003004005

017021027

049056061062

010

043047

063069

073073074

075

I. Letter to Shareholders

Sercomm Corporation has maintained an intense

focus on research and development in communications

technology since its incorporation 23 years ago. In

addition, the Company’s capacity in production and

manufacturing, as well as in customer service, has also

been consistently improved. 2015 was a fruitful year for

Sercomm, which once again performed exceptionally well,

and also honored by top-notch publications. In the area

of corporate governance, Sercomm was awarded by

Asiamoney as the “Best Managed Company”, “Best

Companies in Asia for Corporate Governance”, and “Best

for Investor Relations”. Furthermore, FinanceAsia also presented Sercomm with awards for

being the “Best Mid-Cap Company” and for having “Best Corporate Governance”. These

awards provided industry-wide recognition for Sercomm as a company with exceptional

corporate governance and performance.

Consolidated net sales for 2015 were NT$35.01 billion, which represents a 51% increase

over the NT$23.19 billion for year 2014. The operating profit was NT$1.67 billion, an

increase of 41% over the previous year. The income before tax was NT$1.58 billion and the

net income was NT$ 1.30 billion, a 33% and 37% growth separately from the year before.

Net Sales, Profit and EPS set new company records. Based on 234 million weighted

average shares, the EPS for year 2015 was NT$ 5.57.

Sercomm successfully mastered the business market trends in 2015. With strong

demand from FTTx products, Cable DOCSIS 3.0, and Smart Home Controls, the Company’s

continued to gain market share in the global telecommunications market. Sercomm has

made a great effort to upgrade production line automation and management efficiency and

has successfully upgraded its production capacity into next stage. The Company’s

accumulated shipment volumes of broadband devices were over 28 million units in 2015,

which makes Sercomm the leader in the industry. In response to the rising trends of digital

001

convergence, IoT and cloud application worldwide, telecom operators have had to

demonstrate strength in market development. Sercomm continues to demonstrate its core

competence in launching different innovative broadband applications to assist telco

customers and boost the momentum of their overall company development.

We offer our gratitude to all our shareholders, customers, and business partners for their

long-term support and encouragement and we are grateful for all their efforts and

contributions on Sercomm’s behalf. We are living in an environment of rapid transformation

in the world of technological development. Sercomm and its employees will spare no effort to

maintain the superior quality of the Company’s research and development and to build on its

operational efficiency, which is one of the Company’s core competencies. Sercomm has

maintained a firm commitment to continually enhance its corporate governance and corporate

social responsibility. Sercomm will continue to move towards sustainable development and

to seek better corporate value for its shareholders, customers, and employees.

James Wang President & CEO

Sercomm Corporation

002

II. Company Highlight Review of 2015 Business Results

Unit: Thousand NTD

Item 2014 2015 Year on Year Change (%)

Wired Product 5,120,349 9,372,880 83.50

Wireless Product 17,670,069 25,007,903 41.53

Others 402,271 631,183 56.90

Total Revenue 23,192,689 35,011,966 50.96

Performance and Profitability Analysis

Item 2014 2015

Financial Structure

Debt over Equity(%) 66.32 69.20

Long-term Funds to Fixed Assets Ratio (%) 190.77 212.96

Liquidity Analysis

Current Ratio(%) 119.40 117.62

Quick Ratio(%) 86.39 81.44

Profitability

Return on Assets(%) 6.48 6.71

Return on Equity(%) 17.60 19.96

To Paid-in Capital(%) Operating Income 51.33 68.97

Pretax Income 51.70 65.60

Profit Margin(%) 4.09 3.70

Earning per Share(NTD) 4.21 5.57

Research and Development Status

At Sercomm, new product R&D projects are formulated in response to market demand based on

our core network communications technology, market trends and the evolving IT & communications

industry. All research proposals for new products must also undergo a review by R&D, marketing and

sales units before R&D resources are invested.

To accelerate the acquisition of new technologies, Sercomm also actively seeks out partnership

opportunities in addition to in-house R&D. This has led to the development of various application

servers that offer high-performance, ease of administration and integration with the Internet. A total of 9

projects were completed from our 2015 R&D plan. Please refer to page 54 for more detail information.

003

Summary of 2015 Business Plan

(1) Business Direction

1. Deliver high performance in management to maintain the Company’s high rate of growth and

solid profitability.

2. Actively develop all kinds of specialized servers, maintain technical leadership and emphasize

long-term cultivation of personnel.

3. Strengthen quality of service, continue the optimization of work processes and improve overall

operational efficiency.

4. Consolidate existing gains in the European, American and Japanese markets while actively

developing our distribution channels in other regions to establish a global distribution network.

5. Focus on cost and quality control while expanding our production capability to meet market

demand.

(2) Projected Sales and Basis The trend towards digital convergence helped Sercomm deliver a strong performance in 2015.

Sercomm sets new company records in sales revenue, profit and EPS. With a strong knowledge

base in software/hardware integration and mechanical design, Sercomm has become a strategic

partner in providing solutions to major telecom operators. The company has successfully mastered

key technologies in the broadband industry, including the home, enterprise, telecommunications,

IoT and cloud service markets. Total shipments of wireless broadband reached 28 million units,

with deliveries of high value-added products such as FTTx products, Cable DOCSIS 3.0 and

Smart Home Controls continuing to gain strength.

With respect to capacity planning in 2016, the company's overall capacity utilization appears

to have almost reached its full load. To meet future business growth and capacity requirements,

we will continue to implement automation upgrade. Furthermore, the introduction of a production

management information system has effectively reduced our labor costs. Improvements in the

timely management of production lines have produced dramatic increases in production efficiency

which will make the company fully ready for the growth which will occur in the next stage of our

development as a company.

Sercomm is optimistic concerning the macroeconomic environment in 2016, given the advent

of the new era of 4G mobile communications, the prevalence of the Internet of Things and related

applications. The Company has been deeply involved in the research and development of key

technologies in broadband telecommunications, and is a market leader in introducing new

technologies. As a result of the company’s introduction of new products, and its development of

new markets and new customers, robust overall operational growth is anticipated.

004

(3) Major Production and Marketing Policies

1. Carry out sound production and target management while improving production processes.

2. Closely monitor the quality and delivery times of key components as well as

supply-and-demand and changes in pricing.

3. Dedicate resources to the development of new products and expand existing product ranges to

quickly meet market demand.

4. Actively expand our marketing network and form strategic alliances with brand partners and

telecom operators in European, North America and Asia.

5. Strengthen sales management, consolidate market niches and expand developing markets.

6. Stay fully up-to-date on market distribution channels and demand. Strengthen collection of

market intelligence.

7. Boost Sercomm's industry profile, establish a sound market reputation and provide high-quality

service.

8. Continue to carry out production cost reduction plans to make products more price competitive.

9. Enrich the properties and regions of our clients to avoid the risk of over-concentration.

Future Development Strategy

1. Expand the company’s market value to benefit shareholders and employees.

2. Pay attention to intellectual property and cultivate outstanding personnel.

3. Strengthen technology research and development.

4. Improve market position and become the market leader.

5. Increase operational income and maximize profitability.

The Effects of External Competition, Regulation and the Overall Business Environment

The external competition environment also changed this past year. The firms in the industry have

been competing for the market in 5G communications technology, which is deemed the sunrise

industry of the new generation. This became particularly evident after the ITU officially named 5G as

“IMT-2020”, along with the establishment of related vision and action plans. As a result competition in

the 5G market turned red hot.

Currently, the download speed of the LTE of South Korea performs better than its counterparts in

Europe and America. This is indeed a demonstration of the degree to which the infrastructure of South

Korea in communications has become viable since the 4G era began, and the reason why South Korea

has become the leader in world communications. As such, South Korea has an edge in the competition

for the 5G market. Nevertheless, our government is well prepared for the rapid development of 5G.

In February 2013, three ministries of China (MIIT, NDRC and MOST) jointly established

“IMT-2020(5G) Promotion group”. There are four working group under the association which are

Requirements, Spectrum, Technology and Standards. The promotion association is the major platform

005

to promote 5G technology research in China and to facilitate international communication and

cooperation.

In order to accelerate the launching of 5G technology, the Executive Yuan has unveiled a 4-year

5G frontier technology program which focuses on having 5G technology developed by Taiwan become

an integral part of the international 5G standard. This could give Taiwan a strong bargaining position in

the cross licensing of key 5G intellectual property rights. Furthermore, it will enable Taiwan, through

international cooperation, to stay aligned with the development of promising 5G technology in the years

ahead.

In addition to the NGMN Alliance, Taiwan is cooperating with Horizon 2020. Furthermore, two 5G

R&D projects under Horizon 2020 will be undertaken in deep cooperation with Taiwan-based

organizations. Meanwhile, Taiwan is cooperating with FuTURE Forum as well.

The world's major countries are also actively deployed 5G test, and strive to lead the 5G timetable

proposed commercial standards and the development of industry, such as Japan plans to achieve by

2020 Tokyo Olympics 5G business, Korea will commence in early 2018 pre-commercial test 5G support

Pyeongchang Winter Olympics, plans to end 2020 5G commercial, EU 5G PPP 5G technical trial is

expected to start in 2018, the United States operator plans to start field testing 5G in 2016.

There are changes in the legal environment, including the amendment and addition of legal rules and

executive orders from the competent authority:

1. Amendment to the “Company Act” under Order Hua-Zhong (I)-Yi-Zi No. 1040058161dated May

20, 2015

This change specified the trend of international development in the recognition of employee

bonus as expense and Article 64 of the Act of Accounting on Business Entities thereby earnings

shall be attributable to shareholders as equity and employees are not entitled to distribution of

earnings. As such, the rules governing the distribution of employee bonus were deleted. In

addition, companies are also required to explicitly state the proportion or amount of earnings in

the year of surplus as remuneration to employees and the Board is the decision-maker of

distribution.

2. Amendment to the “Income Tax Act” under Order Hua-Zhong (I)-Yi-Zi No. 10400140891

With effect on January 1, 2016, capital gains from securities exchange for individuals are fully

tax-exempted except the beneficiary certificates of private equity securities investment trust funds.

Accordingly, capital loss from securities exchange cannot be deducted from income tax. For

capital gains from securities exchange for business entities, the basic taxation amount under the

Basic Tax Statue shall still be in effect (which is the minimum tax rate).

The exemption of personal income from securities exchange became effective on January 1,

2016. Capital gain from the selling of stocks not listed in TWSE (GTSM), and emerging stock

markets of more than 100 lots, IPO stocks and capital gain from securities exchange for

006

non-residents in 2015 shall still be declared and subject to 15% tax rate.

3. Amendment to the “Regulations Governing the Deduction and Payment for Supplementary

Insurance from National Health Insurance” and the “Premium Rate for National Health Insurance”

under Ministry of Health and Welfare Letter Wei-Bu-Bao-Zi No. 1041260847 dated December 2,

2015 and Letter Wei-Bu-Bao-Zi No. 1041260973 dated December 31, 2015.

In light of the sound financial performance of National Health Insurance in recent time, all social

sectors expect feedback to the public through the reduction of premium for supplementary

insurance coverage. With effect on January 1, 2016, the deduction of premium for supplementary

insurance has been adjusted at flat rate from NT$5,000 to NT$20,000 in consideration of the

healthy development of the National Health Insurance program, including interest income,

dividend income, rental income, and business service income.

The new premium rate after the amendment is 4.69% and for supplementary insurance is 1.91%.

Ifo, a German Institution for Economic Research, has conducted World Economic Survey (WES)

for the 1st quarter of 2016. The survey received responses from 1,085 experts in 120 countries. The Ifo

Index for the world economy was 87.8, which decreased 1.8 points compared with previous quarter.

And the world economic situation is 87.9, which slightly increased 1.9 points compared with previous

quarter. The index expectations for the next 6 months is 87.7 which decreased 5.3 points compared

with previous quarter.

For the World Economic Climate in major regions, North America was 85.4, which decreased 5.8

point. Western Europe was 110.7, which decreased 2.9 points than previous quarter. The experts are

slightly less positive about the future economic developments for the next six months. Asia was 78.9,

which increased 3.5 points than the previous quarter. While assessments of the current economic

situation brightened marginally, expectations were less positive for the next six months.

Interest rate expectations remained unchanged from last quarter’s survey. While short-term

interest rates are only expected to increase in a few countries over the next six months, long-term

interest rates will continue to edge upwards in the majority of countries. The US dollar is still considered

to be somewhat over-valued. Survey participants across all countries nevertheless expect the dollar to

continue to appreciate on average over the next six months.

007

World Economy (2005=100) 2014 Q1

2014 Q2

2014 Q3

2014 Q4

2015 Q1

2015 Q2

2015 Q3

2015 Q4

2016 Q1

Climate 103.2 102.3 105.0 95.0 95.9 99.5 95.9 89.6 87.8

Situation 91.6 91.6 95.3 91.6 91.6 95.3 87.9 86.0 87.9

Expectation 114.0 112.3 114.0 98.2 100.0 103.5 103.5 93.0 87.7

Source Ifo World Economic Survey (WES) of the 1st quarter 2016.

World Economic Climate in Major Regions (2005=100)

2014 Q1

2014 Q2

2014 Q3

2014 Q4

2015 Q1

2015 Q2

2015 Q3

2015 Q4

2016 Q1

North America 102.1 107.1 110.5 101.3 107.1 97.9 96.2 91.2 85.4

Western Europe 116.5 118.4 117.5 101.0 108.7 120.4 116.5 113.6 110.7

Asia 97.4 89.5 99.1 93.9 90.4 93.0 87.7 75.4 78.9

Source Ifo World Economic Survey (WES) of the 1st quarter 2016

Through findings in the survey of Taiwan the current overall economy, private consumption and

capital expenditures were "getting worse". The expectations after six months were thought to be

“remain unchanged”. However, the rate of price increase may increase and the appreciation of USD

relative to NTD. Moreover, the expert expected export, import, long-term and short-term interest rates

and stock price index stay the same.

WES Survey Results in Taiwan (evaluation of the current situation)

008

Notes: 1. The survey results in the first quarter of 2016 in Taiwan were preliminary statistics of the

questionnaires which the council assisted the Ifo in collecting. For the final result, the full report published by the Ifo shall prevail.

2. WES was a qualitative survey and respondents shall choose an answer from “getting better” (ascending or increasing), “remain unchanged” (constant or reasonable), “getting worse” (descending or decreasing) for the question, and then three different scores, 9, 5, 1, were given depending on the answers. Finally, the scores were summed up you can add the total average. If the scores ranged from 1 to 3.5, it means a negative result or a descending trend; if scores ranged from 6 to 9 points, it means a positive result or an ascending trend.

Data Source: National Development Council. The survey period was in January 2016. A total of 18

questionnaires were successfully completed and returned.

WES Survey Results in Taiwan (expectation after 6 months)

Notes: 1. The survey results in the first quarter of 2016 in Taiwan were preliminary statistics of the

questionnaires which the council assisted the Ifo in collecting. For the final result, the full report published by the Ifo shall prevail.

2. WES was a qualitative survey and respondents shall choose an answer from “getting better” (ascending or increasing), “remain unchanged” (constant or reasonable), “getting worse” (descending or decreasing) for the question, and then three different scores, 9, 5, 1, were given depending on the answers. Finally, the scores were summed up you can add the total average. If the scores ranged from 1 to 3.5, it means a negative result or a descending trend; if scores ranged from 6 to 9 points, it means a positive result or an ascending trend.

Data Source: National Development Council. The survey period was in January 2016. A total of 18

questionnaires were successfully completed and returned.

In the future, Sercomm intends to continue to collect relevant information and immediately

investigate appropriate measures in order to meet operational demands.

009

III. Company Overview Company Profile

Date of Establishment: July 29, 1992

Milestones

2015 - Participated in “CES 2015” and displayed the full range of IoT solutions

- Awarded by Global Views Monthly as "A+ Companies in Taiwan - Five Star Rating"

- Sercomm SmartCam and Meteor IP Camera Won 2015 iF Design Awards

- Participated in “MWC 2015” and displayed the full range LTE Small Cell, IoT and Smart

Home applications

- Awarded by FinanceAsia magazine as:

"Best Managed Public Company"

"Best Mid-cap Company"

"Best Corporate Governance"

"Most Committed to Paying Good Dividends"

"Best Investor Relations"

- Awarded by Global Telecoms Business Magazine as "Global Telecoms Business Innovation

Awards"

- Participated in “Mobile World Congress Shanghai 2015” and displayed the full range of

residential and enterprise TD-LTE/FDD-LTE Small Cells and live demo VoLTE functions.

- R&D Achievements:

TD-LTE Small Cell

FDD-LTE Small Cell

TD-SCDMA/TD-LTE Dual Mode Small Cell

Outdoor IP Camera

High performance Wi-Fi & PLC aggregation DSL Gateway

High performance Wi-Fi FTTH EPON Home Gateway

Mini plug-and-play GPON SFP Optical Network Unit

Dual-band Wi-Fi GPON Integrated Access Device

SON enabled Dual Mode LTE Small Cell System

- Participated in “Broadband World Forum 2015” and showcase full range of Broadband

Residential Gateway and Smart Home System products.

- Awarded by Asiamoney magazine as:

"Best Managed Company – Small Cap"

"Best Companies in Asia for Corporate Governance"

010

011

"Best for Disclosure and Transparency"

"Best for Investor Relations"

2016 - Participated in “2016 International CES ” and displayed the full range of IoT solutions

- Participated in “Mobile World Congress 2016 ” and displayed the full range of LTE Small Cells

and Smart Home Application products

- Awarded by FinanceAsia magazine as”

"Best Mid-cap Company"

"Best at Investor Relations"

"Best Managed Company"

"Most Committed to Corporate Governance"

"Best at Corporate Social Responsibilities"

- Participated in “ISC West 2016” and displayed the full range of Smart Home Controls

solutions

- Sercomm 2600MHz Small Cells (SCB107E) pass type-approval by NCC, which is the first

networking company passed the Band 7 Small Cells

- Awarded by CommonWealth Magazine as:

"Taiwan Top 50 Best Performing Public Companies"

"Taiwan Top 50 Growing Technology Companies"

"Ranked 3rd in Taiwan Telecom and Networking Industry"

IV. Organization Organization Chart

Supervisors

Shareholders’ Meeting

BOD

Chairman

President / CEO

Compensation CommitteeAuditing Office

Human ResourceDivision

Financial Management

Division

SalesDivision II

SalesDivision I

SalesDivision III

Intelligent System

BusinessUnit

New Business

DevelopmentDivision

Intelligent System

Engineering Division

ProductDevelopment

Division

Research & Development

Division

Global Supply & Logistics Division

ChiefOperation

Officer

InformationServiceDivision

Quality Assurance

Division

Manufacturing Division

012

Executives Team

Department Main Responsibilities

President Office Drafting, planning, implementation and monitoring of company operation plans

Research & Development Division New Product Research and Development and drafting, planning and implementation for technical blueprints.

Product Development Division Product development project operation, customer services and support etc.

Sales Division I Sales promotion and operation, customer services and support etc.

Sales Division II Sales promotion and operation, customer services and support etc.

Sales Division III Sales promotion and operation, customer services and support etc.

New Business Development Division New business promotion and operation, customer services and support etc.

Intelligent System Business Unit IP Surveillance’s sales promotion and operation, customer services and support etc.

Intelligent System Engineering Division

Research and development on Intelligent related products, product operation and product planning

Global Supply & Logistics Division Production material planning, procurement, management and inventory control.

Manufacturing Division All product QA-related work, including production implementation, product testing and machine maintenance. Production control, property management and material procurement etc.

Quality Assurance Division Planning, promotion, implementation and monitoring of quality control procedures

Finance Management Division Finances and accounting, legal and stock-related operations

Human Resources Division Creating strategic human resources systems and solutions, including recruitment, salaries and bonuses, professional development, performance management and providing general HR services

Information Service Division Network management, information system importation, planning, operation and monitoring

Auditing Office Auditing, maintenance and improvement of internal control systems, offering recommendations and assisting in creating solutions for issues faced by other departments, including improving operations and efficiency.

013

Directors and Supervisors

As of April 17, 2016

Name / Position Nationality Elected

Date Term (Yrs)

Date First Elected

Shareholding when Elected

Current Shareholding

Spouse & Minor

ShareholdingEducation & Experience

Current Position

Shares % Shares % Shares %

Paul Wang ChairmanRepresentative of LiJin Financial Consultant Co. Ltd.

Taiwan 2013.6.20 3 2013.6.20 2,535,434 1.27 2,517,434 1.04 0 0.00 Carnegie Melon University, PhD in Physics

Note 1

Tsao, Victor Ying-Wei Director Representative of ZhuoJian Investment Co., Ltd.

Taiwan 2013.6.20 3 2013.6.20 3,000,508 1.51 3,472,094 1.43 0 0.00

Pepperdine University, MS in Business Illinois Institute of Technology, MS Founder of Linksys

Chairman of Miven Venture Partners

Lu, Shyue-Ching Director Representative of Pacific Venture Partners Co. Ltd

Taiwan 2013.6.20 3 2004.6.11 3,680,926 1.85 3,671,926 1.51 0 0.00

University of Hawaii, Ph.D in Electric Engineering Former Chairman of Chunghwa Telecom Co.

-

James Wang Director & President

Taiwan 2013,6,20 3 2001.5.28 1,509,006 0.76 959,006 0.39 0 0.00

Harvard Business School, MBA Carnegie-Melon University, ME President of Emerson Electronic (Suzhou) Co.

Note 2

Ben Lin Director & Executive VP.

Taiwan 2013.6.20 3 2004.6.11 1,487,201 0.75 744,201 0.31 736,896 0.30

National Tsing Hua University, MSDirector of IBM Subsidiary

Note 3

Shih, Chin-Tay Independent Director

Taiwan 2013.6.20 3 2013.6.20 0 0.00 0 0.00 0 0.00

Princeton University, PhD in Electrical Engineering Stanford University, MS in ManagementScience and Engineering Dean of the College of Technology Management of National Tsing Hua University

Independent Director of Vanguard International SemiconductorCorporation andFocalTech Systems Co.,Ltd.

014

Name / Position Nationality Elected

Date Term (Yrs)

Date First Elected

Shareholding when Elected

Current Shareholding

Spouse & Minor

ShareholdingEducation & Experience

Current Position

Shares % Shares % Shares %

Steve K. Chen Independent Director

U.S.A 2014.6.17 2 2014.6.17 0 0.00 0 0.00 0 0.00

Harvard University, PhD in LawActive Lawyer

Note 4

J.S.Kuo Supervisor Taiwan 2013.6.20 3 2004.6.11 2,468,281 1.24 2,468,281 1.01 10,290 0.00

University of New Hampshire, PhD in Physics Chairman of Jui-Fang Co

Note 5

Edward Y. Way Supervisor Representative of YCSY Co., Ltd

Taiwan 2013.6.20 3 2013.6.20 1,000 0.00 1,000 0.00 0 0.00

University of Georgia, MBA Certified Public Accountant (CPA)

Note 6

Cynthia Hsueh Supervisor Taiwan 2013.6.20 3 2010.6.23 0 0.00 0 0.00 0 0.00

TamkangUniversity, MBA CEO of China LeaderManagement Inc.

Note 7

Note Directors and supervisors are not spouse or within second-degree relative of consanguinity to each other.

Shares under Trust with Discretion Reserved:

Director and President/James Wang – 1,550,000 Shares

Director and Executive VP/Ben Lin – 3,154,439 Shares

Note 1 Chairman and CEO of Senslinq Inc.; Director of Prosperity Dielectrics Co., Ltd., and Taiwan Cement Co., Ltd., ;

Independent Director of Taishin Financial Holdings, UPC Technology Corp; President of Monte Jade Science and

Technology Association

Note 2 Owner of Sercomm Trading Co. and Zealous Investments Ltd.; Chairman of Shukuan Investments Ltd., Sernet (Suzhou)

Technology Ltd., DWNet Technology Ltd. and Suzhou FemTel Communications; Independent Director of Creative

Sensor Inc.; Director of Sercomm Japan Corp., Sercomm Russia LLC, Hawxeye Inc. and Nanjing FemTel

Communications

Note 3 Owner of Smart Trade Inc.; Director of Shukuan Investments Ltd., Sernet (Suzhou) Technology Ltd., Senslinq Inc.,

Sercomm Japan Corp., Sercomm Russia LLC, Hawxeye Inc., Suzhou FemTel Communications, Nanjing FemTel

Communications and Presciense Limited

Note 4 Executive Director of TriMax & Companies, LLC and DNF Asset Management LLC; Director of FlipChip International

Inc., Spatial Digital Systems Inc., and StemBios Technologies, Inc. Chairman of eGtran Corporation, Gtran Inc. and

EZconn Corporation

Note 5 Chairman of TECO Technology Foundation; Director of An-Long Co. Ltd.; TECO IMAGE SYSTEM and Taishin

Financial Holding Co., Ltd.

Note 6 Chairman of YCSY Co., Ltd.; Independent director of Synnex Technology International Corporation, Taiwan Cement

Co., Ltd., Far Eastern Department Stores Co. Ltd, Primax Electronics; Director of Wowprime Corporation, MiTAC

Holdings Corporation and Vanguard International Semiconductor Corporation; Supervisor of Chilisin Electronic Corp.

and Iron Force Industrial Co., Ltd

Note 7 Independent director of Simplo Tech. Co., Ltd. and ASEC International Corp; Supervisor of Taiwan Environment

Scientiflc Co., Ltd.

015

Major Institutional Shareholders

April 17, 2016

Name of Institutional Shareholder Primary Shareholder of Institutional Shareholder Shareholding %

LiJin Financial Consultant Co. Ltd. BEST CONSULT INVESTMENTS LIMITED 100.00%

Pacific Venture Partners Co. Ltd. Su Yi 62.50%

DaYuan Management Consulting Co. Ltd. 35.00%

ZhuoJian Investment Co., Ltd.

An-Bang Lin 25.48%

Jiu Bang Investment Co., Ltd. 19.51%

James Wang 15.50%

Zhu-Xian Lin 13.18%

YCSY Co., Ltd. Edward Y. Way 71.69%

Hui-Xin Lin 28.31%

Major Shareholders of the Major Shareholders that Are Juridical Persons

April 17, 2016

Name of Juridical Persons Major Shareholders of the Juridical Persons Shareholding%

BEST CONSULT INVESTMENTS LIMITED Honesty Ventures Limited 100.00%

DaYuan Management Consulting Co. Ltd. Honesty Ventures Limited 75.00%

5388 SUNRISE INC. 25.00%

Jiu Bang Investment Co., Ltd.

Yu-Mei Zhang 25.00%

Shu-Zhen Lin 18.55%

Yong-Song Wei 18.55%

016

017

Management Team

As of April 17, 2016

Name / Position Nationality Elected Date

Current Shareholding

Spouse & MinorShareholding Education &

Experience Current Position

Shares % Shares %

James Wang CEO / President

Taiwan 2000.01.24 959,006 0.39 0 0.00

Harvard Business School, MBA Carnegie-Melon University, ME President of Emerson SZ

Note 1

Ben Lin Executive VP.

Taiwan 1992.07.29 744,201 0.31 736,896 0.30

National Tsing Hua University, MS Director of IBM Subsidiary

Note 2

Charles Chu Senior VP

Taiwan 2000.06.15 55,787 0.02 0 0.00

Michigan State University, MS in Mechanical Engineering Vice President of Northern United M&E Company

Owner of Huayi (Suzhou) Telecommunication Technologies Ltd. Director of DWNet Technology Ltd.; Supervisor of Sercomm Japan Corp.

Leo Chen VP

Taiwan 2001.10.15 0 0.00 0 0.00

University of Illinois, MSA Director of Lite-On Group

Director of Shukuan Investments Ltd. WeiYun Co., Ltd

Jemmy Lee VP

Taiwan 2002.04.24 2,171 0.00 0 0.00Vice President of Proview Company China

-

Hawk Wu VP

Taiwan 2007.03.01 10,000 0.00 0 0.00Director of Quanta Computer Corp.

-

Vicky Lin VP

Malaysia 2013.02.01 150,000 0.06 0 0.00

National Taiwan University BS in Economics Sales VP of Ayecom Technology

-

Colette Chen VP

Taiwan 2013.02.01 697 0.00 0 0.00

Tamkang University, MS in European Studies Sales Manager of Veccom Co., Ltd.

-

Name / Position Nationality Elected Date

Current Shareholding

Spouse & MinorShareholding Education &

Experience CurrentPosition

Shares % Shares %

Earl Liao VP Taiwan 2013.07.01 405,486 0.16 1,163 0.00

National Chiao Tung University MS in Electrical Control Engineering President of Sercomm Suzhou Research & Development Center

-

Genevieve Lu VP Taiwan 2015.05.14 0 0.00 0 0.00

University of California, MBA Human Resources VP of Yahoo!

-

Winnie Hsieh Director Auditing Office

Taiwan 2007.06.15 17,406 0.01 0 0.00

Tamkang University, BS in Finance and Banking Special Assistant of WeiTai Corp.

-

Note Shares under Trust with Discretion Reserved: CEO and President/James Wang – 1,550,000 Shares

Executive VP/Ben Lin – 3,154,439 Shares

Note 1 Owner of Sercomm Trading Co. and Zealous Investments Ltd.; Chairman of Shukuan Investments Ltd., Sernet (Suzhou) Technology Ltd., DWNet Technology Ltd. and Suzhou FemTel Communications; Independent Director of Creative Sensor Inc.; Director of Sercomm Japan Corp., Sercomm Russia LLC, Hawxeye Inc. and Nanjing FemTel Communications

Note 2 Owner of Smart Trade Inc.; Director of Shukuan Investments Ltd., Sernet (Suzhou) Technology Ltd., Senslinq Inc., Sercomm Japan Corp., Sercomm Russia LLC, Hawxeye Inc., Suzhou FemTel Communications, Nanjing FemTel Communications and Presciense Limited

018

Professional Qualifications and Independence Analysis of Directors and Supervisors

Criteria

Name

Meet One of the Following Professional Qualification Requirements, Together with

at Least Five Years Work Experience

Independence Criteria(Note)

Number of Other Public

Companies in Which the

Individual is Concurrently Serving as an Independent

Director

An Instructor or Higher Position in a

Department of Commerce, Law,

Finance, Accounting, or Other Academic

Department Related to the Business

Needs of the Company in a Public

or Private Junior College, College or

University

A Judge, Public Prosecutor, Attorney,

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 Business of the

Company

Have Work Experience in the Areas of Commerce,

Law, Finance, or Accounting, or Otherwise Necessary

for the Business of

the Company

1 2 3 4 5 6 7 8 9 10

Paul Wang Representative of LiJin Financial Consultant Co. Ltd.

� � � � � � 2

Tsao, Victor Ying-Wei Representative of ZhuoJian InvestmentCo., Ltd.

� � � � � � � � � � � 0

Lu, Shyue-Ching Representative of Pacific VenturePartners Co. Ltd

� � � � � � � � � � � 0

James Wang � � � � � � � � � 1

Ben Lin � � � � � � � � � 0

Shih, Chin-Tay � � � � � � � � � � � � 2

Steve K. Chen � � � � � � � � � � � � 0

J.S.Kuo � � � � � � � � � � 0

Edward Y. Way Representative of YCSY Co., Ltd

� � � � � � � � � � � 4

Cynthia Hsueh � � � � � � � � � � � 2

019

Note Please tick the corresponding boxes if directors or supervisors have been any of the following during the two years prior to being elected or during the term of office.

1. Not an employee of the Company or any of its affiliates.

2. Not a director or supervisor of the Company or any of its affiliates. The same does not apply, however, in cases where the person is an independent director of the Company, its parent company, or any subsidiary in which the Company holds, directly or indirectly, more than 50% of the voting shares.

3. Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate amount of 1% or more of the total number of outstanding shares of the Company or ranking in the top 10 in holdings.

4. Not a spouse, relative within the second degree of kinship, or lineal relative within the fifth degree of kinship, of any of the persons in the preceding three subparagraphs.

5. Not a director, supervisor, or employee of a corporate shareholder that directly holds 5% or more of the total number of outstanding shares of the Company or that holds shares ranking in the top five in holdings.

6. Not a director, supervisor, officer, or shareholder holding 5% or more of the share, of a specified company or institution that has a financial or business relationship with the Company.

7. Not a professional individual who, or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that, provides commercial, legal, financial, accounting services or consultation to the Company or to any affiliate of the Company, or a spouse thereof.

8. Not having a marital relationship, or a relative within the second degree of kinship to any other director of the Company.

9. Not been a person of any conditions 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.

020

021

Remuneration to Directors

Unit: Thousand NTD

Name / Position

Base Compensation

(A)

Bonus to Directors

(C)

Allowances

(D)

Ratio of total

remuneration to Net

Income (%)

A+C+D

Salary, Bonuses &

Allowances

(E)

Severance Pay

(F)

Profit Sharing-Employee Bonus

(G)

Exercisable Employee Stock

Options (H)

Ratio of Compensation to

Net Income (%)

A+C+D+E+F+G

Sercomm Consolidated

Subsidiaries Sercomm

Consolidated

Subsidiaries Sercomm

Consolidated

Subsidiaries Sercomm

Consolidated

SubsidiariesSercomm

Consolidated

SubsidiariesSercomm

Consolidated

Subsidiaries

Sercomm Consolidated

Subsidiaries Sercomm

Consolidated

Subsidiaries Sercomm

Consolidated

SubsidiariesCash

Bonuses

Stock

Bonuses

Cash

Bonuses

Stock

Bonuses

Paul Wang

Chairman

Representative of

LiJin Financial

Consultant Co.

Ltd

3,880 3,880 17,082 17,082 220 220 1.62 1.62 10,150 24,840 258 258 10,000 0 10,000 0 0 0 3.19 4.34

Tsao, Victor

Ying-Wei

Director

Representative of

ZhuoJian

Investment Co.,

Ltd.

Lu, Shyue-Ching

Director

Representative of

Pacific Venture

Partners Co. Ltd

James Wang

Director &

President

Ben Lin

Director &

Executive VP

Shih, Chin-Tay

Independent

Director

Steve K. Chen

Independent

Director

Compensation Range

Name of Director

Total Amount A+C+D

Total Amount A+C+D+E+F+G

Sercomm Consolidated Subsidiaries Sercomm Consolidated

Subsidiaries

Below NTD 2,000,000

NTD 2,000,000 NTD 5,000,000

Tsao, Victor Ying-Wei -Representative of ZhuoJian Investment Co., Ltd.; Lu, Shyue-Ching - Representative of Pacific Venture Partners Co. Ltd.; James Wang; Ben Lin; Shih, Chin-Tay; Steve K. Chen

Tsao, Victor Ying-Wei -Representative of ZhuoJian Investment Co., Ltd.; Lu, Shyue-Ching - Representative of Pacific Venture Partners Co. Ltd.; James Wang; Ben Lin; Shih, Chin-Tay; Steve K. Chen

Tsao, Victor Ying-Wei -Representative of ZhuoJian Investment Co., Ltd.; Lu, Shyue-Ching - Representative of Pacific Venture Partners Co. Ltd.; Shih, Chin-Tay; Steve K. Chen

Tsao, Victor Ying-Wei -Representative of ZhuoJian Investment Co., Ltd.; Lu, Shyue-Ching - Representative of Pacific Venture Partners Co. Ltd.; Shih, Chin-Tay; Steve K. Chen

NTD 5,000,000 NTD 10,000,000

Paul Wang- Representative of LiJin Financial Consultant Co. Ltd.

Paul Wang- Representative of LiJin Financial Consultant Co. Ltd.

Ben Lin

NTD 10,000,000 NTD 15,000,000

Paul Wang- Representative of LiJin Financial Consultant Co. Ltd.,James Wang

Paul Wang- Representative of LiJin Financial Consultant Co. Ltd.

NTD 15,000,000 NTD 30,000,000 James Wang

NTD 30,000,000 NTD 50,000,000

NTD 50,000,000 NTD 100,000,000

Over NTD 100,000,000

Total 7 7 7 7

022

���

Remuneration to Supervisor

Unit: Thousand NTD

Name / Position

Base Compensation (A)

Bonus to Supervisors(B)

Allowances (C)

T Ratio of total remuneration

(A+B+C) to net income (%)

Sercomm Consolidated Subsidiaries Sercomm Consolidated

Subsidiaries Sercomm Consolidated Subsidiaries Sercomm Consolidated

Subsidiaries

J.S. Kuo Supervisor

0 0 7,884 7,884 78 78 0.61 0.61

Edward Y. Way Supervisor Representative of YCSY Co., Ltd.

Cynthia Hsueh Supervisor

Compensation Range

Name of Supervisor

Total Amount A+B+C

Sercomm Consolidated Subsidiaries

Below NTD 2,000,000

NTD 2,000,000 NTD 5,000,000 J.S. Kuo, Edward Y. Way - Representative of YCSY Co., Ltd., Cynthia Hsueh

J.S. Kuo, Edward Y. Way - Representative of YCSY Co., Ltd., Cynthia Hsueh

NTD 5,000,000 NTD 10,000,000

NTD 10,000,000 NTD 15,000,000

NTD 15,000,000 NTD 30,000,000

NTD 30,000,000 NTD 50,000,000

NTD 50,000,000 NTD 100,000,000

Over NTD 100,000,000

Total 3 3

Compensation of President and Vice President

Unit: Thousand NTD

Name / Title

Salary(A) Severance Pay (B)

Bonuses and Allowances (C)

Profit Sharing- Employee Bonus (D)

Ratio of total compensation

(A+B+C+D) to net income (%)

Exercisable Employee Stock

Options

Exercisable Employee

Restricted Stock

Sercomm Consolidated Subsidiaries Sercomm Consolidated

Subsidiaries Sercomm ConsolidatedSubsidiaries

Sercomm ConsolidatedSubsidiaries

Sercomm Consolidated Subsidiaries Sercomm Consolidated

Subsidiaries Sercomm ConsolidatedSubsidiariesCash

BonusesStock

BonusesCash

BonusesStock

Bonuses

James Wang CEO/ President

23,421 29,650 1,317 1,317 9,760 17,010 13,135 0 20,635 0 3.7 5.3 2,017 2,017 465 465

Ben Lin Executive Vice President Charles Chu Senior Vice President Leo Chen Vice President Jemmy Lee Vice President Hawk Wu Vice President Vicky Lin Vice President Colette Chen Vice President Earl Liao Vice President Genevieve Lu Vice President

Compensation Range Name of President and Vice President

Sercomm Consolidated Subsidiaries

Under NT$ 2,000,000

NT$2,000,000 ~ NT$5,000,000 Charles Chu, Leo Chen, Jemmy Lee, Hawk Wu, Vicky Lin, Colette

Chen, Earl Liao, Genevieve Lu

Charles Chu, Leo Chen, Jemmy Lee, Hawk Wu, Vicky Lin, Colette

Chen, Earl Liao, Genevieve Lu

NT$5,000,000 ~ NT$10,000,000 James Wang, Ben Lin James Wang, Ben Lin

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

Over NT$100,000,000

Total 10 10

024

Employee Profit Sharing Granted to Management Team Unit: Thousand NTD

Title Name Stock Bonus Cash Bonus Total Employee Profit Sharing

Total Employee Profit Sharing Paid

to Management Team as a % of

2015 Net Income

CEO/ President James Wang

0 13,475 13,475 1.42%

Executive Vice President Ben Lin

Senior Vice President Charles Chu

Vice President Leo Chen

Vice President Jemmy Lee

Vice President Hawk Wu

Vice President Vicky Lin

Vice President Colette Chen

Vice President Earl Liao

Vice President Genevieve Lu

025

026

Comparison of Remuneration for Directors, Supervisors, Presidents and Vice Presidents in the Most Recent Two Fiscal Years and Remuneration Policy for Directors, Supervisors, Presidents and Vice Presidents

The ratio of total remuneration paid by the company and by all companies included in the

consolidated financial statements for the most recent two fiscal years to directors, supervisors,

presidents and vice presidents of the Company, to the net income

Title

2014 2015

Sercomm Consolidated Subsidiaries

Sercomm Consolidated Subsidiaries

Directors

8.10% 12.80% 7.1% 9.9% Supervisors

Presidents and Vice Presidents

Directors / Supervisors President / Vice President

1. Remuneration policy Applied in accordance with Article 18 and 29 of the Articles of Incorporation

Applied in accordance with Regulations Governing the Salary and Remuneration, and the Implementation Rules for employees’ performance evaluation.

2. Standards and combinations Compensation for directors and supervisors, traveling expenses

Base salary, duty allowance, food allowance, employees bonus

3. The procedures for determining remuneration

Applied in accordance with the effective Articles of Incorporation after the resolution by the Annual Shareholders Meeting

Salaries are contracted by education, experience, and years of service, and approved by the Company's delegation of authorization.

4. Association of operational performance

Based on the Company's profits

Compensation was given by the rate of target completion, operational performance, and contributions.

5. Association of future risks

Fulfill duties of operation and supervision, and develop business policies turning a crisis into an opportunity

Enhance employees’ coherence to achieve the goal of sharing profit and loss between employers and employees.

Implementation of Corporate Governance

Board of Directors A total of 5 meetings of the board of directors were held in year 2015. The attendance of director

was as follows:

Title Name Attendance in Person By Proxy Attendance Rate (%) Remarks

Chairman

Paul Wang Representative of LiJin Financial Consultant Co. Ltd

5 0 100

Director

Tsao, Victor Ying-Wei Representative of ZhuoJian Investment Co., Ltd.

2 0 40

Director

Lu, Shyue-Ching Representative of Pacific Venture Partners Co. Ltd

5 0 100

Director James Wang 5 0 100

Director Ben Lin 5 0 100

Independent Director Shih, Chin-Tay 5 0 100

Independent Director Steve K. Chen 5 0 100

Audit Committee A total of 5 meetings of the board of directors were held in year 2015. The attendance of

supervisor was as follows:

Title Name Attendance in Person Attendance Rate (%)

Supervisor J.S. Kuo 5 100

Supervisor Edward Y. Way

Representative of YCSY Co., Ltd.

4 80

Supervisor Cynthia Hsueh 4 80

027

028

Taiwan Corporate Governance Implementation as Required by the Taiwan Financial Supervisory Commission

Assessment Item

Implementation Status Non- implementation

and its reason(s)

Yes No Explanation

1. Does Company follow “Taiwan Corporate Governance Implementation” to establish and disclose its corporate governance practices?

V Sercomm has not yet defined a “Corporate Governance Code of Practice”.

Not regulated

2. Shareholding Structure & Shareholders’ Rights (1) Does Company have Internal

Operation Procedures for handling shareholders’ suggestions, concerns, disputes and litigation matters. If yes, have these procedures been implemented accordingly?

V

Sercomm has set up an investor relations department to deal with shareholder issues. Furthermore, there are investor relations section and stakeholders ’engagement section on the Company website that provide links to each relevant business department for investors’ and shareholders’ references.

None

(2) Does Company possesses a list of major shareholders and beneficial owners of these major shareholders?

V

Sercomm keeps track of the shareholding conditions of the directors, supervisors, managers and shareholders who possess more than 10% of the Company’s shares at any time

None

(3) Has the Company built and executed a risk management system and “firewall” between the Company and its affiliates?

V Sercomm and its subsidiaries formulate relevant management measures according to relevant provisions.

None

(4) Has the Company established internal rules prohibiting insider trading on undisclosed information?

V Sercomm has established Procedures for Handling Inside Information Material.

None

3. Composition and Responsibilities of the Board of Directors (1) Has the Company established a

diversification policy for the composition of its Board of Directors and has it been implemented accordingly?

V

In evaluating the Sercomm Board members, our Board considers many factors, including educational and professional background and diversity of experience. The Board consists of seven members, including two independent directors. The Board members hold the position of lecturer or above at an institution of higher education in the fields of business, law or accounting.

None

(2) Other than the Compensation Committee and the Audit Committee which are required by law, does the Company plan to set up other Board committees?

V

Sercomm’s Compensation Committee consists of three members, including two independent directors, Chin-Tay Shih and Steve K. Chen, and Hongshou Chen, wherein Chin-Tay Shih serves as the convener. At least two meetings are held each year.

None

(3) Has the Company established methodology for evaluating the performance of its Board of Directors, on an annual basis?

V Sercomm has not yet established a methodology for evaluating the performance of its Board of Directors.

Not regulated

029

Taiwan Corporate Governance Implementation as Required by the Taiwan Financial Supervisory Commission

Assessment Item

Implementation Status Non- implementation

and its reason(s)

Yes No Explanation

1. Does Company follow “Taiwan Corporate Governance Implementation” to establish and disclose its corporate governance practices?

V Sercomm has not yet defined a “Corporate Governance Code of Practice”.

Not regulated

2. Shareholding Structure & Shareholders’ Rights (1) Does Company have Internal

Operation Procedures for handling shareholders’ suggestions, concerns, disputes and litigation matters. If yes, have these procedures been implemented accordingly?

V

Sercomm has set up an investor relations department to deal with shareholder issues. Furthermore, there are investor relations section and stakeholders ’engagement section on the Company website that provide links to each relevant business department for investors’ and shareholders’ references.

None

(2) Does Company possesses a list of major shareholders and beneficial owners of these major shareholders?

V

Sercomm keeps track of the shareholding conditions of the directors, supervisors, managers and shareholders who possess more than 10% of the Company’s shares at any time

None

(3) Has the Company built and executed a risk management system and “firewall” between the Company and its affiliates?

V Sercomm and its subsidiaries formulate relevant management measures according to relevant provisions.

None

(4) Has the Company established internal rules prohibiting insider trading on undisclosed information?

V Sercomm has established Procedures for Handling Inside Information Material.

None

3. Composition and Responsibilities of the Board of Directors (1) Has the Company established a

diversification policy for the composition of its Board of Directors and has it been implemented accordingly?

V

In evaluating the Sercomm Board members, our Board considers many factors, including educational and professional background and diversity of experience. The Board consists of seven members, including two independent directors. The Board members hold the position of lecturer or above at an institution of higher education in the fields of business, law or accounting.

None

(2) Other than the Compensation Committee and the Audit Committee which are required by law, does the Company plan to set up other Board committees?

V

Sercomm’s Compensation Committee consists of three members, including two independent directors, Chin-Tay Shih and Steve K. Chen, and Hongshou Chen, wherein Chin-Tay Shih serves as the convener. At least two meetings are held each year.

None

(3) Has the Company established methodology for evaluating the performance of its Board of Directors, on an annual basis?

V Sercomm has not yet established a methodology for evaluating the performance of its Board of Directors.

Not regulated

030

Assessment Item

Implementation Status Non- implementation

and its reason(s)

Yes No Explanation

8. Does the Company perform any self evaluations on its corporate governance practices or appointed any third party to do so? (If yes, please disclose the Board of Director’s view on the results of such evaluation).

V

For the second consecutive year, Sercomm was awarded the title of “Best Managed Public Company”, “Best Mid-cap Company” and “Best Corporate Governance” by FinanceAsia. Moreover, Asiamoney awarded the Company with its “Best Managed Company”, “Best Companies in Asia for Corporate Governance” and “Best for Disclosure and Transparency” designations. It was also rated among the “A+ Companies in Taiwan” by Global Views Monthly as well as “Best information transparency of supplier CSR by a telecom leader in Taiwan”. Furthermore, the Company has conducted a self-evaluation through a corporate governance evaluation system which has been developed by the TWSE Corporate Governance Center. We will study the results of this evaluation and implement remedial actions accordingly.

None

Compensation Committee

Compensation Committee Members’ Professional Qualifications and Independent Analysis

Criteria

Name

Meet the Following Professional Qualification Requirements, Together with at Least Five Years Work

Experience Criteria (Note)

Number of Other

Taiwanese Public

Companies Concurrently Serving as a Compensati

onCommitteeMember in

Taiwan

An Instructor or Higher Position in a Department of Commerce, Law,

Finance, Accounting, or

Other Academic Department

Related to the Business Needs of the Company

in a Public or Private Junior

College, College or University

A Judge, Public Prosecutor,

Attorney, Certified Public Accountant,

or Other Professional or

Technical Specialists Who Has Passed a

National Examination and Been Awarded a Certificate in a

ProfessionNecessary for the Business of the

Company

Have Work Experience in

the Area of Commerce,

Law, Finance, or Accounting, or Otherwise Necessary for

the Business of the Company

1 2 3 4 5 6 7 8

Shih,Chin-Tay Independent Director

� � � � � � � � � � 2

Steve K. Chen Independent Director

� � � � � � � � � � 0

Hilo Chen � � � � � � � � � 1

Note Compensation Committee Members, during the two years before being elected or during the term of office, meet any of the following situations; please tick the appropriate corresponding boxes:

1. Not an employee of the company or any of its affiliates.

2. Not a director or supervisor of the company or any of its affiliates. The same does not apply, however, in cases where the person is an independent director of the company, its parent company, or any subsidiary in which the company holds, directly or indirectly, more than 50 percent of the voting shares.

3. Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate amount of one percent or more of the total number of issued shares of the company or ranks as one of its top ten shareholders.

4. Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship, of any of the above persons in the preceding three subparagraphs.

5. Not a director, supervisor, or employee of a corporate/institutional shareholder that directly holds five percent or more of the total number of issued shares of the company or ranks as

031

of its top five shareholders.

6. Not a director, supervisor, officer, or shareholder holding five percent or more of the shares of a specified company or institution that has a financial or business relationship with the company.

7. Not a professional individual who, or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that, provides commercial, legal, financial, accounting services or consultation to the company or to any affiliate of the company, or a spouse thereof.

8. Not been a person of any conditions defined in Article 30 of the Company Law.

Compensation Committee Meeting Status

1. Compensation Committee consists of three members. The tenure is from June 20, 2013 to June 19,

2016.

2. Compensation Committee convened four regular meetings in 2015. The Committee members’

attendance status is as follows:

Title Name Attendance in Person By Proxy Attendance Rate

in Person (%) Notes

Chair Shih, Chin-Tay 4 0 100%

Member Hilo Chen 3 0 75%

Member Steve K. Chen 3 1 75%

Notes

1. There was no recommendation of the Compensation Committee which was not adopted or was modified by the Board of Directors in 2015.

2. There were no written or otherwise recorded resolutions on which a member of the Compensation Committee had a dissenting opinion or qualified opinion.

032

033

Social Responsibility Implementation Status as Required by the Taiwan Financial Supervisory Commission

Assessment Item

Implementation Status Non- implementation

and its reason(s)

Yes No Explanation

1. Implementation of Corporate Governance (1) Does the Company have a

corporate social responsibility policy and evaluate its implementation?

V CSR policy is under discussion according to related regulations.

Not regulated

(2) Does the Company hold regular CSR training?

V

Sercomm regularly devotes resources to employee CSR training and cultivation, and also provides senior managers with information advocating an understanding of the importance of CSR.

None

(3) Does the Company have a dedicated (or ad-hoc) CSR organization with Board of Directors authorization for senior management, which reports to the Board of Directors?

V Sercomm has created a department which is responsible for CSR matters, in order to comply with the regulations.

Report to Chairman and

President

(4) Does the Company set a reasonable compensation policy, integrate employee appraisal with CSR policy, and set clear and effective incentive and disciplinary policies?

V

Sercomm offers its employees the most competitive total compensation to attract and retain talented individuals who will become the best momentum of sustainable corporate growth. The Company's overall compensation package includes: basic salaries, rewards and employee bonuses. Employee’s total compensation is based on the overall assessment of professional knowledge and skills, work responsibilities, performance.

None

2. Environmentally Sustainable Development (1) Is the Company committed to

improving resource efficiency and to the use of renewable materials with low environmental impact?

V

To pursue the balance between environmental protection and business sustainability, Sercomm actively participates in global environmental protection programs, such as the Carbon Disclosure Project (CDP), the Hazardous Substances Free (HSF) and Lead-free Process, etc.

None

(2) Has the Company set an Environmental management system designed to industry characteristics?

V

Sercomm’s factories located in Chunan and Suzhou have already obtained certifications of Environmental Management System (ISO 14001) and Occupational Health and Safety Management System (OHSAS 18001). The Company is also dedicated to pollution prevention, energy and resource saving, waste reduction and accident prevention with the aim of providing a comfortable and safe working environment.

None

(3) Does the Company track the impact of climate change on operations, carry

V In response to worldwide environmental trends and customers’ demands, Sercomm adapts eco-friendly designs to achieve the most ecological

None

034

Assessment Item

Implementation Status Non- implementation

and its reason(s)

Yes No Explanation

out greenhouse gas inventories, and set energy conservation and greenhouse gas reduction strategy?

benefit, while progressing towards the goals of green design, green production and green procurement in order to achieve the goal of sustainable development. The Company’s energy saving strategy is as follows: 1. Some specific areas now use energy-saving LED

lighting, saving more than 50% electricity. 2. The average electric energy consumption is less

than 3kwh/unit product. 3. Certain areas with automatic lighting functions. 4. NB and PC are programmed with sleep mode.

3. Promotion of Social Welfare (1) Does the Company set

policies and procedures in compliance with regulations and internationally recognized human rights principles?

V

In light of the philosophy of "human resources are the foundation for innovation”, the Company is dedicated to recruiting professionals for all positions available. Sercomm assigns employees adequately and properly based on their specialties and professions, regardless of race, gender, age, religion, political affiliation, social class, language, thoughts, birthplace, marriage, physical or mental disability. All employees are entitled to the same rights of work, salary and benefits. Meanwhile, the Company forbids any form of discrimination, including age, race, skin color, gender or religious bias. We believe that new ideas can be generated through the interaction among employees of different cultures, backgrounds and experiences. In addition, the Company follows the existing relevant national laws, including the Labor Standards Act, the Employment Services Act and the Act of Gender Equality in Employment, etc., to ensure that applicants and employees are treated equally with respect to recruitment, assignment, development, evaluation and reward, and to prohibit child labor, forced labor, and violations of human rights.

None

(2) Has the Company established appropriately managed employee appeal procedures?

V

An Employee Opinion Box provides a channel for employees to express their suggestions or opinions. (Sexual harassment , fraud or ethics violations mailbox: HR_Help@sercomm.com)

None

(3) Does the Company provide employees with a safe and healthy working environment, with regular safety and health training?

V

Sercomm’s ESH (Environment and Employee Safety and Health Protection) policy is focused on establishing a safe working environment and keeping employees healthy. The Company periodically provides a full medical examination to all employees and irregular training for emergency personnel.

None

(4) Has the Company established a mechanism for regular communication with employees and use reasonable measures to notify employees of operational changes which may cause significant impact to employees?

V

Sercomm ensures every employee has a smooth internal communication path with management. Furthermore, the Company has established the Employee Welfare Committee to protect employees' rights to their benefits. Annual staff meetings ensure that every employee understands the Company’s operations and performance expectations.

None

035

Assessment Item

Implementation Status Non- implementation

and its reason(s)

Yes No Explanation

(5) Has the Company established effective career development training plans?

V

Sercomm believes that human resources are the foundation for innovation. The Company combines corporate needs and each individual’s career development as a main corporate orientation. The Company actively promotes relevant educational training and divides the training framework into 5 major systems to enhance the cultivation of talent in a targeted and systematic way.

None

(6) Has the Company set polices and consumer appeal procedures in its R&D, purchasing, production, operations, and service processes?

V

Sercomm endeavors to understand stakeholders’ opinions and recommendations, and to build a good communication channel to ensure mutual understanding and respect. Stakeholders can submit their concerns via audit@sercomm.com.

None

(7) Does the Company follow regulations and international standards in the marketing and labeling of its products and services?

V

Sercomm complies with the environmental laws and requirements of the International Covenant in order to maintain its status as a green corporation implementing sustainable development and abides by the International Covenant’s voluntary commitments in the areas of environmental health and safety and energy conservation.

None

(8) Does the Company evaluate environmental and social track records before engaging with potential suppliers?

V

Sercomm screens new suppliers based not only on general items, such as quality, cost, delivery and service, but also on Sercomm’s specifications and requirements for green products. Each candidate needs to sign a “Product Quality Guarantee Agreement” and to pass a green product audit prior to becoming a qualified supplier. The Company regularly reviews suppliers through assessments to evaluate supplier performance.

None

(9) Does the Company’s contracts with major suppliers include termination clauses if they violate CSR policy and cause significant environmental and social impact?

V

Sercomm works closely with all suppliers. Through effective communication, tracking and management, Sercomm ensures the exclusion of components containing banned or restricted chemical materials and maintains links to a component approval process. Sercomm also demands all suppliers sign a “Product Quality Guarantee Agreement” wherein the content clearly states Sercomm’s requirements and regulations for green products. No material containing environmentally hazardous materials is allowed, including raw materials defined under the commitment of the European Union Restriction of Hazardous Substances (RoHS) protocol and the Registration, Evaluation, Authorization and Restriction of Chemical Substances protocol (REACH).

None

4. Enhanced Information Disclosure Does the Company disclose

relevant and reliable CSR information on its website and the Taiwan Stock Exchange website?

V

Sercomm has published a “Corporate Social Responsibility Report“which is also published on the Company website. Please refer to Sercomm website for more details.

None

036

Assessment Item

Implementation Status Non- implementation

and its reason(s)

Yes No Explanation

5. If the Company has established its corporate social responsibility code of practice according to “Listed Companies Corporate Social Responsibility Code of Practice,” please describe the operational status and differences:

Sercomm has not yet defined a Corporate Social Responsibility Code of Practice. 6. Other important information to facilitate better understanding of the Company’s implementation of corporate social

responsibility: - The Company strictly controls its cost and spares no effort to optimize profit. Further, the Company also maintains a

consistent dividend policy and is diligent in maintaining a high level of accountability to its shareholders. - The Company offers a variety of channels for banks, business partner firms, and investors to access the Company’s

financial information and operational outlook. - The Company has set up a parking lot for bicycles to advocate the Company’s concern for environmental protection

and support the reduction of energy consumption. - The Company elects to observe international human rights and thereby commits not to use conflict materials, and it

will not receive any materials supplied from Central Africa. 7. Other information regarding the “Corporate Responsibility Report ” which are verified by certification bodies: Sercomm’s Corporate Social Responsibility Report has not yet been verified by certification bodies.

Taiwan Corporate Conduct and Ethics Implementation as Required by the Taiwan Financial Supervisory Commission

Assessment Item

Implementation Status Non- implementation

and its reason(s)

Yes No Explanation

1. Establishment of Corporate Conduct and Ethics Policy and Implementation Measures (1) Does the Company have

bylaws and publicly available documents addressing its corporate conduct and ethics policy and measures, and the commitment regarding implementation of such policy from the Board of Directors and the management team?

V

All important policies relating to the operation, investment, acquisition or disposition of assets, the lending of funds, articles of guarantee or endorsement, and financing from banks are subject to the study and assessment of the competent authorities of the Company and to the resolution of the Board.

None

(2) Does the Company establish relevant policies which are duly enforced to prevent unethical conduct and provide implementation procedures, guidelines, consequence of violation and complaint procedures in such policies?

V

Sercomm established an “Operating Procedures for Handling Internal Material Information” for employee to comply with these relevant regulations.

None

037

Assessment Item

Implementation Status Non- implementation

and its reason(s)

Yes No Explanation

(3) Does the Company establish appropriate compliance measures for the business activities prescribed in Paragraph 2, Article 7 of the Ethical Corporate Management Best Practice Principles for TWSE/GTSM Listed Companies and any other such activities associated with high risk of unethical conduct?

V All Sercomm employees and suppliers are required to sign a “Declaration of Integrity”.

None

2. Ethic Management Practice (1) Does the Company assess

the ethics records of those it has business relationships with and include business conduct and ethics related clauses in the business contracts?

V Sercomm requires that every supplier must complete and sign business and ethics clauses as part of the Supplier's Undertakings.

None

(2) Does the Company set up a unit which is dedicated to or tasked with promoting the Company’s ethical standards and reports directly to the Board of Directors with periodical updates on relevant matters?

V

The Company advocates ethical corporate management and has appointed a designated department to ensure the implementation of decisions of the Board in such matters. Related documents are subject to approval across the corporate hierarchy and require proper authorization. The HR representatives of ethical corporate management report to the Board quarterly.

None

(3) Does the Company establish policies to prevent conflict of interests provide appropriate communication and complaint channels and implement such policies properly?

V

The Company has established a policy requiring the avoidance of any conflict of interest. This policy on ethical business practices is inserted into agreements with the employees and suppliers. In addition, the Company also provides channels to report unethical practices and keeps the identity of the informants in strict confidence. The e-mail for filing complaints is: audit@sercomm.com

None

(4) To implement relevant policies on ethical conducts, does the Company establish effective accounting and internal control systems that are audited by internal auditors or CPAs periodically?

V

The accounting of all transactions is reviewed under established accounting principles. In cases of materiality, or in questionable cases, the Company will consult with CPAs for verification and confirmation.

None

(5) Does the Company provide internal and external ethical conduct training programs on a regular basis?

V

The Company holds an orientation for new employees, provides general managerial and developmental training regularly, and advocates the ethical corporate management policy of the Company.

Not regulated

038

Assessment Item

Implementation Status Non- implementation

and its reason(s)

Yes No Explanation

3. Implementation of Complaint Procedures (1) Does the Company establish

specific complaint and reward procedures, set up conveniently accessible complaint channels, and designate responsible individuals to handle the complaint received?

(2) Does the Company establish standard operation procedures for investigating the complaints received and ensuring such complaints are handled in a confidential manner?

(3) Does the Company adopt proper measures to prevent a complainant from retaliation for his/her filing a complaint?

V

The Company has established a stakeholders’ engagement section on Company websites and has designated a department for responding to the queries and communications of stakeholders (or related parties) .The stakeholders (or related parties) may report on or file complaints relating to questionable matters. All reports and complaints are handled in accordance with standard operation procedures which maintain principles of confidentiality and non-disclosure. The e-mail for report and complaints is: audit@sercomm.com

None

4. Information Disclosure Does the Company disclose its guidelines on business ethics as well as information about implementation of such guidelines on its website and Market Observation Post System (“MOPS”)?

V Sercomm has not yet disclosed its guidelines on business ethics on the Market Observation Post System ("MOPS").

None

5. If the Company has established corporate governance policies based on TSE Corporate Conduct and Ethics Best Practice Principles, please describe any discrepancy between the policies and their implementation. Sercomm has not yet established the “Corporate Conduct and Ethics Best Practice Principles”.

6. Other important information to facilitate better understanding of the Company’s corporate conduct and ethics compliance practices (e.g., review the company’s corporate conduct and ethics policy): None

Certified Public Accountant (CPA) Information

(1) If non-audit fees paid to CPAs, their accounting firm and its affiliates are more than one-fourth of

audit fees, specify the amount of audit and non-audit fees, as well as the scope of non-audit

services:

CPA Service Fees

Accounting Firm Name of CPA Period covered by CPA’s audit Note

Ernst & Young Kim Chang

2015/01/01 ~ 2015/12/31 None James Wang

Unit: Thousand NTD

Range of CPA service fee Audit fee Non-audit fee Total

1 Under NT$ 2,000 110 110

2 NT$2,000 ~ NT$4,000

3 NT$4,000 ~ NT$6,000 4,020 4,020

4 NT$6,000 ~ NT$8,000

5 NT$8,000 ~ NT$10,000

6 NT$10,000 and above

(2) For CPA changes, if the audit fee in the first year is lower than that of the prior year, specify the

audit fee before and after the change and the reasons: Not applicable

(3) If audit fees dropped by more than 15%, specify the amount and percentage of decline and

reasons: Not applicable

(4) Company Chairman, President or finance/accounting manager held positions in the Company’s

audit firm or its affiliates within the past year: Not applicable

039

Changes in Share Positions Among Directors, Supervisors, Managers

Unit: Shares

Title Name

2015 Current Year to April 17

ShareholdingIncrease / Decrease

Stock Mortgage

Shareholding Increase / Decrease

Stock Mortgage

Chairman Paul Wang Representative of LiJin Financial Consultant Co. Ltd.

0 (500,000) 0 0

Director & President James Wang 0 0 200,000 0

Director & Executive VP Ben Lin (599,000) 0 0 0

Director Lu, Shyue-Ching Representative of Pacific Venture Partners Co. Ltd

0 (1,000,000) 0 (460,000)

Director Tsao Victor Ying-Wel Representative of ZhuoJian Investment Co., Ltd.

0 0 471,586 0

Independent Director Shih, Chin-Tay 0 0 0 0

Independent Director Steve K. Chen 0 0 0

0

Supervisor J.S. Kuo (5,000) 0 0 0

Supervisor Edward Y. Way - Representative of YCSY Co., Ltd. 0 0 0 0

Supervisor Cynthia Hsiue 0 0 0 0

Senior Vice President Charles Chu 35,000 0 0 0

Vice President Leo Chen 0 0 0 0

Vice President Jemmy Lee (35,000) 0 0 0

Vice President Hawk Wu 0 0 0 0

Vice President Colette Chen (48,000) 0 0 0

Vice President Vicky Lin 50,000 0 0 0

040

Title Name

2015 Current Year to April 17

ShareholdingIncrease / Decrease

Stock Mortgage

Shareholding Increase / Decrease

Stock Mortgage

Vice President Earl Liao 25,000 0 0 0

Vice President Genevieve Lu 0 0 0 0

Auditing Supervisor Winnie Hsieh 4,000 0 (5,000) 0

Information Disclosing the Relationship between any of the Company’s Top Ten Shareholders

Name Shareholding Spouse & Minor

Shareholding by Nominee Arrangement

The relationship between any of the Company’s Top Ten Share holders

Shares % Shares % Shares % Name Relation

New Labor Pension Fund

14,325,000 5.90% 0 0.00% 0 0.00%

Matthews Asia Dividend Fund

12,680,000 5.22% 0 0.00% 0 0.00%

Owner of Yun Chuan Investment Ltd. – Chang, Yu-Fen

9,732,360 4.01% 0 0.00% 0 0.00%

Old Labor Pension Fund

6,650,000 2.74% 0 0.00% 0 0.00%

Owner of China Life Insurance Company owner - Wang, Ming-Yang

5,668,000 2.33% 0 0.00% 0 0.00%

Su Yi 4,809,322 1.98% 0 0.00% 0 0.00% Pacific Venture Partners Co., Ltd. Owner

Owner of Pacific Venture Partners Co., Ltd. – Su Yi

3,671,926 1.51% 0 0.00% 0 0.00% Su Yi Owner

Owner of ZhuoJian Investment Co., Ltd. - Tseng, Shu-Tzu

3,472,094 1.43% 0 0.00% 0 0.00%

PineBridge Funds series 3,268,000 1.35% 0 0.00% 0 0.00%

Owner of Cathy Life Insurance Company – Tsai, Hung-Tu

3,229,000 1.33% 0 0.00% 0 0.00%

041

Long-Term Investments Ownership

InvesteeSercomm Investment Total Investment

Shares % Shares %

Senslinq Inc. 250,000 100.00% 250,000 100.00%

Shukuan Investments Ltd. 2,800,000 100.00% 2,800,000 100.00%

Sercomm Trading Co., Ltd. 46,800,000 100.00% 46,800,000 100.00%

Zealous Investments Ltd. 30,956,000 100.00% 30,956,000 100.00%

Sernet (Suzhou) Technology Ltd. 29,900,000 100.00% 29,900,000 100.00%

Smart Trade Inc. 16,000,000 100.00% 16,000,000 100.00%

DWNet Technology Ltd. 16,000,000 100.00% 16,000,000 100.00%

Sercomm Japan Corp. 10,000 100.00% 10,000 100.00%

Sercomm France SARL 100,000 100.00% 100,000 100.00%

Sercomm Italian SRL 10,000 100.00% 10,000 100.00%

Sercomm Deutschland GmbH 100,000 100.00% 100,000 100.00%

Sercomm Russia LLC 10,000 100.00% 10,000 100.00%

Huayi (Suzhou) Telecommunication Technologies Ltd. 500,000 100.00% 500,000 100.00%

HawXeye Inc. 800,000 80.00% 800,000 80.00%

Suzhou FemTel Communications 6,500,000 100.00% 6,500,000 100.00%

Nanjing FemTel Communications 2,500,000 100.00% 2,500,000 100.00%

042

V. Capital & Shares Capitalization

Unit: Shares, as of December 31, 2015

Type of Share Authorized Shares

Issued Shares Un-issued Shares Total Shares

Common Stock 241,127,757 78,872,243 *320,000,000

History of Capitalization

Unit: Shares/ NTD, as of December 31, 2015

Year/ Month

IssuePrice

Authorized Paid-In Capital Source of Capital

Shares Amount Shares Amount

2015/4 10 *320,000,000 *3,200,000,000 230,139,688 2,301,396,880 Conversion of bonds

2015/6 10 *320,000,000 *3,200,000,000 230,998,658 2,309,986,580 Conversion of bonds

2015/9 10 *320,000,000 *3,200,000,000 240,863,986 2,408,639,860 Conversion of bonds

2015/12 10 *320,000,000 *3,200,000,000 241,127,757 2,411,277,570Conversion of bonds, Stock Options and Cancellation of employee new shares

* The amendments to Articles of Incorporation of authorized share capital was approved by General

Shareholders Meeting on June 26th, 2012. However, there are no changes in registered capital

temporality.

Status of Shareholders

As of April 17, 2016

Type of Shareholders

GovernmentAgencies

Financial Institutions

Other LegalEntities

Foreign Institutions Individual Total

Number of Shareholders 4 92 71 214 14,182 14,563

Shareholding 24,081,000 35,210,846 26,297,027 83,098,273 74,232,621 242,919,767

Ownership% 9.91% 14.49% 10.83% 34.21% 30.56% 100.00%

043

Distribution Profile of Ownership

Unit: Shares, as of April 17, 2016

Class of Shareholding Number of Shareholders Shareholding (share) %

1 999 3,513 687,781 0.28%

1,000 5,000 8,582 17,549,261 7.22%

5,001 10,000 1,149 9,153,661 3.77%

10,001 15,000 337 4,341,783 1.79%

15,001 20,000 243 4,531,122 1.87%

20,001 30,000 204 5,234,724 2.15%

30,001 40,000 95 3,407,503 1.40%

40,001 50,000 60 2,848,753 1.40%

50,001 100,000 139 10,143,859 4.17%

100,001 200,000 84 11,834,739 4.87%

200,001 400,000 62 17,391,763 7.16%

400,001 600,000 28 14,208,198 5.85%

600,001 800,000 12 8,481,461 3.49%

800,001 1,000,000 13 11,768,926 4.84%

Over 1,000,001 42 121,336,233 49.95%

Total 14,563 242,919,767 100.00 %

Major Shareholders

Unit: Shares, as of April 17, 2016

Name of Shareholders Shareholding %

New Labor Pension Fund 14,325,000 5.90%

Matthews Asia Dividend Fund 12,680,000 5.22%

Yun Chuan Investment Ltd. 9,732,360 4.01%

Old Labor Pension Fund 6,650,000 2.74%

China Life Insurance Company 5,668,000 2.33%

Su Yi 4,809,322 1.98%

Pacific Venture Partners Co., Ltd. 3,671,926 1.51%

ZhuoJian Investment Co., Ltd. 3,472,094 1.43%

PineBridge Funds series 3,268,000 1.35%

Cathy Life Insurance Company 3,229,000 1.33%

044

Market Price, Net Worth, Earnings and Dividends per Share

Unit: NTD/ Thousand Shares

Item 2014 2015 March 31, 2016

MarketPrice

Highest 78.80 89.80 88.70

Lowest 51.80 60.10 75.70

Average 65.60 71.68 82.76

Net Value per Share

Before Distribution 26.32 28.75 29.49

After Distribution 23.33

Earnings per Share

Weighted Average Shares 225,449 234,080 241,827

Earning per Shares 4.21 5.57 1.17

Dividends per Share (Note 1)

Cash Dividend 3.0 4.0

Stock Dividend

From RetainedEarnings 0 0

From Capital Surplus 0 0

Accumulative Undistributed Dividends

Return on Investment (Note 2)

Price / Earning Ratio 15.58 12.87 70.74

Price / Dividend Ratio 21.87 17.92

Cash Dividend Yield Rate 4.57 5.58

Note1 Pending for Shareholder's approval

Note2 Price / Earning Ratio = Average market price / Earnings per share; Price / Dividend Ratio= Average market price / Cash dividend per share; Cash Dividend Ratio = Cash dividend per share / Average market price

Dividend Policy

The appropriations of the Company's earnings are base on the annual net income. The dividend

amount is determined by the profit earning condition, financial condition and future operating needs for

cash. In principle, dividends could be distributed in cash and/or in the form of stock; nevertheless, cash

dividends shall be no less than 10% of the aggregate amount distributed.

045

Dividends Paid

Year EPSNT$

Cash Dividend NT$ per share

Share Dividend NT$ per share

2015 5.57 4.00

2014 4.21 3.00 -

2013 4.19 3.00 -

2012 3.90 2.75 -

2011 3.29 2.39 -

2010 1.88 1.47 -

2009 1.24 1.00 -

2008 1.88 1.50 -

2007 3.65 2.00 0.40

2006 2.69 0.99 0.99

2005 2.76 1.07 1.07

Distribution of Profit

Sercomm's Board of Directors adopted a proposal for 2015 profit distribution. This proposal is

subject to approval by shareholders at the annual general meeting, scheduled for June 15, 2016

Proposal of Profit Distribution for 2015

Unit: NTD

Cash dividend $4.00 per shareCash bonus to employees $196,033,474Remuneration to Directors and Supervisors $24,966,526

046

Convertible Bonds

Type of Corporate Bond 4th Domestic Unsecured Convertible Bonds

Item 2014 2015 Current Year to March 31

Marekt Value of Convertible Bond

Highest 210.00 205.00

Lowest 147.00 205.00

Average 160.19 205.00

Conversion Price 34.59 32.95 32.95

Issuing Date and Conversion Price (NTD) 2011/8/30 40.76

2011/8/30 40.76

2011/8/30 40.76

Obligation of Conversion Issue of new shares Issue of new shares Issue of new shares

Type of Corporate Bond 5th Domestic Unsecured Convertible Bonds

Item 2014 2015 Current Year to March 31

Marekt Value of Convertible Bond

Highest 169.00 200.00

Lowest 117.00 150.00

Average 139.44 165.96

Conversion Price 44.52 42.41 42.41

Issuing Date and Conversion Price (NTD) 2012/8/31 49.67

2012/8/31 49.67

2012/8/31 49.67

Obligation of Conversion Issue of new shares Issue of new shares Issue of new shares

047

Employee Stock Options

As of April 17, 2016

Category 1st Employee Stock Options

Date of Approval by Regulatory Authority 2015/5/25

Issue Date 2015/5/27

Number of Shares Issued (Share) 10,000,000

Number of Shares Issued / Total Issued Shares (%) 4.35%

Exercise Period 10 years

Method of Provision Issue of new shares

Vesting Schedule

After 2 full years have elapsed from the time the stock option holder is allocated the employee stock options, the option holder may exercise the share purchase rights according to the schedule set out below. The duration of the stock options is 10 years. The stock options and rights and interests therein may not be transferred, pledged, given to others, or disposed in any other manner, except by succession. After the expiration of the duration of the employee stock options, any unexercised options shall be deemed forfeited, and the stock option holder may not make any further claim to share purchase rights. Percentage of share purchase rights that may be exercised according to the time elapsed since the allocation of the stock options (cumulative) Two full years have elapsed: 50Three full years have elapsed: 75Four full years have elapsed: 100%

Number of Shares in Exercised Options (Share) 0

Total Amount in Exercised Options (NTD) 0

Number of Shares In Unexercised Options (Share) 10,000,000

Price per Share In Unexercised Options (NTD) 60.6

Number of Shares In Unexercised Options as Share of Total Issued Shares (%) 4.12%

Impact on Shareholders’ Equity (%) 8.50%

048

VI. Business Overview Business Scope

Item 2014 2015

Wired Product 22.08% 26.77%

Wireless Product 76.19% 71.43%

Others 1.73% 1.80%

Total 100.00% 100.00%

Main Products

(1) Fixed Mobile Products

(2) Broadband Access

(3) Smart Home Control

(4) Enterprise & SMB

(5) Home Connectivity

(6) Telematics

New Products under Developing

(1) In Home Device (IHD)

(2) Relay Small Cell

(3) Motion Sensor

(4) Outdoor Camera with Battery

Industry Overview 1. Industry Status and Development

IEK of the Industrial Technology Research Institute (ITRI) pointed out in its “Key Issues of the Top

10 ICT Industry in 2016” that the axis of the ICT industry in 2016 is “Big Mesh, Diversified Loader, and

Emergence of Competitors”. In the generational change which is taking place in technology, change

and evolution in mainstream load have emerged as a key element. The result is a consequent focus on

the mode of diversified loaders and on diversified markets. This generational change will stimulate

technological innovation in related industry chains.

049

The “Top 10 key issues in the ICT industry” are:

1. The emergence of a variety of innovative e-invoices that will drive the ICT industry into

multi-polar development.

2. Coordination and sharing will be backed up by big data in the cloud which will orchestrate the

direction of the industrial market.

3. Online audiovisual service will emerge as a mainstream demand that will drive the rise of

different simulcast services.

4. The protocols of different forms of Internet communications will move toward integration and

that will make Internet security more difficult.

5. The emergence of virtual networks with NFV driven open network systems.

6. The resolution of the WRC-15 spectrum will entail advantages and disadvantages

simultaneously for IoT and unmanned aircraft.

7. The rise of the vertical application of semiconductors will drive the upward integration of system

makers.

8. Sustained innovation of automobile technologies will drive the semiconductor industry to

launch more chips for the use in automobiles.

9. The integration of the hardware and software of sensors will ignite the growth of the mechanical

visual market.

10. The extensive use of machine learning technology will pave the way for the development of

next generation technology.

The ICT industry in 2016 will be based in the IoT generation. The development of smart machines

will require a huge demand for different critical technologies. These in turn will drive up the demand for

different innovative e-invoices. As such, existing e-invoices will be compelled to feature more

innovative applications, such as the mobile internet loader and the coordinated sharing of economic,

virtual integration and online media. The development of a vertical application market is the most

suitable means for increasing the market application of these e-invoices.

In order to respond to the demand for diversified e-invoices and applications, and also to the

gradual saturation of the smart portable devices market, some brand making system firms have started

to manufacture processors designed to answer the future demands of the vertical application market of

the IoT. In doing so they hope to maintain their leadership positions.

In responding to the development of diversity, the ITU established the World Radio-communication

Conference 2015 (WRC-15) to revise the Radio Regulations. The results of this conference will prompt

the accelerated development of diversified applications.

For the industry of Taiwan in 2016, the dominant influence will be personal and mobile

computation. Premium products will be changed from minority loaders to diversified loaders in order to

050

attune to trends in development, and their target markets will switch from the consumer market to

vertical markets of different kinds. Likewise, organization, the focus of research and development,

product planning, marketing strategy and other essential components of enterprises will also change. In

addition, the direction for the development of the ICT industry in Taiwan will be towards preparation for

the key technologies required for the smart machine of the next generation and the integration of

existing e-invoices.

2. The Relationship Between the Upstream, Midstream and Downstream Parts of the Industry

Sercomm’s main business is the manufacture of wired and wireless networking products including

network application servers. In the computer networking industry we belong in the midstream segment.

Our upstream includes IC manufacturers and electronic components suppliers while our downstream

includes the average user, network equipment suppliers and enterprise network system developers.

Upstream Midstream Downstream

CPU Vendor LAN NIC Average User

IC Supplier Hub System Integrator

ASIC (in-house design) Bridge Enterprise network system developer

PCB Maker ISDN Interface (Terminal Adapter, Router, Card Modem etc.)

Computer peripherals/ Printer/Fax/Modem /ISDM/Multimedia Vendor

Chip Network Application Server Network Hardware Vendor

Passive Component Network Operating System

Resistor and Capacitor Supplier

Adapter Supplier

DRAM and SRAM Supplier

Flash Memory Supplier

3. Products Development and Competition

The IoT (Internet of Things) is a hot topic in the technology industry, with the insinuation that

people will be able to link everything over the web, including automobiles, home security systems,

kitchen appliances, and PCs. Likewise, people will be able to use their smart phones as a central

control for the management of their daily lives. This ability to maintain central control will make the IoT

more meaningful.

With the advent of the IoT, Bluetooth SIG launched the Bluetooth IE, while LTE launched the

051

LTE-M and NB-LTE. In addition, the 802.11p, which aimed at the IoV, was also unveiled. On January 4,

2016, Wi-Fi Alliance officially announced the introduction of Wi-Fi HaLow™ as the designation for

products incorporating IEEE 802.11ah technology. Wi-Fi HaLow will enable a variety of new

power-efficient uses in the Smart Home, Smart City and industrial environments.

According to the Wi-Fi Alliance, Wi-Fi HaLow is strongly recommended for meeting the needs of

smart homes and smart cities, and the exclusive needs of the industrial market. Owing to its low power

usage and better penetration, it provides much better coverage than the current Wi-Fi. In other words,

WiFi HaLow expands the unmatched versatility of Wi-Fi to enable applications from small,

battery-operated wearable devices to large-scale industrial facility deployments, and everything in

between, including healthcare, connected cars, retail and agriculture.

Wi-Fi HaLow are expected to operate in the unlicensed bands of 900 MHz as well as 2.4GHz and

5GHz. Wi-Fi HaLow’s range is nearly twice that of today’s Wi-Fi, and will not only be capable of

transmitting signals further, but also of providing a more robust connection in challenging environments,

where the ability to more easily penetrate walls or other barriers is an important consideration. Like all

Wi-Fi devices, Wi-Fi HaLow devices will support IP-based connectivity to natively connect to the cloud,

which itself will become increasingly important in reaching the full potential of the Internet of Things

(IoT).

Sources: Wi-Fi Alliance

For a long time, Bluetooth and Wi-Fi were bitter competitors against each other but turned towards

coexistence later. However, the advent of the IoT is triggering another wave of competition between the

two. For example, when Bluetooth SIG announced the Bluetooth 3.0 standard, it also announced the

launch of the 3.0 +HS standard which is targeted at the market based on 802.11 high-speed

052

transmissions. Now Wi-Fi HaLow approximates the 2016 technology blueprint of Bluetooth SIG in

certain areas. This implies that Wi-Fi Alliance and Bluetooth SIG are about to engage in another cycle

of competition.

Many in the industry worried that the launch of HaLow by Wi-Fi Alliance was a little too late

because testing could not be done until 2018. Furthermore, AT&T launched its low-power LTE module

on January 4, 2016. This module is strongly suitable for IoT devices. In the future, AT&T may link to

mobile and IoT networks. Meanwhile device makers are having difficulty getting HaLow chips on short

notice, and the eventual price will affect competition in this area of technology in the future. However,

many in the industry hold that the time of IoT is yet to come and Wi-Fi Alliance still has time to

improve its business opportunities..

The Sercomm product breakdown in 2015 was 65% in Gateway, 10% in Fixed-Mobile Products,

16% in Smart Home Control/Surveillance and 9% in SMB Products.

Gateway: With its sound knowledge of system integration and flexible manufacturing capacity,

Sercomm successfully provides the best time-to-market solution and has increased its market share in

the global telecom market. The customers’ base includes tier one telecom operators and networking

companies. Meanwhile, an overall automation upgrade of manufacturing processes has improved the

operation efficiency and strengthened the economy of scale. This has made Sercomm the leader in the

home networking industry.

Smart Home Surveillance: The rapid development of IoT and Cloud services contributed to the

accelerated growth in demand for smart home monitoring. Sercomm is highly knowledgeable in the

area of software/firmware integration and has become a strategic partner in providing best solutions to

major telecom operators and system integrators.

Small Cell: The exploding growth of mobile data volume and the increasing demand for diversion

of traffic has made small cell the optimal solution for the seamless linkage required for the

heterogeneous network (HetNet). Small Cell can assist telecommunication service providers to

enhance the coverage of the 4G signal and provide data diversion to reduce the loading of indoor and

outdoor base stations. Sercomm is a leader in 3G/4G Small Cell technology and provides total

solutions, including residential, enterprise and outdoor Small Cell. This will produce sustained mid to

long-term growth.

053

Trends in Gross Margin Rate for Taiwanese Networking Vendors

Source: M.O.P.S

Given the increasing diversification of applications to the IoT in 4G, the company will focus on its

capacity to integrate firmware and will surpass its industry competitors and maintain a competitive edge

in telematics, cloud applications, and other IoT applications. This will help to bring in revenue and

maintain a certain level of profit.

Research & Development Expenses

Unit: Thousand NTD

Item 2015 2016 Q1

R&D Expenses 1,500,365 401,845

Net Sales 35,011,966 8,809,588

R&D/Net Sales (%) 4.29% 4.56%

R&D Achievements:

(1) Fixed Mobile Products

– TD-LTE Small Cell

– FDD-LTE Small Cell

054

– TD-SCDMA/TD-LTE Dual Mode Small Cell

– Mini Plug-and-play GPON SFP Optical Network Unit

– SON Enabled Dual Mode LTE Small Cell System

(2) Broadband Access

– High Performance WiFi and PLC Aggregation DSL Gateway

– High Performance WiFi FTTH EPON Home Gateway

– Dual-band WiFi GPON Integrated Access Device

(3) Smart Home Control

– Outdoor IP Camera

Long-term and Short-term Business Development Plans 1. Long-term Development Plans

(A) Enrich knowledge of the industry, cultivate employees with expertise in industry IT networks and

develop core technology products.

(B) Strengthen collaboration with well-known international technology companies, improve

technology R&D capability and develop high value-added products.

(C) Actively develop new products with the goal of diversifying operations and entering the

international market.

2. Short-term Development Plans

(A) Marketing strategy

Consolidate existing customers and actively expand the market; build a complete marketing

network; fully implement quality assurance and inspection measures. Set up a comprehensive

after-sales service to provide customers with professional advice and repair services for

products.

(B) Production strategy

Strengthen product planning and production process management. Provide employees with

re-training as well as implement budget and cost control measures to increase productivity and

reduce production costs. Fully implement quality assurance and inspection measures.

055

Market, Production and Sales Outlook Revenue Breakdown by Geography

Unit: Thousand NTD

Region 2014 2015

Amount % Amount %

Taiwan 6,547 0.03 12,174 0.04

Europe 5,542,001 23.90 6,578,259 18.79

North America 13,129,551 56.61 18,247,553 52.12

Asia ex-Taiwan 4,499,571 19.40 10,168,929 29.04

Other 15,019 0.06 5,051 0.01

Total 23,192,689 100.00 35,011,966 100.00

Market Analysis of Major Product Categories

Strong demand driven by broadband infrastructure upgrades worldwide contributed to the

magnificent growth of all Sercomm products.

The sustained construction of broadband infrastructures by the governments of most countries

around the world contributed to the strong demand for FTTx products and Cable DOCSIS 3.0.

In the area of Fixed-Mobile products, through exchanges with telecommunication customers,

Sercomm provides timely and cost-efficient products for European operators. In 2016, Sercomm will

focus on expanding the market in Europe by increasing its number of new customers and thus increase

its market share.

The IoT will continue to bring business opportunities for Smart Home Controls and unveil

opportunities for diversified service in the security monitoring , environmental protection, energy saving,

and home care markets. These will reinforce the core values of home security and convenience. Smart

home devices will continue to bring about cross-industry cooperation in order to create mutual value. In

the North American smart home market, Sercomm continues to enhance its penetration rate. The

diversity of Sercomm’s product portfolio, including IP Cameras, Sensors, and smart energy will be the

momentum for further growth.

056

Future Supply and Demand in the Market and Potential for Growth

(A) The emergence of low-price PCs has led to strong growth in the market for personal computers and

peripheral devices around the world. With the rapid spread of the Internet, there has not only been

strong growth in demand for the associated hardware but also in home networking and broadband

Internet access.

(B) Users are greatly dependent on the Internet greatly in the Internet Age. The broadband of fixed

networks and mobile Internet will be insufficient to meet the demand. Therefore, the telecos will be

forced to upgrade and construct base stations; the relevant equipment procurement project may

bring about profitable gains.

(C) The IoT has become a part of daily life for many people. According to certain analysts, the

connection device volume will reach 5 billion units by the end of 2015, a 30% increase from 2014's.

By 2020, the volume has the potential to exceed the total population of the world, with 40 billion

units.

(D) According to estimations by the IDC, by 2020 the market capitalization of IoT will soar to $1.46

trillion, with 38% contributed by the manufacturing industry in the Asia Pacific, excluding Japan

(APEJ). The growth in market cap reflects the rise of IoT in the Asia Pacific region.

Competitive Niche

Sercomm has foreseen the increasing maturity of the broadband networking market in the future

and our products can now all use wireless technology. Our customers have also recognized the

quality and stability of our products. We are continuing to enhance our product features to meet

market demand so all these will have a positive effect on revenue in the future with the Internet

becoming even more widespread and the growth of the broadband market.

Positive and Negative Factors in Long-Term Development

(A)Positive Factors

a. High level of flexibility in product combinations

Sercomm's business portfolio is divided into large-scale volume production of lower-margin

products and custom higher-margin niche products. It is Sercomm's intention to maintain a

business model that balances volume commodity/niche products after taking the company's

long-term strategy and market positioning into account. Primary focus is given to consolidating

existing markets and customers with the goal of pursuing steady growth while maintaining profit

margins. This approach is aimed at strengthening and reinforcing the company's operations. The

company's business strategy will also adjust profits and revenues as necessary in order to build up

057

Sercomm's economies of scale and boost our market standing.

b. Leadership in technology R&D

Sercomm was the first Taiwanese manufacturer to develop wireless routers, wireless printer

servers and MFPs. We were also the first company to announce an 11n ADSL Gateway and the

first company in Taiwan to announce a mesh WiFi router. Our customers have all acknowledged

these products’ quality and attractiveness to the market, allowing us to join the ranks of suppliers to

front-line brands. The collaboration with international networking companies contributes towards

our product’s international competitiveness and continued business expansion.

c. Layout of telecommunication service provider

This market demands multiple application equipments which are high value-added, instead of

low gross profit market. In terms of QuadPlay (four in one) and Small cell, it is expected that the

shipments will be increased due to the increasing demand in the market, thereby helping the

average price and gross profit rate positively.

d. 5G developement

A joint effort of industry, government, and academics in launching the 5G Taiwan Association

of Information and Communication Standards (TACICS) and Next Generation Mobile Networks

Alliance (NGMN) resulted in the production of a Memorandum Of Understanding at the “2016

Taipei 5G Summit”. In addition, cooperation between Taiwan and Mainland China in 5G also

moved things forward. With the support of the Ministry of Economic Affairs, the Wireless &

Information Technology Communication Leaders United Board (WIT CLUB) and the FuTURE

Forum of Mainland China, have served as the windows on both sides which make it possible for

their academic circles to work together on integration and cooperation.. It is expected that both

sides will jointly build up the Open 5G source community and compete in the international arena

for 5G business opportunities.

(B) Unfavorable Factors and Countermeasures

Taiwan is behind as far as progress in 5G intellectual property rights goes and cannot establish her

own 5G standard, but can only work in cooperation with world-class participating firms to demonstrate

her strength. Taiwan will get the opportunity to play a critical role if she can get control of about 3~5% of

critical 5G intellectual property rights as they emerge.

Main Product Applications

With its strength in integration of network communication products accumulated after many years,

Sercomm has not only become the leading supplier of world-class WLAN equipment but also controls

the critical technology for Next-Generation Networks after the continuous R&D in network

communication technology. To deal with the emerging network applications integrated into homes,

058

059

Sercomm created value-added network communication products with its high-level software and

hardware product integration technology. The whole series of high-performance, high-quality and

diversified professional broadband network communication products include broadband network

communication access points, Integrated Access Device, Enterprise & SMB products, FTTx Products

and Smart Home Control/ Surveillance. No matter whether at home or in the office, they may satisfy

customers’ demands for diversified and all-in-one digital integration network communication.

Product Manufacturing Process

The manufacturing processes for our company’s products are divided into PCB assembly and final

product assembly.

PCB assembly includes the SMT process and the DIP insertion process. The process is as follows:

The final product assembly process is as follows:

Prepare Material Front SMT

Infrared Welding Rear SMT

Insertion Solder Automatic

Testing

High Temperature

Baking

Automatic Testing

Housing Assembly Load Software

Function Testing Packaging

Shipping

Customers that Accounted for at Least 10% of Annual Consolidated Net Revenue

Unit: Thousand NTD

2014 2015

Customers SalesRevenue

As % of 2014 Total

Net Revenue

Relations to Sercomm

Customers SalesRevenue

As % of 2015 Total

Net Revenue

Relations to Sercomm

Customer A 6,345,332 27.36 None Customer A 11,612,938 33.17 None

Customer B 2,662,803 11.48 None Customer B 6,615,844 18.90 None

Others 14,184,554 61.16 Others 16,783,184 47.94

Total Sales Revenue

23,192,689 100.00 Total Sales Revenue

35,011,966 100.00

Production – A

Unit: Unit / Thousand NTD

Main Products 2014 2015

Capacity Quantity Amount Capacity Quantity Amount

Wired Product 8,000,000 6,562,526 4,851,714 8,000,000 7,470,895 8,637,341

Wireless Product 15,000,000 13,382,164 16,831,938 15,000,000 14,207,745 24,627,875

Total 23,000,000 19,944,690 21,683,652 23,000,000 21,678,640 33,265,216

Production – B

Unit: Unit / Thousand NTD

Main Products

2014 2015

Export Domestic Export Domestic

Quantity Amount Quantity Amount Quantity Amount Quantity Amount

Wired Product 6,341,471 5,496,896 10,728 6,267 6,972,490 9,679,774 4,786 1,964

Wireless Product 12,891,044 17,689,246 158 280 13,539,426 25,325,050 2,030 5,178

Total 19,232,515 23,186,142 10,886 6,547 20,511,916 35,004,824 6,816 7,142

060

061

Employees

Year 2014 2015 2016/05/05

Headcount 4,021 4,794 4,885

Average Age 30.4 31.82 32.67

Employment Period (years) 3.5 2.97 2.75

As Total Employees %

Ph. D. 0% 0% 0%

Master 5% 7% 7%

College 31% 36% 35%

Senior High School 63% 56% 58%

Junior High School or Lower 1% 1% 1%

Environmental Expenditure

Total value of losses or penalties due to environmental pollution in the most recent year and up to

the date of publication: None

Future response strategies and potential expenditure:

As a high-tech electronic company, Sercomm's production process including assembly, testing and

packaging of final products and semi-assemblies. No wastewater ,gases or noises are emitted during

production. Waste disposal is carried out in accordance with the Business Waste Disposal Plan while

the waste is disposed and recycled legally .

With global environmental awareness raised, European Union, North America and Japan have all

implemented environmental requirements. Sercomm’s green product design is required to not only

comply with power saving design and various regulations banning and restricting substances harmful to

the environment, but also follow the “3R” (Reduce, Recycle and Reuse) principles of Waste of

Electronic and Electrical Equipment (WEEE) implemented by the European Union. In doing so,

Sercomm hopes to achieve the goals of eco-friendliness, extension of the product lifetime, and easy

disassembly and easy recycling of the products. Through the collaboration among upstream and

downstream supply chains, the company provides energy saving, efficiency-improving and low

hazardous products so as to promote the environmentally sustainable management and to fulfill

corporate social responsibilities.

Employer-employee Relationships

The implementation of an employee welfare policy, continuing education and training, retirement

system, and labor-management coordination and the protection of the rights of the employees:

1. Employee welfare policy

The Company provides the National Health Insurance, labor insurance and group insurance in

accordance with Labor Standards Act and relevant laws /regulations to increase the protection of the

rights of the employees. The premiums are undertaken by the Company. Additionally, budget is

planned every year for employees’ education and training. The company established the Employee

Welfare Committee, which was approved by the Department of Labor, Taipei City Government in

October 1996.

For compensation & benefits, not only marriage, funeral and maternity subsidies are provided to

employees, but also company outings and various recreational activities are regularly organized for

employees with physical and mental relaxation.

2. Learning and Development

Sercomm knows clearly that talent is the most invaluable asset of an enterprise. Therefore, huge

amount of budgets and efforts are invested every year for employees to learn and grow, and thus to

enrich and enhance new knowledge in order to make employees and the company grow

synchronously.

Our training system includes: New Employee Training, Professional Skill Training, Management

Development Training, General Educational Training, Language Study and Practice Training. Sercomm

stresses the importance of individual career development. Therefore, having the core functions as the

center, the company provides rich and diverse learning resources that allow every employee to

continuously boost and receive new knowledge at work and to stimulate the inherent potential.

In addition to serving their professional duties, employees in Sercomm also can expand their

career arena through job rotation and other opportunities of diversified development. When employees

have sufficient and nearly-complete experiences on each position, they can be promoted to the

management level, achieving truly sustainable career development.

062

VII. Financial Review Condensed Balance Sheet IFRSs (Consolidated)

Unit: Thousand NTD

Item 2011 2012 2013 2014 2015 As of March

31, 2016

Current Assets 9,319,853 9,471,368 13,912,947 18,029,817 17,525,654

Property, Plant and Equipment 2,931,412 3,245,122 3,321,363 3,380,603 3,421,693

Intangible Assets 157,031 138,650 131,845 307,021 297,820

Other Assets 526,962 537,759 622,242 810,542 708,535

Total Assets 12,935,258 13,392,899 17,988,397 22,527,983 21,953,702

Current Liabilities

Before Distribution 7,463,618 7,887,024 11,652,110 15,328,506 14,594,040

After Distribution 8,007,770 8,493,356 12,339,764

Noncurrent Liabilities 1,655,923 778,180 277,340 261,842 227,841

Total Liabilities

Before Distribution 9,119,541 8,665,204 11,929,450 15,590,348 14,821,881

After Distribution 9,663,693 9,271,536 12,617,104

Equity Attributable to Shareholders of the Parent

Capital Stock 1,972,855 2,110,586 2,299,623 2,413,636 2,429,137

Capital Surplus 498,409 852,945 1,390,698 1,529,471 1,583,155

Retained Earning

Before Distribution 1,389,326 1,691,990 2,029,514 2,637,393 2,919,579

After Distribution 845,174 1,085,658 1,341,860

Others -44,873 72,174 333,022 358,567 196,428

Treasury Shares 0 0 0 0 0

Noncontrolling interests 0 0 6,090 -1,431 3,522

Total Equity Before Distribution 3,815,717 4,727,695 6,058,947 6,937,635 7,131,821

After Distribution 3,271,565 4,121,363 5,371,293

063

Condensed Balance Sheet IFRSs (Non-consolidated)

Unit: Thousand NTD

Item 2011 2012 2013 2014 2015

Current Assets 4,523,813 5,007,513 5,546,441 7,509,151

Property, Plant and Equipment 1,123,956 1,445,140 1,533,665 1,514,622

Intangible Assets 153,704 127,457 116,262 197,796

Other Assets 2,875,801 3,460,540 4,044,730 4,986,770

Total Assets 8,677,274 10,040,650 11,241,098 14,208,339

CurrentLiabilities

Before Distribution 3,207,841 4,479,333 4,898,414 7,011,002

After Distribution 3,751,993 5,085,665 5,586,068

Noncurrent Liabilities 1,653,716 833,622 289,827 258,270

Total Liabilities

Before Distribution 4,861,557 5,312,955 5,188,241 7,269,272

After Distribution 5,405,709 5,919,287 5,875,895

Equity Attributable to Shareholders of the Parent

Capital Stock 1,972,855 2,110,586 2,299,623 2,413,636

Capital Reserve 498,409 852,945 1,390,698 1,529,471

Retained Earning

Before Distribution 1,389,326 1,691,990 2,029,514 2,637,393

After Distribution 845,174 1,085,658 1,341,860

Others -44,873 72,174 333,022 358,567

Treasury Shares 0 0 0 0

Noncontrolling interests 0 0 0 0

Total Equity Before Distribution 3,815,717 4,727,695 6,052,857 6,939,067

After Distribution 3,271,565 4,121,363 5,365,303

064

Condensed Balance Sheet ROC GAAP (Consolidated)

Unit: Thousand NTD

Item 2011 2012 2013 2014 2015

Current Assets 8,976,619 9,330,159

Long-Term Investments and Funds 188,079 183,556

Fixed Assets 2,496,673 3,026,655

Intangible Assets 246,996 251,595

Other Assets 115,750 111,161

Total Assets 12,024,117 12,903,126

CurrentLiabilities

BeforeDistribution 7,771,950 7,436,720

After Distribution 8,240,634 7,980,872

Long-Term Liabilities 873,744 1,600,469

Other Liabilities 105,814 15,275

Total Liabilities

BeforeDistribution 8,751,508 9,052,464

After Distribution 9,220,192 9,596,616

Capital 1,827,960 1,972,855

Capital Reserve 308,989 498,409

Retained Earnings

BeforeDistribution 973,481 1,259,633

After Distribution 504,797 715,481

Unrealized Loss/Gain on Financial Assets 0 -8,772

Cumulative Translation Adjustment 162,179 128,537

Unrealized Loss on Retirement 0 0

Shareholders' Equity

BeforeDistribution 3,272,609 3,850,662

After Distribution 2,803,925 3,306,510

065

Condensed Balance Sheet ROC GAAP (Non-consolidated)

Unit: Thousand NTD

Item 2011 2012 2013 2014 2015

Current Assets 4,525,886 4,536,965

Long-Term Investments and Funds 2,427,770 2,680,749

Fixed Assets 665,982 1,235,923

Intangible Assets 127,750 139,240

Other Assets 58,115 54,864

Total Assets 7,805,503 8,647,741

CurrentLiabilities

BeforeDistribution 3,540,050 3,181,335

After Distribution 4,008,734 3,725,487

Long-Term Liabilities 873,744 1,600,469

Other Liabilities 119,100 15,275

Total Liabilities

BeforeDistribution 4,532,894 4,797,079

After Distribution 5,001,578 5,341,231

Capital 1,827,960 1,972,855

Capital Reserve 308,989 498,409

Retained Earnings

BeforeDistribution 973,481 1,259,633

After Distribution 504,797 715,481

Unrealized Loss/Gain on Financial Assets 0 -8,772

Cumulative Translation Adjustment 162,179 128,537

Unrealized Loss on Retirement 0 0

Shareholders'Equity

BeforeDistribution 3,272,609 3,850,662

After Distribution 2,803,925 3,306,510

066

Condensed Statement of Income IFRSs (Consolidated)

Unit: Thousand NTD

Item 2011 2012 2013 2014 2015 As of March 31, 2016

Operating Revenue 19,267,971 19,076,628 23,192,689 35,011,966 8,809,588

Gross Profit From Operations 2,985,737 3,070,040 3,654,987 4,983,969 1,236,621

Net Operating Income 1,031,254 872,191 1,180,417 1,664,706 348,490

Non-operating Income and Expenses -97,941 151,530 8,521 -81,391 2,392

Income Before Tax 933,313 1,023,721 1,188,938 1,583,315 350,882

Net Income 753,959 844,927 949,059 1,297,000 287,269

Other Comprehensive Income -36,255 138,939 239,821 12,380 -162,268

Total Comprehensive Income 717,704 983,866 1,188,880 1,309,380 125,001

Net Income, Attributable to Owners of Parent 753,959 844,927 949,302 1,304,508 282,186

Net Income, Attributable to Non-controlling of Interests 0 0 -243 -7,508 5,083

Comprehensive Income Attributable to Owners of Parent 717,704 983,866 1,188,877 1,316,902 120,047

Comprehensive Income Attributable to Non-controlling of Interests 0 0 3 -7,522 4,954

Basic Earnings per share 3.90 4.19 4.21 5.57 1.17

Condensed Statement of Income IFRSs (Non-consolidated)

Unit: Thousand NTD

Item 2011 2012 2013 2014 2015

Operating Revenue 16,599,157 17,011,137 19,230,890 25,807,240

Gross Profit From Operations 1,814,497 1,904,097 2,045,112 2,621,986

Net Operating Income 689,800 592,027 682,126 735,810

Non-operating Income and Expenses 189,637 366,039 319,440 676,802

Income Before Tax 879,437 958,066 1,001,566 1,412,612

Net Income 753,959 844,927 949,302 1,304,508

Other Comprehensive Income -36,255 138,939 239,575 12,394

Total Comprehensive Income 717,704 983,866 1,188,877 1,316,902

Basic Earnings per share 3.90 4.19 4.21 5.57

067

Condensed Statement of Income ROC GAAP (Consolidated)

Unit: Thousand NTD

Item 2011 2012 2013 2014 2015

Net Sales 13,241,507 19,267,971

Gross Profit 1,979,510 2,985,737

Operating Income 561,954 1,032,657

Non-Operating Income 213,809 74,034

Non-Operating Expenses 74,307 171,975

Pre-Tax Income from Continuing Operations 701,456 934,716

Net Income/Loss from Continuing Operations 583,041 754,836

Cumulative Effect of Change in Accounting Principle 0 0

Net Income 583,041 754,836

EPS (NTD) 3.29 3.90

Condensed Statement of Income ROC GAAP (Non-consolidated)

Unit: Thousand NTD

Item 2011 2012 2013 2014 2015

Net Sales 10,811,908 16,599,157

Gross Profit 1,181,384 1,814,497

Operating Income 323,233 691,203

Non-Operating Income 362,389 246,788

Non-Operating Expenses 34,858 57,151

Pre-Tax Income from Continuing Operations 650,764 880,840

Net Income/Loss fromContinuing Operations 583,041 754,836

Cumulative Effect of Change in Accounting Principle 0 0

Net Income 583,041 754,836

EPS (NTD) 3.29 3.90

068

Financial Analysis IFRSs

Item

2011 2012 2013 2014 2015 As of March 31, 2016

Non-consolidated Consolidated Non-

consolidated Consolidated Non-consolidated Consolidated Non-

consolidated Consolidated Consolidated

Financial Ratio (%)

Total Liabilities to Total Assets

56.03 70.50 52.91 64.70 46.15 66.32 51.16 69.20 67.51

Long-term Funds to Property, Plant, Equipment

486.62 186.66 384.83 169.67 413.56 190.77 475.19 212.96 215.09

Liquidity (%)

Current Ratio 141.02 124.87 111.79 120.09 113.23 119.4 107.11 117.62 120.09

Quick Ratio 113.82 92.49 84.48 84.61 78.42 86.39 63.30 81.44 83.96

Time Interest Earned 22.38 12.09 27.38 19.48 32.06 15.43 41.42 22.17 14.45

Operating Performance

AR Turnover (Times) 13.96 8.61 14.12 8.55 14.76 6.59 14.64 6.40 6.15

AR Turnover (Days) 26.15 42.40 25.85 42.67 24.72 55.38 24.94 57.02 59.33

Inventory Turnover (Times)

20.47 7.78 15.67 6.52 12.86 6.24 10.29 6.67 5.83

AP Turnover (Times) 8.29 4.39 6.63 3.68 6.89 3.49 8.46 3.80 3.35

Inventory Turnover (Days)

17.84 46.89 23.30 55.98 28.39 58.51 35.47 54.69 62.66

Property, Plant, Equipment Turnover (Times)

19.21 7.17 13.24 6.18 12.91 7.06 16.93 10.45 10.36

Total Assets Turnover (Times)

2.01 1.54 1.82 1.45 1.81 1.48 2.03 1.73 1.58

Profitability

Return on Assets (%) 9.55 6.59 9.35 6.77 9.17 6.48 10.48 6.71 5.56

Return on Equity (%) 21.39 21.39 19.78 19.78 17.61 17.60 20.08 19.96 16.33

Pre-Tax Income to Pay-in Capital(%)

44.58 47.31 45.39 48.50 43.55 51.7 58.53 65.60 57.78

Net Income / Sales (%) 4.54 3.91 4.97 4.43 4.94 4.09 5.05 3.70 3.26

EPS (NTD) 3.90 3.90 4.19 4.19 4.21 4.21 5.57 5.57 1.17

Cash Flow

Cash Flow Ratio (%) 46.68 32.82 22.27 11.81 2.77 6.70 -1.34 10.38 13.13

Cash Flow Adequacy Ratio (%)

97.84 80.58 90.59 79.24 68.53 62.37 45.55 69.58 94.53

Cash Reinvestment Ratio (%)

18.13 30.97 7.77 5.76 -7.21 2.26 -10.42 10.13 20.95

Leverage

Operating Leverage 3.31 2.77 3.79 3.09 3.72 2.86 4.41 3.00 3.43

Financial Leverage 1.06 1.09 1.07 1.07 1.05 1.08 1.05 1.05 1.08

069

1. Financial Ratio

(1) Total Liabilities to Total Assets Total Liabilities Total Assets

(2) Long-term Funds to Property, Plant, and Equipment Total Equity Non-current Liabilities

Property, Plant, and Equipment 2. Ability to Pay Off Debt

(1) Current Ratio Current Assets Current Liability

(2) Quick Ratio Current Assets Inventory Prepaid Expenses Current Liability

(3) Interest Protection Net Income Before Income Tax and Interest Expense Interest Expense 3. Ability to Operate

(1) Account Receivable (including Account Receivable and Notes Receivable from Operation)

Turnover Net Sales the Average of Account Receivable (including Account Receivable and

Notes Receivable from Operation) Balance

(2) A/R Turnover Day 365 Account Receivable Turnover

(3) Inventory Turnover Cost of Goods Sold the Average of Inventory

(4) Account Payable (including Account Payable and Notes Payable from Operation) Turnover

Cost of Goods Sold the Average of Account Payable including Account Payable and Notes

Payable from Operation Balance

(5) Inventory Turnover Day 365 Inventory Turnover

(6) Fixed Assets Turnover Net Sales Net Fixed Assets

(7) Total Assets Turnover Net Sales Total Assets 4. Earning Ability

(1) Return on Assets PAT Interest Expense×( Interest Rate) the Average of Total

Assets

(2) Return on Equity PAT the Average of Net Equity

(3) Net Income Ratio PAT Net Sates

(4) EPS Profit Attributable to Owners of Parent Dividend from Prefer Stock Weighted

Average Outstanding Shares 5. Cash Flow

(1) Cash Flow Ratio Cash Flow from Operating Activities Current Liability

(2) Net Cash Flow Adequacy Ratio Most Recent 5-year Cash Flow from Operating Activities

Most Recent 5-year (Capital Expenditure the Increase of Inventory Cash Dividend)

(3) Cash Investment Ratio Cash Flow from Operating Activities Cash Dividend (Property,

Plant, and Equipment Long-term Investment Other Non-current Assets Working Capital) 6. Leverage

(1) Operating Leverage (Net Revenue Variable Cost of Goods Sold and Operating Expense)

Operating Income

(2) Financial Leverage Operating Income (Operating Income Interest Expenses)

070

Financial Analysis ROC GAAP

Item

2011 2012 2013 2014 2015

Non- consolidated Consolidated Non-

consolidated Consolidated

Financial Ratio (%)

Total Liabilities to Total Assets 58.07 72.78 55.47 70.16

Long-term Funds to Fixed Assets 622.59 166.08 441.06 180.10

Liquidity (%)

Current Ratio 127.85 115.50 142.61 125.46

Quick Ratio 106.47 87.66 113.16 91.95

Time Interest Earned 2,055 1,166 2,241 1,210

Operating Performance

AR Turnover (Times) 7.71 6.00 14.11 8.68

AR Turnover (Days) 47.32 60.83 25.87 42.05

Inventory Turnover (Times) 13.59 6.98 18.80 7.78

AP Turnover (Times) 5.87 4.10 8.29 4.39

Inventory Turnover (Days) 26.86 52.26 19.42 46.89

Fixed Assets Turnover (Times) 18.37 5.92 17.46 6.98

Total Assets Turnover (Times) 1.56 1.32 2.02 1.55

Profitability

Return on Assets (%) 8.83 6.38 9.59 6.62

Return on Equity (%) 19.87 19.87 21.19 21.19

To Pay-in Capital %

OperatingIncome 17.68 30.74 35.04 52.34

Pre-Tax Income 35.60 38.37 44.65 47.38

Net Income / Sales (%) 5.39 4.40 4.55 3.92

EPS (NTD) 3.29 3.29 3.90 3.90

Cash Flow

Cash Flow Ratio (%) 19.93 9.27 32.31 32.96

Cash Flow Adequacy Ratio (%) 129.37 63.12 94.74 80.40

Cash Reinvestment Ratio (%) 10.49 9.60 10.47 30.40

Leverage Operating Leverage 4.24 3.26 3.30 2.77

Financial Leverage 1.11 1.13 1.06 1.09

071

1. Financial Ratio

(1) Total Liabilities to Total Assets Total Liabilities Total Assets

(2) Long-term Funds to Property, Plant, and Equipment Total Equity Non-current Liabilities

Property, Plant, and Equipment 2. Ability to Pay Off Debt

(1) Current Ratio Current Assets Current Liability

(2) Quick Ratio Current Assets Inventory Prepaid Expenses Current Liability

(3) Interest Protection Net Income Before Income Tax and Interest Expense Interest Expense 3. Ability to Operate

(1) Account Receivable (including Account Receivable and Notes Receivable from Operation)

Turnover Net Sales the Average of Account Receivable (including Account Receivable and

Notes Receivable from Operation) Balance

(2) A/R Turnover Day 365 Account Receivable Turnover

(3) Inventory Turnover Cost of Goods Sold the Average of Inventory

(4) Account Payable (including Account Payable and Notes Payable from Operation) Turnover

Cost of Goods Sold the Average of Account Payable including Account Payable and Notes

Payable from Operation Balance

(5) Inventory Turnover Day 365 Inventory Turnover

(6) Fixed Assets Turnover Net Sales Net Fixed Assets

(7) Total Assets Turnover Net Sales Total Assets 4. Earning Ability

(1) Return on Assets PAT Interest Expense×( Interest Rate) the Average of Total

Assets

(2) Return on Equity PAT the Average of Net Equity

(3) Net Income Ratio PAT Net Sates

(4) EPS Profit Attributable to Owners of Parent Dividend from Prefer Stock Weighted

Average Outstanding Shares 5. Cash Flow

(1) Cash Flow Ratio Cash Flow from Operating Activities Current Liability

(2) Net Cash Flow Adequacy Ratio Most Recent 5-year Cash Flow from Operating Activities

Most Recent 5-year (Capital Expenditure the Increase of Inventory Cash Dividend)

(3) Cash Investment Ratio Cash Flow from Operating Activities Cash Dividend (Property,

Plant, and Equipment Long-term Investment Other Non-current Assets Working Capital) 6. Leverage

(1) Operating Leverage (Net Revenue Variable Cost of Goods Sold and Operating Expense)

Operating Income

(2) Financial Leverage Operating Income (Operating Income Interest Expenses)

072

VIII. Financial Status and Operating Results Financial Position

Unit: Thousand NTD

Item 2014 2015 Difference Change %

Current Assets 13,912,947 18,029,817 4,116,870 29.59

Non-Current Assets 4,075,450 4,498,166 422,716 10.37

Total Assets 17,988,397 22,527,983 4,539,586 25.24

Current Liabilities 11,652,110 15,328,506 3,676,396 31.55

Non-Current Liabilities 277,340 261,842 -15,498 -5.59

Total Liabilities 11,929,450 15,590,348 3,660,898 30.69

Capital Stock 2,299,623 2,413,636 114,013 4.96

Capital Surplus 1,390,698 1,529,471 138,773 9.98

Retained Earnings 2,029,514 2,637,393 607,879 29.95

Other Equity Interest 333,022 358,567 25,545 7.67

Total Shareholders' Equity 6,058,947 6,937,635 878,688 14.50

Operating Results

Unit: Thousand NTD

Item 2014 2015 Difference Change %

Operating Revenues 23,192,689 35,011,966 11,819,277 50.96

Operating Costs 19,537,702 30,027,997 10,490,295 53.69

Gross Profit from Operations 3,654,987 4,983,969 1,328,982 36.36

Operating Expenses 2,474,570 3,319,263 844,693 34.13

Operating Profit 1,180,417 1,664,706 484,289 41.03

Non-Operating Income and Expenses 8,521 -81,391 -89,912 -1055.18

Income before Tax 1,188,938 1,583,315 394,377 33.17

073

Analysis of Cash Flow

Item 2014 2015 Change%

Cash Flow Ratio (%) 6.70 10.38 54.93

Cash Flow Adequacy Ratio (%) 62.37 69.58 11.56

Cash Reinvestment Ratio (%) 2.26 10.13 348.23

Projected Cash Flow

Unit: Thousand NTD

Beginning Cash Balance

Cash Flows from Operating

Activities

Cash Flows from Investing & Financing

Activities

Projected Ending Cash Balance

Source of Funding for Cash Shortfall

InvestingPlan

FinancingPlan

5,364,658 1,785,606 2,153,354 4,996,910

074

IX. Special Disclosures Affiliated Companies Chart

SercommCorporation

Senslinq Inc.

HawXeye Inc.

SercommRussiaLLC.

SercommJapan Corp.

Shukuan Investments

Ltd.

SercommFrance SARL

SercommItalianSRL

SercommDeutschland

GmbH

SmartTrade Inc.

DWNetTechnology

Ltd.

Suzhou FemTel

Communications

Nanjing FemTel

Communications

SercommTrading Co.,

Ltd.

Zealous Investment

Ltd.

Sernet (Suzhou) Technology

Ltd.

Huayi (Suzhou) Telecommunication

Technologies Ltd.

075

Affiliated Companies

Company Date of Incorporation Paid-in Capital Major Business

Senslinq Inc 1996/09/25 USD$250,000 Sales of IT Products

Shukuan Investments Ltd. 2002/12/31 NT$28,000,000 Investment Activity

Sercomm Trading Co., Limited 2002/06/24 USD$46,800,000 Investment Overseas,

International Trading

Zealous Investments Ltd. 1999/08/12 USD$30,956,000 Investment Overseas, International Trading

Sernet (Suzhou) Technology Ltd. 2000/02/18 USD$29,900,000

Manufacture of Routers, Communication Products, WLAN Products; Sales and After-sales Service

Smart Trade Inc. 2003/03/21 USD$16,000,000 Investment Overseas, International Trading

DWNet Technology Ltd. 2004/01/14 USD$16,000,000 R&D Center of Software; Sales and After-sales Service

Sercomm Japan Corp. 2010/03/15 JPY$490,000,000 Sales of IT Products and International Trading

Sercomm France SARL 2011/01/27 EUD$100,000 Sales of IT Products and International Trading

Sercomm Italian SRL 2012/02/21 EUD$10,000 Sales of IT Products and International Trading

Sercomm Deutschland GmbH 2012/06/29 EUD$100,000 Sales of IT Products and International Trading

Sercomm Russia LLC. 2013/04/18 RUB$10,000 Sales of IT Products and International Trading

Huayi (Suzhou) Telecommunication Technologies Ltd.

2013/07/15 RMB$500,000

Manufacture of Routers, Communication Products, WLAN Products; Sales and After-sales Service

HawXeye Inc. 2014/04/23 USD$1,000,000 Development of advanced image analysis technology

Suzhou FemTel Communications 2009/11/20 RMB$6,500,000

Telecom equipment, software development and provide related technology service

Nanjing FemTel Communications 2013/01/16 RMB$2,500,000

Telecom equipment, software development and provide related technology service

076

Directors, Supervisors and Presidents of Affiliated Companies

Company Title Name / RepresentativeShareholdings

Shares %

Senslinq Inc Owner Paul Wang 250,000 100%

Shukuan Investments Ltd. Owner James Wang 2,800,000 100% Sercomm Trading Co., Limited Owner James Wang 46,800,000 100%

Zealous Investments Ltd. Owner James Wang 30,956,000 100% Sernet (Suzhou) Technology Ltd. Owner James Wang 29,900,000 100%

Smart Trade Inc. Owner Ben Lin 16,000,000 100%

DWNet Technology Ltd. Owner James Wang 16,000,000 100%

Sercomm Japan Corp. Owner Nobuhisa Itoh 10,000 100%

Sercomm France SARL Owner D’Humieres Thierry Michael Lee 100,000 100%

Sercomm Italian SRL Owner D’Humieres Thierry 10,000 100%

Sercomm Deutschland GmbH Owner D’Humieres Thierry Michael Lee

100,000 100%

Sercomm Russia LLC. Owner Gleb Fedorov 10,000 100% Huayi (Suzhou) Telecommunication Technologies Ltd.

Owner Charles Chu 500,000 100%

HawXeye Inc. Owner Andy Lin 800,000 80% Suzhou FemTel Communications Owner James Wang 6,500,000 100%

Nanjing FemTel Communications Owner James Wang 2,500,000 100%

077

Operational Highlights of Sercomm Subsidiaries

Unit: Thousand NTD / Year 2015

Company Capital Stock Assets Liabilities Net Worth Net

RevenueOperation

Income(Loss) Net

IncomeBasicEPS

Senslinq Inc 7,939 11,601 10,279 1,322 78,504 12,682 -2,334 0.00

Shukuan Investments Ltd. 28,000 36,744 4 36,740 0 -37 73 0.00

Sercomm Trading Co., Limited 1,471,186 4,377,578 16 4,377,562 0 0 719,445 0.00

Zealous Investments Ltd. 989,358 3,532,428 51,309 3,481,119 0 -51,384 588,329 0.00

Sernet (Suzhou) Technology Ltd. 933,252 10,295,959 6,821,168 3,438,791 20,378,808 685,008 658,541 0.00

Smart Trade Inc. 481,829 896,265 0 896,265 0 0 131,115 0.00

DWNet Technology Ltd. 481,829 6,045,538 5,149,275 896,263 9,035,861 328,893 131,115 0.00

Sercomm Japan Corp. 157,721 92,537 100,305 -7,768 135,924 -13,300 -13,997 0.00

Sercomm France SARL 4,004 21,966 14,764 7,202 44,782 -2,844 886 0.00

Sercomm Italian SRL 388 2,110 1,435 675 7,329 240 34 0.00

SercommDeutschland GmbH

3,727 18,595 20,182 -1,587 24,095 1,738 102 0.00

Sercomm Russia LLC. 10 217,720 218,834 -1,114 574,304 6,219 4,969 0.00

Huayi (Suzhou) Telecommunication Technologies Ltd.

2,454 2,546 0 2,546 0 0 0 0.00

HawXeye Inc. 30,436 3,897 11,057 -7,160 0 -37,541 -37,541 0.00

Suzhou FemTel Communications 32,599 35,971 29,840 6,131 27,753 -4,581 -4,563 0.00

Nanjing FemTel Communications 12,538 6,500 3,599 2,901 7,131 -866 -2 0.00

078

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AUDIT REPORT OF INDEPENDENT AUDITORS

English Translation of a Report Originally Issued in Chinese To Sercomm Corporation We have audited the accompanying consolidated balance sheets of Sercomm Corporation and subsidiaries (the “Group”) as of 31 December 2015 and 2014, and the related consolidated statements of comprehensive income for the years ended 31 December 2015 and 2014, consolidated statements of changes in equity and cash flows for the years ended 31 December 2015 and 2014. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audits in accordance with “Guidelines for Certified Public Accounts Examination and Reporting on Financial Statements” and generally accepted auditing standards in the Republic of China. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatment. An audit includes examing, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audit results, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sercomm Corporation and subsidiaries as of 31 December 2015 and 31 December 2014, and the consolidated results of their operations and their cash flows for the years ended 31 December 2015 and 2014, in conformity with the requirements of the Guidelines Governing the Preparation of Financial Reports by Securities Issures and International Financial Reporting Standards (IFRSs), International Accounting Standars, Interpreations developed by the International Financial Reporting Interpretations Committee which are endorsed by Financial Supervisory Commission of the Republic of China. We have audited and expressed a unqualified opinion on the stand alone financial statements of Sercomm Corporation for the years ended 31 December 2015 and 2014.

23 March 2016 Taipei, Taiwan Republic of China Notice to Readers The accompanying consolidated financial statements are intended only to present the consolidated financial position, results of operations 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 review such consolidated financial statements are those generally accepted and applied in the Republic of China.

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Note Amount % Amount %Operating revenues 4, 5 and 6 $35,011,966 100 $23,192,689 100Operating costs 6 (30,027,997) (86) (19,537,702) (84)Gross profit form operations 4,983,969 14 3,654,987 16Operating expenses 5, 6,7 and 9

Selling expenses (979,034) (3) (694,209) (3)Administrative expenses (839,864) (2) (653,646) (3)Research and development expenses (1,500,365) (4) (1,126,715) (5)

Total operating expenses (3,319,263) (9) (2,474,570) (11)Net operating income 1,664,706 5 1,180,417 5Non-operating income and expenses 6

Other income 7 102,649 - 85,506 -Other gains and losses (109,232) - 5,431 -Finance costs (74,808) - (82,416) -

Total non-operating income and expenses (81,391) - 8,521 - Income before tax 1,583,315 5 1,188,938 5Income tax expenses 4, 5 and 6 (286,315) (1) (239,879) (1)Net Income 1,297,000 4 949,059 4Other comprehensive income (loss) 4 and 6Items that will not be reclassified subsequently to profit or loss

Remeasurement of defined benefit pension plans (10,813) - (6,562) -Income tax related to items that will not be reclassified 1,838 - 1,116 -

Items that may be reclassified subsequently to profit or lossExchange differences on translation of foreign operations (16,843) - 121,390 - Unrealized gain (loss) on available-for-sale financial assets 4,468 - 13,342 - Cash flow hedges 20,482 - 132,356 1Income tax relating to components of other comprehensive income 13,248 - (21,821) -

Other comprehensive income (loss), net of tax 12,380 - 239,821 1Total comprehensive income $1,309,380 4 $1,188,880 5

Net income attributable to :Owners of parent $1,304,508 $949,302Non-controlling interests (7,508) (243)

$1,297,000 $949,059Comprehensive income attributable to:

Owners of parent $1,316,902 $1,188,877Non-controlling interests (7,522) 3

$1,309,380 $1,188,880

Earnings per share (NT$) 4 and 6Basic earnings per share $5.57 $4.21Diluted earnings per share $5.33 $3.93

2015

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

2014

English Translation of Consolidated Financial Statements Originally Issued in Chinese

SERCOMM CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the years ended 31 December 2015 and 2014(Expressed in Thousands of New Taiwan Dollars Excepts Earnings Per Share Information)

For the years ended 31 December

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Ordinary shareAdvance receiptsfor share capital Capital surplus Legal reserve Special reserve

Unappropriatedretained earnings

Exchangedifferences ontranslation of

foreign financialstatements

Unrealized gains(losses) on

available-for-salefinancial assets

Gains (losses) oneffective portion ofcash flow hedges

Non-vestingrestricted shares ofstock distributed to

employees

Total equityattributable to

owners of parentNon-Controlling

interest Total Equity

Balance as of 1January 2014 $2,052,448 $58,138 $852,945 $438,357 $131,678 $1,121,955 $124,850 $(5,457) $(27,216) $(20,003) $4,727,695 $- $4,727,695Appropriations anddistributions of 2013

Legal reserveappropriated - - - 84,493 - (84,493) - - - - - - - Cash dividends ofordinary share - - - - - (606,332) - - - - (606,332) - (606,332)

Net income for the yearended 31 December - - - - - 949,302 - - - - 949,302 (243) 949,059Other comprehensivegain (loss), net of tax - - - - - (5,446) 121,144 13,342 110,535 - 239,575 246 239,821

December 2014

Total comprehensiveincome - - - - - 943,856 121,144 13,342 110,535 - 1,188,877 3 1,188,880Retirement of restrictedshares of stock issued to (1,440) - (4,147) - - - - - - 1,267 (4,320) - (4,320)Conversion ofconvertible bonds 238,613 (50,696) 541,900 - - - - - - - 729,817 - 729,817Exercise of employeeshare options 2,560 - - - - - - - - - 2,560 - 2,560Compensation costarising from restricted - - - - - - - - - 14,560 14,560 - 14,560Increase in non-controlling interest - - - - - - - - - - - 6,087 6,087Balance as of 31December 2014 $2,292,181 $7,442 $1,390,698 $522,850 $131,678 $1,374,986 $245,994 $7,885 $83,319 $(4,176) $6,052,857 $6,090 $6,058,947

Balance as of 1January 2015 $2,292,181 $7,442 $1,390,698 $522,850 $131,678 $1,374,986 $245,994 $7,885 $83,319 $(4,176) $6,052,857 $6,090 $6,058,947Appropriations anddistributions of 2014

Legal reserveappropriated - - - 94,930 - (94,930) - - - - - - - Cash dividends ofordinary share - - - - - (687,654) - - - - (687,654) - (687,654)

Net income (loss) forthe year ended 31 - - - - - 1,304,508 - - - - 1,304,508 (7,508) 1,297,000Other comprehensivegain (loss), net of tax - - - - - (8,975) (16,829) 4,468 33,730 - 12,394 (14) 12,380

December 2015

Total comprehensiveincome - - - - - 1,295,533 (16,829) 4,468 33,730 - 1,316,902 (7,522) 1,309,380Retirement of restrictedshares of stock issued to (430) - (1,238) (1,668) (1,668)Conversion ofconvertible bonds 117,197 (5,084) 121,797 - - - - - - - 233,910 - 233,910Exercise of employeeshare options 2,330 - - - - - - - - - 2,330 - 2,330Compensation costarising from employee - - 18,214 - - - - - - - 18,214 - 18,214Compensation costarising from restricted - - - - - - - - - 4,176 4,176 - 4,176Balance as of 31December 2015 $2,411,278 $2,358 $1,529,471 $617,780 $131,678 $1,887,935 $229,165 $12,353 $117,049 $- $6,939,067 $(1,432) $6,937,635

SERCOMM CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the years ended 31 December 2015 and 2014(Expressed in Thousands of New Taiwan Dollars)

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

English Translation of Consolidated Financial Statements Originally Issued in Chinese

EQUITY ATTRIBUTABLE TO OWNERS OF PARENTRetained earnings Other equity interestShare capital

6 ��

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended 31 December 2015 and 2014

(Expressed in Thousands of New Taiwan Dollars unless Otherwise Stated)

1. History and organization

Sercomm Corporation (“the Company”) was incorporated on 29 July 1992 under the laws of the Republic of China (R.O.C.). The Company is a worldwide manufacturer of broadband and wireless networking equipment which engages mainly in the software and firmware development of broadband networking.

The Company’s common shares were traded on the Taipei Exchange of the R.O.C. in May 1999, and its shares were publicly listed and traded on the Taiwan Stock Exchange (TSE) in December 2007. The Company’s registered office and the main business location are at 8F, No.3-1, Park St., Nangang Dist., Taipei City, Taiwan (R.O.C.)

2. Date and procedures of authorization of financial statements for issue

The consolidated financial statements of the Company and its subsidiaries (“the Group”) for the years ended 31 December 2015 and 2014 were authorized for issue by the Board of Directors on 23 March 2016.

3. Newly issued or revised standards and interpretations

(1) Changes in accounting policies resulting from applying for the first time certain standards and amendments

The Group applied for the first time the International Financial Reporting Standards, International Accounting Standards, and Interpretations issued, revised or amended which are recognized by Financial Supervisory Commission (“FSC”) and become effective for annual periods beginning on or after 1 January 2015. The nature and the impact of each new standard and amendment that has a material effect on the Group are described below:

A. IAS 19 Employee Benefits

The revised IAS 19 brought about the following changes to defined benefit plans which are summarized below:

(a) The interest cost and expected return on plan assets used in the previous version of IAS 19 are replaced with a net-interest amount under the revised IAS 19, which is calculated by applying the discount rate to the net defined benefit liability or asset at the start of each annual reporting period.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(b) In the previous version of IAS 19, past service cost is recognized as an expense

immediately to the extent that the benefits are already vested, or on a straight-line

basis over the average period until the benefits become vested. Under the revised

IAS 19, all past service costs are recognized at the earlier of when the amendment or

curtailment occurs or when the related restructuring or termination costs are

recognized. Therefore unvested past service cost is no longer deferred over future

vesting periods.

(c) The revised IAS 19 required more disclosure; please refer to Note 6 for more details.

B. IFRS 12 “Disclosure of Interests in Other Entities”

IFRS 12 Disclosure of Interests in Other Entities sets out the requirements for disclosures

relating to an entity’s interests in subsidiaries, joint arrangements, associates and

structured entities. The requirements in IFRS 12 are more comprehensive than the

previously existing disclosure requirements, for example, summarized financial

information about the associate or disclosure on subsidiaries with material

non-controlling interests.

C. IFRS 13 “Fair Value Measurements”

IFRS 13 establishes a single source of guidance under IFRS for all fair value

measurements. IFRS 13 does not change when an entity is required to use fair value, but

rather provides guidance on how to measure fair value under IFRS. The Group

re-assessed its policies for measuring fair values. Application of IFRS 13 has not

materially impacted the fair value measurements of the Group.

Additional disclosures where required under IFRS 13 are provided in the individual notes

relating to the assets and liabilities whose fair values were determined. Fair value

hierarchy is provided in Note 12. According to the transitional provisions of IFRS 13,

IFRS 13 is applied prospectively as of 1 January 2015; the disclosure requirements of

IFRS 13 need not be applied in comparative information before 1 January 2015.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

D. IAS 1 “Presentation of Financial Statements” – Presentation of other comprehensive income

Beginning 1 January 2014, the Company presented its items of other comprehensive income that will be reclassified to profit or loss separately from items that will not be reclassified in accordance with the amendments to IAS 1. The amendments affect presentation of statement of comprehensive income only and have no impact on the Company’s financial position or performance.

E. IAS 1 “Presentation of Financial Statements” – Clarification of comparative information

Beginning 1 January 2014, according to the amendments to IAS 1, when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements, the opening statement of financial position does not have to be accompanied by comparative information in the related notes. The amendments affect notes accompanying the financial statements only and have no impact on the Company’s financial position or performance.

(2) Standards or interpretations issued by IASB but not yet endorsed by FSC at the date when the Group’s financial statements were authorized for issue are listed below.

A. IAS 36 “Impairment of Assets” (Amendment)

This amendment relates to the amendment issued in May 2011 and requires entities to disclose the recoverable amount of an asset (including goodwill) or a cash-generating unit when an impairment loss has been recognized or reversed during the period. The amendment also requires detailed disclosure of how the fair value less costs of disposal has been measured when an impairment loss has been recognized or reversed, including valuation techniques used, level of fair value hierarchy of assets and key assumptions used in measurement. The amendment is effective for annual periods beginning on or after 1 January 2014.

B. IFRIC 21 “Levies”

This interpretation provides guidance on when to recognize a liability for a levy imposed by a government (both for levies that are accounted for in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets and those where the timing and amount of the levy is certain). The interpretation is effective for annual periods beginning on or after 1 January 2014.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

C. IAS 39 “Financial Instruments: Recognition and Measurement” (Amendment)

Under the amendment, there would be no need to discontinue hedge accounting if a hedging derivative was novated, provided certain criteria are met. The interpretation is effective for annual periods beginning on or after 1 January 2014.

D. IAS 19 “Employee Benefits” (Defined benefit plans: employee contributions)

The amendments apply to contributions from employees or third parties to defined benefit plans. The objective of the amendments is to provide a policy choice for a simplified accounting for contributions that are independent of the number of years of employee service, for example, employee contributions that are calculated according to a fixed percentage of salary. The amendment is effective for annual periods beginning on or after 1 July 2014.

E. Improvements to International Financial Reporting Standards (2010-2012 cycle):

IFRS 2 “Share-based Payment”

The annual improvements amend the definitions of ”vesting condition” and “market condition” and add definitions for “performance condition” and “service condition” (which were previously part of the definition of “vesting condition”). The amendment prospectively applies to share-based payment transactions for which the grant date is on or after 1 July 2014.

IFRS 3 “Business Combinations”

The amendments include: (a) deleting the reference to "other applicable IFRSs" in the classification requirements; (b) deleting the reference to "IAS 37 Provisions, Contingent Liabilities and Contingent Assets or other IFRSs as appropriate", other contingent consideration that is not within the scope of IFRS 9 shall be measured at fair value at each reporting date and changes in fair value shall be recognized in profit or loss; (c) amending the classification requirements of IFRS 9 Financial Instruments to clarify that contingent consideration that is a financial asset or financial liability can only be measured at fair value, with changes in fair value being presented in profit or loss depending on the requirements of IFRS 9. The amendments apply prospectively to business combinations for which the acquisition date is on or after 1 July 2014.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

IFRS 8 “Operating Segments”

The amendments require an entity to disclose the judgements made by management in applying the aggregation criteria to operating segments. The amendments also clarify that an entity shall only provide reconciliations of the total of the reportable segments' assets to the entity's assets if the segment assets are reported regularly. The amendment is effective for annual periods beginning on or after 1 July 2014.

IFRS 13 “Fair Value Measurement”

The amendment to the Basis for Conclusions of IFRS 13 clarifies that when deleting paragraph B5.4.12 of IFRS 9 Financial Instruments and paragraph AG79 of IAS 39 Financial Instruments: Recognition and Measurement as consequential amendments from IFRS 13 Fair Value Measurement, the IASB did not intend to change the measurement requirements for short-term receivables and payables.

IAS 16 “Property, Plant and Equipment”

The amendment clarifies that when an item of property, plant and equipment is revalued, the accumulated depreciation at the date of revaluation is adjusted to equal the difference between the gross carrying amount and the carrying amount of the asset. The amendment is effective for annual periods beginning on or after 1 July 2014.

IAS 24 “Related Party Disclosures”

The amendment clarifies that an entity providing key management personnel services to the reporting entity or to the parent of the reporting entity is a related party of the reporting entity. The amendment is effective for annual periods beginning on or after 1 July 2014.

IAS 38 “Intangible Assets”

The amendment clarifies that when an intangible asset is revalued, the accumulated amortization at the date of revaluation is adjusted to equal the difference between the gross carrying amount and the carrying amount of the asset. The amendment is effective for annual periods beginning on or after 1 July 2014.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

F. Improvements to International Financial Reporting Standards (2011-2013 cycle)

IFRS 1 “First-time Adoption of International Financial Reporting Standards”

The amendment clarifies that an entity, in its first IFRS financial statements, has the choice between applying an existing and currently effective IFRS or applying early a new or revised IFRS that is not yet mandatorily effective, provided that the new or revised IFRS permits early application.

IFRS 3 “Business Combinations”

This amendment clarifies that paragraph 2(a) of IFRS 3 Business Combinations excludesthe formation of all types of joint arrangements as defined in IFRS 11 JointArrangements from the scope of IFRS 3; and the scope exception only applies to the financial statements of the joint venture or the joint operation itself. The amendment is effective for annual periods beginning on or after 1 July 2014.

IFRS 13 “Fair Value Measurement”

The amendment clarifies that paragraph 52 of IFRS 13 includes a scope exception for measuring the fair value of a group of financial assets and financial liabilities on a net basis. The objective of this amendment is to clarify that this portfolio exception applies to all contracts within the scope of IAS 39 Financial Instruments: Recognition and Measurement or IFRS 9 Financial Instruments, regardless of whether they meet the definitions of financial assets or financial liabilities as defined in IAS 32 FinancialInstruments: Presentation. The amendment is effective for annual periods beginning on or after 1 July 2014.

IAS 40 “Investment Property”

The amendment clarifies the interrelationship of IFRS 3 and IAS 40 when classifying property as investment property or owner-occupied property; in determining whether a specific transaction meets the definition of both a business combination as defined in IFRS 3 Business Combinations and investment property as defined in IAS 40 Investment Property, separate application of both standards independently of each other is required. The amendment is effective for annual periods beginning on or after 1 July 2014.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

G. IFRS 14 “Regulatory Deferral Accounts”

IFRS 14 permits first-time adopters to continue to recognize amounts related to rate regulation in accordance with their previous GAAP requirements when they adopt IFRS. However, to enhance comparability with entities that already apply IFRS and do not recognize such amounts, the Standard requires that the effect of rate regulation must be presented separately from other items. IFRS 14 is effective for annual periods beginning on or after 1 January 2016.

H. IFRS 11 “Joint Arrangements” (Accounting for Acquisitions of Interests in Joint Operations)

The amendments provide new guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business. The amendments require the entity to apply all of the principles on business combinations accounting in IFRS 3 “Business Combinations”, and other IFRS (that do not conflict with the guidance in IFRS 11), to the extent of its share in a joint operation acquired. The amendment also requires certain disclosure. The amendment is effective for annual periods beginning on or after 1 January 2016.

I. IAS 16“Property, Plant and Equipment and IAS 38 “Intangible Assets” — Clarification of Acceptable Methods of Depreciation and Amortization

The amendment clarified that the use of revenue-based methods to calculate depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset, such as selling activities and change in sales volumes or prices. The amendment also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. This presumption, however, can be rebutted in certain limited circumstances. The amendment is effective for annual periods beginning on or after 1 January 2016.

J. IFRS 15 “Revenue from Contracts with Customers”

The core principle of the new Standard is for companies to recognize revenue to depict the transfer of promised goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. An entity recognizes revenue in accordance with that core principle by applying the following steps:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Step 1: Identify the contract(s) with a customer Step 2: Identify the performance obligations in the contract Step 3: Determine the transaction price Step 4: Allocate the transaction price to the performance obligations in the contract Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation

The new Standard includes a cohesive set of disclosure requirements that would result in an entity providing users of financial statements with comprehensive information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts with customers. The Standard is effective for annual periods beginning on or after 1 January 2018.

K. IAS 16“Property, Plant and Equipment and IAS 41 “Agriculture” — Agriculture: Bearer Plants

The IASB decided that bearer plants should be accounted for in the same way as property, plant and equipment in IAS 16 Property, Plant and Equipment, because their operation is similar to that of manufacturing. Consequently, the amendments include them within the scope of IAS 16, and the produce growing on bearer plants will remain within the scope of IAS 41. The amendment is effective for annual periods beginning on or after 1 January 2016.

L. IFRS 9“Financial Instruments”

The IASB has issued the final version of IFRS 9, which combines classification and measurement, the expected credit loss impairment model and hedge accounting. The standard will replace IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9 Financial Instruments (which include standards issued on classification and measurement of financial assets and liabilities and hedge accounting).

Classification and measurement: Financial assets are measured at amortized cost, fair value through profit or loss, or fair value through other comprehensive income, based on both the entity’s business model for managing the financial assets and the financial asset’s contractual cash flow characteristics. Financial liabilities are measured at amortized cost or fair value through profit or loss. Furthermore there is requirement that ‘own credit risk’ adjustments are not recognized in profit or loss.

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Impairment: Expected credit loss model is used to evaluate impairment. Entities are required to recognize either 12-month or lifetime expected credit losses, depending on whether there has been a significant increase in credit risk since initial recognition.

Hedge accounting: Hedge accounting is more closely aligned with risk management activities and hedge effectiveness is measured based on the hedge ratio.

The new standard is effective for annual periods beginning on or after 1 January 2018.

M.IAS 27“Separate Financial Statements” — Equity Method in Separate Financial Statements

The IASB restored the option to use the equity method under IAS 28 for an entity to account for investments in subsidiaries and associates in the entity’s separate financial statements. In 2003, the equity method was removed from the options. This amendment removes the only difference between the separate financial statements prepared in accordance with IFRS and those prepared in accordance with the local regulations in certain jurisdictions. The amendment is effective for annual periods beginning on or after 1 January 2016.

N. IFRS 10“Consolidated Financial Statements” and IAS 28“Investments in Associates and Joint Ventures” — Sale or Contribution of Assets between an Investor and its Associate or Joint Ventures

The amendments address the inconsistency between the requirements in IFRS 10Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures, in dealing with the loss of control of a subsidiary that is contributed to an associate or a joint venture. IAS 28 restricts gains and losses arising from contributions of non-monetary assets to an associate or a joint venture to the extent of the interest attributable to the other equity holders in the associate or joint ventures. IFRS 10 requires full profit or loss recognition on the loss of control of the subsidiary. IAS 28 was amended so that the gain or loss resulting from the sale or contribution of assets that constitute a business as defined in IFRS 3 between an investor and its associate or joint venture is recognized in full.

IFRS 10 was also amended so that the gains or loss resulting from the sale or contribution of a subsidiary that does not constitute a business as defined in IFRS 3 between an investor and its associate or joint venture is recognized only to the extent of the unrelated investors’ interests in the associate or joint venture. The effective date of this amendment has been postponed indefinitely, but early adoption is allowed.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

O. Improvements to International Financial Reporting Standards (2012-2014 cycle)

IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”

The amendment clarifies that a change of disposal method of assets (or disposal groups) from disposal through sale or through distribution to owners (or vice versa) should not be considered to be a new plan of disposal, rather it is a continuation of the original plan. The amendment also requires identical accounting treatment for an asset (or disposal group) that ceases to be classified as held for sale or as held for distribution to owners. The amendment is effective for annual periods beginning on or after 1 January 2016.

IFRS 7 “Financial Instruments: Disclosures”

The amendment clarifies that a servicing contract that includes a fee can constitute continuing involvement in a financial asset and therefore the disclosures for any continuing involvement in a transferred asset that is derecognized in its entirety under IFRS 7 Financial Instruments: Disclosures is required. The amendment also clarifies that whether the IFRS 7 disclosure related to the offsetting of financial assets and financial liabilities are required to be included in the condensed interim financial report would depend on the requirements under IAS 34 Interim Financial Reporting. The amendment is effective for annual periods beginning on or after 1 January 2016.

IAS 19 “Employee Benefits”

The amendment clarifies the requirement under IAS 19.83, that market depth of high quality corporate bonds is assessed based on the currency in which the obligation is denominated, rather than the country where the obligation is located. The amendment is effective for annual periods beginning on or after 1 January 2016.

IAS 34 “Interim Financial Reporting”

The amendment clarifies what is meant by “elsewhere in the interim financial report” under IAS 34; the amendment states that the required interim disclosures must either be in the interim financial statements or incorporated by cross-reference between the interim financial statements and wherever they are included within the greater interim financial report. The other information within the interim financial report must be available to users on the same terms as the interim financial statements and at the same time. The amendment is effective for annual periods beginning on or after 1 January 2016.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

P. Disclosure Initiative — Amendment to IAS 1 “Presentation of Financial Statements”:

The amendments contain (a) clarifying that an entity must not reduce the understandability of its financial statements by obscuring material information with immaterial information or by aggregating material items that have different natures or functions. The amendments reemphasize that, when a standard requires a specific disclosure, the information must be assessed to determine whether it is material and, consequently, whether presentation or disclosure of that information is warranted, (b) clarifying that specific line items in the statement(s) of profit or loss and OCI and the statement of financial position may be disaggregated, and how an entity shall present additional subtotals, (c) clarifying that entities have flexibility as to the order in which they present the notes to financial statements, but also emphasize that understandability and comparability should be considered by an entity when deciding on that order, (d) removing the examples of the income taxes accounting policy and the foreign currency accounting policy, as these were considered unhelpful in illustrating what significant accounting policies could be, and (e) clarifying that the share of OCI of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, classified between those items that will or will not be subsequently reclassified to profit or loss. The amendment is effective for annual periods beginning on or after 1 January 2016.

Q. IFRS 10“Consolidated Financial Statements”, IFRS 12 “Disclosure of Interests in Other Entities”, and IAS 28“Investments in Associates and Joint Ventures” — Investment Entities: Applying the Consolidation Exception

The amendments contain (a) clarifying that the exemption from presenting consolidated financial statements applies to a parent entity that is a subsidiary of an investment entity when the investment entity measures all of its subsidiary at fair value, (b) clarifying that only a subsidiary that is not an investment entity itself and provides support services to the investment entity is consolidated when all other subsidiaries of an investment entity are measured at fair value, and (c) allowing the investor, when applying the equity method, to retain the fair value measurement applied by the investment entity associate or joint venture to its interests in subsidiaries. The amendment is effective for annual periods beginning on or after 1 January 2016.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

R. IFRS 16“Leases”

The new standard requires lessees to account for all leases under a single on-balance sheet model (subject to certain exemptions). Lessor accounting still uses the dual classification approach: operating lease and finance lease. The Standard is effective for annual periods beginning on or after 1 January 2019.

S. IAS 12“Income Taxes” — Recognition of Deferred Tax Assets for Unrealized Losses

The amendment clarifies how to account for deferred tax assets for unrealized losses. The amendment is effective for annual periods beginning on or after 1 January 2017.

T. Disclosure Initiative — Amendment to IAS 7 “Statement of Cash Flows”:

The amendment relates to changes in liabilities arising from financing activities and to require a reconciliation of the carrying amount of liabilities at the beginning and end of the period. The amendment is effective for annual periods beginning on or after 1 January 2017.

The abovementioned standards and interpretations issued by IASB have not yet endorsed by FSC at the date when the Group’s financial statements were authorized for issue, the local effective dates are to be determined by FSC. As the Group is still currently determining the potential impact of the standards and interpretations listed under (10) and (12) ~ (19), it is not practicable to estimate their impact on the Group at this point in time. All other standards and interpretations have no material.

4. Summary of significant accounting policies

(1) Statement of compliance

The consolidated financial statements of the Group for the years ended 31 December 2015 and 2014 have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers (“the Regulations”) and International Financial Reporting Standards, International Accounting Standards, and Interpretations developed by the International Financial Reporting Interpretations Committee or the former Standing Interpretations Committee as endorsed by the FSC.

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(2) Basis of preparation

The consolidated financial statements have been prepared on a historical cost basis, except for financial instruments that have been measured at fair value. The consolidated financial statements are expressed in thousands of New Taiwan Dollars (“NTD”) unless otherwise stated.

(3) Basis of consolidation

Preparation principle of consolidated financial statement

Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has:

(a) power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee)

(b) exposure, or rights, to variable returns from its involvement with the investee, and (c) the ability to use its power over the investee to affect its returns

When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

(a) the contractual arrangement with the other vote holders of the investee (b) rights arising from other contractual arrangements (c) the Group’s voting rights and potential voting rights

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control.

Subsidiaries are fully consolidated from the acquisition date, being the date on which the Company obtains control, and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using uniform accounting policies. All intra-group balances, income and expenses, unrealized gains and losses and dividends resulting from intra-group transactions are eliminated in full.

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A change in the ownership interest of a subsidiary, without a change of control, is accounted for as an equity transaction.

Total comprehensive income of the subsidiaries is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

If the Company loses control of a subsidiary, it:

(a) derecognizes the assets (including goodwill) and liabilities of the subsidiary; (b) derecognizes the carrying amount of any non-controlling interest; (c) recognizes the fair value of the consideration received; (d) recognizes the fair value of any investment retained; (e) recognizes any surplus or deficit in profit or loss; and (f) reclassifies the parent’s share of components previously recognized in other

comprehensive income to profit or loss.

The consolidated entities are listed as follows:

Percentage of ownership (%)

Investor Subsidiary Main businesses

31 December

2015

31 December

2014 Note

The Company Senslinq Inc. Sales of IT products 100% 100% a

The Company Sercomm Trading Co. Ltd. Investment holding and

international trading

100% 100%

The Company Shukuan Investment Ltd. Investment activity 100% 100% a

The Company Sercomm France SARL Sales of IT products 100% 100% a

The Company Sercomm Deutschland GmbH Sales of IT products 100% 100% a

The Company Sercomm Japan Corp. Sales of IT products 100% 100% a

The Company Sercomm Russia Limited

Liability Company

Sales of IT products 100% 100% a

Sercomm Trading Co. Ltd. Zealous Investments Ltd. Investment holding and

international trading

100% 100%

Sercomm Trading Co. Ltd. Smart Trade Inc. Investment holding and

international trading

100% 100%

Zealous Investments Ltd. Sernet Technology (Suzhou)

Limited

Manufacture of routers,

communication products,

Wlan products; sales and

after-sales service

100% 100%

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Percentage of ownership (%)

Investor Subsidiary Main businesses

31 December

2015

31 December

2014 Note

Zealous Investments Ltd Hawxeye Inc. Provide computer learning

technology on video

object analysis

embedded on IP camera

40% 40% a

Smart Trade Inc. Dwnet Technology (Suzhou)

Limited

Manufacture of routers,

communication products,

Wlan products; sales and

after-sales service

100% 100%

Sercomm France SARL Sercomm Italia SRL Sales of IT products 100% 100% a

Sernet Technology

(Suzhou)Limited

Suzhou Hua-Yi

Communications Co., Ltd.

Manufacture of routers,

communication products,

Wlan products; R&D

center of software; sales

and after-sales service

100% 100% a

Sernet Technology

(Suzhou) Limited

Suzhou Femtel

Communications Co., Ltd.

Manufacture of

communication products;

R&D center of software;

sales and after-sales

service

100% - a

Senslinq Inc. Hawxeye Inc. Provide computer learning

technology on video

object analysis

embedded on IP camera

40% 40% a

Suzhou Femtel

Communications

Co., Ltd.

Nanjing Femtel

Communications Co., Ltd.

Sale of communication

products; R&D center of

software; after-sales

service

100% - a

Note a: This is an immaterial subsidiary for which the consolidated financial statements are

not reviewed by the company’s independent auditors.

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(4) Foreign currency transactions

The Group’s consolidated financial statements are presented in NTD, which is also the Company’s functional currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.

Transactions in foreign currencies are initially recorded by the Group entities at their respective functional currency rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency closing rate of exchange ruling at the reporting date. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions.

All exchange differences arising on the settlement of monetary items or on translating monetary items are taken to profit or loss in the period in which they arise except for the following:

(a) Exchange differences arising from foreign currency borrowings for an acquisition of a qualifying asset to the extent that they are regarded as an adjustment to interest costs are included in the borrowing costs that are eligible for capitalization.

(b) Foreign currency items within the scope of IAS 39 Financial Instruments: Recognition and Measurement are accounted for based on the accounting policy for financial instruments.

(c) Exchange differences arising on a monetary item that forms part of a reporting entity’s net investment in a foreign operation is recognized initially in other comprehensive income and reclassified from equity to profit or loss on disposal of the net investment.

When a gain or loss on a non-monetary item is recognized in other comprehensive income, any exchange component of that gain or loss is recognized in other comprehensive income. When a gain or loss on a non-monetary item is recognized in profit or loss, any exchange component of that gain or loss is recognized in profit or loss.

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(5) Translation of financial statements in foreign currency

Each foreign operation of the Company determines its own functional currency and items included in the financial statements of each foreign operation are measured at that functional currency. While preparing the Company’s financial statements, the assets and liabilities of foreign operations are translated into NT$ at the closing rate of exchange prevailing at the reporting date and their income and expenses are translated at an average rate for the period. The exchange differences arising on the translation are recognized in other comprehensive income. On the disposal of a foreign operation, the cumulative amount of the exchange differences relating to that foreign operation, recognized in other comprehensive income and accumulated in the separate component of equity, is reclassified from equity to profit or loss when the gain or loss on disposal is recognized. The partial disposals are accounted for as disposals when the partial disposal involves the loss of control of a subsidiary that includes a foreign operation and when the retained interest after the partial disposal of an interest in a joint arrangement or a partial disposal of an interest in an associate that includes a foreign operation is a financial asset that includes a foreign operation.

On the partial disposal of a subsidiary that includes a foreign operation that does not result in a loss of control, the proportionate share of the cumulative amount of the exchange differences recognized in other comprehensive income is re-attributed to the non-controlling interests in that foreign operation. In partial disposal of an associate or joint arrangement that includes a foreign operation that does not result in a loss of significant influence or joint control, only the proportionate share of the cumulative amount of the exchange differences recognized in other comprehensive income is reclassified to profit or loss.

Any goodwill and any fair value adjustments to the carrying amounts of assets and liabilities arising from the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and expressed in its functional currency.

(6) Current and non-current distinction

An asset is classified as current when: (a) The Group expects to realize the asset, or intends to sell or consume it, in its normal

operating cycle (b) The Group holds the asset primarily for the purpose of trading (c) The Group expects to realize the asset within twelve months after the reporting period (d) The asset is cash or cash equivalent unless the asset is restricted from being exchanged

or used to settle a liability for at least twelve months after the reporting period. All other assets are classified as non-current.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

A liability is classified as current when: (a) The Group expects to settle the liability in its normal operating cycle (b) The Group holds the liability primarily for the purpose of trading (c) The liability is due to be settled within twelve months after the reporting period (d) The Group does not have an unconditional right to defer settlement of the liability for at

least twelve months after the reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

All other liabilities are classified as non-current.

(7) Cash and cash equivalents

Cash and cash equivalents comprises cash on hand, demand deposits and short-term, highly liquid time deposits (including ones that have maturity within 12 months) or investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

(8) Financial instruments

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

Financial assets and financial liabilities within the scope of IAS 39 Financial Instruments: Recognition and Measurement are recognized initially at fair value plus or minus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.

(a) Financial assets

The Group accounts for regular way purchase or sales of financial assets on the trade date.

Financial assets of the Group are classified as financial assets at fair value through profit or loss, held-to-maturity investments, available-for-sale financial assets and loans and receivables. The Group determines the classification of its financial assets at initial recognition.

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Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for

trading and financial assets designated upon initial recognition at fair value through

profit or loss. A financial asset is classified as held for trading if:

i. it is acquired or incurred principally for the purpose of selling or repurchasing it in

the near term;

ii. on initial recognition it is part of a portfolio of identified financial instruments that

are managed together and for which there is evidence of a recent actual pattern of

short-term profit-taking; or

iii. it is a derivative (except for a derivative that is a financial guarantee contract or a

designated and effective hedging instrument).

If a contract contains one or more embedded derivatives, the entire hybrid (combined)

contract may be designated as a financial asset at fair value through profit or loss; or a

financial asset may be designated as at fair value through profit or loss when doing so

results in more relevant information, because either:

i. it eliminates or significantly reduces a measurement or recognition inconsistency; or

ii. a group of financial assets, financial liabilities or both is managed and its

performance is evaluated on a fair value basis, in accordance with a documented

risk management or investment strategy, and information about the group is

provided internally on that basis to the key management personnel.

Financial assets at fair value through profit or loss are measured at fair value with

changes in fair value recognized in profit or loss. Dividends or interests on financial

assets at fair value through profit or loss are recognized in profit or loss (including those

received during the period of initial investment). If financial assets do not have quoted

prices in an active market and their fair value cannot be reliably measured, then they are

classified as financial assets measured at cost on balance sheet and carried at cost net of

accumulated impairment losses, if any, as at the reporting date.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Available-for-sale financial assets

Available-for-sale investments are non-derivative financial assets that are designated as available-for-sale or those not classified as financial assets at fair value through profit or loss, held-to-maturity financial assets, or loans and receivables.

Foreign exchange gains and losses and interest calculated using the effective interest method relating to monetary available-for-sale financial assets, or dividends on an available-for-sale equity instrument, are recognized in profit or loss. Subsequent measurement of available-for-sale financial assets at fair value is recognized in equity until the investment is derecognized, at which time the cumulative gain or loss is recognized in profit or loss.

If equity instrument investments do not have quoted prices in an active market and their fair value cannot be reliably measured, then they are classified as financial assets measured at cost on balance sheet and carried at cost net of accumulated impairment losses, if any, as at the reporting date.

Held-to-maturity financial assets

Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity when the Group has the positive intention and ability to hold it to maturity, other than those that are designated as available-for-sale, classified as financial assets at fair value through profit or loss, or meet the definition of loans and receivables.

After initial measurement held-to-maturity financial assets are measured at amortized cost using the effective interest method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fee or transaction costs. The effective interest method amortization is recognized in profit or loss.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market other than those that the Group upon initial recognition designates as available for sale, classified as at fair value through profit or loss, or those for which the holder may not recover substantially all of its initial investment.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Loans and receivables are separately presented on the balance sheet as receivables or

debt instrument investments for which no active market exists. After initial

measurement, such financial assets are subsequently measured at amortized cost using

the effective interest rate method, less impairment. Amortized cost is calculated by

taking into account any discount or premium on acquisition and fee or transaction costs.

The effective interest method amortization is recognized in profit or loss.

Impairment of financial assets

The Group assesses at each reporting date whether there is any objective evidence that a

financial asset other than the financial assets at fair value through profit or loss is

impaired. A financial asset is deemed to be impaired if, and only if, there is objective

evidence of impairment as a result of one or more loss events that has occurred after the

initial recognition of the asset and that loss event has an impact on the estimated future

cash flows of the financial asset. The carrying amount of the financial asset impaired,

other than receivables impaired which are reduced through the use of an allowance

account, is reduced directly and the amount of the loss is recognized in profit or loss.

A significant or prolonged decline in the fair value of an available-for-sale equity

instrument below its cost is considered a loss event.

Other loss events include:

i. significant financial difficulty of the issuer or obligor; or

ii. a breach of contract, such as a default or delinquency in interest or principal

payments; or

iii. it becoming probable that the borrower will enter bankruptcy or other financial

reorganisation; or

iv. the disappearance of an active market for that financial asset because of financial

difficulties.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

For held-to-maturity financial assets and loans and receivables measured at amortized cost, the Group first assesses individually whether objective evidence of impairment exists individually for financial asset that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exits for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows. The present value of the estimated future cash flows is discounted at the financial assets original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. Interest income is accrued based on the reduced carrying amount of the asset, using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Receivables together with the associated allowance are written off when there is no realistic prospect of future recovery. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to profit or loss.

Receivables together with the associated allowance are written off when there is no realistic prospect of future recovery. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to profit or loss.

In the case of equity investments classified as available-for-sale, where there is evidence of impairment, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in profit or loss - is removed from other comprehensive income and recognized in profit or loss. Impairment losses on equity investments are not reversed through profit or loss; increases in their fair value after impairment are recognized directly in other comprehensive income.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

In the case of debt instruments classified as available-for-sale, the amount recorded for

impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in profit or loss. Future interest income continues to be accrued based on the reduced carrying amount of the asset, using the rate of interest used to discount the

future cash flows for the purpose of measuring the impairment loss. The interest income is recognized in profit or loss. If, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring

after the impairment loss was recognized in profit or loss, the impairment loss is reversed through profit or loss.

Derecognition of financial assets

A financial asset is derecognized when:

i. The rights to receive cash flows from the asset have expired ii. The Group has transferred the asset and substantially all the risks and rewards of the

asset have been transferred iii. The Group has neither transferred nor retained substantially all the risks and rewards

of the asset, but has transferred control of the asset.

On derecognition of a financial asset in its entirety, the difference between the carrying amount and the consideration received or receivable including any cumulative gain or

loss that had been recognized in other comprehensive income, is recognized in profit or loss.

(b) Financial liabilities and equity

Classification between liabilities or equity

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

definitions of a financial liability, and an equity instrument.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Equity instruments

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

Compound instruments

The Group evaluates the terms of the convertible bonds issued to determine whether it contains both a liability and an equity component. Furthermore, the Group assesses if the economic characteristics and risks of the put and call options contained in the convertible bonds are closely related to the economic characteristics and risk of the host contract before separating the equity element.

For the liability component excluding the derivatives, its fair value is determined based on the rate of interest applied at that time by the market to instruments of comparable credit status. The liability component is classified as a financial liability measured at amortized cost before the instrument is converted or settled.

For the embedded derivative that is not closely related to the host contract (for example, if the exercise price of the embedded call or put option is not approximately equal on each exercise date to the amortized cost of the host debt instrument), it is classified as a liability component and subsequently measured at fair value through profit or loss unless it qualifies for an equity component. The equity component is assigned the residual amount after deducting from the fair value of the instrument as a whole the amount separately determined for the liability component. Its carrying amount is not remeasured in the subsequent accounting periods. If the convertible bond issued does not have an equity component, it is accounted for as a hybrid instrument in accordance with the requirements under IAS 39 Financial Instruments: Recognition and Measurement.

Transaction costs are apportioned between the liability and equity components of the convertible bond based on the allocation of proceeds to the liability and equity components when the instruments are initially recognized.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

On conversion of a convertible bond before maturity, the carrying amount of the liability component being the amortized cost at the date of conversion is transferred to equity.

Financial liabilities

Financial liabilities within the scope of IAS 39 Financial Instruments: Recognition and Measurement are classified as financial liabilities at fair value through profit or loss or financial liabilities measured at amortized cost upon initial recognition.

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. A financial liability is classified as held for trading if:

i. it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term;

ii. on initial recognition it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking; or

iii. it is a derivative (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument).

If a contract contains one or more embedded derivatives, the entire hybrid (combined) contract may be designated as a financial liability at fair value through profit or loss; or a financial liability may be designated as at fair value through profit or loss when doing so results in more relevant information, because either:

i. it eliminates or significantly reduces a measurement or recognition inconsistency; or ii. a group of financial assets, financial liabilities or both is managed and its

performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided internally on that basis to the key management personnel.

Gains or losses on the subsequent measurement of liabilities at fair value through profit or loss including interest paid are recognized in profit or loss.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

If the financial liabilities at fair value through profit or loss do not have quoted prices in an active market and their fair value cannot be reliably measured, then they are classified as financial liabilities measured at cost on balance sheet and carried at cost as at the reporting date.

Financial liabilities at amortized cost

Financial liabilities measured at amortized cost include interest bearing loans and borrowings that are subsequently measured using the effective interest rate method after initial recognition. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the effective interest rate method amortization process.

Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or transaction costs.

Derecognition of financial liabilities

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified (whether or not attributable to the financial difficulty of the debtor), such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss.

(c) Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount reported in the balance sheet if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(9) Derivative financial instrument

The Group uses derivative financial instruments to hedge its foreign currency risks and interest rate risks. A derivative is classified in the balance sheet as financial assets or liabilities at fair value through profit or loss (held for trading) except for derivatives that are designated effective hedging instruments which are classified as derivative financial assets or liabilities for hedging.

Derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in the fair value of derivatives are taken directly to profit or loss, except for the effective portion of cash flow hedges, which is recognized in equity.

Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value though profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognized in profit or loss.

(10) Fair value measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: (a) In the principal market for the asset or liability, or (b) In the absence of a principal market, in the most advantageous market for the asset or

liability The principal or the most advantageous market must be accessible to by the Group.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants in their economic best interest.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

(11) Hedge accounting

The Group uses derivative financial instruments to hedge for:

(a) Classified in the balance sheet as financial assets or liabilities at fair value through profit or loss (Fair value hedge)

(b) Assets or liabilities recognized, and highly expected transaction related to cash flow (Cash flow hedge)

Hedges which meet the strict criteria for hedge accounting are accounted for as follows:

(a) Fair value hedge

Changes in fair value of derivative financial instruments are recognized in profit or loss. The change in the fair value of the hedged item attributable to the hedged risk is recorded as a part of the carrying amount of the hedged item and is also recognized in the profit or loss.

For fair value hedges relating to items carried at amortized cost, the adjustment to carrying amount is amortized through the profit or loss over the remaining term to maturity. Effective interest rate amortization may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged. If the hedged item is derecognized, the unamortized fair value is recognized immediately in profit or loss.

When an unrecognized firm commitment is designated as a hedged item, the cumulative changes in the fair value of firm commitment attributable to the hedged risk is recognized as assets or liabilities and the corresponding gains or losses are recognized in profit or loss.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(b) Cash flow hedge

The gain or loss from effective hedge portion of the hedging instruments is recognized in equity and the ineffective portion is recognized in profit and loss.

When the hedged transaction affects profit or loss, the amount recognized in equity will be transferred to profit or loss. When the hedged item is a non-financial asset or liability, the amount recognized in equity will be transferred to the original carrying amount of the non-financial asset or liability.

If the forecast transaction or firm commitment is no longer expected to occur, the cumulative gain or loss previously recognized in equity is reclassified to profit or loss. If the hedging instrument expires, or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, any cumulative gain or loss previously recognized in equity remains in equity until the forecast transaction or firm commitment affects profit or loss.

(12) Inventories

Inventories are valued at lower of cost and net realizable value item by item.

Costs incurred in bringing each inventory to its present location and condition are accounted for as follows:

Raw materials - Purchase cost on a first in, first out basis.

Finished goods and work in progress - Cost of direct materials and labor and a proportion of manufacturing overheads based on normal operating capacity but excluding borrowing costs.

Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

(13) Investments accounted for using the equity method

The Group’s investment in its associate is accounted for using the equity method other than those that meet the criteria to be classified as held for sale. An associate is an entity over which the Group has significant influence.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Under the equity method, the investment in the associate or an investment in a joint venture is carried in the balance sheet at cost and adjusted thereafter for the post-acquisition change in the Group’s share of net assets of the associate or joint venture. After the interest in the associate or joint venture is reduced to zero, additional losses are provided for, and a liability is recognized, only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture. Unrealized gains and losses resulting from transactions between the Group and the associate or joint venture are eliminated to the extent of the Group’s related interest in the associate or joint venture.

When changes in the net assets of an associate or a joint venture occur and not those that are recognized in profit or loss or other comprehensive income and do not affects the Group’s percentage of ownership interests in the associate or joint venture, the Group recognizes such changes in equity based on its percentage of ownership interests. The resulting capital surplus recognized will be reclassified to profit or loss at the time of disposing the associate or joint venture on a prorata basis.

When the associate or joint venture issues new stock, and the Group’s interest in an associate or a joint venture is reduced or increased as the Group fails to acquire shares newly issued in the associate or joint venture proportionately to its original ownership interest, the increase or decrease in the interest in the associate or joint venture is recognized in Additional Paid in Capital and Investment accounted for using the equity method. When the interest in the associate or joint venture is reduced, the cumulative amounts previously recognized in other comprehensive income are reclassified to profit or loss or other appropriate items. The aforementioned capital surplus recognized is reclassified to profit or loss on a pro rata basis when the Group disposes the associate or joint venture.

The financial statements of the associate are prepared for the same reporting period as the Group. Where necessary, adjustments are made to bring the accounting policies in line with those of the Group.

The Group determines at each reporting date whether there is any objective evidence that the investment in the associate or an investment in a joint venture is impaired in accordance with IAS 39 Financial Instruments: Recognition and Measurement. If this is the case the Group calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value and recognizes the amount in the ‘share of profit or loss of an associate’ in the statement of comprehensive income in accordance with IAS 36 Impairment of Assets. In determining the value in use of the investment, the Group estimates:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(a) Its share of the present value of the estimated future cash flows expected to be generated by the associate or joint venture, including the cash flows from the operations of the associate and the proceeds on the ultimate disposal of the investment; or

(b) The present value of the estimated future cash flows expected to arise from dividends to be received from the investment and from its ultimate disposal.

Because goodwill that forms part of the carrying amount of an investment in an associate or an investment in a joint venture is not separately recognized, it is not tested for impairment separately by applying the requirements for impairment testing goodwill in IAS 36Impairment of Assets.

Upon loss of significant influence over the associate or joint venture, the Group measures and recognizes any retaining investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence and the fair value of the retaining investment and proceeds from disposal is recognized in profit or loss. Furthermore, if an investment in an associate becomes an investment in a joint venture or an investment in a joint venture becomes an investment in an associate, the entity continues to apply the equity method and does not remeasure the retained interest.

(14) Property, plant and equipment

Property, plant and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of dismantling and removing the item and restoring the site on which it is located and borrowing costs for construction in progress if the recognition criteria are met. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately. When significant parts of property, plant and equipment are required to be replaced in intervals, the Group recognized such parts as individual assets with specific useful lives and depreciation, respectively. The carrying amount of those parts that are replaced is derecognized in accordance with the derecognition provisions of IAS 16 Property, plant and equipment. When a major inspection is performed, its cost is recognized in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognized in profit or loss as incurred.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Depreciation is calculated on a straight-line basis over the estimated economic lives of the following assets:

Buildings and structures 40 56 years Machinery and equipments 4 10 years Molding equipments 3 5 years Research and development equipments 4 6 years Office equipment and other facilities 1 6 years Leased assets 36 51 years

An item of property, plant and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is recognized in profit or loss.

The assets’ residual values, useful lives and methods of depreciation are reviewed at each financial year end and adjusted prospectively, if appropriate.

(15) Leases

Group as a lessee

Finance leases which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in profit or loss.

A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Group as a lessor

Leases in which the Group does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Rental revenue generated from operating lease is recognized over the lease term using the straight line method. Contingent rents are recognized as revenue in the period in which they are earned.

(16) Intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses, if any. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and expenditure is reflected in profit or loss for the year in which the expenditure is incurred.

The useful lives of intangible assets are assessed as either finite or indefinite.

Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life is reviewed at least at the end of each financial year. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates.

Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.

Gains or losses arising from derecognition of an intangible asset are 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.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Research and development costs

Research costs are expensed as incurred. Development expenditures, on an individual

project, are recognized as an intangible asset when the Group can demonstrate:

(a) The technical feasibility of completing the intangible asset so that it will be available for

use or sale

(b) Its intention to complete and its ability to use or sell the asset

(c) How the asset will generate future economic benefits

(d) The availability of resources to complete the asset

(e) The ability to measure reliably the expenditure during development

Following initial recognition of the development expenditure as an asset, the cost model is

applied requiring the asset to be carried at cost less any accumulated amortization and

accumulated impairment losses. During the period of development, the asset is tested for

impairment annually. Amortization of the asset begins when development is complete and

the asset is available for use. It is amortized over the period of expected future benefit.

Computer software and product testing costs

The cost of computer software and product testing costs are amortized on a straight-line

basis over the estimated useful life (2 to 5 years).

A summary of the policies applied to the Group’s intangible assets is as follows:

Development costs Computer software Product testing costs

Useful lives Finite Finite Finite

Amortization method used Amortized over the period

of expected future sales

from the related project

on a straight-line basis

Amortized on a

straight-line basis

over the estimated

useful life

Amortized on a

straight- line basis

over the estimated

useful life

Internally generated or acquired Internally generated Acquired Acquired

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(17) Impairment of non-financial assets

The Group assesses at the end of each reporting period whether there is any indication that

an asset in the scope of IAS 36 Impairment of Assets may be impaired. If any such

indication exists, or when annual impairment testing for an asset is required, the Group

estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an

asset’s or cash-generating unit’s (“CGU”) fair value less costs to sell and its value in use and

is determined for an individual asset, unless the asset does not generate cash inflows that are

largely independent of those from other assets or groups of assets. Where the carrying

amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired

and is written down to its recoverable amount.

For assets excluding goodwill, an assessment is made at each reporting date as to whether

there is any indication that previously recognized impairment losses may no longer exist or

may have decreased. If such indication exists, the Group estimates the asset’s or

cash-generating unit’s recoverable amount. A previously recognized impairment loss is

reversed only if there has been an increase in the estimated service potential of an asset

which in turn increases the recoverable amount. However, the reversal is limited so that

the carrying amount of the asset does not exceed its recoverable amount, nor exceed the

carrying amount that would have been determined, net of depreciation, had no impairment

loss been recognized for the asset in prior years.

A cash generating unit, or groups of cash-generating units, to which goodwill has been

allocated is tested for impairment annually at the same time, irrespective of whether there is

any indication of impairment. If an impairment loss is to be recognized, it is first allocated

to reduce the carrying amount of any goodwill allocated to the cash generating unit (group

of units), then to the other assets of the unit (group of units) pro rata on the basis of the

carrying amount of each asset in the unit (group of units). Impairment losses relating to

goodwill cannot be reversed in future periods for any reason.

An impairment loss of continuing operations or a reversal of such impairment loss is

recognized in profit or loss.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(18) Provisions

Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probably that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.

Maintenance warranties

A provision is recognized for expected warranty claims on products sold, based on past experience, management’s judgments and other known factors. Sales returns and allowances

A provision has been recognized for sales returns and allowances based on past experience and other known factors.

(19) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

(20) Post-employee benefits

All regular employees of the Company and its domestic subsidiaries are entitled to a pension plan that is managed by an independently administered pension fund committee. Fund assets are deposited under the committee’s name in the specific bank account and hence, not associated with the Company and its domestic subsidiaries. Therefore fund assets are not included in the Group’s consolidated financial statements. Pension benefits for employees of the overseas subsidiaries and the branches are provided in accordance with the respective local regulations.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

For the defined contribution plan, the Company and its domestic subsidiaries will make a monthly contribution of no less than 6% of the monthly wages of the employees subject to the plan. The Company recognizes expenses for the defined contribution plan in the period in which the contribution becomes due. Overseas subsidiaries and branches make contribution to the plan based on the requirements of local regulations.

Post-employment benefit plan that is classified as a defined benefit plan uses the Projected Unit Credit Method to measure its obligations and costs based on actuarial assumptions. Re-measurements, comprising of the effect of the actuarial gains and losses, the effect of the asset ceiling (excluding net interest) and the return on plan assets, excluding net interest, are recognized as other comprehensive income with a corresponding debit or credit to retained earnings in the period in which they occur. Past service costs are recognized in profit or loss on the earlier of:

(a) the date of the plan amendment or curtailment, and (b) the date that the Group recognizes restructuring-related costs

Net interest is calculated by applying the discount rate to the net defined benefit liability or asset, both as determined at the start of the annual reporting period, taking account of any changes in the net defined benefit liability (asset) during the period as a result of contribution and benefit payment.

Pension cost for an interim period is calculated on a year-to-date basis by using the actuarially determined pension cost rate at the end of the prior financial year, adjusted and disclosed for significant market fluctuations since that time and for significant curtailments, settlements, or other significant one-off events.

(21) Share-based payment transactions

The cost of equity-settled transactions between the Group and employees is recognized based on the fair value of the equity instruments granted. The fair value of the equity instruments is determined by using an appropriate pricing model.

The cost of equity-settled transactions is recognized, together with a corresponding increase in other capital reserves in equity, over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The income statement expense or credit for a period represents the movement in cumulative expense recognized as at the beginning and end of that period.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

No expense is recognized for awards that do not ultimately vest, except for equity-settled transactions where vesting is conditional upon a market or non-vesting condition, which are treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied.

Where the terms of an equity-settled transaction award are modified, the minimum expense recognized is the expense as if the terms had not been modified, if the original terms of the award are met. An additional expense is recognized for any modification that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employee as measured at the date of modification.

Where an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation, and any expense not yet recognized for the award is recognized immediately. This includes any award where non-vesting conditions within the control of either the entity or the employee are not met. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share.

The cost of restricted stocks issued is recognized as salary expense based on the fair value of the equity instruments on the grant date, together with a corresponding increase in other capital reserves in equity, over the vesting period. The Group recognized unearned employee salary which is a transitional contra equity account; the balance in the account will be recognized as salary expense over the passage of vesting period.

(22) Revenue recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable. The following specific recognition criteria must also be met before revenue is recognized:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Sale of goods

Revenue from the sale of goods is recognized when all the following conditions have been satisfied:

(a) the significant risks and rewards of ownership of the goods have passed to the buyer; (b) neither continuing managerial involvement nor effective control over the goods sold

have been retained; (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

entity; and (e) the costs incurred in respect of the transaction can be measured reliably.

Interest income

For all financial assets measured at amortized cost (including loans and receivables and held-to-maturity financial assets) and available-for-sale financial assets, interest income is recorded using the effective interest rate method and recognized in profit or loss.

Dividends

Revenue is recognized when the Group’s right to receive the payment is established.

(23) Income taxes

Income tax expense (income) is the aggregate amount included in the determination of profit or loss for the period in respect of current tax and deferred tax.

Current income tax

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. Current income tax relating to items recognized in other comprehensive income or directly in equity is recognized in other comprehensive income or equity and not in profit or loss.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

The 10% surtax on undistributed retained earnings is recognized as income tax expense in

the subsequent year when the distribution proposal is approved by the Shareholders’ meeting.

Deferred tax

Deferred tax is provided on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences, except:

(a) Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

(b) In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences

will not reverse in the foreseeable future.

Deferred tax assets are recognized for all deductible temporary differences, carry forward of

unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized, except:

(a) Where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business

combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

(b) In respect of deductible temporary differences associated with investments in

subsidiaries, associates and interests in joint arrangements, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the

temporary differences can be utilized.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date. The measurement of deferred tax assets and deferred tax liabilities 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. Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss. Deferred tax items are recognized in correlation to the underlying transaction either in other comprehensive income or directly in equity. Deferred tax assets are reassessed at each reporting date and are recognized accordingly.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current income tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Interim period income tax expense is calculated and disclosed by applying the applicable tax rate to expected total annual earnings; in other words, applying estimated annual effective tax rate to interim period’s pre-tax income.

(24) Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The consideration transferred, the identifiable assets acquired and liabilities assumed are measured at acquisition date fair value. For each business combination, the acquirer measures any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are accounted for as expenses in the periods in which the costs are incurred and are classified under administrative expenses.

When the Group acquires a business, it assesses the assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Any contingent consideration to be transferred by the acquirer will be recognized at the acquisition-date fair value. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability, will be recognized in accordance with IAS 39 Financial Instruments: Recognition and Measurement either in profit or loss or as a change to other comprehensive income. However, if the contingent consideration is classified as equity, it should not be remeasured until it is finally settled within equity.

Goodwill is initially measured as the amount of the excess of the aggregate of the consideration transferred and the non-controlling interest over the net fair value of the identifiable assets acquired and the liabilities assumed. If this aggregate is lower than the fair value of the net assets acquired, the difference is recognized in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Each unit or group of units to which the goodwill is so allocated represents the lowest level within the Group at which the goodwill is monitored for internal management purpose and is not larger than an operating segment before aggregation.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation. Goodwill disposed of in this circumstance is measured based on the relative recoverable amounts of the operation disposed of and the portion of the cash-generating unit retained.

5. Significant accounting judgements, estimates and assumptions

The preparation of the Group’s consolidated financial statements require management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the end of the reporting period. However, uncertainty about these assumption and estimate could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(1) Fair value of financial instruments

Where the fair value of financial assets and financial liabilities recorded in the balance sheet cannot be derived from active markets, they are determined using valuation techniques including the income approach (for example the discounted cash flow model) or market approach. Changes in assumptions about these factors could affect the reported fair value of the financial instruments. Please refer to Note 12 for more details.

(2) Pension benefits

The cost of post-employment benefit and the present value of the pension obligation under defined benefit pension plans are determined using actuarial valuations. An actuarial valuation involves making various assumptions. These include the determination of the discount rate and future salary increases. Please refer to Note 6.(16) for more details.

(3) Share-based payment transactions

The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in Note 6.(18).

(4) Revenue recognition - Sales returns and allowance

The Group estimates sales returns and allowance based on historical experience and other known factors at the time of sale, which reduces the operating revenue. Please refer to Note 6.(13) for more details.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(5) Income tax

Uncertainties exist with respect to the interpretation of complex tax regulations and the amount and timing of future taxable income. Given the wide range of international business relationships and the long-term nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. The Group establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective counties in which it operates. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences of interpretation may arise on a wide variety of issues depending on the conditions prevailing in the respective Group company's domicile.

Deferred tax assets are recognized for all carryforward of unused tax losses and unused tax credits and deductible temporary differences to the extent that it is probable that taxable profit will be available or there are sufficient taxable temporary differences against which the unused tax losses, unused tax credits or deductible temporary differences can be utilized. The amount of deferred tax assets determined to be recognized is based upon the likely timing and the level of future taxable profits and taxable temporary differences together with future tax planning strategies.

6. Contents of significant accounts

(1) Cash and cash equivalents

As at 31 December

2015 31 December

2014 Cash on hand $2,188 $2,739 Checking accounts and demand deposits 2,277,528 2,123,142 Time deposits 2,310,389 3,033,597 Cash equivalents-Bank’s acceptance bill 774,553 64,227 Total $5,364,658 $5,223,705

The Cash equivalents is Bank’s acceptance bill that have maturity within 3 months.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(2) Current financial assets and liabilities at fair value through profit or loss

Financial assets at fair value through profit or loss:

As at 31 December

2015 31 December

2014Held for trading: Derivatives not designated as hedging instruments

Forward foreign exchange contracts $5,026 $320

Financial liabilities at fair value through profit or loss:

As at 31 December

2015 31 December

2014Held for trading: Derivatives not designated as hedging instruments

Forward foreign exchange contracts $3,787 $1,245

(a) The Group entered into forward exchange contracts to sell various forward foreign currencies to hedge exchange rate risk of export proceeds. However, these forward exchange contracts are not accounted for under hedge accounting.

(b) The unexpired contracts are as follows:

As at 31 December 2015

Currency Contract Period Contract Amount

Forward foreign exchange contracts

Sell EUR/Buy NTD 2015.09.30-2016.04.06 EUR 7,770 thousand

Forward foreign exchange contracts

Buy USD/Sell RUB 2015.12.29-2016.02.29 USD 400 thousand

Forward foreign exchange contracts

Sell USD/Buy NTD 2015.12.29-2016.02.18 USD 1,500 thousand

Forward foreign

exchange contracts Buy USD/Sell RMB 2015.08.17-2016.05.05 USD 19,615 thousand

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

As at 31 December 2014 Currency Contract Period Contract Amount Forward foreign exchange contracts

Sell EUR/Buy NTD 2014.10.15-2015.6.3 EUR 5,521 thousand

(c) For the years ended 31 December 2015 and 2014, the Group recognized a gain (loss) of financial assets or liabilities at fair value through profit or (loss) of NT$(1,017) thousand and NT$55,088 thousand, respectively.

(d) Financial assets held for trading were not pledged.

(3) Non-current available-for-sale financial assets

As at 31 December

2015 31 December

2014Stocks $47,444 $50,917 Valuation adjustments 12,353 7,885 Net $59,797 $58,802

Available-for-sale financial assets were not pledged.

(4) Non-current financial assets measured at cost

As at 31 December

2015 31 December

2014Available-for-sale financial assets

Stocks $63,375 $10 Less: Accumulated impairment - - Total $63,375 $10

The fair value of the above investments in unlisted entities are not reliably measurable as the variability in the range of reasonable fair value measurements is significant for the instrument and the probabilities of the various estimates within the range cannot be reasonably assessed and used when measuring fair value. Therefore these investments are measured at cost.

The financial assets measured at cost were not pledged.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(5) Notes receivables

As at 31 December

2015 31 December

2014 Notes receivable arising from operating activities $2,497,357 $1,622,971 Less: allowance for doubtful debts - - Total $2,497,357 $1,622,971

Notes receivables were not pledged.

As of 31 December 2015, the discounted notes receivable were NT$ 428,798 thousand, and have been deducted from the balance of notes receivable.

(6) Accounts receivable

As at 31 December

2015 31 December

2014 Accounts receivable $4,039,833 $2,795,905 Less: allowance for doubtful debts (8,855) (7,360)Total $4,030,978 $2,788,545

Accounts receivable were not pledged.

Accounts receivable are generally on 30-270 day terms. The movements in the provision for impairment of accounts receivable are as follows (please refer to Note 12 for credit risk disclosure):

Individuallyimpaired

Collectively impaired Total

As at 1 January 2015 $- $7,360 $7,360 Charge/reversal for the current period - 1,500 1,500 Write off - - - Exchange differences - (5) (5)As at 31 December 2015 $- $8,855 $8,855 As at 1 January 2014 $- $7,316 $7,316 Charge/reversal for the current period - - - Write off - - - Exchange differences - 44 44 As at 31 December 2014 $- $7,360 $7,360

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Ageing analysis of accounts receivable that are past due as at the end of the reporting period but not impaired is as follows:

Neither past

due nor Past due but not impaired

As at impaired <=30 days 31~90 days 91~180 days 181~360 days Total

31 December 2015 $3,742,165 $263,302 $10,921 $8,520 $6,070 $4,030,978

31 December 2014 2,454,926 198,788 95,674 32,994 6,163 2,788,545

The Group entered into accounts receivable factoring agreements (without recourse) with several financial institutes in Taiwan. Under the agreements, the Group has surrendered control over the receivable to the factors. The factors had fully paid out the sales proceeds and assumed substantially all risks of collection as receivable were transferred.

As of 31 December 2015 and 31 December 2014, trade receivables derecognized were as follows:

As at 31 December 2015

The Factor (Transferee)

Interest

rate

Trade receivables

derecognized

(USD$’000)

Cash

withdrawn

(USD$’000)

Unutilized

(USD$’000)

Credit line

($’000)

DBS Bank (Taiwan) 0.96~1.00 $40,704 $(34,051) $6,653 USD 72,000

BNP Paribas (Taiwan) 0.65~0.70 3,641 (3,625) 16 EUR 30,000

TaiShin Bank - 5 - 5 USD 500

Total $44,350 $(37,676) $6,674

As at 31 December 2014

The Factor (Transferee)

Interest

rate

Trade receivables

derecognized

(USD$’000)

Cash

withdrawn

(USD$’000)

Unutilized

(USD$’000)

Credit line

($’000)

DBS Bank (Taiwan) 0.95~1.22 $27,020 $20,255 $6,765 USD 34,200

BNP Paribas (Taiwan) 0.57 8,486 8,386 100 EUR 15,000

Total $35,506 $28,641 $6,865

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

The details of accounts receivable derecognized as follows:

As at

The Factor (Transferee) 31 December

2015 31 December

2014 DBS Bank (Taiwan) $219,989 $214,567 BNP Paribas (Taiwan) 524 3,167 Taishin Bank 155 - Total $220,668 $217,734

(7) Inventories

As at 31 December

2015 31 December

2014 Raw materials and supplies $2,014,901 $1,553,743 Work in progress 397,142 382,197 Finished goods 2,956,908 1,693,544 Total $5,368,951 $3,629,484

The cost of inventories recognized in expenses amounts to NT$30,027,997 thousand and NT$19,537,702 thousand for the years ended 31 December 2015 and 2014, including the write-down of inventories of NT$80,617 thousand and NT$86,841 thousand, respectively.

No inventories were pledged.

(8) Other financial assets

As at 31 December

2015 31 December

2014 Trust asset $163,219 $161,309

Description of the trust assets, please refer to Note 9.

No other financial assets were pledged.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(9) Property, plant and equipment

Land Buildings

Machinery and

equipment

Research and development equipment

Office and other

equipment Leased assets Construction in progress Total

Cost: As at 1 January 2015 $382,089 $1,403,089 $1,783,530 $501,596 $312,551 $290,341 $1,744 $4,674,940Additions - - 388,633 59,089 56,772 - 2,606 507,100Disposals - - (23,648) (11,098) (38,273) - - (73,019)Transfers - - (843) - 2,880 - (1,737) 300Acquired through business

combination - - - - 3,218 - - 3,218

Exchange differences - (3,515) (6,225) (1,028) (187) - (7) (10,962)

As at 31 December 2015 $382,089 $1,399,574 $2,141,447 $548,559 $336,961 $290,341 $2,606 $5,101,577

As at 1 January 2014 $382,089 $1,374,632 $1,742,662 $430,509 $239,499 $290,341 $3,492 $4,463,224Additions - - 288,512 68,477 79,704 - 1,744 438,437Disposals - - (302,302) (2,282) (34,359) - (332) (339,275)Transfers - - 2,082 (2,884) 24,796 - (3,277) 20,717Exchange differences - 28,457 52,576 7,776 2,911 - 117 91,837

As at 31 December 2014 $382,089 $1,403,089 $1,783,530 $501,596 $312,551 $290,341 $1,744 $4,674,940

Depreciation and

impairment:

As at 1 January 2015 $- $145,192 $707,227 $290,415 $163,486 $47,257 $- $1,353,577Depreciation - 33,536 282,705 62,953 50,603 4,154 - 433,951Disposals - - (15,979) (9,992) (37,357) - - (63,328)Transfers - - (1,373) - 2,541 - - 1,168Acquired through business

combination - - - - 1,379 - - 1,379

Exchange differences - (608) (4,063) (866) (236) - - (5,773)

As at 31 December 2015 $- $178,120 $968,517 $342,510 $180,416 $51,411 $- $1,720,974

As at 1 January 2014 $- $110,348 $686,183 $236,260 $142,209 $43,102 $- $1,218,102Depreciation - 31,005 220,223 51,677 40,863 4,155 - 347,923Disposals - - (219,482) (1,806) (30,176) - - (251,464)Transfers - - (469) (1,438) 8,801 - - 6,894Exchange differences - 3,839 20,772 5,722 1,789 - - 32,122

As at 31 December 2014 $- $145,192 $707,227 $290,415 $163,486 $47,257 $- $1,353,577

Net carrying amount as at: 31 December 2015 $382,089 $1,221,454 $1,172,930 $206,049 $156,545 $238,930 $2,606 $3,380,603

31 December 2014 $382,089 $1,257,897 $1,076,303 $211,181 $149,065 $243,084 $1,744 $3,321,363

The Company rented the Nankang Software Industrial Park office by capital lease, please refer to Note 6.(15).

No property, plant and equipment were pledged.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(10) Intangible assets

Computer software

Development costs

Producttesting costs Goodwill Total

Cost:As at 1 January 2015 $148,522 $140,399 $36,585 $- $325,506Addition-internal development - 25,186 - - 25,186Addition-acquired separately 109,209 - - - 109,209Acquired through business

combination 43,593 - - 53,679 97,272

Disposals (8,599) - (36,585) - (45,184)Exchange differences 514 - - 823 1,337As at 31 December 2015 $293,239 $165,585 $- $54,502 $513,326 As at 1 January 2014 $225,585 $352,750 $36,585 $- $614,920Addition-internal development - 21,453 - - 21,453Addition-acquired separately 28,349 - - - 28,349Disposals (106,138) (233,804) - - (339,942)Exchange differences 726 - - - 726As at 31 December 2014 $148,522 $140,399 $36,585 $- $325,506

Amortization and impairment: As at 1 January 2015 $89,077 $69,300 $35,284 $- $193,661Amortization 34,355 22,301 1,301 - 57,957Disposals (8,599) - (36,585) - (45,184)Exchange differences (129) - - - (129)As at 31 December 2015 $114,704 $91,601 $- $- $206,305

As at 1 January 2014 $168,264 $281,988 $26,018 $- $476,270Amortization 26,472 21,116 9,266 - 56,854Disposals (106,138) (233,804) - - (339,942)Exchange differences 479 - - - 479As at 31 December 2014 $89,077 $69,300 $35,284 $- $193,661 Net carrying amount as at: 31 December 2015 $178,535 $73,984 $- $54,502 $307,02131 December 2014 $59,445 $71,099 $1,301 $- $131,845

Amortization expense of intangible assets under the statement of comprehensive income:

For the years ended 31 December

2015 2014 Operating costs $22,429 $21,898 Operating expenses $35,528 $34,956

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(11) Short-term borrowings

As at

Interest Rates (%)

31 December 2015

31 December2014

Unsecured bank loans 1.001%~1.860% $2,632,498 $2,541,694

The Group’s unused short-term lines of credits amounted to NT$5,536,316 thousand and NT$4,635,766 thousand, as at 31 December 2015 and 2014, respectively.

(12) Current derivative financial assets (liabilities) for hedging

The balance for the periods as follows:

As at

31 December 2015

31 December2014

Derivative financial assets for hedging $246,129 $99,565 Derivative financial liabilities for hedging (147,298) -

Total $98,831 $99,565

(a) The Group entered into the foreign currency option contracts and foreign currency forward contracts primarily for the purpose of hedging highly probable forecast transactions denominated in foreign currency, which are expected to occur during the next 12 months. Amounts accumulated in “other comprehensive income” as of 31 December 2015 are reclassified into profit or loss in the periods when the hedged asset acquired or the hedged liability assumed affects profit or loss. The Group has assessed that the effect of profit or loss arising from ineffective cash flow hedge was insignificant as the Group was mostly effective in executing the hedge transactions for the years ended 31 December 2015 and 2014. The Group entered into derivative financial instruments contracts with financial institutions with good credit quality. The maximum exposure to credit risk at the balance sheet date is the carrying amount of the derivative financial instruments for hedging.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(b) Cash flow hedges

Hedged item

Derivative instruments

designated as hedges

Fair value of derivative

instruments designated as

hedges

Period of anticipated cash

flow

Period of gain (loss) expected to be

recognized in statements of comprehensive

income

2015/12/31 Expected transactions

Forward foreign exchange contracts

$212,966 2016/01-2017/03 2016/01-2017/03

Expected transactions

Forward foreign exchange contracts

(147,298) 2016/01-2016/12 2016/01-2016/12

Expected transactions

Range forward foreign exchange contracts

33,163 2016/01-2016/03 2016/01-2016/03

2014/12/31 Expected transactions

Foreign currency option contracts

13,000 2015/01~2015/06 2015/01~2015/06

Expected transactions

Forward foreign exchange contracts

86,565 2015/01~2015/09 2015/01~2015/09

Amounts accumulated in “other comprehensive income” as of 31 December 2015 and 2014 are reclassified into profit or loss in the periods when the hedged asset acquired or the hedged liability assumed affects profit or loss. The amounts transferred from other comprehensive income to profit or loss for the years ended 31 December 2015 and 2014 were NT$237,990 thousand and NT$(83,450) thousand, respectively.

(c) The unexpired contracts are as follow:

As at 31 December 2015

Currency Expected Cash Flow Period Nominal Amount

Forward foreign exchange contracts

Sell EUR/Buy USD 2016.1.22-2017.3.20 EUR 122,000 thousand

Range forward foreign exchange contracts

Sell EUR/Buy USD 2016.1.21-2016.3.21 EUR 12,000 thousand

Forward foreign exchange contracts

Sell USD/Buy RMB 2016.1.4-2016.12.19 USD 445,000 thousand

Forward foreign exchange contracts

Sell RMB/Buy USD 2016.1.5-2016.12.20 USD 469,000 thousand

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

As at 31 December 2014

Currency Expected Cash Flow Period Nominal Amount

Call options Sell EUR/Buy USD 2015.1.20-2015.6.30 EUR 12,000 thousand

Forward foreign exchange

contracts

Sell EUR/Buy USD 2015.1.14-2015.9.25 EUR 21,000 thousand

(13) Current provisions

Maintenance

warranties

Sales returns and

allowances Total

As at 1 January 2015 $12,788 $41,716 $54,504

Arising during the period 1,350 120,903 122,253

Utilized (4,304) (104,174) (108,478)

Exchange difference (11) (100) (111)

As at 31 December 2015 $9,823 $58,345 $68,168

As at 1 January 2014 $25,638 $12,993 $38,631

Arising during the period 1,820 36,811 38,631

Utilized (15,195) (8,917) (24,112)

Exchange difference 525 829 1,354

As at 31 December 2014 $12,788 $41,716 $54,504

Maintenance warranties

A provision is recognized for expected warranty claims on products sold, based on past

experience, management’s judgment and other known factors.

Sales returns and allowances

A provision has been recognized for sales returns and allowances based on past experience

and other known factors. The provision is recognized and the corresponding entry is made

against operating revenue at the time of sales.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(14) Bonds payable

A. The Group’s bonds payable are as follows:

As at

31 December 2015

31 December2014

The third domestic unsecured convertible bonds payable $- $176,656

The fourth domestic unsecured convertible bonds payable 20,200 40,300

The fifth domestic unsecured convertible bonds payable 40,000 79,300

Less: discounts on bonds payable (1,374) (7,346)

Subtotal 58,826 288,910

Less: current portion (Note 1) (19,996) (249,776)

Net $38,830 $39,134

Equity instruments (Note 2) $5,433 $12,588

Note 1: According to the issued clause of unsecured convertible bonds payable, bonds holders could exercise put option, the Group reclassified bonds payable due within one year to current liabilities.

Note 2: Conversion option value, which is recorded as additional paid-in capital-option.

B. The Company’s Board of Directors resolved on 24 June 2010, 17 June 2011 and 27 June 2012 to issue the third, fourth and fifth domestic unsecured convertible bonds, which were issued on 6 August 2010, 30 August 2011 and 31 August 2012, respectively. The terms and conditions of the bonds are as follows:

Third domestic unsecured convertible bond:

(a) Issue Amount: NT$600,000 thousand, each with a face value of NT$100 thousand, issued based on 100% of par value.

(b) Annual coupon rate:0%.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(c) Issuing period: from 6 August 2010 to 6 August 2015.

(d) Conversion method:

i. Conversion period: The bondholder may, on the following day when reaching one

full month from the bond issuing date and ten days prior to maturity, except for the

closed period, at any time request the Company to convert the bonds into the

Company’s common stocks in accordance with this measure.

ii. Conversion price and adjustments: With the convertible bonds’ conversion price set

at NT$22.24 per share at the time of issue, and following the issue of the

convertible bonds, the conversion price is to be adjusted in accordance with

stipulations set by the convertible bonds’ issuing provisions, when the Company

increased the common stocks (except when the Company reissues or stages a

private solicitation of common stocks with convertible rights or staging for an

exchange of the common stocks through share pledging of a variety of marketable

securities, or when the Company increases the common stocks already issued or

solicited, including but not limited to capital reinvestment, earnings converting to

capital reinvestment, capital reserve converting to capital reinvestment, employee

bonuses converting to capital reinvestment, merger or new share issue by an

invested entity, stock division and cash capital reinvestment for participating in

offshore depository certificates and the like through solicitation issue or private

solicitation), or when the common stock cash dividends of a given year against the

ratio of the current price per share exceed 1.5%, or when the Company converts at a

conversion price lower than the going price per share for a variety of marketable

securities through share pledging reissue or private solicitation of common stocks

with convertible rights or share pledging right, or when the Company reduces the

common stocks in a capital reduction due to cancellation of the common stocks

held in vault.

As of 31 December 2015 and 2014, the conversion price was adjusted to NT$16.44

and NT$17.26 per share, respectively.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(e) The Company’s call option:

Under the following circumstances, effective from 1 month after the issuance until 40 days prior to maturity, the Company may recall the convertible bonds at par value plus 2% real yield per year:

i. The closing price of the Company’s common stocks exceeds 30% of the last adjusted conversion price at the time for 30 consecutive business days.

ii. The balance of the Company’s total outstanding bonds currently in circulation falls lower than 10% of the par value.

(f) Bondholder’s put option:

During the 40-day period prior to reaching two years and four years after issuance,

bondholders may notify the Company’s stockholders’ service entity in writing to request the Company to buy back the convertible bonds at the par value plus 2% yearly yield of the bonds.

Fourth domestic unsecured convertible bond:

(a) Issue Amount: NT$600,000 thousand, each with a face value of NT$100 thousand, issued based on 100% of par value.

(b) Annual coupon rate:0%.

(c) Issuing period: from 30 August 2011 to 30 August 2016.

(d) Conversion method:

i. Conversion period: The bondholder may, on the following day when reaching one full month from the bond issuing date and ten days prior to maturity, except for the closed period, at any time request the Company to convert the bonds into the

Company’s common stocks in accordance with this measure.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

ii. Conversion price and adjustments: With the convertible bonds’ conversion price set at NT$40.76 per share at the time of issue, and following the issue of the convertible bonds, the conversion price is to be adjusted in accordance with stipulations set by the convertible bonds’ issuing provisions, when the Company increased the common stocks (except when the Company reissues or stages a private solicitation of common stocks with convertible rights or staging for an exchange of the common stocks through share pledging of a variety of marketable securities, or when the Company increases the common stocks already issued or solicited, including but not limited to capital reinvestment, earnings converting to capital reinvestment, capital reserve converting to capital reinvestment, employee bonuses converting to capital reinvestment, merger or new share issue by an invested entity, stock division and cash capital reinvestment for participating in offshore depository certificates and the like through solicitation issue or private solicitation), or when the common stock cash dividends of a given year against the ratio of the current price per share exceed 1.5%, or when the Company converts at a conversion price lower than the going price per share for a variety of marketable securities through share pledging reissue or private solicitation of common stocks with convertible rights or share pledging right, or when the Company reduces the common stocks in a capital reduction due to cancellation of the common stocks held in vault.

As of 31 December 2015 and 2014, the conversion price was adjusted to NT$32.95 and NT$34.59 per share, respectively.

(e) The Company’s call option:

Under the following circumstances, effective from 1 year after the issuance until 40 days prior to maturity, the Company may recall the convertible bonds at par value per year:

i. The closing price of the Company’s common stocks exceeds 30% of the last adjusted conversion price at the time for 30 consecutive business days.

ii. The balance of the Company’s total outstanding bonds currently in circulation falls lower than 10% of the par value.

(f) Bondholder’s put option:

During the 40-day period prior to reaching three years after issuance, bondholders may notify the Company’s stockholders’ service entity in writing to request that the Company buy back the convertible bonds at the par value.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Fifth domestic unsecured convertible bond:

(a) Issue Amount: NT$600,000 thousand, each with a face value of NT$100 thousand, issued based on 100% of par value.

(b) Annual coupon rate:0%.

(c) Issuing period: from 31 August 2012 to 31 August 2017.

(d) Conversion method:

i. Conversion period: The bondholder may, on the following day when reaching one full month from the bond issuing date and ten days prior to maturity, except for the closed period, at any time request the Company to convert the bonds into the Company’s common stocks in accordance with this measure.

ii. Conversion price and adjustments: With the convertible bonds’ conversion price set at NT$49.67 per share at the time of issue, and following the issue of the convertible bonds, the conversion price is to be adjusted in accordance with stipulations set by the convertible bonds’ issuing provisions, when the Company increased the common stocks (except when the Company reissues or stages a private solicitation of common stocks with convertible rights or staging for an exchange of the common stocks through share pledging of a variety of marketable securities, or when the Company increases the common stocks already issued or solicited, including but not limited to capital reinvestment, earnings converting to capital reinvestment, capital reserve converting to capital reinvestment, employee bonuses converting to capital reinvestment, merger or new share issue by an invested entity, stock division and cash capital reinvestment for participating in offshore depository certificates and the like through solicitation issue or private solicitation), or when the common stock cash dividends of a given year against the ratio of the current price per share exceed 1.5%, or when the Company converts at a conversion price lower than the going price per share for a variety of marketable securities through share pledging reissue or private solicitation of common stocks with convertible rights or share pledging right, or when the Company reduces the common stocks in a capital reduction due to cancellation of the common stocks held in vault.

As of 31 December 2015 and 2014, the conversion price was adjusted to NT$42.41 and NT$44.52 per share, respectively.

(e) The Company’s call option:

Under the following circumstances, effective from 1 year after the issuance until 40 days prior to maturity, the Company may recall the convertible bonds at par value per year:

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

i. The closing price of the Company’s common stocks exceeds 30% of the last adjusted conversion price at the time for 30 consecutive business days.

ii. The balance of the Company’s total outstanding bonds currently in circulation falls lower than 10% of the par value.

(f) Bondholder’s put option:

During the 40-day period prior to reaching three years after issuance, bondholders may notify the Company’s stockholders’ service entity in writing to request the Company to buy back the convertible bonds at the par value.

C. The bonds already exchanged amount to NT$1,739,800 thousand, and NT$1,520,400 thousand as at 31 December 2015 and 31 December 2014, respectively.

(15) Lease payable

The Group signed a contract with Industrial Development Bureau, Ministry of Economic Affairs to lease an office space in Nankang Software Industrial Park on 15 August 2003. These capital lase expire on various dates from August 2003 to August 2023. The annual lease payment is adjusted according to Industrial Development Bureau’s prescribed rental rate yearly. The prescribed rental rate is adjusted annually based on the interest rate of long-term loan and annual base on Consumer Price Index. In addition, the Group has bargain purchase option within the lease term. Future minimum lease payments under financial lease together with the present value of the net minimum lease payments are as follows:

As at 31 December 2015 31 December 2014

Minimum payments

Presentvalue of

payments Minimum payments

Presentvalue of

paymentsNot later than one year $16,298 $13,113 $16,298 $12,854Later than one year and not later than five years 65,193 55,150 65,192 54,061Later than five years 100,144 87,742 116,443 102,505Total minimum lease payments 181,635 156,005 197,933 169,420Less: finance charges on finance lease (25,630) - (28,513) -Present value of minimum lease payments $156,005 $156,005 $169,420 $169,420 Current $13,113 $12,854Non-current $142,892 156,566

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(16) Post-employment benefits

Defined contribution plan

The Company and its domestic subsidiaries adopt a defined contribution plan in accordance with the Labor Pension Act of the R.O.C. Under the Labor Pension Act, the Company and its domestic subsidiaries will make monthly contributions of no less than 6% of the employees’ monthly wages to the employees’ individual pension accounts. The Company and its domestic subsidiaries have made monthly contributions of 6% of each individual employee’s salaries or wages to employees’ pension accounts.

Subsidiaries located in the People’s Republic of China will contribute social welfare benefits based on a certain percentage of employees’ salaries or wages to the employees’ individual pension accounts.

Pension benefits for employees of overseas subsidiaries and branches are provided in accordance with the local regulations.

Expenses under the defined contribution plan for the years ended 31 December 2015 and 2014 were NT$243,255 thousand and NT$181,825 thousand, respectively.

Defined benefits plan

The Company and its domestic subsidiaries adopt a defined benefit plan in accordance with the Labor Standards Act of the R.O.C. The pension benefits are disbursed based on the units of service years and the average salaries in the last month of the service year. Two units per year are awarded for the first 15 years of services while one unit per year is awarded after the completion of the 15th year. The total units shall not exceed 45 units. Under the Labor Standards Act, the Company and its domestic subsidiaries contribute an amount equivalent to 2% of the employees’ total salaries and wages on a monthly basis to the pension fund deposited at the Bank of Taiwan in the name of the administered pension fund committee. Before the end of each year, the Company and its domestic subsidiaries assess the balance in the designated labor pension fund. If the amount is inadequate to pay pensions calculated for workers retiring in the same year, the Company and its domestic subsidiaries will make up the difference in one appropriation before the end of March the following year.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

The Ministry of Labor is in charge of establishing and implementing the fund utilization plan in accordance with the Regulations for Revenues, Expenditures, Safeguard and Utilization of the Labor Retirement Fund. The pension fund is invested in-house or under mandation, based on a passive-aggressive investment strategy for long-term profitability. The Ministry of Labor establishes checks and risk management mechanism based on the assessment of risk factors including market risk, credit risk and liquidity risk, in order to maintain adequate manager flexibility to achieve targeted return without over-exposure of risk. With regard to utilization of the pension fund, the minimum earnings in the annual distributions on the final financial statement shall not be less than the earnings attainable from the amounts accrued from two-year time deposits with the interest rates offered by local banks. Treasury Funds can be used to cover the deficits after the approval of the competent authority. As the Company does not participate in the operation and management of the pension fund, no disclosure on the fair value of the plan assets categorized in different classes could be made in accordance with paragraph 142 of IAS 19. The Group expects to contribute NT$2,918 thousand to its defined benefit plan during the 12 months beginning after 31 December 2015.

The average duration of the defined benefits plan obligation as at 31 December 2015 and 2014, are 13 years and 14 years, respectively.

Pension costs recognized in profit or loss for the years ended 31 December 2015 and 2014:

For the years ended 31 December

2015 2014 Current period service costs $424 $525Interest income of net defined benefit liabilities 801 702Total $1,225 $1,227

Changes in the defined benefit obligation and fair value of plan assets are as follows:

As at 31 December

201531 December

2014 1 January

2014Defined benefit obligation at 1 January $118,105 $104,665 $99,134Plan assets at fair value (68,818) (64,597) (64,066)Other non-current liabilities - Accrued $49,287 $40,068 $35,068

pension liabilities recognized on the consolidated balance sheets

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Reconciliation of liability of the defined benefit plan is as follows:

As at Defined benefit

obligationFair value of plan assets

Benefit liability

As at 1 January 2014 $99,134 $(64,066) $35,068 Current period service costs 525 - 525 Net interest expense (income) 1,983 (1,281) 702 Subtotal 2,508 (1,281) 1,227 Remeasurements of the net defined benefit liability (asset):

Experience adjustments 6,790 (228) 6,562 Subtotal 6,790 (228) 6,562 Payments from the plan (3,767) 3,767 - Contributions by employer - (2,789) (2,789)As at 31 December 2014 104,665 (64,597) 40,068 Current period service costs 424 - 424 Net interest expense (income) 2,093 (1,292) 801 Subtotal 2,517 (1,292) 1,225 Remeasurements of the net defined benefit liability (asset):

Actuarial gains and losses arising from changes in financial assumptions

3,924 - 3,924

Experience adjustments 7,370 (481) 6,889 Subtotal 11,294 (481) 10,813 Payments from the plan (371) 371 - Contributions by employer - (2,819) (2,819)As at 31 December 2015 $118,105 $(68,818) $49,287

The following significant actuarial assumptions are used to determine the present value of the defined benefit obligation:

As at 31 December

201531 December

2014Discount rate 1.70% 2.00%Expected rate of salary increases 3.00% 3.00%

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

A sensitivity analysis for significant assumption as at 31 December 2015 and 2014 is, as

shown below:

Effect on the defined benefit obligation

2015 2014

Increase definedbenefit

obligation

Decreasedefinedbenefit

obligation

Increase definedbenefit

obligation

Decreasedefinedbenefit

obligation

Discount rate increase by 1% $- $12,427 $- $11,575Discount rate decrease by 1% 14,440 - 13,522 -Future salary increase by 1% 12,825 - 12,107 -

Future salary decrease by 1% - 11,356 - 10,663

The sensitivity analyses above are based on a change in a significant assumption (for

example: change in discount rate or future salary), keeping all other assumptions constant. The sensitivity analyses may not be representative of an actual change in the defined benefit obligation as it is unlikely that changes in assumptions would occur in isolation of one

another.

There was no change in the methods and assumptions used in preparing the sensitivity

analyses compared to the previous period.

(17) Equities

(a) Ordinary share

The Company’s authorized capital was NT$2,500,000 thousand as at 31 December 2015 and 31 December 2014. The Company’s issued capital was NT$2,411,278 thousand and NT$2,292,181 thousand as at 31 December 2015 and 31 December 2014,

respectively, each at a par value of NT$10. The Company has issued 241,128 thousand and 229,218 thousand common shares as at 31 December 2015 and 31 December 2014, respectively.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

For the year ended 31 December 2015 and 2014 the Company issued NT$2,330

thousand and NT$2,560 thousand for conversion of employee stock option exercise, each with par value of NT$10. Each share has one voting right and a right to receive dividends. The issuance had been approved by the relevant authority.

The third, fourth and fifth issue of domestic unsecured convertible bonds of the Company had been converted by bond holders into 18,792 thousand ordinary shares during the year ended 31 December 2014. As a result, the capital increased by

NT$187,917 thousand. As of 31 December 2014, there are still 744 thousand ordinary shares amounting to NT$7,442 thousand that have not been approved by the relevant authority which was accounted for as advanced receipts for ordinary shares.

The third, fourth and fifth issue of domestic unsecured convertible bonds of the Company had been converted by bond holders into 11,211 thousand ordinary shares

during the year ended 31 December 2015. As a result, the capital increased by NT$112,113 thousand. As of 31 December 2015, there are still 236 thousand ordinary shares amounting to NT$2,358 thousand that have not been approved by the relevant

authority which was accounted for as advanced receipts for ordinary shares.

The Company bought back and canceled restricted stocks issued to employees have

resigned during vesting condition for the years ended 31 December 2015 and 2014 in the amount of NT$430 thousand and 1,440 thousand, which is 43 thousand shares and 144 thousand shares, respectively. The issuance had been approved by the relevant

authority.

(b) Capital surplus

According to the Company Act, the capital reserve shall not be used except for making good the deficit of the company. When a company incurs no loss, it may distribute the

capital reserves related to the income derived from the issuance of new shares at a premium or income from endowments received by the company. The distribution could be made in cash or in the form of dividend shares to its shareholders in proportion

to the number of shares being held by each of them.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(c) Retained earnings and dividend policies

According to the Company’s Articles of Incorporation, the Company’s annual earnings shall be used to offset an accumulated deficit, if any, and be retained at a rate of 10% as legal reserve, as defined in the Company Law, except when such retention equals the amount of issued common stock. After the aforementioned deduction, 15% of remaining earnings should be distributed as employees’ bonus 2% of remaining earnings should be distributed as directors’ and supervisors’ remuneration. The distribution of any remaining earnings, after deducting employees’ bonuses and directors’ and supervisors’ remuneration, is subject to shareholders’ approval. A special reserve is equal to the reduction in stockholders’ equity (for example, cumulative translation adjustments and unrealized loss on long-term investment in stock, etc.). If the aforementioned reduction in stockholders’ equity is reserved, the same amount could be removed from special reserve and transferred to unappropriated earnings.

However, according to the addition of Article 235-1 of the Company Act announced on May 20, 2015, the Company shall provide a fixed amount or percentage of the profit for the year to be distributed as “employees’ compensation”, after deducting and setting aside an amount equal to the cumulative losses (if any). The aforementioned employees’ compensation may be made in the form of stocks or cash, which shall be determined by a resolution adopted by a majority vote at a board of directors meeting attended by two-thirds or more of the directors and be reported at a shareholders’ meeting. Furthermore, the Articles of Incorporation may stipulate that the employees’ compensation could be distributed to employees of affiliated enterprises meeting certain criteria. The Company expects to amend the Articles of Incorporation during the shareholders’ general meeting in 2016.

Any appropriations of the profits are recorded in the year of stockholder approval and given effect to in the financial statements of that year.

The policy for dividend distribution should reflect factors such as current and future investment environment, fund requirements, domestic and international competition and capital budgets, as well as the benefit of stockholders, share bonus equilibrium, and long-term financial planning etc. It could be paid in cash or the form of share dividends. Accordingly, at least 10% of the dividends must be paid in the form of cash.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

According to the Company Act, the Company needs to set aside amount to legal reserve unless where such legal reserve amounts to the total authorized capital. The legal reserve can be used to make good the deficit of the Company. When the Company incurs no loss, it may distribute the portion of legal serve which exceeds 25% of the paid-in capital by issuing new shares or by cash in proportion to the number of shares being held by each of the shareholders.

Following the adoption of TIFRS, the FSC on 6 April 2012 issued Order No. Financial-Supervisory-Securities-Corporate-1010012865, which sets out the following provisions for compliance:

On a public company's first-time adoption of the TIFRS, for any unrealized revaluation gains and cumulative translation adjustments (gains) recorded to shareholders’ equity that the company elects to transfer to retained earnings by application of the exemption under IFRS 1, the company shall set aside an equal amount of special reserve. Following a company’s adoption of the TIFRS for the preparation of its financial reports, when distributing distributable earnings, it shall set aside to special reserve, from the profit/loss of the current period and the undistributed earnings from the previous period, an amount equal to “other net deductions from shareholders’ equity for the current fiscal year, provided that if the company has already set aside special reserve according to the requirements in the preceding point, it shall set aside supplemental special reserve based on the difference between the amount already set aside and other net deductions from shareholders’ equity. For any subsequent reversal of other net deductions from shareholders’ equity, the amount reversed may be distributed.

As of 1 January 2015 and 2014, special reserve set aside for the first-time adoption of TIFRS both amount to NT$131,678 thousand. Furthermore, the Company did not reverse special reserve to retained earnings during the years ended 31 December 2015 and 2014 as results of the use, disposal or reclassification of related assets.

The distributions of each dividend, employee bonus and directors’ remuneration for 2015 and 2014 were approved through the Board of Directors’ meeting and the stockholders’ meeting held on 23 March 2016 and 28 May 2015, respectively. The details of distribution are as follows:

Appropriation of earnings Dividend per share (NT$) 2015 2014 2015 2014

Legal reserve $130,451 $94,930 Common stock cash dividend 928,342 687,654 $3.85 $3.00

Please refer to Note 6.(21) for further details on employees’ compensation and remuneration to directors and supervisors.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(d) Non-controlling interests

For the years ended 31 December

2015 2014

Beginning Balance $6,090 $- Net loss attributable to non-controlling interests (7,508) (243)Other comprehensive income attributable to non-controlling interests:Exchange differences on translation of foreign operations (14) 246

Issuance of stock attributable to non-controlling interests - 6,087

Ending Balance $(1,432) $6,090

(18) Share-based payment plans

Certain employees of the Group are entitled to share-based payment as part of their remunerations; services are provided by the employees in return for the equity instruments granted. These plans are accounted for as equity-settled share-based payment transactions.

(a) Share-based payment plan for employees of the parent entity

On 25 May 2015 and 11 November 2005 the Company was authorized by the Securities and Futures Bureau of the Financial Supervisory Commission, Executive Yuan, to issue employee stock options with a total number of 100,000 units and 50,000 units, respectively. Each unit entitles an optionee to subscribe to 100 share of the Company’s common stock. Settlement upon the exercise of the options will be made through the issuance of new shares by the Company. An optionee may exercise the options in accordance with certain schedules as prescribed by the plan starting 2 years from the date of grant.

The fair value of the share options is estimated at the grant date using a binomial option pricing-model, taking into account the terms and conditions upon which the share options were granted.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

The exercise price of the option was set at the closing price of the subsidiary’s common

share on the grant date. The contractual term of each option granted is ten years.

There are no cash settlement alternatives. The Group does not have a past practice of

cash settlement for these employee share options.

The relevant details of the aforementioned share-based payment plan are as follows:

Date of grant

Total number of share

options granted (units)

Exercise price of share options (NT$)

(Note)

14 November 2005 50,000 10.0

27 May 2015 100,000 60.6

Note: The exercise prices have been adjusted to reflect the change of outstanding shares

(i.e. the share issued for cash, the appropriation of earnings, issuance of new

shares in connection with merger, or issuance of new shares of other companies)

in accordance with the plan.

The compensation cost was recognized under the fair value method and the

Black-Scholes Option pricing model was used to estimate the fair value of options

granted. Assumptions used in calculating the fair value are disclosed as follows:

Factors

Expected dividends yields 4.79%

Expected volatility 27.79%

Risk-free interest rate 1.17%~1.31%

Weighted-average expected life 6.375 years

The expected life of the share options is based on historical date and current

expectations and is not necessarily indicative of exercise patterns that may occur. The

expected volatility reflects the assumption that the historical volatility over a period

similar to the life of the options is indicative of future trends, which may also not

necessarily be the actual outcome.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

The following table contains further details on the aforementioned share-based payment plan:

For the years ended 31 December

2015 2014

Number of

share options

outstanding

(in thousands)

Weighted

average exercise

price of share

options (NT$)

Number of

share options

outstanding

(in thousands)

Weighted

average exercise

price of share

options (NT$)

Outstanding at beginning of period 2,330 10.00 4,890 10.00

Granted 100,000 60.60 - -

Forfeited - - - -

Exercised (2,330) 10.00 (2,560) 10.00

Expired - - - -

Outstanding at end of period 100,000 60.60 2,330 10.00

Exercisable at end of period - 2,330

Weighted-average fair value of options

granted during the period (NTD) $9.23 $-

The weighted-average stock price was NT$73.8 and NT$67.5 when the exercise date of the options exercised for the years ended 31 December 2015 and 2014, respectively.

The number of options outstanding was as follows:

31 December 2015

Outstanding Stock Options

31 December 2014

Outstanding Stock Options

Authorization date

Range of

exercise

price

(NTD)

Option

(units)

Weighted-average

remaining

contractual life

(years)

Option

(units)

Weighted-average

remaining

contractual life

(years)

2005.11.14 10.00 - - 2,330 -

2015.05.27 60.60 100,000 5.875 - -

100,000 2,330

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(b) Restricted stocks plan for employees of the parent entity

In the shareholders’ meeting on 20 June 2013, the parent company issued restricted stock for employees 6,000 thousand shares. The pronouncement of this ruling by FSC takes effect on 19 July 2013. The Board on 22 July 2013 decided the name list and issued 4,701 thousand shares, and the record date for capital increase is 16 September 2013. The strike price is NT$30 per share and the share price at grant date was NT$38.80 per share.

Unless the vesting conditions have lapsed, the restricted shares of stock may not be sold, pledged, transferred, hypothecated or otherwise disposed, and holders have not the right of earning distribution and subscription in issuing new shares. Also, the Company bears the right to buy back the restricted shares of stock at the issuance price and to cancel all restricted shares of stock issued to any employee who fails to comply with the vesting condition.

The Company issued restricted shares of stock to employees of 47,010 thousand shares in 2013, which resulted in a capital surplus additional paid in capital arising from ordinary share of NT$94,020 thousand and capital surplus restricted employee shares of stock of NT$41,368 thousand. For the years ended 31 December 2015 and 31 December 2014, the Company had deferred compensation cost arising from issuance of restricted stock of NT$ 0 thousand and NT$4,176 thousand, respectively.

For the year ended 31 December 2015, the Company bought back and canceled restricted shares of stock to employees who resigned during vesting condition. The Company reverse capital surplus additional paid in capital arising from ordinary shares of NT$860 thousand, capital surplus restricted employee shares of stock of NT$378 thousand.

For the year ended 31 December 2014, the Company bought back and canceled restricted shares of stock to employees who resigned during vesting condition. The Company reverse capital surplus additional paid in capital arising from ordinary shares of NT$2,880 thousand, capital surplus restricted employee shares of stock of NT$1,267 thousand and deferred compensation cost arising from issuance of restricted stock of NT$1,267 thousand.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(c) The expenses recognized for share-based payment plans for the years ended 31

December 2015 and 2014 were NT$22,390 thousand and NT$ 14,560 thousand,

respectively.

(19) Operating revenue

For the years ended

31 December

2015 2014

Sale of goods $35,428,135 $23,354,971

Less: Sales returns, discounts and allowances (418,562) (164,572)

Other operating revenues 2,393 2,290

Total $35,011,966 $23,192,689

(20)Operating leases

Operating lease commitments - Group as lessee

The Group has entered into commercial leases on certain building and items of machinery.

These leases have an average life of one to five years with no renewal option included in the

contracts. There are no restrictions placed upon the Group by entering into these leases.

Future minimum rentals payable under non-cancellable operating leases as at 31 December

2015 and 31 December 2014 are as follows:

As at

31 December

2015

31 December

2014

Not later than one year $5,794 $5,674

Later than one year and not later than five years 24,449 24,522

Later than five years 2,079 7,067

Total $32,322 $37,263

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(21) Summary statement of employee benefits, depreciation and amortization expenses by function during the years ended 31 December 2015 and 2014:

For the years ended 31 December

2015 2014

Operating

costs

Operating

expenses

Total

amount

Operating

costs

Operating

expenses

Total

amount

Employee benefits expense

Salaries $885,107 $1,724,681 $2,609,788 $759,978 $1,150,507 $1,910,485

Labor and health insurance 20,116 59,948 80,064 16,539 49,382 65,921

Pension 130,404 114,076 244,480 89,395 93,657 183,052

Other employee benefits expense 81,767 79,664 161,431 60,568 66,821 127,389

Depreciation 210,946 223,005 433,951 171,521 176,402 347,923

Amortization 22,429 35,528 57,957 21,898 34,956 56,854

A resolution was passed at a Board of Directors meeting of the Company held on 13 November 2015 to amend the Articles of Incorporation of the Company. According to the resolution, 12%-18% of profit of the current year is distributable as employees’ compensation and no higher than 2.5% of profit of the current year is distributable as remuneration to directors and supervisors. However, the company's accumulated losses shall have been covered. The Company may, by a resolution adopted by a majority vote at a meeting of Board of Directors attended by two-thirds of the total number of directors, have the profit distributable as employees’ compensation in the form of shares or in cash; and in addition thereto a report of such distribution is submitted to the shareholders’ meeting. The Articles of Incorporation are to be amended in the shareholders’ meeting in 2016. Information on the Board of Directors’ resolution regarding the employees’ compensation and remuneration to directors and supervisors can be obtained from the “Market Observation Post System” on the website of the TWSE.

Based on profit of current year, the Company estimated the amounts of the employees’ compensation and remuneration to directors and supervisors for the year ended 31 December 2015 to be 12% of profit of current year and 1.53% of profit of current year, respectively, recognized as employee benefits expense. A resolution was passed at a Board of Directors meeting held on 23 March 2016 to distribute NT$196,033 thousand and NT$24,967 thousand in cash as employees’ compensation and remuneration to directors and supervisors, respectively.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

The estimated employee bonuses and remuneration to directors and supervisors for the year ended 31 December 2014 were based on post-tax net income of the period and the Company’s Articles of Incorporation, and considered factors such as appropriation to legal reserve etc. The estimated employee bonuses and remuneration to directors and supervisors for the year ended 31 December 2014 are recognized as employee benefits expense for the period. If the Board modified the estimates significantly in the subsequent periods, the Company will recognize the change as an adjustment to current income. The difference between the estimation and the resolution of shareholders’ meeting will be recognized in profit or loss of the subsequent year. The number of stocks distributed as employee bonuses was calculated based on the closing price one day earlier than the date of shareholders’ meeting and considered the impacts of ex-right/ex-dividend. The Company estimated the amounts of the employee bonuses and remuneration to directors and supervisors for the year ended 31 December 2014 to be NT$128,156 thousand and NT$17,087 thousand, respectively. No material differences exist between the estimated amount and the actual distribution of the employee bonuses and remuneration to directors and supervisors for the year ended 31 December 2014.

(22) Non-operating income and expenses

(a) Other income For the years ended

31 December 2015 2014 Interest income $76,491 $66,892Rental income 1,662 831Dividends income 663 1,116Others 23,833 16,667Total $102,649 $85,506

(b) Other gains and losses For the years ended

31 December 2015 2014 Loss on disposal of property, plant and equipment $(4,308) $(22,433)Loss on disposal investment 12,915 -Loss on disposal investment accounted for under the

equity method - (285)

Foreign exchange loss, net (113,107) (24,769)Gain (loss) on financial assets at fair value through

profit or loss (1,017) 55,088

Other (3,715) (2,170)Total $(109,232) $5,431

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(c) Finance costs For the years ended

31 December 2015 2014 Interest on borrowings from bank $59,250 $43,493Interest on notes discounted 9,757 -Interest on bonds payable 3,826 10,778Interest on finance lease 3,255 3,520Profit-seeking Enterprise Income (1,280) 24,625

Tax Administrative Remedies of Belated Interest (write off)

Total $74,808 $82,416

(23) Components of other comprehensive income

For the year ended 31 December 2015

Arising

during the

period

Reclassified

adjustments

during the

period

Transferred to

the carrying

amount of

hedged items

Other

comprehensive

income,

before tax

Income tax

relating to

components of

other

comprehensive

income

Other

comprehensive

income, net

of tax

Not to be reclassified to profit or

loss in subsequent periods:

Remeasurements of defined

benefit plans

$(10,813) $- $- $(10,813) $1,838 $(8,975)

To be reclassified to profit or loss

in subsequent periods:

Exchange differences resulting from

translating the financial statements

of a foreign operation

(16,843) - - (16,843) - (16,843)

Unrealized gains (losses) from

available-for-sale financial assets

17,383 (12,915) - 4,468 - 4,468

Gains losses on effect portion of

cash flow hedges

258,472 - (237,990) 20,482 13,248 33,730

Total of other comprehensive income $248,199 $(12,915) $(237,990) $(2,706) $15,086 $12,380

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

For the year ended 31 December 2014

Arising

during the

period

Reclassified

adjustments

during the

period

Transferred to

the carrying

amount of

hedged items

Other

comprehensive

income,

before tax

Income tax

relating to

components of

other

comprehensive

income

Other

comprehensive

income, net

of tax

Not to be reclassified to profit or

loss in subsequent periods:

Remeasurements of defined

benefit plans

$(6,562) $- $- $(6,562) $1,116 $(5,446)

To be reclassified to profit or loss

in subsequent periods:

Exchange differences resulting from

translating the financial statements

of a foreign operation

121,390 - - 121,390 - 121,390

Unrealized gains (losses) from

available-for-sale financial assets

13,342 - - 13,342 - 13,342

Gains (losses) on effect portion of

cash flow hedges

48,906 - 83,450 132,356 (21,821) 110,535

Total of other comprehensive income $177,076 $- $83,450 $260,526 $(20,705) $239,821

(24) Income tax

A. The major components of income tax expense (income) are as follows:

Income tax expense (income) recognized in profit or loss

For the years ended 31 December

2015 2014 Current income tax expenses (income):

Current income tax charge $304,403 $334,630 Adjustments in respect of current income tax of prior periods 73,287 (19,204)

Deferred tax expenses (income): Deferred tax expenses (income) relating to origination

and reversal of temporary differences (91,375) (75,547)

Total income tax expenses $286,315 $239,879

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Income tax relating to components of other comprehensive income

For the years ended

31 December

2015 2014

Deferred tax expense (income):

Actuarial gains (losses) on defined benefits plan $(1,838) $(1,116)

Gains (losses) on effect portion of cash flow hedges (13,248) 21,821

Income tax relating to components of other comprehensive income $(15,086) $20,705

B. Reconciliation between tax expense and the product of accounting profit multiplied by

applicable tax rates is as follows:

For the years ended

31 December

2015 2014

Accounting profit before tax from continuing operations $1,583,315 $1,188,938

Tax at the domestic rates applicable to profits in the

country concerned

$269,164 $202,119

Effect of different tax rates applicable to the Company and

its subsidiaries

136,262 61,975

Tax effect of revenues exempt from taxation (32,507) (154)

Tax effect of expenses not deductible for tax purposes 2,405 432

Tax effect of deferred tax assets/liabilities (56,000) 42,808

10 % surtax on undistributed retained earnings 16,127 15,410

Adjustments in respect of current income tax of prior periods 73,287 (19,204)

Others (122,423) (63,507)

Total income tax expense recognized in profit or loss $286,315 $239,879

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

C. Deferred tax assets (liabilities) relate to the following:

For the year ended 31 December 2015

Beginning

balance as at

1 January

2015

Deferred tax

income

(expense)

recognized in

profit or loss

Deferred tax

income

(expense)

recognized in

other

comprehensive

income

Exchange

differences

Ending

balance as at

31 December

2015

Temporary differences

Depreciation difference for tax purpose $(2,299) $64 $- $8 $(2,227)

Revaluations of financial assets at fair value through

profit or loss 157 (1,225) - 7 (1,061)

Allowance for inventory valuation losses 23,448 728 - (65) 24,111

Intangible assets – research and development costs (12,087) (490) - - (12,577)

Accrued expenses 130,890 67,039 - (508) 197,421

Provisions – sales return and allowance 7,259 4,664 - (29) 11,894

Provisions – maintenance warranties 2,373 (342) - (238) 1,793

Amortization of discount on bonds payable 6,107 - - - 6,107

Non-current liability – Defined benefit Liability 6,812 3,405 (1,838) - 8,379

Unrealized foreign exchange (gains) losses 7,689 (8,905) - - (1,216)

Unrealized (gains) losses on cash flow hedges (16,247) 26,496 (13,248) - (2,999)

Others - 766 - - 766

Deferred tax income/ (expense) $92,200 $(15,086) $(825)

Net deferred tax assets/(liabilities) $154,102 $230,391

Reflected in balance sheet as follows:

Deferred tax assets $184,735 $250,471

Deferred tax liabilities $(30,633) $(20,080)

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

For the year ended 31 December 2014

Beginning

balance as at

1 January

2014

Deferred tax

income

(expense)

recognized in

profit or loss

Deferred tax

income

(expense)

recognized in

other

comprehensive

income

Exchange

differences

Ending

balance as at

31 December

2014

Temporary differences

Depreciation difference for tax purpose $(2,281) $55 $- $(73) $(2,299)

Revaluations of financial assets at fair value through

profit or loss

317 (160) - - 157

Allowance for inventory valuation losses 17,487 5,302 - 659 23,448

Intangible assets – research and development costs (12,030) (57) - - (12,087)

Accrued expenses 69,519 60,270 - 1,101 130,890

Unrealized sales profit 830 (830) - - -

Provisions – sales return and allowance 2,219 4,894 - 146 7,259

Provisions – maintenance warranties 6,241 (3,883) - 15 2,373

Amortization of discount on bonds payable 6,107 - - - 6,107

Non-current liability – Defined benefit Liability 5,673 23 1,116 - 6,812

Unrealized foreign exchange (gains) losses (396) 8,085 - - 7,689

Unrealized (gains) losses on cash flow hedges 5,574 - (21,821) - (16,247)

Deferred tax income/ (expense) $73,669 $(20,705) $1,848

Net deferred tax assets/(liabilities) $99,260 $154,102

Reflected in balance sheet as follows:

Deferred tax assets $113,967 $184,735

Deferred tax liabilities $(14,707) $(30,633)

Unrecognized deferred tax liabilities relating to the investment in subsidiaries

The Group did not recognize any deferred tax liability for taxes that would be payable on the unremitted earnings of the Group’s overseas subsidiaries, as the Group has determined that undistributed profits of its subsidiaries will not be distributed in the foreseeable future. As at 31 December 2015 and 2014, the taxable temporary differences associated with investment in subsidiaries, for which deferred tax liabilities have not been recognized, aggregate to NT$429,391 thousand and NT$311,710 thousand, respectively.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

D. Imputation credit information

As at

31 December 2015

31 December2014

Balances of imputation credit amounts $165,893 $144,876

The expected creditable ratio for 2015 and the actual creditable ratio for 2014 were 15.41% and 15.59%, respectively.

The Company’s earnings generated in the year ended 31 December 1997 and prior years have been fully appropriated.

E. The assessment of income tax returns

As of 31 December 2015, the assessment of the income tax returns of the Company and its subsidiaries is as follows:

The assessment of income tax returns

The Company Assessed and approved up to 2013 Subsidiary-Shukuan Investment Ltd. Assessed and approved up to 2013

(25) Earnings per share

Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent entity by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent entity (after adjusting for interest on the convertible preference shares) by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

For the years ended 31 December

2015 2014

A. Basic earnings per share

Profit attributable to ordinary equity holders of the Company (in thousand

NT$) $1,304,508 $949,302

Weighted average number of ordinary shares outstanding for basic

earnings per share (in thousands) 234,080 225,449

Basic earnings per share (NT$) $5.57 $4.21

B. Diluted earnings per share

Profit attributable to ordinary equity holders of the Company (in thousand

NT$) $1,304,508 $949,302

Add: Interest expense from convertible bonds (in thousand NT$) 3,827 10,778

Profit attributable to ordinary equity holders of the Company after dilution

(in thousand NT$) $1,308,335 $960,080

Weighted average number of ordinary shares outstanding for basic

earnings per share (in thousands) 234,080 225,449

Effect of dilution:

Employee bonus-stock (in thousands) 3,223 2,031

Employee stock options (in thousands) 1,164 198

Convertible bonds (in thousands) 7,039 16,299

Weighted average number of ordinary shares outstanding after dilution

(in thousands) 245,506 243,977

Diluted earnings per share (NT$) $5.33 93

There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date the financial statements were authorized for issue.

(26)Business combination

The merger with Suzhou Femtel Communications Co., Ltd

The Group acquired 100% shares of Suzhou Femtel Communications Co., Ltd (“Suzhou Femtel”) on 1 July 2015. Suzhou Femtel, which was incorporated in Mainland China, is an unlisted company specializing in developing, manufacturing and selling communication products. The Group acquired the company in order to enhance future technical partnership and improve product diversification.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

The Group measured Suzhou Femtel at the proportionate share of the acquiree’s identifiable net assets.

The fair values of the identifiable assets and liabilities of Suzhou Femtel as of the date of acquisition were:

Fair value recognized on the acquisition date

(NT$’000)Assets:Cash and cash equivalents $20,773 Accounts receivable 21,344 Inventories 5,057 Other current assets 3,003 Property, plant and equipment 1,839 Intangible assets 43,593

95,609 Liabilities: Accounts payable (23,075) Other current liabilities (18,437)

(41,512) Fair value of identifiable net assets $54,097

Goodwill of Suzhou Femtel is as follows: Acquisition cost $107,776 Less: identifiable net assets at fair value (54,097) Goodwill $53,679

The fair value and the total contractual amount of the trade receivables both amounted to NT$21,344 thousand. None of the trade receivables have been impaired and it is expected that the full contractual amount can be collected.

From the acquisition date to 31 December 2015, Suzhou Femtel has contributed NT$29,228 thousand of net sales and NT$4,563 thousand of net loss to the Group. If the combination had taken place at the beginning of the year, revenues and net income of the Group for the year ended 31 December 2015 would have been NT$35,074,990 thousand and NT$1,293,465 thousand.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Cash flows on acquisition: Transaction costs attributable to cash paid $(107,776) Net cash acquired by the subsidiary 20,773 Net cash flows-out on acquisition $(87,003)

7. Related party transactions

Key management personnel compensation

For the years ended 31 December

2015 2014 Short-term employee benefits $103,957 $67,556Post-employment benefits 1,727 1,583Share-based Payment 22,390 14,560Total $128,074 $83,699

8. Assets pledged as security

The following table lists assets of the Group pledged as security:

Carrying amount

Assets pledged for security 31 December

2015 31 December

2014 Secured liabilitiesGuarantee deposits paid fixed-term deposit and cash $2,592 $2,592 Custom duty guarantee

9. Commitments and contingencies

(1) The Company signed an agreement with an overseas customer. The agreement provided that the overseas customer was required to pay a fee according to the License Royalty Rate prescribed in the agreement and the Company shall be liable for any third party infringement claims. The amount received as calculated by the License Royalty Rate has been deposited in trust fund set up by the Company. As at 31 December 2015, the Company recognized the trust fund as other financial assets-noncurrent and other current liabilities amounting to NT$163,219 thousand (including interest revenue of NT$5,511thousand) and NT$157,708 thousand, respectively.

(2) As at 31 December 2015, the amounts of Performance Letter of Guarantee issued by bank for the purpose of shipment guarantee were NT5,000 thousand and EUR 53 thousand.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

10. Losses due to major disasters

None.

11. Significant subsequent events

None.

12. Financial instruments

(1) Categories of financial instruments

As at

31 December 2015

31 December2014

Financial assets Financial assets at fair value through profit or loss:

Designated financial assets at fair value through profit or loss $5,026 $320

Available-for-sale financial assets

Measured at fair value 59,797 58,802

Measured at cost 63,375 10

Subtotal 123,172 58,812

Loans and receivables:

Cash and cash equivalents (exclude cash on hand) 5,362,470 5,220,966

Notes receivable, net 2,497,357 1,622,971

Accounts receivable, net 4,030,978 2,788,545

Other receivables 339,378 331,249

Other financial assets 163,219 161,309

Guarantee deposits paid 29,968 24,438

Subtotal 12,423,370 10,149,478

Derivative financial assets for hedging 246,129 99,565

Total $12,797,697 $10,308,175

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

As at 31 December

2015 31 December

2014Financial liabilitiesFinancial liabilities at fair value through profit or loss: Designated financial liabilities at fair value through profit or loss $3,787 $1,245 Financial liabilities at amortized cost:

Short-term borrowings 2,632,498 2,541,694 Notes payable 18,940 -Accounts payable 9,230,544 6,573,478 Other payables 2,707,153 1,687,914 Bonds payable 58,826 288,910Lease obligations payable 156,005 169,420

Subtotal 14,803,966 11,261,416

Derivative financial liabilities for hedging 147,298 -

Total $14,955,051 $11,262,661

(2) Financial risk management objectives and policies

The Group’s principal financial risk management objective is to manage the market risk, credit risk and liquidity risk related to its operating activates. The Group identifies measures and manages the aforementioned risks based on the Group’s policy and risk appetite.

The Group has established appropriate policies, procedures and internal controls for financial risk management. Before entering into significant transactions, due approval process by the Board of Directors must be carried out based on related protocols and internal control procedures. The Group complies with its financial risk management policies at all times

(3) Market risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of the changes in market prices. Market prices comprise currency risk, interest rate risk and other price risk.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

In practice, it is rarely the case that a single risk variable will change independently from other risk variable, there are usually interdependencies between risk variables. However the sensitivity analysis disclosed below does not take into account the interdependencies between risk variables.

Foreign currency risk

The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s operating activities (when revenue or expense are denominated in a different currency from the Group’s functional currency) and the Group’s net investments in foreign subsidiaries.

The Group has certain foreign currency receivables to be denominated in the same foreign currency with certain foreign currency payables, therefore natural hedge is received. The Group also uses forward contracts to hedge the foreign currency risk on certain items denominated in foreign currencies. Hedge accounting is not applied as they did not qualify for hedge accounting criteria. Furthermore, as net investments in foreign subsidiaries are for strategic purposes, they are not hedged by the Group.

The foreign currency sensitivity analysis of the possible change in foreign exchange rates on the Group’s profit is performed on significant monetary items, derivatives financial instrument and hedge activities denominated in foreign currencies as at the end of the reporting period. The Group’s foreign currency risk is mainly related to the volatility in the exchange rates for USD. The information of the sensitivity analyses is as follows:

When NTD strengthens/weakens against USD by 1%, the profit for the years ended 31 December 2015 and 2014 is increased/decreased by NT$1,455 thousand and decreased/increased NT$1,764 thousand, respectively.

Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s loans and receivables at variable interest rates, bank borrowings with fixed interest rates and variable interest rates.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

The interest rate sensitivity analysis is performed on items exposed to interest rate risk as at the end of the reporting period, including investments and borrowings with variable interest rates. At the reporting date, a change of 10 basis points of interest rate in a reporting period could cause the profit for the years ended 31 December 2015 and 2014 to increase/decrease by NT$1,911thousand and increase/decrease by NT$486 thousand, respectively.

Commodity price risk

The Group’s commodity price risk is caused by the fluctuation of foreign currency rate arising from taking overseas orders. Due to the volatile fluctuation of the currency rate, the Board of Directors has developed strategies for lowering commodity price risk. The Group uses forward foreign exchange contracts, forward foreign option contracts and range forward foreign exchange contracts to hedge aforementioned risk of currency rate based on the forecast of the future requirement of orders, which the Group expects highly possible to take. Hedge accounting applies to these financial assets.

After the Group considers the effect of hedge accounting, a change of 1% in currency rate in a reporting period could cause the equity for the years ended 31 December 2015 and 2014 to increase/decrease by NT$1,347 thousand and increase/decrease by NT$997 thousand, respectively.

Equity price risk

The Group’s listed and unlisted equity securities are susceptible to market price risk arising from uncertainties about future values of the investment securities. The Group’s listed and unlisted equity securities are classified as available-for-sale both. The Group manages the equity price risk through diversification and placing limits on individual and total equity instruments. Reports on the equity portfolio are submitted to the Group’s senior management on a regular basis. The Group’s Board of Directors reviews and approves all equity investment decisions.

An increase/decrease of 1% in the value of the equity securities classified as available-for-sale would only impact equity but would not have an effect on profit or loss. For the years ended 31 December 2015 and 2014, an increase/decrease of 1% in the price of the equity securities classified as available-for-sale could cause the equity to increase/decrease by NT$332 thousand and NT$597 thousand, respectively.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(4) Credit risk management

Credit risk is the risk that a counterparty will not meet its obligations under a contract, leading to a financial loss. The Group is exposed to credit risk from operating activities (primarily for accounts receivables and notes receivables) and from its financing activities, including bank deposits and other financial instruments.

Customer credit risk is managed by each business unit subject to the Group’s established policy, procedures and control relating to customer credit risk management. Credit limits are established for all customers based on their financial position, rating from credit rating agencies, historical experience, prevailing economic condition and the Group’s internal rating criteria etc. Certain customer’s credit risk will also be managed by taking credit enhancing procedures, such as requesting for prepayment or insurance.

As of 31 December 2015 and 2014, amounts receivables from top ten customers represent 81% and 79% of the total accounts receivables of the Group, respectively. The credit concentration risk of other accounts receivables is insignificant.

Credit risk from balances with banks and other financial instruments is managed by the Group’s treasury in accordance with the Group’s policy. The Group only transacts with counterparties approved by the internal control procedures, which are banks and financial institutions, companies and government entities with good credit rating and with no significant default risk. Consequently, there is no significant credit risk for these counter parties.

(5) Liquidity risk management

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of cash and cash equivalents, highly liquid equity investments, bank borrowings, convertible bonds and finance leases. The table below summarizes the maturity profile of the Group’s financial liabilities based on the contractual undiscounted payments and contractual maturity. The payment amount includes the contractual interest. The undiscounted payment relating to borrowings with variable interest rates is extrapolated based on the estimated interest rate yield curve as of the end of the reporting period.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Non-derivative financial instruments

Less than 1 year 2 to 3 years 4 to 5 years > 5 years Total

As at 31 December 2015 Short-term borrowings $2,636,681 $- $- $- $2,636,681Notes payable 104,613 - - - 104,613Accounts payable 9,230,544 - - - 9,230,544Other payables 2,707,153 - - - 2,707,153Bonds payable 20,200 40,000 - - 60,200Lease obligations payable 16,298 32,597 32,596 100,144 181,635 As at 31 December 2014 Short-term borrowings $2,544,621 $- $- $- $2,544,621Accounts payable 6,573,478 - - - 6,573,478Other payables 1,687,914 - - - 1,687,914Bonds payable 255,956 40,300 - - 296,256Lease obligations payable 16,298 32,596 32,596 116,443 197,933

Derivative financial instruments

Less than 1 yearAs at 31 December 2015 Inflows $- Outflows (151,085) Net $(151,085)

Less than 1 yearAs at 31 December 2014 Inflows $- Outflows (1,245) Net $(1,245)

The table above contains the undiscounted net cash flows of derivative financial instruments.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(6) Fair values of financial instruments

A. the methods and assumptions applied in determining the fair value of financial instruments:

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following methods and assumptions were used by the Group to measure or disclose the fair values of financial assets and financial liabilities:

a. The carrying amount of cash and cash equivalents, accounts receivables, accounts payable and other current liabilities approximate their fair value due to their short maturities.

b. For financial assets and liabilities traded in an active market with standard terms and conditions, their fair value is determined based on market quotation price (including listed equity securities, beneficiary certificates, bonds and futures etc.) at the reporting date.

c. Fair value of equity instruments without market quotations (including private placement of listed equity securities, unquoted public company and private company equity securities) are estimated using the market method valuation techniques based on parameters such as prices based on market transactions of equity instruments of identical or comparable entities and other relevant information (for example, inputs such as discount for lack of marketability, P/E ratio of similar entities and Price-Book ratio of similar entities).

d. Fair value of debt instruments without market quotations, bank loans, bonds payable and other non-current liabilities are determined based on the counterparty prices or valuation method. The valuation method uses DCF method as a basis, and the assumptions such as the interest rate and discount rate are primarily based on relevant information of similar instrument (such as yield curves published by the Taipei Exchange, average prices for Fixed Rate Commercial Paper published by Reuters and credit risk, etc.)

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

e. The fair value of derivatives which are not options and without market quotations, is

determined based on the counterparty prices or discounted cash flow analysis using

interest rate yield curve for the contract period. Fair value of option-based derivative

financial instruments is obtained using the counterparty prices or appropriate option

pricing model (for example, Black-Scholes model) or other valuation method (for

example, Monte Carlo Simulation).

B. Fair value of financial instruments measured at amortized cost

Other than cash and cash equivalents, accounts receivables, accounts payable and other

current liabilities whose carrying amount approximate their fair value, the fair value of

the Group’s financial assets and financial liabilities measured at amortized cost is listed in

the table below:

Carrying amount as at

31 December

2015

31 December

2014

Financial liabilities:

Lease obligations payable $156,005 $169,420

Bonds payable 58,826 288,910

Fair value as at

31 December

2015

31 December

2014

Financial liabilities:

Lease obligations payable $181,635 $197,933

Bonds payable 121,010 261,277

C. Fair value measurement hierarchy for financial instruments

Please refer to Note 12.(8) for fair value measurement hierarchy for financial instruments

of the Group.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(7) Derivative financial instruments

The Group has entered into forward foreign exchange contracts, which are not applicable to

hedge accounting, for the purpose of managing transaction risk due to changes in foreign

currencies. Please refer to Note 6.(2).

The Group has entered into forward foreign exchange contracts, foreign currency option

contract and range forward foreign exchange contracts, which are applicable to hedge

accounting, for the purpose of hedging future cash flow fluctuations and risk due to changes

in foreign currencies. Please refer to Note 6.(12).

(8) Fair value measurement hierarchy

A. Fair value measurement hierarchy

All asset and liabilities for which fair value is measured or disclosed in the financial

statements are categorized within the fair value hierarchy, based on the lowest level input

that is significant to the fair value measurement as a whole. Level 1, 2 and 3 inputs are

described as follows:

Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or

liabilities that the entity can access at the measurement date.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for

the asset or liability, either directly or indirectly.

Level 3 – Unobservable inputs for the asset or liability.

For assets and liabilities that are recognized in the financial statements on a recurring

basis, the Group determines whether transfers have occurred between levels in the

hierarchy by re-assessing categorization at the end of each reporting period.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

B. Fair value measurement hierarchy of the Group’s assets and liabilities

The Group does not have assets that are measured at fair value on a non-recurring basis. Fair value measurement hierarchy of the Group’s assets and liabilities measured at fair value on a recurring basis is as follows:

As at 31 December 2015

Level 1 Level 2 Level 3 Total

Financial assets Financial assets at fair value through profit or loss:

Forward foreign exchange contracts $- $5,026 $- $5,026Derivative financial assets for hedging:

Forward foreign exchange contracts - 212,966 - 212,966Range forward foreign exchange contracts - 33,163 - 33,163

Available-for-sale financial assets: Stock 32,110 - 27,687 59,797

Financial liabilities: Financial liabilities at fair value through profit or loss:

Forward foreign exchange contracts - 3,787 - 3,787Derivative financial liabilities for hedging:

Forward foreign exchange contracts - 147,298 - 147,298

As at 31 December 2014

Level 1 Level 2 Level 3 Total

Financial assets Financial assets at fair value through profit or loss:

Forward foreign exchange contracts $- $320 $- $320 Derivative financial assets for hedging:

Forward foreign exchange contracts - 86,565 - 86,565 Forward foreign option contracts - 13,000 - 13,000

Available-for-sale financial assets: Stock 28,288 - 30,514 58,802

Financial liabilities Financial liabilities at fair value through profit or loss:

Forward foreign exchange contracts - 1,245 - 1,245

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Transfers between Level 1 and Level 2 during the period

During the years ended 31 December 2015 and 2014, there were no transfers between Level 1 and Level 2 fair value measurements.

Reconciliation for fair value measurements in Level 3 of the fair value hierarchy for movements during the period is as follows:

Reconciliation of financial assets measured at fair value of Level 3:

Stock of available-for-sale

Beginning balances as at 1 January 2015 $30,514 Total gains and losses recognized for the year ended 31 December 2015: Recognized in OCI (presented in “Unrealized gains (losses) from

available-for-sale financial assets”) (2,827)

Ending balances as at 31 December 2015 $27,687 Beginning balances as at 1 January 2014 $15,984 Total gains and losses recognized for the year ended 31 December 2014 : Recognized in OCI (presented in “Unrealized gains (losses) from

available-for-sale financial assets”) 14,530

Ending balances as at 31 December 2014 $30,514

Information on significant unobservable inputs to valuation

Description of significant unobservable inputs to valuation of recurring fair value measurements categorized within Level 3 of the fair value hierarchy is as follows:

As at 31 December 2015

Valuation techniques

Significant unobservable

inputs Quantitative information

Relationship between inputs and fair value

Sensitivity of the input to fair value

Financial assets Available-for-sale: Stocks Market approach discount for lack

of marketability15%~30% The higher the

discount for lack of marketability, the lower the fair value of the stocks

5% increase (decrease) in the discount for lack of marketability would result in increase (decrease) in the Group’s equity by NT$1,629 thousand

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

As at 31 December 2014

Valuation

techniques

Significant

unobservable

inputs

Quantitative

information

Relationship

between inputs

and fair value

Sensitivity of the input to fair

value

Financial assets

Available-for-sale:

Stocks Market approach discount for lack

of marketability

N/A N/A 5% increase (decrease) in the

discount for lack of marketability

would result in increase

(decrease) in the Group’s equity

by NT$1,830 thousand

Valuation process used for fair value measurements categorized within Level 3 of the fair value hierarchy

The Group’s Financial and Accounting Department is responsible for validating the fair value measurements and ensuring that the results of the valuation are in line with market conditions, based on independent and reliable inputs which are consistent with other information, and represent exercisable prices. The Department analyses the movements in the values of assets and liabilities which are required to be re-measured or re-assessed as per the Group’s accounting policies at each reporting date.

C. Fair value measurement hierarchy of the Group’s assets and liabilities not measured at fair value but for which the fair value is disclosed

As at 31 December 2015 Level 1 Level 2 Level 3 Total Financial liabilities not measured at fair value but for which the fair value is disclosed:

Lease obligations payables $- $- $181,635 $181,635Bonds payables 121,010 - - 121,010

As at 31 December 2014 Not applicable

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(9) Significant assets and liabilities denominated in foreign currencies

Information regarding the significant assets and liabilities denominated in foreign currencies is listed below:

(Unit: Foreign currency: thousands, NTD: thousands) As at 31 December 2015 Foreign currencies Exchange rate NTD

Financial assets-monetary items Cash and cash equivalents RMB $208,058 5.0921 $1,059,449Cash and cash equivalents USD 105,298 33.0660 3,481,784Notes receivable RMB 490,438 5.0921 2,497,357Accounts receivable USD 57,601 33.0660 1,904,633Accounts receivable EUR 6,046 36.1312 218,457Accounts receivable RMB 349,010 5.0921 1,777,192Other receivables USD 7,295 33.0660 241,200

Financial liabilities-monetary items Short term borrowings USD 53,000 33.0660 1,752,498Accounts payable RMB 596,132 5.0921 3,035,557Accounts payable USD 180,246 33.0660 5,960,027Other payables RMB 360,751 5.0921 1,836,978

As at 31 December 2014 Foreign currencies Exchange rate NTD

Financial assets-monetary items Cash and cash equivalents RMB $108,804 5.1125 $556,258Cash and cash equivalents USD 123,441 31.7180 3,915,307Notes receivable RMB 317,451 5.1125 1,662,971Accounts receivable USD 29,201 31.7180 926,194Accounts receivable EUR 6,577 38.5501 253,540Accounts receivable RMB 287,713 5.1125 1,470,932Other receivables USD 6,775 31.7180 214,893

Financial liabilities-monetary items Short term borrowings USD 80,134 31.7180 2,541,694Accounts payable RMB 400,127 5.1125 2,045,651Accounts payable USD 136,544 31.7180 4,330,903Other payables RMB 93,661 5.1125 478,840

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

It is not applicable to disclose the exchange gains or losses for each functional currency due to the fact that the functional currencies used by the Group’s entities are diverse. The Group’s gain and loss of foreign currency exchange on monetary financial assets and liabilities for the years ended 31 December 2015 and 2014 were loss of NT$113,107 thousand and loss of NT$24,769 thousand, respectively.

The above information is disclosed based on the carrying amount of foreign currency (after conversion to functional currency).

(10) Capital management

The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholder value. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust dividend payment to shareholders, return capital to shareholders or issue new shares.

13. Additional disclosure

(1) Information at significant transactions

A. Lending funds to others: Refer to Attachment 1.

B. Providing endorsements or guarantees for others: Refer to Attachment 2.

C. Holding of securities at the end of the period: Refer to Attachment 3.

D. Aggregate purchases or sales of the same securities reaching NT$300 million or 20 percent of paid-in capital or more: None.

E. Acquisition of real estate reaching NT$300 million or 20 percent of paid-in capital or more: None.

F. Disposal of real estate reaching NT$300 million or 20 percent of paid-in capital or more: None.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

G. Purchases or sales of goods from or to related parties reaching NT$100 million or 20 percent of paid-in capital or more: Refer to Attachment 4.

H. Accounts receivable from related parties reaching NT$100 million or 20 percent of paid-in capital or more: Refer to Attachment 5.

I. Trading in derivative instruments: Refer to Notes 6.(2), 6.(12), and 12.

J. Business relationship between the parent and the subsidiaries and between each subsidiary, and the circumstances and amounts of any significant transactions between them: Refer to Attachment 6.

(2) Information on investees:

Names, locations, and related information of investees over which Sercomm Corporation exercises significant influence (excluding information on investment in Mainland China): Please refer to Attachment 7.

(3) Information on investments in mainland China

A. Investee company name, main businesses and products, total amount of capital, method of investment, accumulated inflow and outflow of investments from Taiwan, net income (loss) of investee company, percentage of ownership, investment income (loss), book value of investments, cumulated inward remittance of earnings and limits on investment in Mainland China: Please refer to Attachment 8.

B. Directly or indirectly significant transactions through third regions with the investees in Mainland China, including price, payment terms, unrealized gain or loss, and other events with significant effects on the operating results and financial condition: Please refer to Attachment 1,2,4 and 5.

14. Segment information

For management purposes, the Group is organized into business units based on its area, products and services and has two reportable operating segments as follows:

(1) Taiwan: segment engages in Management of Group, Technology R&D and Sales of products.

(2) Mainland China: segment engages in Manufacturing, Repairing, and Sales of products in Mainland China.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss and is measured based on accounting policies consistent with those in the consolidated financial statements.

Transfer prices between operating segment are on an arm’s length basis in a manner similar to transactions with third parties.

(1) Information on profit or loss, assets and liabilities of the reportable segments:

For the year ended 31 December 2015

Revenue Taiwan

Segment

Mainland China

Segment Total segments All other

Adjustments and

eliminations ConsolidatedExternal customers $25,182,017 $9,104,978 $34,286,995 $724,971 $- $35,011,966Inter-segment 733,892 20,344,555 21,078,447 132,638 (21,211,085) -Total revenue $25,915,909 $29,449,533 $55,365,442 $857,609 $(21,211,085) $35,011,966

Interest revenue $5,860 $115,787 $121,647 $2 $(45,158) $76,491Interest expense 34,945 85,021 119,966 - (45,158) 74,808Depreciation and

amortization 123,048 320,656 443,704 48,204 - 491,908

Investment gain 1,662 - 1,662 - - 1,662Segment profit $1,363,686 $964,464 $2,328,150 $(44,511) $(700,324) $1,583,315

Segment assets $22,440,639 $16,169,469 $38,610,108 $366,316 $(17,236,458) $21,739,966

Segment liabilities $5,682,874 $10,837,946 $16,520,820 $375,422 $(4,109,557) $12,786,685

For the year ended 31 December 2014

Revenue Taiwan

Segment

Mainland China

Segment Total segments All other

Adjustments and

eliminations ConsolidatedExternal customers $18,678,049 $3,820,455 $22,498,504 $694,185 $- $23,192,689 Inter-segment 575,995 14,662,020 15,238,015 124,184 (15,362,199) -Total revenue $19,254,044 $18,482,475 $37,736,519 $818,369 $(15,362,199) $23,192,689

Interest revenue 13,313 65,358 78,671 7 (11,786) 66,892 Interest expense 32,242 61,593 93,835 367 (11,786) 82,416 Depreciation and

amortization 156,410 246,897 403,307 1,470 - 404,777

Investment gain 26,015 - 26,015 - - 26,015 Segment profit $996,394 $566,345 $1,562,739 $(35,499) $(338,302) $1,188,938

Segment assets $7,327,581 $12,101,786 $19,429,367 $252,178 $(2,197,889) $17,483,656

Segment liabilities $4,400,789 $6,929,366 $11,330,155 $249,329 $(2,223,606) $9,355,878

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Revenue from Europe, America and Japan that are operating segments that do not meet the quantitative thresholds for reportable segments.

Inter-segment revenue are eliminated on consolidation and recorded under the “adjustments and eliminations” column, all other adjustments and eliminations are disclosed below.

(2) Information on reconciliations of revenue, profit or loss, assets, liabilities and other material items of reportable segments:

(a) Revenue:

For the years ended 31 December

2015 2014 Total revenue from reportable segments $55,365,442 $37,736,519Other revenue 857,609 818,369Elimination of inter-segment revenue (21,211,085) (15,362,199)Total revenue $35,011,966 $23,192,689

(b) Profit or loss:

For the years ended 31 December

2015 2014 Total profit or loss for reportable segments $2,328,150 $1,562,739Other profit (44,511) (35,499)Elimination of inter-segment profit (700,324) (338,302)Profit before tax from continuing operations $1,583,315 $1,188,938

(c) Assets:

As at 31 December

201531 December

2014Total assets of reportable segments $38,610,108 $19,429,367Other assets 366,316 252,178Less: receivables from corporate headquarters (17,236,458) (2,197,889)Unallocated amounts: 788,017 504,741Segment assets $22,527,983 $17,988,397

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(d) Liabilities:

As at

31 December 2015

31 December 2014

Total liabilities of reportable segments $16,520,820 $11,330,155

Other liabilities 375,422 249,329

Less: payables to corporate headquarters (4,109,557) (2,223,606)

Unallocated amounts 2,803,663 2,573,572

Segment liabilities $15,590,348 $11,929,450

(e) Other material items:

For the year ended 31 December 2015

Reportable

segments Adjustments Consolidated

Interest revenue $121,647 $(45,156) $76,491

Interest expenses 119,966 (45,158) 74,808 Depreciation and amortization 443,704 48,204 491,908

For the year ended 31 December 2014

Reportable

segments Adjustments Consolidated

Interest revenue $78,671 $(11,779) $66,892 Interest expenses 93,835 (11,419) 82,416 Depreciation and amortization 403,307 1,470 404,777

The reconciling item to adjust capital expenditures for non-current assets is the amount incurred for the corporate headquarters building, which is not included in segment

information. None of the other adjustments are material.

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English Translation of Financial Statements Originally Issued in ChineseSERCOMM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(3) Geographical information

Revenue from external customers

For the years ended 31 December

2015 2014 America $18,247,553 $13,129,551Asia 10,181,103 4,506,118Europe 6,578,259 5,542,001Other 5,051 15,019Total $35,011,966 $23,192,689

The revenue information above is based on the location of the customer.

Non-current assets

As at 31 December

201531 December

2014Taiwan $2,304,096 $2,073,999China 2,179,330 1,993,082Other 14,740 8,369Total $4,498,166 $4,075,450

(4) Information about major customers

For the years ended 31 December

2015 2014 A customers from Taiwan segment $11,591,326 $6,345,332B customers from China segment 6,487,514 2,662,803

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SERCOMM CORPORATION AND SUBSIDIARIES

(Expressed in Thousands of New Taiwan Dollars Unless Otherwise Stated)

Attachment 1: Lending funds to others for the year ended 31 December 2015

Maximum Actual Nature of Total Reason Allowance for Maximum

Name of Name of Related balance for Ending amount Interest financing transaction for doubtful Loan limit amount available

Number financing provider counterparty Account Party the period balance provided rate activity amount financing accounts Item Value per entity for law

0 Sercomm Dwnet Technology (Suzhou) Other receivables Y $165,640 $- $- 2.5% Note 3(2) $- Operating $- - $- $1,387,813 $2,775,627

Corporation Limited -related party Note 1(2) Note 1

0 Sercomm Sercomm Japan Corp. Other receivables Y 99,384 - - 2.5% Note 3(2) - Operating - - - 1,387,813 2,775,627

Corporation -related party Note 1(2) Note 1

1 Sernet Dwnet Technology (Suzhou) Other receivables Y 1,563,360 1,527,630 1,018,420 5.4% Note 3(2) - Operating - - - 3,469,534 6,939,067

Technology Limited -related party Note 1(3) Note 1(3)

(Suzhou)

Limited

According the Company's Operational Procedures for Lending Funds to Others, as follows:

Note 1: The aggregate amount of loans to others shall not exceed 40% of its stockholders' equity as stated in the Company's most recent audited or reviewed financial statement.

The loan limit for each entity depending on the purpose of the loan is as follows:

(1) To a trading partner: The amount shall not exceed the higher of the sales or purchases amount to/ from the trading partner for the year as of the time of the lending event or for the most recent year.

(2) As short-term financing: The amount shall not exceed 20% of stockholders' equity as stated in its latest audited or reviewed financial statement.

(3) Financing between the Company's 100% directly- or indirectly- held overseas investee is not limited to 40% of stockholder's equity as stated in the most recent audited or reviewed financial statement.

However the aggregate amount shall not exceed 100% net assets. Loans to individual investee shall not exceed 50% net assets.

Note 2: The aggregate amount of loans from subsidiaries to others shall not exceed 40% of stockholders' equity as stated in the subsidiary's or the Company's most recent audited or reviewed financial statement, whichever is lower.

The loan limit for each entity depending on the purpose of the loan is as follows:

(1) To a trading partner: The amount shall not exceed the higher of the sales or purchases amount to/ from the trading partner for the year as of the time of the lending event or for the most recent year.

(2) As short-term financing: The amount shall not exceed 20% of the subsidiary or the Company's stockholders' equity as stated in its latest financial statement.

(3) Financing between the group's investee which is 100% directly- or indirectly- held by the parent company is not limited to the ratio as stated in the preceding paragraph.

However the aggregate amount shall not exceed 100% net assets as stated in the parent company's most recent audited or reviewed financial statement. Loans to individual investee shall not exceed 50% net assets.

Note 3: (1)Trading partner : The trading amounts refer to the business transaction amounts within the recent year between the loaner company and the loanee entity.

(2)Short-term financing

Assets pledged

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SERCOMM CORPORATION AND SUBSIDIARIES

(Expressed in Thousands of New Taiwan Dollars Unless Otherwise Stated)

Attachment 2: Providing endorsements or guarantees for others for the year ended 31 December 2015

Name ofendorsees Relationship Ending balance

0 Sercomm Sernet Technology Subsidiary $3,469,534 $993,840 $991,980 $661,320 $- 14.30% $6,939,067 Y N Y

Corporation (Suzhou) Limited (Note) (USD 30,056 thousand) (USD 30,000 thousand ) (USD 2,000 thousand) (Note)

0 Sercomm Dwnet Technology Subsidiary 3,469,534 1,312,717 1,312,717 684,463 - 18.92% 6,939,067 Y N Y

Corporation (Suzhou) Limited (Note) (USD 32,000 thousand) (USD 32,000 thousand) (USD 13,000 thousand) (Note)

(RMB 50,000 thousand) (RMB 50,000 thousand) (RMB 50,000 thousand)

Note: According the Company's Operational Procedures for Endorsement / guarantee provided to others, the maximum amount permitted to a single borrower is as follows:

(1)The amounts permitted to make in endorsements/guarantees to any single entity shall not exceed 25% of the Company's stockholders' equity as stated in its latest financial statement; the total amount shall not exceed 50% of stockholders' equity as stated in its latest financial statement. (2)The restriction in Note (1) shall not apply to inter-company loans of funds between foreign companies in which the Company holds, directly or indirectly, 100% of the voting shares. However the endorsement / guarantee amount should not exceed 100% net assets. Endorsements / guarantees provided to individual investees should not exceed 50% net assets. (3)The amounts permitted to make in endorsements/guarantees to single subsidiary shall not exceed 50% of the Company's stockholders' equity as stated in its latest financial statement; the total amount shall not exceed 100% of stockholders' equity as stated in its latest financial statement.

Number Name ofendorsers

Endorsee

Endorsementlimit for

a single entity

Maximum balancefor the period

Amount of collateralguarantee/endorsementActual amount Provided

Limit of totalguarantee/endors

ement amount

GuaranteeProvided by

Parent Company

GuaranteeProvided by A

Subsidiary

GuaranteeProvided to

Subsidiaries inMainland China

Percentage ofaccumulated

guarantee amountto net assets value

from the latestfinancial statement

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SERCOMM CORPORATION AND SUBSIDIARIES

(Expressed in Thousands of New Taiwan Dollars Unless Otherwise Stated)

Attachment 3: Holdings of securities as of 31 December 2015

Names of companies held Securities type and name Relationship with the Company Financial statement account Percentage of Noteownership (%)

Sercomm Corporation Industrial Bank of Taiwan - Non-current available-for-sale financial assets 4,154 $32,110 - $32,110TECO Nanotech Co., Ltd. - Non-current financial assets measured at cost - 10 - -Siklu Inc. - Non-current financial assets measured at cost 2,018 63,365 - -

(USD 2,000thousand)

Shukuan Investment Ltd. Cerpass Technology Corp. - Non-current available-for-sale financial assets 747 27,687 4 27,687

Note: The term" securities" stated above includes stock, bonds, beneficiary certificates, and related securities derived from the above which were described in IAS 39 "financial Instruments: Recognition and Measurement"

Period ended

Shares/units(in thousands)

Market value orNet asset valueBook value

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Attachment 4: Purchases or sales of goods from or to related parties reaching NT$100 million or 20% of paid-in capital or more for the year ended 31 December 2015

Sercomm Corporation Sernet Technology The Company's subsidiary Purchases $19,766,221 86 45 Note Note $(2,003,854) 64

(Suzhou) Limited

Sercomm Corporation Sercomm Russia Limited The Company's subsidiary Sales 510,123 2 105 Note Note 58,455 3

Liability Company

Sercomm Russia Sercomm Corporation Parent Company Purchases 510,123 93 105 Note Note (58,455) 100

Limited Liability

Company

Sernet Technology Sercomm Corporation Parent Company Sales 19,766,221 97 45 Note Note 2,003,854 75

(Suzhou) Limited

Sernet Technology Dwnet Technology Affiliate with the same parent company Sales 475,563 2 120 Note Note 662,981 24

(Suzhou) Limited (Suzhou) Limited

Dwnet Technology Sernet Technology Affiliate with the same parent company Purchases 475,563 6 120 Note Note (662,981) 20

(Suzhou) Limited (Suzhou) Limited

Note: The sales price to the above related parties was determined through mutual agreement based on the market conditions. The collection period for related parties was month-end 90-210 days, while

the terms for domestic third party sales was net 30-75 days. The collection period for overseas sales was net 30-270 days.

SERCOMM CORPORATION AND SUBSIDIARIES(Expressed in Thousands of New Taiwan Dollars Unless Otherwise Stated)

Note

Balance

Percentageof total

receivables(payable) (%)

Purchases(Sales) Company Related party Relationship

Transactions

Amount

Percentageof total

purchases(sales) (%)

Notes and accounts receivable(payable)

Term

Details of non-arm'slength transaction

Purchases(Sales) Term Unit price

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SERCOMM CORPORATION AND SUBSIDIARIES(Expressed in Thousands of New Taiwan Dollars Unless Otherwise Stated)

Attachment 5: Account receivable from related parties reaching NT$100 million or 20% of paid-in capital or more as of 31 December 2015

Amount

Actionadopted

for overdueaccounts

Sernet Technology (Suzhou) Sercomm The ultimate parent company $2,003,854 - $ - - $- $- Limited Corporation

Sernet Technology (Suzhou) Dwnet Technology Affiliate with the same parent 662,981 - - - - - Limited (Suzhou) Limited company

EndingbalanceRelationshipThe name of

the companyName of

counterparty

Overdue receivables Allowancefor

doubtfulaccounts

SubsequentcollectionsTurnover rate

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SERCOMM CORPORATION AND SUBSIDIARIES(Expressed in Thousands of New Taiwan Dollars Unless Otherwise Stated)

Attachment 6: The business relationship between the parent and the subsidiaries and between each subsidiary, and the circumstances and amounts of any significant transactions between them for theyear ended 31 December 2015

0 Sercomm Corporation Senslinq Inc. 1 Commission expenses $74,216 -0 Sercomm Corporation Senslinq Inc. 1 Other current assets 3,381 - -0 Sercomm Corporation Sercomm Japan Corp. 1 Sales revenue 92,582 (note 4) -0 Sercomm Corporation Sercomm Japan Corp. 1 Other current assets 13,958 - -0 Sercomm Corporation Sercomm Japan Corp. 1 Accounts receivable 53,903 - -0 Sercomm Corporation Sercomm Deutschland GmbH 1 Other current assets 14,163 - -0 Sercomm Corporation Sercomm Deutschland GmbH 1 Other payable 2,629 - -0 Sercomm Corporation Sercomm Deutschland GmbH 1 Commission expenses 24,095 - -0 Sercomm Corporation Sercomm Russia Limited Liability Company 1 Sales revenue 510,123 (note 4) 1%0 Sercomm Corporation Sercomm Russia Limited Liability Company 1 Other current assets 14,876 - -0 Sercomm Corporation Sercomm Russia Limited Liability Company 1 Other receivables 90,493 - -0 Sercomm Corporation Sercomm Russia Limited Liability Company 1 Accounts receivable 58,455 - -0 Sercomm Corporation Sercomm France SARL 1 Sales revenue 11,455 (note 4) -0 Sercomm Corporation Sercomm France SARL 1 Other current assets 12,747 - -0 Sercomm Corporation Sercomm France SARL 1 Commission expenses 30,039 - -0 Sercomm Corporation Sercomm France SARL 1 Other payable 9,183 - -0 Sercomm Corporation Dwnet Technology (Suzhou) Limited 1 Purchase 8,385 - -0 Sercomm Corporation Dwnet Technology (Suzhou) Limited 1 Sales revenue 3,182 (note 4) -0 Sercomm Corporation Dwnet Technology (Suzhou) Limited 1 Accounts receivable 2,527 - -0 Sercomm Corporation Sernet Technology (Suzhou) Limited 1 Purchase 19,875,188 - 57%0 Sercomm Corporation Sernet Technology (Suzhou) Limited 1 Accounts payable 2,003,854 - 9%0 Sercomm Corporation Sernet Technology (Suzhou) Limited 1 Sales revenue 108,967 (note 4) -0 Sercomm Corporation Sernet Technology (Suzhou) Limited 1 Accounts receivable 39,304 - -0 Sercomm Corporation Hawxeye 3 Other current assets 6,382 - -1 Senslinq Inc. Hawxeye 3 Accounts receivable 4,288 - -1 Senslinq Inc. Hawxeye 3 Sales revenue 4,288 (note 4) -2 Sernet Technology (Suzhou) Limited Dwnet Technology (Suzhou) Limited 3 Accounts receivable 662,981 - 3%2 Sernet Technology (Suzhou) Limited Dwnet Technology (Suzhou) Limited 3 Other receivables 1,079,575 - 5%2 Sernet Technology (Suzhou) Limited Dwnet Technology (Suzhou) Limited 3 Rent revenue 4,986 - -2 Sernet Technology (Suzhou) Limited Dwnet Technology (Suzhou) Limited 3 Sales revenue 475,563 (note 4) 1%2 Sernet Technology (Suzhou) Limited Dwnet Technology (Suzhou) Limited 3 Interest revenue 45,158 - -2 Sernet Technology (Suzhou) Limited Suzhou Femtel Communications Co., Ltd. 3 Accounts receivable 10,696 - -3 Sercomm Deutschland GmbH Sercomm France SARL 3 Sales expense 4,249 - -4 Dwnet Technology (Suzhou) Limited Suzhou Femtel Communications Co., Ltd. 3 Accounts receivable 15,208 - -4 Dwnet Technology (Suzhou) Limited Suzhou Femtel Communications Co., Ltd. 3 Sales revenue 23,158 (note 4) -4 Dwnet Technology (Suzhou) Limited Nanjing Femtel Communications Co., Ltd. 3 Purchase 4,941 - -

Note 1: The Company and its subsidiaries are coded as follows:1.The Company is coded 0.2.The subsidiaries should be coded consecutively beginning from "1" in the order presented in the table above.

Note 2: Transactions are categorized as follows:1.The parent company to subsidiary.2. Subsidiary to parent company.3. Subsidiary to subsidiary.

Note 3: The percentage with respect to the consolidated asset/revenues for transactions of balance sheet items are based on each items balance at period-end. For profit or loss items, cumulative balances are used as basis.

Note 4: The sales price to the above related parties was determined through mutual agreement based on the market conditions. The collection period for third party was month-end 90-210 days, while the terms for domestic sales was net 30-75 days. The collection period for overseas sales was net 30-270 days.

Terms

Percentage ofconsolidated operating

revenues or consolidatedtotal assets

No.(Note 1) Name of related parties Counterparty

Nature ofrelationship

(Note 2)Account Amount

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SERCOMM CORPORATION AND SUBSIDIARIES

(Expressed in Thousands of New Taiwan Dollars Unless Otherwise Stated)

Attachment 7: For those who directly or indirectly have major influence or control over the investee company

Ending Beginning Shares Percentage of Book

balance balance (in thousands) ownership value

Sercomm Corporation Senslinq Inc. California, America Sales of IT products $7,939 $7,939 250 100 $1,322 $(2,334) $(2,334) Subsidiary

Sercomm Trading Co. Ltd. Samoa Investment overseas, technologyR&D and international trading

1,471,186 1,471,186 46,800 100 4,377,562 719,445 719,445 Subsidiary

Shukuan Investment Ltd. Taipei, Taiwan Investment activity 56,298 56,298 2,800 100 36,740 73 73 Subsidiary

Sercomm Japan Corp. Tokyo, Japan Sales of IT products 157,721 133,408 10 100 (7,768) (13,997) (13,997) Subsidiary

Sercomm France SARL Paris, France Sales of IT products 4,004 4,004 100 100 7,202 886 886 Subsidiary

Sercomm Deutschland GmbH Saarbrücken, Germany Sales of IT products 3,727 3,727 100 100 (1,587) 102 102 Subsidiary

Sercomm Russia LimitedLiability Company

Russia Sales of IT products 10 10 10 100 (1,114) 4,969 4,969 Subsidiary

Sercomm Trading Co. Ltd. Zealous Investments Ltd. Samoa Investment overseas, technologyR&D and international trading

989,358 989,358 30,956 100 3,481,193 588,329 588,329 Subsidiary

Smart Trade Inc. Samoa Investment overseas, technologyR&D and international trading

481,829 481,829 16,000 100 869,265 131,115 131,115 Subsidiary

Sercomm France SARL Sercomm Italian SRL Italy Sales of IT products 388 388 10 100 675 34 34 Subsidiary

Senslinq Inc. HawXeye Inc. California, America Provision of technology on videoobject analysis

12,174 12,174 400 40 (7,160) (37,541) (15,016) Subsidiary

Zealous Investments Ltd. HawXeye Inc. California, America Provision of technology on videoobject analysis

12,174 12,174 400 40 (7,160) (37,541) (15,016) Subsidiary

NoteInvestment

income (loss)recognized

Balance as of 31 December 2015

Investor company Investee company Main businesses andproducts

Original investment amount

AddressNet income(loss) of the

investee

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SERCOMM CORPORATION AND SUBSIDIARIES

(Expressed in Thousands of New Taiwan Dollars Unless Otherwise Stated)

Attachment 8: Information on Mainland China investments

Outflow Inflow

Sernet Technology(Suzhou) Limited

Manufacture of routers,communication products, Wlanproducts; R&D center ofsoftware; sales and after-sales

$933,252 Investment incash $912,698 $- $- $912,698 $658,541 100% $658,541 $3,438,791 $-

(USD 29,900 thousand) (Note 1) (USD 28,900 thousand) (USD 28,900 thousand) (Note 5) (Note 5) (Note 5)

Dwnet Technology(Suzhou) Limited

Manufacture of routers,communication products, Wlanproducts; R&D center ofsoftware; sales and after-sales

481,829 Investment incash 481,829 - - 481,829 131,115 100% 131,115 896,263 -

(USD 16,000 thousand) (Note 2) (USD 16,000 thousand) (USD 16,000 thousand) (Note 5) (Note 5) (Note 5)

Suzhou Hua-YiCommunicationsCo., Ltd

Manufacture of routers,communication products, Wlanproducts; R&D center ofsoftware; sales and after-sales

2,454 Investment incash - - - - - 100% - 2,546 -

(RMB 500 thousand) (Note 3)Suzhou FemtelCommunicationsCo., Ltd.

Manufacture of communicationproducts; R&D center ofsoftware; sales and after-sales

32,599 Investment incash - - - - (4,563) 100% (4,563) 6,131 -

(RMB 6,500 thousand) (Note 3)Nanjing FemtelCommunicationsCo., Ltd.

Sale of communicationproducts; R&D center ofsoftware; after-sales service

12,538 Investment incash - - - - (2) 100% (2) 2,901 -

(RMB 2,500 thousand) (Note 4)

Unlimited (Note 6)

Note 1: The Company established Sercomm Trading Co. Ltd. in a third region. The Company reinvested in Zealous Investments Ltd. (through Sercomm Trading Co. Ltd.) and then invested in Mainland China.

Note 2: The Company established Sercomm Trading Co. Ltd. in the third country. The Company reinvest Smart Trade Inc. (through Sercomm Trading Co. Ltd.) and then invest in Mainland China.

Note 3: Indirect investment through Sernet Technology (Suzhou) Limited.

Note 4: Indirect investment through Suzhou Femtel Communications Co., Limited.

Note 5: Amount was recognized based on the audited financial statements.

Note 6: The Company's investment in Mainland China is not subject to an upper limit as it is deemed corporate operations headquarters as it complied with the Examination Standards of Investments and Technical Cooperation in the Mainland China area published by

Investment Commission, MOEA.

$1,394,527 (USD 44,900 thousand)

Investment amounts authorized by InvestmentCommission, MOEA

Accumulatedinward

remittance ofearnings as of31 December

2015

Investment flowsAccumulated outflow of

investment fromTaiwan as of

31 December 2015

Investmentincome(loss)

recognized

Carryingvalue as of

31 December2015

Percentageof ownership

Net income (loss) ofinvestee company

USD 45,144 thousand

China as of 31 December 2015

Accumulated outflow ofinvestment from Taiwan

as of1 January 2015

Investee company Main businesses and products Total amount of paid-in capital Method ofinvestment

Accumulated investment in Mainland Upper limit on investment

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