company’s capital surplus and once a year). c. Retained earnings and dividend policy Under the dividend policy as set forth in the amended Articles, Sunplus shall appropriate from the annual net income less any accumulated deficit: (a) 10% as legal reserve; and (b) special reserve equivalent to the debit balance of any accounts shown in the shareholders’ equity section of the balance sheet, other than deficit. Under the approved shareholders’ resolution, the current year’s net income less all the foregoing appropriations and distributions, plus the prior years’ unappropriated earnings may be distributed as additional dividends. Sunplus’ policy is that cash dividends should be at least 10% of total dividends distributed. However, cash dividends will not be distributed if these dividends are less than NT$0.5 per share. 221 Under the regulations promulgated, a special reserve equivalent to the debit balance of any account shown in the shareholders’ equity section of the balance sheet (for example, unrealized loss on financial assets and cumulative translation adjustments) should be allocated from unappropriated retained earnings. For the policies on the distribution of employees’ compensation and remuneration to directors and supervisors before and after amendment, refer to Note 24-6. Appropriation of earnings to the legal reserve shall be made until the legal reserve equals the Company’s paid-in capital. The legal reserve may be used to offset deficit. If the Company has no deficit and the legal reserve has exceeded 25% of the Company’s paid-in capital, the excess may be transferred to capital or distributed in cash. The Company appropriates or reverses a special reserve in accordance with Rule No. 1010012865 and Rule No. 1010047490 issued by the FSC and the directive entitled “Questions and Answers on Special Reserves Appropriated Following the Adoption of IFRSs”. Distributions can be made out of any subsequent reversal of the debit to other equity items. The appropriations from the 2017 and 2016 earnings were approved at the shareholders’ meetings in June 11, 2018 and on June 13, 2017, respectively. The appropriations, including dividends, were as follows: Appropriation of Earnings Dividends Per Share (NT$) For Year 2017 For Year 2016 For Year 2017 For Year 2016 Legal reserve Special reserve Cash dividend $ 41,321 44,284 327,551 $ 9,974 1,068 88,681 $ 0.5533 $ 0.1498 The Company’s shareholders also proposed in the shareholders’ meeting on June 11, 2018 to issue cash dividends from capital surplus of $86,846 thousand. The Company’s shareholders also proposed in the shareholders’ meeting on June 13, 2017 to issue cash dividends from capital surplus of $207,317 thousand. The appropriations of earnings, the bonuses for employees, and the remuneration of directors for 2018 are subject to resolution in the shareholders’ meeting to be held on March 20, 2019. Legal reserve Special reserve Appropriation of Earnings Dividends Per Share (NT$) 561 $ 241,173 $ - - The Company’s board of directors also proposed in the shareholders’ meeting on March 20, 2019 to issue cash dividends from capital surplus of $213,118 thousand. The appropriation of earnings for 2018 are subject to resolution in the shareholders’ meeting to be held on June 10, 2019. d. Special reserve Beginning at January 1 Appropriations to the special reserve Balance at December 31 e. Other equity items For the Year Ended December 31 2018 2017 $ 22,995 44,284 $ 21,927 1,068 $ 67,279 $ 22,995 1) Exchange differences or translating the financial statements of foreign operations 222 Years Ended December 31 2017 2018 Balance at January 1 Share of exchange differences of associates accounted for using the $ (122,100) $ (62,062) equity method Balance at December 31 (16,775) (60,038) $ (138,875) $ (122,100) 2) Unrealized gain (loss) on available-for-sale financial assets: Balance at January 1, 2017 Changes in fair value of available-for-sale financial assets Cumulative loss reclassified to profit or loss upon disposal of available-for-sale financial assets Reclassification adjustments to profit or loss on impairment of available-for-sale financial assets Share of unrealized gain on revaluation of jointly controlled entities accounted for using the equity method Balance at December 31, 2017 Effect of retrospective application and retrospective restatement - IFRS 9 Balance at January 1, 2018 (IFRS 9) $ 306,462 262,308 (515,385) - 6,453 59,838 (59,838) $ - 3) Unrealized gain (loss) from investments in equity instruments measured at fair value through other comprehensive income: Balance at January 1 (IAS 39) Effect of retrospective application and retrospective restatement - IFRS 9 Balance at January 1 (IFRS 9) Current Unrealized gain (loss) Cumulative unrealized gain (loss) of equity instruments transferred to retained earnings due to disposal Share of unrealized gain (loss) on associates accounted for using the equity method Balance at December 31 For the Year Ended December 31, 2018 $ - (230,011) (230,011) (94,350) 37,070 (16,677) $ (303,968) 223 f. Noncontrolling interests Purpose of Buyback Number of shares as of January 1, 2017 Decrease Number of shares as December 31, 2017 Number of shares as of January 1, 2018 Decrease Number of shares as December 31, 2018 Shares Transferred to Employees (in Thousands of Shares) Shares Held by Its Subsidiaries (in Thousands of Shares) Total (in Thousands of Shares) - - - - - - 3,560 - 3,560 3,560 - 3,560 3,560 - 3,560 3,560 - 3,560 The Company’s shares held by its subsidiaries at the end of the reporting periods were as follows: Number of Shares Held (In Thousand) Carrying Amount Market Price December 31, 2018 Lin Shin Investment Co., Ltd 3,560 $ 63,401 $ 40,050 December 31, 2017 Lin Shin Investment Co., Ltd 3,560 $ 63,401 $ 58,384 Under the Securities and Exchange Act, Sunplus shall neither pledge treasury shares nor exercise shareholders’ rights on these shares, such as rights to dividends and to vote. 23. REVENUE Revenue from the sale of goods Other a. Contract information Revenue from the sale of goods Years Ended December 31 2017 2018 $ 1,114,399 124,381 $ 1,272,853 92,949 $ 1,238,780 $ 1,365,802 IC products are sold to agents and customers. The Company determines the sales price of products based on orders. It takes into consideration the past purchases of agents and customers in order to estimate the most likely discount amount and return rate. Based on the determination of revenue, the Company recognizes the amount and the liabilities for refunds (accounted for as other current liabilities). Other Other mainly comes from software development and royalties. 224 b. Disaggregation of revenue For the Year Ended December 31, 2018 Primary geographical markets Asia Taiwan Others Timing of revenue recognition Satisfied at a point in time Satisfied over time c. Contract balances Trade receivables (Note 11) Contract liabilities - current Reportable Segments Direct Sales $ 964,181 224,409 50,190 $ 1,238,780 $ 1,173,618 65,162 $ 1,238,780 December 31, 2018 $ 171,387 2,547 $ The variation of contract liabilities is mainly due to the difference between the time when the performance obligation is met and the payment schedule of the customer. 24. NET PROFIT Net profit included the following items: a. Other income Rent income Dividend income Interest income Others Years Ended December 31 2017 2018 $ 29,740 4,568 6,885 11,663 $ 18,543 6,559 5,379 9,025 $ 52,856 $ 39,506 225 b. Other gains and losses Gain on disposal of associates Service income of management support Net foreign exchange gain (loss) Net loss on financial assets and liabilities Net loss on financial assets designated as at FVTPL (Note 7) Gain on disposal of investment Impairment loss on financial assets carried at cost Net loss on non-financial assets c. Finance costs Interest on bank loans Other financial costs d. Depreciation and amortization An analysis of depreciation by function Operating costs Operating expenses An analysis of amortization by function Operating costs Operating expenses Years Ended December 31 2017 2018 $ 119,154 44,542 1,749 $ - 38,649 (12,240) (13,218) - - - - 516,435 (96,567) (21,577) $ 152,227 $ 424,700 Years Ended December 31 2017 2018 $ 3,887 977 $ 7,558 779 $ 4,864 $ 8,337 Years Ended December 31 2017 2018 $ 4,044 41,188 $ 4,858 40,507 $ 45,232 $ 45,365 $ 191 42,611 $ 483 32,099 $ 42,802 $ 35,582 226 e. Employee benefit expense Short-term benefits Post-employment benefits Defined contribution plans Defined benefit plans (Note 21) Other employee benefits Years Ended December 31 2017 2018 $ 422,759 $ 475,467 18,402 719 19,121 10,314 18,959 695 19,654 10,868 Total employee benefit expense $ 452,194 $ 505,989 An analysis of employee benefit expense by function Operating costs Operating expenses $ 61,245 390,949 $ 79,790 426,199 $ 452,194 $ 505,989 f. Employees’ compensation and remuneration of directors The Company accrued employees’ compensation and remuneration of directors and supervisors at rates of no less than 1% and no higher than 1.5%, respectively, of net profit before income tax, employees’ compensation, and remuneration of directors. The employees’ compensation and remuneration of directors for the years ended December 31, 2018 and 2017, which have been approved by the Company’s board of directors on March 20, 2019 and March 14, 2018, respectively, were as follows: Accrual rate Employees’ compensation Remuneration of directors Amount For the Year Ended December 31 2018 1.0% 1.5% 2017 1.0% 1.5% For the Year Ended December 31 2018 2017 Cash Shares Cash Shares Employees’ compensation Remuneration of directors $ $ 80 119 $ - - 4,323 6,484 $ - - If there is a change in the proposed amounts after the annual financial statements are authorized for issue, the differences are recorded as a change in the accounting estimate. There is no difference between the actual amounts of employees’ compensation and remuneration of directors paid and the amounts recognized in the financial statements for the years ended December 31, 2017 and 2016. Information on the employees’ compensation and remuneration of directors resolved by the Company’s board of directors in 2019 and 2018 is available at the Market Observation Post System website of the Taiwan Stock Exchange. g. Gain or loss on exchange rate changes 227 Years Ended December 31 2017 2018 $ 21,272 (19,523) $ 23,910 (36,150) $ 1,749 $ (12,240) Exchange rate gains Exchange rate losses 25. INCOME TAXES a. Income tax recognized in profit or loss The major components of tax expense (income) were as follows: Current tax In respect of the current year Adjustments for prior periods Deferred tax In respect of the current year Changes in tax rates Years Ended December 31 2017 2018 $ 1,680 464 $ (373) 373 Income tax expense recognized in profit or loss $ 2,144 $ A reconciliation of accounting profit and current income tax expenses is as follows: - - - - - Profit before tax Income tax expense calculated at the statutory rate Tax effect of adjusting items: Nondeductible expenses Temporary differences Tax-exempt income Current income tax expense Unrecognized investment credit Foreign income tax expense Adjustments for prior years’ tax Years Ended December 31 2017 2018 $ $ 7,760 $ 421,458 1,552 $ 71,648 (31,528) (21,414) (47) (51,437) 51,437 1,680 464 (130,105) 18,802 (40) (39,695) 39,695 - - Income tax benefit (expense) recognized in profit or loss $ 2,144 $ - Based on the Income Tax Act in the ROC, the applicable corporate tax rate used by the Company in 2017 was 17%. In February 2018, the Income Tax Act in the ROC was amended and, starting from 2018, the corporate income tax rate has been adjusted from 17% to 20%. In addition, the rate of the corporate surtax applicable to the 2018 unappropriated earnings has been reduced from 10% to 5%. As the status of the 2019 appropriation of earnings is uncertain, the potential income tax consequences of the 2018 unappropriated earnings are not reliably determinable. 228 b. Current tax assets and liabilities Current tax assets Tax refund receivable (classified as other receivables) December 31 2018 2017 $ 508 $ 3,073 c. Deferred tax assets and liabilities The movements of deferred tax assets and deferred tax liabilities were as follows: For the year ended December 31, 2018 Deferred Tax Assets Opening Balance Recognized in Profit or Loss Closing Balance Temporary differences Depreciation expense Exchange (gains) losses Others For the year ended December 31, 2017 $ 791 (468) 2,162 $ (28) 171 (143) $ 763 (297) 2,019 $ 2,485 $ - $ 2,485 Deferred Tax Assets Opening Balance Recognized in Profit or Loss Closing Balance Temporary differences Depreciation expense Exchange (gains) losses Others $ 2,893 (13) (395) $ (2,102) (455) 2,557 $ 791 (468) 2,162 $ 2,485 $ - $ 2,485 d. Deductible temporary differences, unused loss carryforwards and unused investment credits for which no deferred tax assets have been recognized in the parent company only balance sheets Loss carryforwards Expiry in 2019 Expiry in 2020 Expiry in 2021 Expiry in 2022 Expiry in 2023 Expiry in 2027 December 31 2018 2017 $ 190,618 211,457 322,509 394,894 1,144,831 24,228 $ 190,618 211,457 322,509 394,894 1,163,758 - $ 2,288,537 $ 2,283,236 Deductible temporary differences $ 124,021 $ 432,827 229 e. Unused loss carryforwards and tax exemptions Loss carryforwards as of December 31, 2018: Unused Amount $ 190,618 211,457 322,509 394,894 1,144,831 24,228 $ 2,288,537 Expiry Year 2019 2020 2021 2022 2023 2027 The income from the following projects is exempt from income tax for five years. The related tax-exemption periods are as follows: Project Tax Exemption Period Sunplus Fourteenth expansion Fifteenth expansion f. Income tax assessments January 1, 2015 to December 31, 2019 January 1, 2015 to December 31, 2019 The income tax returns of the Company before 2015 had been assessed by the tax authorities. 26. EARNINGS PER SHARE Basic gain per share Diluted earnings per share Unit: NT$ Per Share Years Ended December 31 2017 2018 $ $ 0.01 0.01 $ $ 0.72 0.72 The earnings and weighted average number of common shares outstanding in the computation of earnings per share were as follows: Net profit for the year Profit for the year attributable to owners of the Company Effect of potentially dilutive common shares Bonuses for employees Years Ended December 31 2017 2018 $ 5,616 $ 421,458 - - Earnings used in the computation of diluted EPS from continuing operations $ 5,616 $ 421,458 230 Weighted average number of common shares outstanding (in thousand shares): Weighted average number of common shares used in the computation of basic earnings per shares Effect of dilutive potential common shares: Employee bonuses Years Ended December 31 2017 2018 $ 588,435 $ 588,435 60 284 Weighted average number of common shares used in the computation of diluted earnings per share $ 588,495 $ 588,719 The Company can settle bonus or remuneration to employees in cash or shares. If the Company decides to use shares in settling the entire amount of the bonus or remuneration the resulting potential shares will be included in the weighted average number of shares outstanding to be used in computation of diluted earnings per share, if the effect is dilutive. This dilutive effect of the potential shares will be included in the computation of diluted earnings per share until the number of shares to be distributed to employees is determined in the following year. 27. DISPOSAL OF SUBSIDIARIES iCatch Technology Inc. has independently operated its financial activities since July 31, 2018 due to operational needs; thus, the Company assessed that the control of iCatch Technology Inc. was lost. For details about the partial disposal of iCatch Technology Inc., refer to Note 31 to the Company’s consolidated financial statements for the year ended December 31, 2018. 28. EQUITY TRANSACTIONS WITH NON-CONTROLLING INTEREST For details about the partial disposal of Sunext Technology Co., Ltd. and Jumplux Technology, refer to Note 32 to the Company’s consolidated financial statements for the year ended December 31, 2018. 29. OPERATING LEASE ARRANGEMENTS The Company as lessee Operating leases relate to leases of land with lease terms between 20 years. The Company does not have a bargain purchase option to acquire the leased land at the expiry of the lease periods. The Company leases lands from Science-Based Industrial Park Administration (SBIPA) under renewable agreements expiring in December 2020, December 2021 and December 2034. The SBIPA has the right to adjust the annual lease amount. The amount was $8,318 thousand for the period ended. The Company had pledged $6,100 thousand time deposits (classified as other non-current financial assets) as collateral for the land lease agreements. 231 Future annual minimum rentals under the leases are as follows: Up to 1 year Over 1 year to 5 years Over 5 years 30. CAPITAL MANAGEMENT December 31 2018 2017 $ 8,318 21,079 36,576 $ 8,259 23,855 39,901 $ 65,973 $ 72,015 The Company manages its capital to ensure that entities in the Company will be able to continue as going concerns while maximizing the return to stakeholders through the optimization of the debt and equity balance. The capital structure of the Company consists of [net debt (borrowings offset by cash and cash equivalents) and equity of the Company (comprising issued capital, reserves, retained earnings and other equity) attributable to owners of the Company. The Company is not subject to any externally imposed capital requirements. 31. FINANCIAL INSTRUMENTS The management of the Company considers that the fair values of financial assets and financial liabilities that are not measured at fair value approximate their fair values. a. Fair value of financial instruments that are not measured at fair value The management of the Company considers that the fair values of financial assets and financial liabilities that are not measured at fair value approximate their fair values. b. Fair value of financial instruments that are measured at fair value on a recurring basis 1) Fair value hierarchy December 31, 2018 Financial assets at FVTPL Mutual funds Unlisted debt securities - ROC Securities listed in other countries Financial assets at FVTOCI Unlisted shares and Level 1 Level 2 Level 3 Total $ 736,926 $ - $ - $ 736,926 - 672 - - 190,050 190,050 - 672 $ 737,598 $ - $ 190,050 $ 927,648 emerging market shares $ - $ - $ 4,337 $ 4,337 December 31, 2017 Level 1 Level 2 Level 3 Total 232 Available-for-sale financial assets Mutual funds $ 676,438 $ - $ - $ 676,438 There were no transfers between Levels 1 and 2 in the current and prior periods. 2) Reconciliation of Level 3 fair value measurements of financial instruments For the year ended December 31, 2018 Financial Assets Financial Assets at FVTPL Financial Assets at FVTOCI Balance at January 1, 2018 Recognized in profit or loss Recognized in other comprehensive income Purchases Sales $ 111,851 (26,801) - 201,000 (96,000) $ 98,687 - (94,350) - - Total $ 210,538 (26,801) (94,350) 201,000 (96,000) Balance at December 31, 2018 $ 190,050 $ 4,337 $ 194,387 c. Categories of financial instruments Financial assets Financial assets at FVTPL Loans and receivables (i) Available-for-sale financial assets (ii) Financial assets at amortized cost (iii) Financial assets at fair value through other comprehensive income $ Equity instruments Financial liabilities December 31 2018 2017 927,648 - - 927,468 4,337 - 2,040,390 878,361 - - Measured at amortized cost (iv) 287,206 532,444 i) The balances include loans and receivables measured at amortized cost, which comprise cash and cash equivalents, accounts receivable, refundable deposits, trade and other receivables and other financial assets. Those reclassified to held-for-sale disposal groups are also included. ii) The balances include available-for-sale financial assets carried at cost. iii) The balances include financial assets measured at amortized cost, which comprise cash and cash equivalents, accounts receivable, refundable deposits, trade and other receivables and other financial assets. Those reclassified to held-for-sale disposal groups are also included. iv) The balances include financial liabilities measured at amortized cost, which comprise short-term and long-term loans, guarantee deposits, trade and other payables and long-term liabilities - current portion. d. Financial risk management objectives and policies The Company’s major financial instruments included equity and debt investments, trade receivable, trade payables, bonds payable, borrowings and convertible notes. The Company’s corporate treasury function provides services to the business, coordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Company through internal risk reports which analyze exposures by degree and magnitude of risks. These risks include market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk. 233 The Corporate Treasury function reported quarterly to the Company's risk management committee. 1) Market risk The Company's activities exposed it primarily to the financial risks of changes in foreign currency exchange rates (see (a) below) and interest rates (see (b) below). The Company entered into a variety of derivative financial instruments to manage its exposure to foreign currency risk and interest rate risk, including: a) Foreign currency risk A part of the Company’s cash flows is in foreign currency, and the use by management of derivative financial instruments is for hedging adverse changes in exchange rates, not for profit. For exchange risk management, each foreign-currency item of net assets and liabilities is reviewed regularly. In addition, before obtaining foreign loans, the Company considers the cost of the hedging instrument and the hedging period. The carrying amounts of the Company’s foreign currency-denominated monetary assets and monetary liabilities at the end of the reporting period, please refers to Note 32. Sensitivity analysis The Company was mainly exposed to the USD and RMB. The following table details the Company sensitivity to a US$1.00 and RMB1.00 increase and decrease in the New Taiwan dollar (the functional currency) against the relevant foreign currencies. The sensitivity analysis considers the currencies of USD and RMB in circulation, and adjusts the end-of-term conversion to exchange rate change of $1.00. The sensitivity analysis covers cash and cash equivalents, notes and accounts receivable, other receivables, other financial assets, long-term and short-term loans, accounts payable, other accounts payable and deposit margins. A negative number below indicates a decrease in post-tax profit associated with the New Taiwan dollar strengthening $1.00 against USD and RMB. For a $1.00 weakening of the New Taiwan dollar against the relevant currency, there would be an equal and opposite impact on post-tax profit, and the balances below would be positive. Profit or loss $ (3,163) $ (4,955) USD Impact Years Ended December 31 2017 2018 Profit or loss b) Interest rate risk RMB Impact Years Ended December 31 2017 2018 $ (1,007) $ (1,069) The Company was exposed to interest rate risk because entities in the Company borrowed funds at both fixed and floating interest rates. The risk is managed by the Company by maintaining an appropriate mix of fixed and floating rate borrowings, and using interest rate swap contracts and forward interest rate contracts. Hedging activities are evaluated regularly to align with interest rate views and defined risk appetite, ensuring the most cost-effective hedging strategies are applied. The carrying amounts of the Company’s financial assets and financial liabilities with exposure to interest rates at the end of the reporting period were as follows. December 31 234 Fair value interest rate risk Financial assets Financial liabilities Cash flow interest rate risk Financial assets Financial liabilities Sensitivity analysis 2018 2017 $ 264,100 - $ 1,063,620 59,520 521,977 115,000 723,936 275,000 The sensitivity analyses below were determined based on the Company’s exposure to interest rates for both derivatives and non-derivative instruments at the end of the reporting period. For floating rate liabilities, the analysis was prepared assuming the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year. Basis points of 0.125% increase or decrease was used when reporting interest rate risk internally to key management personnel and represents management's assessment of the reasonably possible change in interest rates. Had interest rates increased/decreased by 0.125% and all other variables held constant, the Company’s post-tax profit for the years ended December 31, 2018 and 2017 would decrease/increase by $509 thousand and $561 thousand, respectively. c) Other price risk The Company was exposed to equity price risk through its investments in listed equity securities. Equity investments are held for strategic rather than trading purposes. The Company does not actively trade these investments. The sensitivity analyses below were determined based on the exposure to equity price risks at the end of the reporting period. Had the prices of financial assets at FVTPL been 1% higher/lower, post-tax profit for the year ended December 31, 2018 would have increased/decreased by $9,276 thousand, respectively. Had the prices of financial assets at FVTOCI been 1% higher/lower, post-tax profit for the year ended December 31, 2018 would have increased/decreased by $43 thousand, respectively. Had equity prices been 1% higher/lower, post-tax profit for the year ended December 31, 2017 would have increased/decreased by $6,764 thousand, respectively. 2) Credit risk Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Company. As at the end of the reporting period, the Company’s maximum exposure to credit risk which will cause a financial loss to the Company due to failure to discharge an obligation by the counterparties and financial guarantees provided by the Company is arising from the carrying amount of the respective recognized financial assets as stated in the balance sheets. In order to minimize credit risk, the management of the Company has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Company reviews the recoverable amount of each individual trade debt at the end of the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Company consider that the Company’s credit risk was significantly reduced. The credit risk on liquid funds and derivatives was limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies. Trade receivables consisted of a large number of customers, spread across diverse industries and geographical 235 areas. Ongoing credit evaluation is performed on the financial condition of trade receivables and, where appropriate, credit guarantee insurance cover is purchased. The Company’s concentration of credit risk of 91% and 87% in total trade receivables as of December 31, 2018 and 2017, respectively, was related to the five largest customers within the property construction business segment. 3) Liquidity risk The Company manages liquidity risk by monitoring and maintaining a level of cash and cash equivalents deemed adequate to finance the Company’s operations and mitigate the effects of fluctuations in cash flows. In addition, management monitors the utilization of bank borrowings and ensures compliance with loan covenants. The Company relies on bank borrowings as a significant source of liquidity. As of December 31, 2018 and 2017, the Company had available unutilized overdraft and financing facilities refer to the following instruction. a) Liquidity and interest rate risk tables The following table details the Company’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The tables had been drawn up based on the undiscounted cash flows of financial liabilities from the earliest date on which the Company can be required to pay. The tables included both interest and principal cash flows. 236 Fixed interest rate liabilities 105 - 15,000 - 100,000 - - 2,633 - 61,427 December 31, 2018 Non-derivative financial liabilities Noninterest bearing Variable interest rate liabilities December 31, 2017 Non-derivative financial liabilities Noninterest bearing Variable interest rate liabilities On Demand or Less than 1 Month 1-3 Months More than 3 Months to 1 Year Over 1 Year to 5 Years 5+ Years $ - $ 147,657 $ - $ - $ - $ 105 $ 162,657 $ 100,000 $ 2,633 $ 61,427 On Demand or Less than 1 Month 1-3 Months More than 3 Months to 1 Year Over 1 Year to 5 Years 5+ Years $ - $ 156,523 $ - $ - $ - Fixed interest rate liabilities 246 59,533 - - 175,000 - 100,000 - - 61,746 $ 59,779 $ 156,523 $ 175,000 $ 100,000 $ 61,746 b) Financing facilities Unsecured bank overdraft facility Amount used Amount unused December 31 2018 2017 $ 115,000 3,121,450 $ 334,520 2,733,280 $ 3,236,450 $ 3,067,800 32. TRANSACTIONS WITH RELATED PARTIES a. Name and relationship of related parties Related Party Name Related Party Category Xiamen Xm-plus Technology Ltd. iCatch Technology, Inc. Advanced Vehicle Systems Co., Ltd. Jumplux Technology Co., Ltd. Generalplus Technology Inc. Associate (Note 1) Associate (Note 2) Associate (Note 3) Subsidiary Subsidiary (Continued) 237 Related Party Name Related Party Category Sunext Technology Co., Ltd. Sunplus Innovation Technology Inc. Sunplus mMedia Inc. Sunplus Venture Capital Co., Ltd. Lin Shih Investment Co., Ltd. Wei-Young Investment Inc. Russell Holdings Limited Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Note 1: The board of directors of Xiamen Xm-plus Technology Ltd. was re-elected on December 19, 2018. The company judged that it had lost significant influence on Xiamen Xm-plus Technology Ltd. Note 2: On July 31, 2018, the company assessed that it had lost control of iCatch Technology, Inc.; therefore, it is classified as an associate. (Concluded) Note 3: It is an associate of the company; subsidiary of AutoSys Co., Ltd. b. Sales of goods Account Items Related Parties Types 2018 2017 For the Year Ended December 31 Sales of goods Subsidiaries Associates $ 19,460 28,058 $ 29,031 - $ 47,518 $ 29,031 Sales price to related parties is based on cost and market price. The sales terms to related parties were similar to those with external customers. c. Receivables from related parties (excluding loans to related parties) Account Item Related Party 2018 2017 December 31 Trade receivables Other receivable Subsidiaries Associates Subsidiaries Associates $ $ $ 2,047 2,400 4,447 5,339 1,358 $ $ $ 4,747 - 4,747 7,844 - $ 6,697 $ 7,844 There were no guarantees on outstanding receivables from related parties. For the years ended December 31, 2018 and 2017, no impairment loss was recognized for trade receivables from related parties. 238 d. Other transactions with related parties Account Item Related Parties Types 2018 2017 For the Year Ended December 31 Nonoperating income and expenses Subsidiaries Associates $ 44,508 8,072 $ 43,542 - $ 52,580 $ 43,542 Administrative support services price and support services price between the Company and the related parties were negotiated and were thus not comparable with those in the market. The pricing and the payment terms of the lease contract between the Company and the related parties were similar to those with external customers. e. Acquisitions of investments accounted for using the equity method For the year ended December 31, 2018 Related Party Category/Name Line Item Number of Shares Underlying Assets Purchase Price Subsidiary Subsidiary Investments accounted for using the equity method Investments accounted for using the equity method 3,200 Jumplux $ 32,000 Technology Co., Ltd. 8,251 Sunext Technology 24,752 Co., Ltd. The company acquired shares of Jumplux Technology Co., Ltd. from Sunplus mMedia Inc. in August 2018 and acquired Sunext Technology Co., Ltd. from Sunplus Venture Capital Co., Ltd., Lin Shih Investment Co., Ltd., Wei-Young Investment Inc. and Russell Holdings Limited in October to December 2018. f. Compensation of key management personnel Short-term employee benefits Post-employment benefits For the Year Ended December 31 2018 2017 $ 18,100 269 $ 14,072 269 $ 18,369 $ 14,341 Compensation of directors and other key management personnel was decided by the Compensation Committee in accordance with individual performance and market trends. 239 33. PLEDGED OR MORTGAGED ASSETS The following assets were mortgaged or pledged as collateral for bank borrowings and leased land: Buildings, net Pledged time deposits (classified to other financial assets, including current $ 615,136 $ 634,538 and non-current) 6,100 65,620 $ 621,236 $ 700,158 December 31 2018 2017 34. EXCHANGE RATE OF FINANCIAL ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES The following information is summarized and expressed in foreign currencies other than the functional currency. The disclosed exchange rate refers to the rate at which such foreign currencies are converted into the functional currency. The significant financial assets and liabilities denominated in foreign currencies are as follows: December 31, 2018 Financial assets Monetary items USD CNY JPY HKD GBP Nonmonetary items subsidiaries accounted for using equity method USD HKD Financial liabilities Monetary items USD CNY Foreign Currencies (In Thousands) Exchange Rate Carrying Amount $ 7,594 1,012 279 34 3 21,546 10 30.715 4.472 0.278 3.921 38.880 30.715 3.921 $ 233,250 4,526 78 133 117 661,785 39 4,431 5 30.715 4.472 136,098 22 240 December 31, 2017 Financial assets Monetary items HKD USD CNY JPY GBP Nonmonetary items subsidiaries accounted for using equity method USD HKD Financial liabilities Monetary items USD CNY GBP Foreign Currencies (In Thousands) Exchange Rate Carrying Amount $ 13,650 9,924 1,075 360 3 20,507 10 4,969 6 1 3.807 29.760 4.565 0.264 40.110 29.760 3.807 29.760 4.565 40.110 $ 51,966 295,338 4,907 95 120 610,288 38 147,877 27 40 The significant unrealized foreign exchange gains (losses) were as follows: Foreign Currencies Exchange Rate Net Foreign Exchange (Loss) Gain Exchange Rate 2018 2017 USD HKD CNY 30.715 (USD:NTD) 3.921 (HKD:NTD) 4.472 (CNY:NTD) $ (1,234) - (32) 29.760 (USD:NTD) 3.807 (HKD:NTD) 4.565 (CNY:NTD) $ (1,266) Net Foreign Exchange (Loss) Gain $ (1,831) (1,039) - $ (2,870) 35. ADDITIONAL DISCLOSURES a. Following are the additional disclosures required for the Company and its investees by the Securities and Futures Bureau: 1) Financings provided: Table 1 (attached) 2) Endorsement/guarantee provided: Table 2 (attached) 3) Marketable securities held: Table 3 (attached) 4) Marketable securities acquired and disposed of at costs or prices of at least $100 million or 20% of the paid-in capital. 5) Information on investee: Table 4 (attached) b. Information on investments in mainland China 241 1) Information on any investee company in mainland China, showing the name, principal business activities, paid-in capital, method of investment, inward and outward remittance of funds, ownership percentage, net income of investees, investment income or loss, carrying amount of the investment at the end of the period, repatriations of investment income, and limit on the amount of investment in the mainland China area. (Table 5) Except for Table 1 to Table 5, there’s no further information about other significant transactions. 242 SUNPLUS TECHNOLOGY COMPANY LIMITED FINANCINGS PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) No. Lender Borrower Financial Statement Account Related Party Highest Balance for the Period Ending Balance Actual Borrowing Amount Interest Rate Nature of Financing Business Transaction Amounts Reasons for Short-term Financing Allowance for Bad Debt Collateral Item Value Financing Limit for Each Borrower Aggregate Financing Limit TABLE 1 1 Ventureplus Cayman Inc. Sun Media Technology Other receivables Yes $ 40,027 $ - $ 6,900 - - - 3.1971% Note 1 $ 1.8% Note 1 Co., Ltd. 2 Sunplus Technology (Shanghai) Sunplus Technology Co., Ltd. 2 Sunplus Technology (Shanghai) Co., Ltd. (Beijing) Sunplus APP Technology 2 Sunplus Technology (Shanghai) Sun Media Technology Co., Ltd. Co., Ltd. 3 Russell Holdings Ltd. Sun Media Technology Co., Ltd. 4 Sunplus Venture Capital Co., Sun Media Technology Ltd. Co., Ltd. 5 Sunplus Prof-tek Technology Ytrip Technology Co., (Shenzhen) Ltd. 5 Sunplus Prof-tek Technology Sunplus APP (Shenzhen) Technology Receivables from related parties Receivables from related parties Receivables from related parties Receivables from related parties Receivables from related parties Receivables from related parties Receivables from related parties Yes Yes Yes Yes Yes Yes Yes 29,959 25,108 25,108 1.8% Note 1 219,120 91,300 91,300 1.8% Note 1 381,320 256,923 256,923 2.35% Note 1 321,321 230,061 168,561 2.2% Note 1 1,963 - - 1.8% Note 1 41,086 29,673 29,673 1.8% Note 1 - - - - - - - - Note 2 $ Note 3 Note 4 Note 5 Note 6 Note 7 Note 8 Note 9 - - - - - - - - - - - - - - - - $ - $ - - - - - - - $ 135,431 (Note 10 ) 259,645 (Note 12 ) 21,637 (Note 11 ) 259,645 (Note 12 ) 463,230 (Note 13 ) 411,427 (Note 14 ) 40,850 (Note 15 ) 40,850 (Note 15 ) 270,862 (Note 10 ) 259,645 (Note 12 ) 43,274 (Note 11 ) 259,645 (Note 12 ) 463,230 (Note 13 ) 411,427 (Note 14 ) 81,700 (Note 15 ) 81,700 (Note 15 ) Note 1: Short-term financing. Note 2: Ventureplus Cayman Inc. provided funds for the operating needs of Sun Media Technology Co., Ltd. Note 3: Sunplus Technology (Shanghai) Co., Ltd. provided funds for the operating needs of Sunplus Technology (Beijing). Note 4: Sunplus Technology (Shanghai) Co., Ltd. provided funds for the operating needs of Sunplus APP Technology. Note 5: Sunplus Technology (Shanghai) Co., Ltd. provided funds for the operating needs of Sun Media Technology Co., Ltd. Note 6: Russell Holdings Ltd. provided funds for the operating needs of Sun Media Technology Co., Ltd. Note 7: Sunplus Venture Capital provided funds for the operating needs of Sun Media Technology Co., Ltd. Note 8: Sunplus Prof-tek Technology (Shenzhen) provided funds for the operating needs of Ytrip Technology Co., Ltd. Note 9: Sunplus Prof-tek Technology (Shenzhen) provided funds for the operating needs of Sunplus APP Technology. Note 10: The foreign company has voting shares that are directly and indirectly wholly owned by the Company’s parent company. The total amount of all guarantees issued should not exceed 20% of Ventureplus Cayman Inc.’s net equity based on its latest financial statements, and the individual amount of each guarantee should not exceed 10% of Ventureplus Cayman Inc.’s net equity based on its latest financial statements; in addition, each guarantee period should not exceed two years. Note 11: The aggregate amount of all guarantees issued should not exceed 10% of the net equity of Sunplus Technology (Shanghai) Co., Ltd. (“Sunplus Shanghai”), and the individual amount of each guarantee should not exceed 5% of Sunplus Shanghai’s net equity, with net equity based on its latest financial statements. Note 12: The foreign company has voting shares that are directly and indirectly wholly owned by the Company’s parent company. The total amount of all guarantees issued and the individual amount of each guarantee should not exceed 60% of Sunplus Technology (Shanghai) Co., Ltd.’s net equity as of its latest financial statements; in addition, each guarantee period should not exceed two years. Note 13: The foreign company has voting shares that are directly and indirectly wholly owned by the Company’s parent company. The total amount of all guarantees issued and the individual amount of each guarantee should not exceed 80% of Russell Holdings Ltd.’s net equity as of its latest financial statements; in addition, each guarantee period should not exceed two years. Note 14: The total amount of all guarantees issued and the individual amount of each guarantee should not exceed 40% of Sunplus Venture Capital Co., Ltd.’s net equity as of its latest financial statements. Note 15: The total amount of all guarantees issued and the individual amount of each guarantee should not exceed 10% of the net equity of Sunplus Prof-tek Technology (Shenzhen); and the individual amount of each guarantee should not exceed 5% of Sunplus Shanghai’s net equity. 243 SUNPLUS TECHNOLOGY COMPANY LIMITED ENDORSEMENTS/GUARANTEES PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) Endorsee/Guarantee No. Endorser/ Guarantor Name Nature of Relationship Limits on Endorsement/ Guarantee Given on Behalf of Each Party Maximum Balance for the Period Ending Balance Actual Borrowing Amount Value of Collateral (Property, Plant, or Equipment) TABLE 2 Percentage of Accumulated Amount of Collateral to Net Equity as of the Latest Financial Statements Maximum Collateral/Guara ntee Amounts Allowable Provided by the Company Guarantee Provided by the Subsidiary Guarantee Provided to a Subsidiary Located in Mainland China 0 (Note 1) Sunplus Technology Company Limited (“Sunplus”) Ventureplus Cayman Inc. 3 (Note 4) Sun Media Technology Co., Ltd. 3 (Note 4) Ytrip Technology Co., Ltd. 3 (Note 4) Sunext Technology Co., Ltd. 2 (Note 3) 1 (Note 2) Russell Holdings Ltd. Sun Media Technology Co., Ltd. 3 (Note 4) $ 846,594 (Note 5) 846,594 (Note 5) 846,594 (Note 5) 846,594 (Note 5) 347,423 (Note 7) $ 160,075 $ - $ - $ 417,528 417,528 219,960 121,780 - - 20,000 10,000 10,000 - - - - - 4.93 - 0.12 316,025 156,725 125,380 156,725 27.07 $ 1,693,188 (Note 6) 1,693,188 (Note 6) 1,693,188 (Note 6) 1,693,188 (Note 6) 347,423 (Note 7) Yes Yes Yes Yes No No No No No No No Yes Yes No Yes Note 1: Issuer. Note 2: Investee. Note 3: The endorser directly holds more than 50% of the common shares of the endorsee. Note 4: Sunplus and its subsidiaries jointly hold more than 50% of the common shares of the endorsee. Note 5: For each transaction entity, the guarantee amount should not exceed 10% of the endorsement/guarantee provider’s net equity based on the provider’s latest financial statements. Note 6: The guarantee amount should not exceed 20% of the endorsement/guarantee provider’s net equity based on the provider’s latest financial statements. Note 7: Russell Holdings Ltd. and the endorsement guaranty object are the parent company which holds 100% voting rights directly or indirectly. For each transaction entity, the guarantee amount should not exceed 60% of the endorsement/guarantee provider’s net equity, i.e. Russell Holdings Ltd. provider’s latest financial statements. 244 SUNPLUS TECHNOLOGY COMPANY LIMITED MARKETABLE SECURITIES HELD FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise, U.S. Dollars and Renminbi in Thousands) Holding Company Name Type and Name of Marketable Security Relationship with the Holding Company Financial Statement Account Shares or Units (In Thousands) Carrying Amount Percentage of Ownership (%) Market Value or Net Asset Value Note December 31, 2018 TABLE 3 Sunplus Technology Company Limited Nomura Taiwan Money Market (the “Company”) Mega RMB Money Market RMB FSITC RMB Money Market TWD Yuanta AUD Money Market Taishin China-US Money Market Yuanta USD Money Market TWD Yuanta RMB Money Market CNY Mega Diamond Money Market PineBridge Preferred Securities UPAMC James Bond Money Market Yuanta USD Money Market USD PineBridge Multi-Income Jih Sun Money Market Prudential Financial RMB Money Market TWD Yuanta RMB Money Market TWD Pictet-Security RI Yuanta Emerging Indonesia and India 4 years Bond Fund Broadcom Inc. Triknight Capital Corporation - - - - - - - - - - - - - - - - - - - Financial assets at fair value through 616 $ 10,043 profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current 466 5,387 2,000 3,000 4,396 470 24,408 53,267 18,518 30,287 42,367 24,253 Financial assets at fair value through 13,197 165,249 profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current 2,946 1,851 247 3,000 3,420 5,810 1,702 2 1,500 - 28,431 30,887 78,532 28,955 50,589 57,669 18,039 61,430 14,002 672 - - - - - - - - - - - - - - - - - - $ 10,043 Note 3 24,408 Note 3 53,267 Note 3 18,518 Note 3 30,287 Note 3 42,367 Note 3 24,253 Note 3 165,249 Note 3 28,431 Note 3 30,887 Note 3 78,532 Note 3 28,955 Note 3 50,589 Note 3 57,669 Note 3 18,039 Note 3 61,430 Note 3 14,002 Note 3 672 Note 2 Financial assets at fair value through 21,000 190,050 5 190,050 Note 1 profit or loss - non-current (Continued) 245 Holding Company Name Type and Name of Marketable Security Relationship with the Holding Company Financial Statement Account Shares or Units (In Thousands) Carrying Amount Percentage of Ownership (%) Market Value or Net Asset Value Note December 31, 2018 Sunplus Technology Company Limited Availink Inc. (the “Company”) Network Capital Global Fund Lin Shih Investment Co., Ltd. CTBC Global iSport Fund Yuanta Multi-Income Paradigm Pion Money Market Fund Ruentex Material Co., Ltd. Taiwan Mask Corp. Global Pmx Co., Ltd. - CB Laster Tech Corporation Ltd. - CB Everlight Electronics Co., Ltd. - CB Genius Vision Digital Co., Ltd. Ortery Technologies, Inc. Chain Sea Information Integration Co., Ltd. Sanjet Technology Corporation Minton Optic Industry Co., Ltd. Ability Enterprise Co., Ltd. - - - - - - - - - - - - - - - - Sunplus Technology Co., Ltd. Parent company Lead Sun Corporation Prine Rich International Co., Ltd. Russell Holdings Limited Synerchip Inc. OZ Optics Limited - - - - 9,039 $ 590 380 1,000 3,000 870 20 101 200 15 80 600 103 69 8 4,272 5,434 3,560 1,000 33 6,452 1,000 3,747 9,410 25,680 10,042 526 1,853 19,300 1,466 7,952 - - 1,121 - - 78,246 40,050 30,756 3,380 - - - 7 - - - - - - - - 4 1 - - 7 2 1 - - 12 8 $ 590 Note 1 3,747 Note 1 9,410 Note 3 25,680 Note 3 10,042 Note 3 526 Note 2 1,853 Note 2 19,300 Note 2 1,466 Note 2 7,952 Note 2 - Note 1 - Note 1 1,121 Note 1 - Note 1 - Note 1 78,246 Note 2 40,050 Note 2 30,756 Note 1 3,380 Note 1 - Note 1 - Note 1 (Continued) Financial assets at fair value through other comprehensive income - non-current Financial assets at fair value through other comprehensive income - non-current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss – non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through other comprehensive income - non-current Financial assets at fair value through other comprehensive income - non-current Financial assets at fair value through other comprehensive income - non-current Financial assets at fair value through other comprehensive income - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current 246 Holding Company Name Type and Name of Marketable Security Relationship with the Holding Company Financial Statement Account Shares or Units (In Thousands) Carrying Amount Percentage of Ownership (%) Market Value or Net Asset Value Note December 31, 2018 Russell Holdings Limited Ortega InfoSystem, Inc. Innobrige International Inc. Ether Precision Inc. Asia Tech Taiwan Venture, L.P. Asia B2B on Line Inc. AMED Ventures I, L.P. Availink Inc. GeneOne Diagnostics Corporation Intudo Ventures II, L.P. Sunplus Venture Capital Co., Ltd. Taiwan Mask Corp. Fubon Financial Holding Co., Ltd. Cathay China A50 Cyberon Corporation Grand Fortune Venture Capital Co., Ltd. Ortery Technologies, Inc. Book4u Company Limited Sanjet Technology Corp. Simple Act Inc. Information Technology Total Services Minton Optic Industry Co., Ltd. Raynergy Tek Inc. Genius Vision Digital CDIB Capital Growth Partners L.P. 2,557 $ 4,000 1,250 - 1,000 - 9,920 1,710 - 108 1,900 2,900 786 5,000 68 9 49 1,900 51 5,000 4,500 750 - - - - - - 6,143 31,280 21,113 9,215 1,982 47,937 47,995 28,820 54,500 - - - - - - 64,890 - 36,970 - 15 1 5 3 - 8 - - - - - 8 7 1 - - 10 - 8 16 5 2 $ - Note 1 - Note 1 - Note 1 - Note 1 - Note 1 6,143 Note 1 31,280 Note 1 21,113 Note 1 9,215 Note 1 1,982 Note 2 47,937 Note 2 47,995 Note 2 28,820 Note 1 54,500 Note 1 - Note 1 - Note 1 - Note 1 - Note 1 - Note 1 - Note 1 64,890 Note 1 - Note 1 36,970 Note 1 (Continued) - - - - - - - - - - - - - - - - - - - - - - - Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through other comprehensive income Financial assets at fair value through other comprehensive income - non-current Financial assets at fair value through other comprehensive income - non-current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current 247 Holding Company Name Type and Name of Marketable Security Relationship with the Holding Company Financial Statement Account Shares or Units (In Thousands) Carrying Amount Percentage of Ownership (%) Market Value or Net Asset Value Note December 31, 2018 Sunplus Venture Capital Co., Ltd. VenGlobal International Fund TIEF Fund LP San Neng Group Holding Co., Ltd. Intudo Ventures I, L.P. eWave System, Inc. Feature Integration Technology Inc. Qun-Kin Venture Capital Sunplus Technology (Shanghai) Co., Ltd. GF B Type Money Market Fund GF Every Day The Red Haired Type Money Market Fund B Chongqing CYIT Communication Technology Co., Ltd. Ready Sun Investment Group Fund Xiamen Xm-plus Technology Ltd. Generalplus Technology Inc. Franklin Templeton SinoAm Money Market Sunplus Innovation Technology Inc. Mega Diamond Money Market Yuanta De-Li Money Market Fund Yuanta USD Money Market USD Yuanta RMB Money Market Yuanta USD Money Market TWD Fuh Hwa You Li Money Market Yuanta De-Li Money Market Yuanta De-Bao Money Market Advanced Silicon SA - - - - - - - - - - - - - - - - - - - - Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through other comprehensive income - non-current Financial assets at fair value through other comprehensive income - non-current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through profit or loss - current Financial assets at fair value through other comprehensive income - non-current 248 - 900 - 1,833 1,386 3,000 6,400 5,700 - - - 5,721 2,601 810 150 3,679 6,712 2,235 4,333 5,000 1,000 1 $ - 43,742 39,150 29,663 - 7 2 8 $ - Note 1 43,742 Note 1 39,150 Note 2 29,663 Note 1 - 22 - Note 1 17,320 25,200 29,162 25,587 - 43,708 8,076 59,048 42,347 10,143 47,512 38,982 64,694 30,072 70,553 60,010 24,513 4 6 - - 3 16 4 - - - - - - - - - 17,320 Note 2 25,200 Note 1 29,162 Note 3 25,587 Note 3 - Note 1 43,708 Note 1 8,076 Note 1 59,048 Note 3 42,347 Note 3 10,143 Note 3 47,512 Note 3 38,982 Note 3 64,694 Note 3 30,072 Note 3 70,553 Note 3 60,010 Note 3 10 24,513 Note 1 (Continued) Holding Company Name Type and Name of Marketable Security Relationship with the Holding Company Financial Statement Account Sunplus Innovation Technology Inc. Advanced NuMicro System, Inc. Point Grab Ltd. Magic Sky Limited GTA Co., Ltd. - CB Giant Rock Inc. Xiamen Xm-plus Technology Ltd. - - - Financial assets at fair value through other comprehensive income - non-current Financial assets at fair value through other comprehensive income - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Shares or Units (In Thousands) 2,000 182 - - December 31, 2018 Carrying Amount Percentage of Ownership (%) Market Value or Net Asset Value Note $ 848 - 82,623 32,306 8 1 - 15 $ 848 Note 1 - Note 1 82,623 Note 1 32,306 Note 1 Note 1: The market value was based on the carrying amount as of December 31, 2018. Note 2: The market value was based on the closing price as of December 31, 2018. Note 3: The market value was based on the net asset value of the fund as of December 31, 2018. Note 4: The exchange rate was based on the exchange rate as of December 31, 2018. (Concluded) 249 SUNPLUS TECHNOLOGY COMPANY LIMITED NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES ON WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCES DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) Investor Investee Location Main Businesses and Products Investment Amount Balance as of December 31, 2018 December 31, 2018 December 31, 2017 Shares (Thousands) Percentage of Ownership (%) Carrying Amount Net Income (Loss) of the Investee Investment Gain (Loss) Note TABLE 4 Sunplus Technology Company Limited Ventureplus Group Inc. Award Glory Ltd. Belize Belize Investment Investment GLOBAL VIEW CO., LTD. Hsinchu, Taiwan Consumer electronics, components and rental 2,460,981 $ ( US$ 74,605 RMB 37,900 ) 62,720 2,042 ) 315,658 ( US$ 2,451,767 $ ( US$ 74,305 RMB 37,900 ) 23,712 772 ) 315,658 ( US$ Lin Shih Investment Co., Ltd. Generalplus Technology Inc. Sunplus Venture Capital Co., Ltd. Sunplus Innovation Technology Inc. Russell Holdings Limited iCatch Technology, Inc. Sunext Technology Co., Ltd. Sunplus mMedia Inc. Sunplus Management Consulting Inc. Sunplus Technology (H.K.) Co., Ltd. Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Cayman Islands, British West Indies Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Kowloon Bay, Hong Kong Magic Sky Limited Samoa Sunplus mMobile Inc. Wei-Young Investment Inc. Jumplux Technology Co., Ltd. Generalplus Technology Inc. Sunext Technology Co., Ltd. Sunplus Innovation Technology Inc. iCatch Technology, Inc. Sunplus mMedia Inc. Jumplux Technology Co., Ltd. Sunplus Innovation Technology Inc. iCatch Technology, Inc. Sunext Technology Co., Ltd. Sunplus mMedia Inc. Han Young Technology Co., Ltd. Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Taipei, Taiwan of buildings Investment Design of ICs Investment Design of ICs Investment Design of ICs Design of ICs Design of ICs Management International trade Investment Design of ICs Investment Design of ICs Design of ICs Design of ICs Design of ICs Design of ICs Design of ICs Design of ICs Design of ICs Design of ICs Design of ICs Design of ICs Design of ICs Lin Shih Investment Co., Ltd. Sunplus Venture Capital Co., Ltd. Russell Holdings Limited Sunext Technology Co., Ltd. Hsinchu, Taiwan Design of ICs Autosys Co., Ltd. Cayman Islands, British west Indies Investment ( US$ ( US$ 699,988 281,001 999,982 414,663 757,432 24,660 ) 207,345 924,730 357,565 5,000 43,425 11,075 ) 308,133 10,032 ) 2,596,792 70,157 132,000 699,988 281,001 999,982 414,663 739,003 24,060 ) 207,345 924,730 357,565 5,000 43,425 11,075 ) 305,921 9,960 ) 2,596,792 30,157 - ( HK$ ( HK$ ( US$ ( US$ 86,256 - 15,701 9,645 19,408 101,000 57,388 33,439 - 44,878 4,200 - - ) ( US$ 76,788 2,500 ) ( US$ ( US$ 86,256 369,316 15,701 9,645 19,408 101,000 57,388 33,439 385,709 44,878 4,200 65,085 2,119 ) - - - 100 $ 1,354,351 $ (79,793 ) $ (79,793 ) Subsidiary 100 33,116 (7,932 ) (7,932 ) Subsidiary 8,229 13 307,106 82,960 10,837 Investee 70,000 37,324 100,000 31,450 24,660 20,735 58,050 22,441 500 11,075 100 34 100 61 100 30 91 90 100 100 750,558 704,549 1,028,567 523,083 579,038 289,419 174,391 46,128 3,910 39 64,080 284,344 55,005 60,709 1,965 (103,184 ) 1,808 (1,647 ) (41 ) - 61,556 Subsidiary 97,531 Subsidiary 55,005 Subsidiary 37,109 Subsidiary 1,965 Subsidiary (28,936 ) Investee 2,746 Subsidiary (58,822 ) Subsidiary (41 ) Subsidiary - Subsidiary - 100 82,747 (14,459 ) (14,459 ) Subsidiary 16,240 5,400 13,200 14,892 - 1,075 965 650 10,100 2,904 3,332 - 1,909 420 - 5,000 100 100 55 14 - 2 1 3 42 6 5 - 8 70 - 19 29,785 56,947 17,475 282,537 - 15,662 13,793 6,000 13,370 49,298 47,647 - 2,371 1,780 (417 ) 2,338 (73,126 ) (417 ) Subsidiary 2,339 Subsidiary (17,085 ) Subsidiary 284,344 1,808 60,709 (103,184 ) (1,647 ) (73,126 ) 60,709 (103,184 ) 1,808 (1,647 ) - 38,915 Subsidiary 54 Subsidiary 1,268 Subsidiary (1,016 ) Investee (2,186 ) Investee (43,067 ) Subsidiary 3,426 Subsidiary (3,510 ) Investee 128 Subsidiary (6,419 ) Subsidiary - Subsidiary - 1,808 ( US$ Subsidiary 11 - ) 71,254 (14,214 ) (4,738 ) Investee Wei-Young Investment Inc. Sunext Technology Co., Ltd. Hsinchu, Taiwan Design of ICs - 350 - - - 1,808 2 Subsidiary Ventureplus Group Inc. Ventureplus Mauritius Inc. Mauritius Investment Ventureplus Mauritius Inc. Ventureplus Cayman Inc. Cayman Islands, British West Indies Investment Generalplus Technology Inc. Generalplus International (Samoa) Inc. Samoa Investment Generalplus International (Samoa) Inc. Generalplus (Mauritius) Inc. Mauritius Investment 2,460,981 74,605 ( US$ RMB 37,900 ) 2,451,767 74,305 ( US$ RMB 37,900 ) 2,460,981 ( US$ 74,605 RMB 37,900 ) 2,460,981 ( US$ 74,305 RMB 37,900 ) 586,349 19,090 ) ( US$ 586,349 19,090 ) ( US$ 586,349 19,090 ) ( US$ 586,349 19,090 ) ( US$ - - 100 1,354,332 (79,794 ) (79,794 ) Subsidiary 100 1,354,309 (79,795 ) (79,795 ) Subsidiary 19,090 100 480,817 14,211 14,211 Subsidiary 19,090 100 480,815 14,211 14,211 Subsidiary (Continued) Investor Investee Location Main Businesses and Products Generalplus (Mauritius) Inc. Generalplus Technology (Hong Kong) Inc. Hong Kong Sales Investment Amount Balance as of December 31, 2018 December 31, 2018 December 31, 2017 Shares (Thousands) Percentage of Ownership (%) Carrying Amount Net Income (Loss) of the Investee Investment Gain (Loss) Note $ (US$ 11,979 390 ) $ (US$ 11,979 390 ) 390 100 $ 5,253 $ (462 ) $ (462 ) Subsidiary Sunplus mMedia Inc. Jumplux Technology Co., Ltd. Hsinchu, Taiwan Design of ICs - 32,000 Award Glory Ltd. Sunny Fancy Ltd. Seychelles Investment Sunny Fancy Ltd. Giant Kingdom Ltd. Giant Rock Inc. Seychelles Anguilla Investment Investment 62,720 2,042 ) (US$ 23,712 772 ) (US$ 23,712 772 ) 39,008 1,270 ) (US$ (US$ 23,712 772 ) - - ) (US$ (US$ - - - - - 100 100 100 - (48,781 ) (10,034 ) Subsidiary 33,116 (7,932 ) (7,932 ) Subsidiary 811 (3,121 ) (3,121 ) Subsidiary 32,306 (4,812 ) (4,812 ) Subsidiary Note 1: The initial exchange rate was based on the exchange rate as of December 31, 2018. (Concluded) SUNPLUS TECHNOLOGY COMPANY LIMITED INFORMATION ON INVESTMENTS IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) Investee Company Name Main Businesses and Products Total Amount of Paid-in Capital Investment Type Sunplus Technology Development of computer software, system (Shanghai) Co., Ltd. Sunplus Prof-tek (Shenzhen) integration services and building rental services Development of computer software, system Co., Ltd. integration services, building rental services and property management $ (US$ (US$ 528,298 17,200) 990,559 32,250) Sun Media Technology Co., Development of computer software, system Ltd. Sunplus App Technology Co., Ltd. integration services and building rental services Manufacturing and sale of computer software, system integration services and information management and education (US$ (RMB Ytrip Technology Co., Ltd. Computer system integration services, supply of general advertising and other information services (RMB Sunplus Technology (Beijing) Development of computer software, system integration services and building rental services (RMB 1culture Communication Co., System development Ltd. (RMB Xiamen Xm-plus Technology Development of computer software, system Ltd. integration services and building rental services (RMB 614,300 20,000) 67,080 15,000) 273,910 61,250) 120,744 27,000) 14,534 3,250) 232,544 52,000) Note 1 Note 1 Note 1 Note 1 Note 1 Note 1 Note 3 Note 1 Accumulated Outflow of Investment from Taiwan as of January 1, 2018 $ (US$ (US$ 542,273 17,665) 990,559 32,250) (US$ (US$ RMB (US$ (RMB 614,300 20,000) 62,719 586 10,000) 138,555 4,511) 120,744 27,000) - Investment Flows Outflow Inflow $ - $ - - - - - - - (US$ 39,008 1,270) Accumulated Outflow of Investment from Taiwan as of December 31, 2018 $ (US$ (US$ 542,273 17,655) 990,559 32,250) (US$ (US$ RMB (US$ (RMB 614,300 20,000) 62,719 586 10,000) 138,555 4,511) 120,744 27,000) - (US$ 39,008 1,270) - - - - - - - - Accumulated Investment in Mainland China as of December 31, 2018 Investment Amounts Authorized by Investment Commission, MOEA Limit on Investment 2,508,158 $ ( US$ 76,272 and 37,000 ) RMB $ 2,580,950 ( US$ 75,002 and RMB 62,000 ) $ 5,079,565 Sunplus Venture Capital Co., Ltd. Accumulated Investment in Mainland China as of December 31, 2018 Investment Amounts Authorized by Investment Commission, MOEA Limit on Investment $ ( US$ 38,701 1,260 ) $ ( US$ 38,701 1,260 ) $ 617,140 TABLE 5 % Ownership of Direct or Indirect Investment Net Income (Loss) of the investee Investment Loss Carrying Amount as of December 31, 2018 Accumulated Inward Remittance of Earnings as of December 31, 2018 - - - - - - - - 100% $ 39,671 $ 39,671 $ 432,741 $ 100% (3,070) (3,070) 817,000 100% (80,976) (80,976) 102,178 93% (23,514) (21,947) (53,034) 91% (25,374) (21,852) (1,026) 100% 100% 1,041 1,041 48,076 18 11 19% (65,610) (32,089) 112 - (Continued) Generalplus Technology Inc. (Nature of Relationship: 1) Investee Company Name Main Businesses and Products Total Amount of Paid-in Capital Investment Type (e.g. Direct or Indirect) Accumulated Outflow of Investment from Taiwan as of January 1, 2018 Investment Flows Outflow Inflow Accumulated Outflow of Investment from Taiwan as of December 31, 2018 % Ownership of Direct or Indirect Investment Net Loss of the investee Investment Loss (Note 2) Carrying Amount as of December 31, 2018 Accumulated Inward Remittance of Earnings as of December 31, 2018 Generalplus Shenzhen IC product development, after sales service and market research $ (US$ 574,371 18,700) Note 1 $ (US$ 574,371 18,700) $ - $ - $ (US$ 574,371 18,700) 100% $ 14,673 $ 14,673 $ 475,542 $ - Accumulated Investment in Mainland China as of December 31, 2018 Investment Amount Authorized by Investment Commission, MOEA $ ( US$ 574,371 18,700 ) $ ( US$ 574,371 18,700 ) Limit on Investment $ 1,250,480 Note 1: Indirect investment in a company located in mainland China through a company located in a third country. Note 2: Based on the investee’s reviewed financial statements for the same period. Note 3: Ytrip Technology Co., Ltd. indirectly invested in a company located in mainland China. Note 4: The initial exchange rate was based on the exchange rate as of December 31, 2018. (Concluded) 7.6 Financial Difficulties Impact to the Company or subsidiaries if any turnover problems: None 155 VIII. Financial Analysis 8.1 Financial Status 8.1.1 Financial Analysis Comparison 2017 vs. 2016 Unit: NT$K Variation Year 2017 2018 YoY % 8,465,942 8,966,236 6,638,302 2,052,359 178,521 3,057,802 11,926,984 1,684,729 374,649 2,059,378 8,561,910 2,164,154 196,131 2,557,784 13,479,979 2,190,116 646,578 2,836,694 Increase (Decrease) (1,923,608) (111,795) (17,610) 500,018 (1,552,995) (505,387) (271,929) (777,316) Item Current Assets Property, Plant & Equipment Intangible Assets Other Assets Total Assets Current Liabilities Non-Current Liabilities Total Liabilities Equity Attributed to Shareholder of the parent Capital Stock Capital Surplus Retained Earnings Equity : Others Treasury Stock Minor interest Total Shareholder’s Equities Remark: 1. The decrease in current assets was mainly due to the decrease in the number of individuals merged into the merger compared to the 106 years, resulting in a decrease in related current assets. 2. The decrease in current liabilities was mainly due to the decrease in the number of individuals incorporated into the merger compared to the 106 years. 3. The decrease in non-current liabilities was mainly due to the repayment of long-term borrowings due. 4. The decrease in total liabilities was mainly attributable to the decrease in the number of individuals merged into the merger and the repayment of long-term borrowings. 5. The decrease in other equity was mainly attributable to the decrease in profit or loss of financial products measured at fair value through other comprehensive gains and losses. 5,919,949 835,241 2,336,709 (62,262) (63,401) 1,677,049 10,643,285 5,919,949 801,398 2,250,839 (442,843) (63,401) 1,401,664 9,867,606 - (33,843) (85,870) (380,581) - (275,385) (775,679) (500,294) (22) (5) (9) 20 (12) (23) (42) (27) (6) - (4) (4) 611 - (16) (7) 156 8.2 Operational Results 8.2.1 Operation Results Comparison 2017 vs. 2016 Unit: NT$K Variation Year 2017 2018 YoY % 293,780 587,470 6,077,733 2,429,384 (89,790) 6,820,237 2,736,766 47,185 Increase (decrease) (742,504) (307,382) (136,975) Item Net Sales Gross Profit Income (Loss) From Operating Non-Operating Income (Expense) Income (Loss) Before Tax Income (Loss) From Operations of Continued Segments Net Revenue (Loss) for the period Other Comprehensive Income (Loss) for the period Total Comprehensive Profit (Loss) for the period Remarks: 1. Reduced operating profit, mainly due to the decrease in operating income during the year. 2. The decrease in non-operating income and expenses was mainly due to the decrease in the investment interest in (430,665) (293,690) (408,905) (220,099) (408,905) (320,167) (131,361) 231,061 634,655 551,228 551,228 142,323 203,990 142,323 188,806 10,962 (11) (11) (290) (50) (68) (74) (74) (59) (95) financial assets during the year. 3. Pre-tax profit and loss, net profit of continuing business units and net profit after tax for the period, mainly due to the decrease in investment interests during the year. 4. The decrease in other comprehensive gains and losses during the period was mainly attributable to the decrease in the estimated loss of financial assets measured by fair value through other comprehensive gains and losses during the year. 5. The decrease in total comprehensive profit and loss for the current period was mainly due to the decrease in net profit for the year. 157 8.3 Cash Flow 8.3.1 Cash Flow Analysis a) Cash Flow Analysis 2018 vs. 2017 Year 2017 2018 YoY % Item Cash flow ratio Cash flow adequacy ratio Cash flow reinvestment ratio 1. The increase in cash flow ratio was mainly due to the decrease in current liabilities. 2. The decrease in the cash flow rate is mainly due to the decrease in net cash inflows from operating activities in the last five years. Note 1: The net cash flow of operating activities is less than the cash dividend payment. It is not listed. 14.37 77.50 Note 1 16.85 56.71 Note 1 17 (27) - b) Cash Flow Forecast Cash Balance, beginning of the year (1) Net Cash Flow from Operating Activities (2) $3,235,721 1. Analysis of Cash Flow: 643,408 Net Cash in-flow (3) Net Cash Balance (1)+(2)+(3) Unit: NT$K Remedial Measure if cash not enough Investment plan Financial leverage plan (717,063) 3,162,066 - - (1) From Operating: Cash flow in for predicting making profits in 2019. (2) From Investing: Cash flow in for purchasing properties, IPs and R&D tools. (3) From Financing: Cash flow in for expected to repay bank loans and distribute dividends, etc. 2. Remedies and Liquidity Analysis of Inadequate Cash: None. 8.4 Major Capital Expenditure 8.4.1 Major Capital Expenditure and Sources: None. 8.4.2 Benefits from the Capital Expenditure: None. 8.5 Long-Term Investment Not applicable 8.6 Risk Management 8.6.1 The Impact of Inflation, Foreign Exchange and Interest Rate Fluctuation and Measures to Cope With 1. Interest Rate: The Company will get more interest expenses when the interest rate rises. The finance division will collect information and evaluate the variation for hedge. Vice versa, the low interest rate will impact interest income. The company will put more cash on highly- returned short-term investment. 2. Exchange Rate: The selling products are quoted in US dollars. Most of the costs are quoted in US dollars but still some in NT dollars. So the New Taiwan Dollars appreciation will impact the company sales and gross margin. Our major foreign-currency assets are account receivable and time deposits. The company already utilizes mainly forward currency and option contracts to hedge its foreign exchange exposure, so the impact from floating exchange rate will be minimized. Inflation: The material costs vary timely. The higher manufacture cost and selling pricing which would impact the consumers’ budget for the high-end consumer electronic products. But Sunplus is working hard to develop new products for add-on value and cost-down, and expand the market shares in the emerging markets to relief the slow-down from developed countries. 3. 8.6.2 Internal Policies and Procedure Exist with Respect to High Risk/High Leveraged Investment, Lending/Endorsements and Guarantees for Other Parties, Financial Derivatives Transaction 1. There is no high risk/high leveraged investment. 158 2. The company has made and followed “Sub-procedure of Extension of Monetary Loans to Others”, The loans are made with risk evaluation which follows the procedures. After the loan is granted, the Company follows and traces financial status, business and credit status of the borrower and guarantor frequently, and asks equal collaterals or takes proper actions to secure. 3. The company has made and followed “Procedure of Endorsement and Guarantees”, and the Endorsement and Guarantees will only be made under well evaluation before granted. 4. The company has made and followed “Procedure of Engaging in Derivatives Trading “. The financial transactions of a derivatives nature that Sunplus enters into are strictly for hedging purposes and not for any trading or speculative purposes and under well evaluation. 8.6.3 R&D Plan and Execution Sunplus Group will keep investing in research and development, therefore, the consolidated R&D costs will account for 25% ~ 35% of consolidated revenues. Company Sunplus Technology Generalplus Technology Sunplus Innovation Technology iCatch Technology Sunext Technology New Products (1) Vehicle entertainment system chip (2) Android Platform (3) Vehicle navigation and driving assistance system platform (4) High-Speed I/O IP (5) High performance data conversion IP (ADC/DAC/AFE) (6) Analog IP 1. Consumer product line More audio channel / voice and image output higher resolution / support higher data compression rate / built-in more standard interface (standard interface) / low operating voltage and low power (low power) of the product. 2. Multimedia product line Provides high, medium and low order multimedia IC solutions, focusing on high-speed CPU / DSP performance, high-resolution image compression, playback and storage technology. 3. MCU product line Home appliances, handheld devices, PC and other peripheral applications related to the microcontroller, charging microcontrollers, high-performance brushless motor microcontrollers and other related products. (1) Highly-integrated, Multi-function MCU (2) Highly-integrated, Multi-function Optical Mouse SoC (3) Total Solutions for Wireless Mouse/Keyboard/Remote Control (4) USB3.0 Advanced 8Mp NB/Web Cam Controller IC (5) USB3.0 3D NB/Web Cam Controller IC (6) USB2.0 Low Power NB Cam Controller IC (1) H.265 UHD SoC for image processing in high resolution, high compression, high performance and low power consumption (2) High Speed JPEG Encoder for the demand of 360 degree view in car black box and digital surveillance system (1) Serial-ATA Blu-ray Controller Chipset (1) Multichannel Motor driver controller 8.6.4 Political and Regulatory Environment: We will keep watch for any further updates and take actions to reduce the impacts on the company. 8.6.5 Advanced Technology The wafer process technology is moving to smaller geometry. The migrated process technology could keep the chip production cost down but R&D cost up. The company tries to develop higher add-on value and mainstream multimedia products, which mainstream means to produce in huge volume and to share the research and development cost. 8.6.6 Corporate Identify and Image Change The company takes corporate image seriously. Being people-oriented and having integrity are our top priorities when running our business. We disclose our operation and financial statements to public periodically and transparently in order to save the rights of our shareholders. 159 8.6.7 Mergers & Acquisitions None 8.6.8 Expansion of Facilities None 8.6.9 Suppliers & Customers The Company separately purchases raw materials from several different suppliers, encapsulation and testing of the foundry is also adopted scattered strategy, to ensure that the output is no problem. The Company's largest sales customers in 2017 and 2018 accounted for 16% and 13% of the total net revenue for the year, no sales focus on the risk of a single customer. 8.6.10 Major Shareholding Change None 8.6.11 Ownership Change None 8.6.12 Litigation Proceedings None 8.6.13 Other Risks None 8.7 Other Remarks None 160 IX. SPECIAL NOTES 9.1 Affiliates 9.1.1 Affiliated Chart 161 JumplexTechnology0.70%100%9.55%VentureplusHan YuangVentureplus CaymanVentureplus MauritiusSunextGeneralplusMauritiusGeneralplus Shenzhen GeneralplusiCatchWei-Young Generalplus Samoa100%Sunplus Technology CompanySunplus mMobileSunplus InnovationSunplus Management ConsultingSunplus HK Generalplus HKSunplus mMedia100%100%100%100%100%70%100%61.15%5.29%100%3.25%100%5.64%34.30%37.64%61.13%100%100%100%100%3.95%2.09%6.98%13.69%RussellLin Shih1.75%6.05%Sunplus Venture0.10%0.03%Magic SkySunplus Shanghai93.33%Sunplus App Technology Co., Ltd.100%100%SunMedia Technology100%Sunplus Prof-tek (Shenzhen)1culture Communication Co,.Ltd100%Sunplus Technology (Beijing)100%100%72.14%22.86%Sunny Fancy100%Award GlaryGiant KingdomGiant Rock100%100%Ytrip Technology Co. Ltd.14.6%68.8%Xiamen Xm-plus100% 9.1.2 Affiliated Companies December 31, 2018 Unit: NT$K, unless other specified Company Date of Incorporation Place of Registration Paid-in Capital Sunplus Technology (HK) Co., Ltd. August 31, 1993 Kowloon, HK HK$11,075,000 (Note) Lin Shih Investment Co., Ltd. Russell Holdings Ltd. Sunplus Venture Capital Co., Ltd. November 20, July 2, 1998 March 11, 1998 Hsinchu, Taiwan Cayman Hsinchu, Taiwan 700,000 US$24,660,000 (Note) 1,000,000 Business Activities International Trading Investment Investment Investment Ventureplus Group Inc. Ventureplus Mauritius Inc. Ventureplus Cayman Inc. Shanghai Sunplus Technology Co., Ltd. Sunplus Prof-tek Technology (Shenzhen) Co., Ltd. 1999 July 27, 2001 August 2, 2001 September 14, 2001 December 7, 2001 Shanghai, China US$17,200,000 (Note) Software 2,526,650 2,526,656 2,526,661 Belize Mauritius Cayman Investment Investment Investment development, customer technical services and rental business October 22, 2007 Shenzhen, China US$32,250,000 (Note) Software US$20,000,000 (Note) development, customer technical services and rental business IC Sales and After Service, Software and System Design RMB15,000,000 (Note) IC Sales and After Service, Software and System Design Service RMB3,250,000(Note) Web Service RMB27,000,000(Note) Software Sunmedia Technology Co., Ltd. January 8, 2008 Chengdu, China Sunplus App Technology Co., Ltd. October 6, 2008 Beijing, China Ytrip Technology Co., Ltd. February 18, 2011 Chengdu, China RMB61,250,000(Note) System and Web 1culture Communication Co., Ltd. February 18, 2013 Chengdu, China December11, 2013 Beijing Beijing Sunplus-Ehue Tech Co., Ltd. Magic Sky Limited Sunext Technology Co., Ltd. Sunplus Management Consulting Inc. WeiYing Investment Co., Ltd. Generalplus Technology Inc. Generalplus International (Samoa) Inc. Generalplus (Mauritius) Inc. Samoa US$10,032,000 development, customer technical services and rental business Investment Hsinchu, Taiwan Hsinchu, Taiwan 635,091 5,000 IC Design Consulting September 22, 2010 March 13, 2003 October 2, 2003 February 13, 2004 Hsinchu, Taiwan Hsinchu, Taiwan March 30, 2004 Samoa November 12, 2004 November 25, 2004 March 24, 2005 Mauritius 54,000 1,088,158 US$19,090,000 (Note) Investment IC Design Investment US$19,090,000 (Note) Investment Shenzhen, China US$18,700,000 (Note) Sales Service Generalplus Technology (Shenzhen) Inc. Generalplus Technology (HK) Inc. March 21, 2007 Sunplus mMobile Inc. Sunplus Innovation Technology Inc. Sunplus mMedia Inc. Jumplux Technology Inc, Hong Kong Hsinchu, Taiwan December 20, 2006 December 14, 2006 April 18, 2007 Hsinchu, Taiwan October 27,2014 Hsinchu, Taiwan Hsinchu, Taiwan US$390,000 (Note) 162,400 Sales Service IC Design 514,501 250,000 240,000 IC Design IC Design Design & Trading 162 Award Glory Ltd. Sunny Fancy Ltd. Giant Kingdom Ltd. Giant Rock Inc. Note: End of 2018, exchange rate as ref.: HK$1=NT$3.921 US$1=NT$30.715 RMB$1=NT$4.472 January 04, 2016 Belize October 29, 2014 Mahe , Republic of Seychelles January 21, 2016 Mahé, Seychelles July 3, 2014 The Mason Complex, Suites 19 & 20, The Valley, Anguilla. 62,275 Investment 62,275 Investment 25,157 Investment 37117 Investment 163 9.1.3 Business Scope of Affiliated Companies Company Business Activities Business Relationship Sunplus Technology (HK) Co., Ltd. Lin Shih Investment Co., Ltd. Russell Holdings Ltd. Sunplus Venture Capital Co., Ltd. Ventureplus Group Inc. Ventureplus Mauritius Inc. Ventureplus Cayman Inc. Shanghai Sunplus Technology Co., Ltd. Sunplus Prof-tek Technology (Shenzhen) Co., Ltd. Sunmedia Technology Co., Ltd. Sunplus App Technology Co., Ltd. Ytrip Technology Co., Ltd. 1culture Communication Co., Ltd. Beijing Sunplus-Ehue Tech Co., Ltd. Magic Sky Limited Sunext Technology Co., Ltd. Sunplus Management Consulting Inc. WeiYing Investment Co., Ltd. Generalplus Technology Inc. Generalplus International (Samoa) Inc. Generalplus (Mauritius) Inc. Generalplus Technology (Shenzhen) Inc. Generalplus Technology (HK) Inc. Sunplus mMobile Inc. Sunplus mMobile SAS Sunplus Innovation Technology Inc. Sunplus mMedia Inc. Jumplux Technology Inc. Award Glory Ltd. Sunny Fancy Ltd. Giant Kingdom Ltd. Giant Rock Inc. N/A N/A N/A N/A N/A N/A N/A Trading Investment Investment Investment Investment Investment Investment Manufacture and Sales Service China branch China branch Manufacture, Sales Service and property management. Manufacture and Sales Service China branch Sales and IT Education Service China branch China branch System and Web Service Web Service N/A Manufacture and Sales Service China branch Investment IC Design Management Consulting Investment IC Design Investment Investment Sales Service Sales Service IC Design IC Design IC Design IC Design Software design7 trading Investment Investment Investment Investment N/A Subsidiary N/A N/A Subsidiary N/A N/A N/A N/A Subsidiary N/A Subsidiary Subsidiary Grandson- Subsidiary N/A N/A N/A N/A 9.1.4 Directors, Supervisors, and Presidents of Affiliated Companies Company Title Name Sunplus Technology (HK) Co., Ltd. Lin Shih Investment Co., Ltd. Chairman Director Sunplus Technology Chou-Chye Huang (repr.) Ming-Cheng Hsieh Sunplus Technology Chairman & President Chou-Chye Huang (repr.) Director Director Supervisor Shu-Lan Wang Yu-Lun Liu Wayne Shen Sunplus Technology Chou-Chye Huang (repr.) Russell Holdings Ltd. Director 164 December 31, 2018 Shareholding Amount (shares) *HK$11,075,000 - - 70,000,000 - - - - *US$24,060,000 - Ratio (%) 100% - - 100% - - - - 100% - Sunplus Venture Capital Co., Ltd. Sunplus Technology Ventureplus Group Inc. Ventureplus Mauritius Inc. Ventureplus Cayman Inc. Shanghai Sunplus Technology Co., Ltd. Sunplus Prof-tek Technology (Shenzhen) Co., Ltd. Sunmedia Technology Co., Ltd. Sunplus App Technology Co., Ltd. Ytrip Technology Co., Ltd. Chairman & President Chou-Chye Huang (repr.) Director Director Supervisor Shu-Lan Wang Yu-Lun Liu Wayne Shen Sunplus Technology Director Director Director Chou-Chye Huang (repr.) Ventureplus Group Chou-Chye Huang (repr.) Ventureplus Mauritius Chou-Chye Huang (repr.) Ventureplus Cayman Chairman Director &President Chou-Chye Huang (repr.) Zai-De Wang Director Supervisor Chairman President Supervisor Chairman President Supervisor Chairman Supervisor Director Director President Tang-Yi Huang Shu-Lan Wang Ventureplus Cayman Chou-Chye Huang (repr.) Tang-Yi Huang Shu-Lan Wang Ventureplus Cayman Chou-Chye Huang (repr.) Cheng-Cai Chang Shu-Lan Wang Ventureplus Cayman Chou-Chye Huang (repr.) Yu-Lun Liu Shu-Lan Wang Ya-Fei Luo Xi-Chuan Lin Ventureplus Cayman Chairman Director & President Cheng-Cai Chang Director Yu-Lun Liu Chou-Chye Huang (repr.) 1culture Communication Co., Ltd. Supervisor Shu-Lan Wang Ytrip Technology Co., Ltd. E-Director& President Chen-Tsai Chang Supervisor Shao-Ling Chan 165 100% - - - - 100% - 100% - 100% - 100% 100,000,000 - - - - RMB37,900,000 & US74,605,000 (Note1) RMB37,900,000 & US74,605,000 (Note1) RMB37,900,000 & US74,605,000 (Note1) US$17,655,000 (Note1) - - - - *US$32,250,000 - 100% - *US$20,000,000 100% RMB10,000,000 & USD586,000 (Note1) - - - RMB438,000 USD3,750,000 (Note1) - - - - *RMB$3,250,000 - - 93.33% - 2.92% 38.47% - 17.5 - 100% - *RMB$27,000,000 100% US$10,032,000 100% 58,050,129 91.40% - - - - - - - - - 1 - - 650,000 500,000 - - - - 5,400,000 - - - - - 1.02% 100% - - - - 100% - - - - - - 37,324,304 34.30% - - 0.46% 500,000 1.16% 1,266,752 - - - - - - - - - - 100% *US$19,090,000 - - 100% *US$19,090,000 - - (Continued) Beijing Sunplus-Ehue Tech Co., Ltd. Magic Sky Limited Sunext Technology Co., Ltd. Sunplus Management Consulting Inc. WeiYing Investment Co., Ltd. Chairman Director Director Supervisor Director Chairman Director Director Supervisor Supervisor Chairman Director Director Supervisor Chairman Director Director Supervisor Ventureplus Cayman Inc. Chou-Chye Huang (repr.) Wayne Shen Shu-Lan Wang Yin-Chi Chu Sunplus Technology Chou-Chye Huang (repr.) Sunplus Technology Chou-Chye Huang (repr.) Wen-Shiung Jan (repr.) Sunplus Venture Capital Technology Mei-Juan Chen Wen-Hui Lu Sunplus Technology Chou-Chye Huang (repr.) Shu-Lan Wang Yu-Lun Liu Wayne Shen Sunplus Technology Chou-Chye Huang (repr.) Shu-Lan Wang Yu-Lun Liu Wayne Shen Generalplus Technology Inc. Chairman Director& VP Sunplus Technology Chou-Chye Huang (repr.) Shi-Rong Wang (Repr.) Hou-Shien Chu Shi-Hao Liu Chia-Ming Chai Director Director Independent Director Nai-Shin Lai Independent Director Independent Director Jing-Min Chen Generalplus International (Samoa) Inc. Generalplus (Mauritius) Inc. Chairman Chairman Generalplus Technology Chou-Chye Huang (repr.) Generalplus International (Samoa) Chou-Chye Huang (repr.) 166 Shareholding Amount (shares) *US$18,700,000 Ratio (%) 100% - *US$390,000 - 100% - 16,240,000 - - - 100% - - 31,449,751 61.13% - - - - - - 4.81% 2,476,473 2.09% 1,074,664 1.03% 527,880 - - 22,440,723 89.76% - - - - - - 2.60% 650,185 55.00% 13,200,000 10,100,000 US$2,042,000 (Note1) - US$2,042,000 (Note1) - US$772,000 (Note1) - US$1,270,000 (Note1) - 42.08% 100% (Note1) - 100% (Note1) - 100% (Note1) - 100% (Note1) Company Title Name Generalplus Technology (Shenzhen) Inc. Generalplus Technology (HK) Inc. Sunplus mMobile Inc. Sunplus Innovation Technology Inc. Sunplus mMedia Inc. Jumplux Technology Award Glory Ltd. Chairman Director Chairman Director Director Supervisor Chairman Director Director Director & President Director Supervisor Supervisor Generalplus International (Mauritius) Chou-Chye Huang (repr.) Generalplus (Mauritius) Inc. Yi-Xing Jia (repr.) Sunplus Technology Chou-Chye Huang (repr.) Wayne Shen Shu-Lan Wang Yu-Lun Liu Sunplus Technology Chou-Chye Huang (repr.) Shu-Lan Wang (repr.) Wayne Shen (repr.) Chih-Hao Kung Lin-Shih Investment Chi-Ying Chiu Wen-Chin Li Sunplus Technology Chairman& President Chou-Chye Huang (repr.) Director Director Supervisor Wayne Shen (repr.) Shu-Lan Wang (repr.) Lin-Shih Investment Sunplus mMedia Chou-Chye Huang (repr.) Shu-Lan Wang Mei-Juan Chen Sunplus Venture Capital Sunplus Technology Chou-Chye Huang (repr.) Chairman&President Director Director Supervisor Chairman Sunny Fancy Ltd. Chairman Giant Kingdom Ltd. Chairman Giant Rock Inc.. Chairman Award Glory Ltd. Chou-Chye Huang (repr.) Sunny Fancy Ltd. Chou-Chye Huang (repr.) Sunny Fancy Ltd. Chou-Chye Huang (repr.) *Note: the invested companies are listed the capital paid-in amount of investment 167 9.1.5 Common Shareholders of Sunplus and Its Subsidiaries or Its Affiliates with Actual of Deemed Control Not Applicable 9.1.6 Operation Highlights of Sunplus Affiliates December 31st, 2018 Unit: NT$K, except EPS (NT$) Company Capital Assets Liabilities Net Worth Net Sales Operation Income Net Income (After Tax) Sunplus Technology (HK) Co., Ltd. Lin Shih Investment Co., Ltd. Russell Holdings Ltd. 43,425 700,000 757,432 39 792,484 579,088 0 39 1,877 790,607 579,038 50 0 65,325 74 0 63,334 (4,539) 0 63,637 2,035 EPS (After Tax) N/A 0.91 N/A Sunplus Venture Capital Co., Ltd. Ventureplus Group Inc. Ventureplus Mauritius Inc. Ventureplus Cayman Inc. Shanghai Sunplus Technology Co., Ltd. Sunplus Prof-tek Technology (Shenzhen) Co., Ltd. Sunmedia Technology Co., Ltd. Sunplus App Technology Co., Ltd. Ytrip Technology Co., Ltd. 1culture Communication Co., Ltd. Beijing Sunplus-Ehue Tech Co., Ltd. Han-Yuang Magic Sky Limited Sunext Technology Co., Ltd. Sunplus Management Consulting Inc. WeiYing Investment Co., Ltd. Generalplus Technology Inc. Generalplus International (Samoa) Inc. Generalplus (Mauritius) Inc. Generalplus Technology (Shenzhen) Inc. Generalplus Technology (HK) Inc. Sunplus mMobile Inc. Sunplus Innovation Technology Inc. Sunplus mMedia Inc. Jumplux Technology Inc. Award Glory Ltd. Sunny Fancy Ltd. Giant Kingdom Ltd. Giant Rock Inc. 1,000,000 2,526,650 2,526,656 2,526,661 1,028,66 7 1,354,35 1 1,354,33 2 1,354,30 9 1,028,56 7 100 1,354,35 1 0 1,354,33 95,621 43,491 54,913 0 (79,794) (79,793) 0 2 0 (79,795) (79,794) 1,354,30 9 0 0 (79,921) (79,795) 528,298 489,052 56,311 432,741 162,247 36,438 39,671 990,559 836,976 19,976 817,000 141,392 (24,389) (3,070) 614,300 67,080 273,910 14,534 1,053,92 5 12,269 10,867 132 53,131 120,744 2,544 6,000 308,133 82,747 635,091 200,949 3,910 57,627 5,000 54,000 2,845,03 951,747 69,090 4,156 2 102,178 (56,821) 6,711 130 171,470 66,274 7,414 160 (26,286) (23,680) (18,554) (441) (80,976) (23,514) (25,374) 18 5,056 0 0 17,770 48,075 0 2,544 0 82,747 10,158 190,791 110,154 0 3,910 2,980 56,946 2,844,69 4 14,211 14,211 4 0 480,817 0 480,815 0 681 2,084,13 (4,591) 0 (14,460) (677) (65) 2,267 1,041 0 (14,459) 1,808 (41) 2,338 297,274 14,211 14,211 284,345 14,211 14,211 1,088,158 586,349 586,349 480,817 480,815 3 760,899 574,371 11,979 162,400 488,440 7,159 29,905 12,898 475,542 5,253 29,785 1,906 120 96,797 11,042 0 5,239 (544) (442) 14,673 (462) (417) 1,149,18 514,501 250,000 240,000 62,275 62,275 25,157 37,117 3 275,861 873,322 863,642 0 17,000 0 0 0 9,151 7,164 37,625 0 0 0 0 31,220 31,772 33,116 33,116 811 32 38,384 69,397 33,116 33,116 811 32 60,760 (57,190) (72,931) (7,932) (7,932) (3,130) (4,812) 60,709 (1,647) (73,126) (7,932) (7,932) (3,121) (4,812) Note: The financial information of the above business relationship is prepared using the International Financial Reporting Standards. 168 0.55 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 0.03 (0.08) 0.43 2.61 N/A N/A N/A N/A (0.03) 1.18 (0.07) (3.05) N/A N/A N/A N/A 9.1.7 Consolidated Financial Statement of Sunplus Affiliates Relationship Statement of Consolidated Financial Statements The Company's 2018(as of January 1, 2018 to December 31, 2018) shall be included in the preparation of the Company's consolidated financial report in accordance with the Guidelines for the preparation of the consolidated financial report and relational report on the relationship between the business combination business report. In accordance with the International Financial Reporting Standards No. 10 should be included in the preparation of parent company consolidated financial report of the company are the same, and the relationship between the consolidated financial statements should be disclosed in the relevant information in the parent company's consolidated financial statements have been exposed, there is no further preparation of the relationship between the consolidated financial report. Company Name: Sunplus Technology Co., Ltd Person in charge: Chou-Chye Huang March 20, 2019 331 9.2 Private Placement Securities Not Applicable 9.3 Status of Sunplus Common Shares/GDRs Acquired, Disposed of, or Held by Subsidiaries Company Capital Source of Fund % Owned by Sunplus Transaction Date Amount of Acquisition Amount of Disposal Investment Income Unit: NT$K, shares Balance (by the Date of this Report Printed) Balance of Pledged Shares Balance of Guarantee Provided by Sunplus Balance of Financing Provided by Sunplus Lin Shih Investment Co., Ltd. $700,000 Self-owned reserves 100% 2001.12.25 2002.07.02 2003.07.13 2004.08.23 2005.08.23 2006.08.05 2007.03.26 2007.09.05 3,870,196 shares & $95,605 967,549 shares Capital increase from profits and capital surplus 483,774 shares Capital increase from profits and capital surplus 532,151 shares Capital increase from profits and capital surplus 290,614 shares Capital increase from profits and capital surplus 306,132 shares Capital increase from profits and capital surplus -3,220,429 shares decreased for capital reduction & 32,204 160,538 shares 331 - - - - - - None None None None None None - - - None None None - - - None None None - - - 2,503,705 shares Pledged None None - - - 500,741 shares Pledged None None - - - - - - None None None 380,000 shares None None Capital increase from profits and capital surplus 169,471 shares Capital increase from profits and capital surplus 2008.09.08 Pledged - - - 3,384,446 shares Solution None None By the date of this report printed - - - 3,559,996 shares $63,401 None None None 332 9.4 Special Notes None 9.5 Any Events Impact to Shareholders’ Equity and Share Price None 333 Sunplus Technology Co., Ltd. Person in charge: Chou-Chye Huang Published on May 15, 2019 334
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