Young Optics Inc Annual General Shareholders Meeting Minutes (Translation)

Transcription

1 Young Optics Inc Annual General Shareholders Meeting Minutes (Translation) Time:9:00 a.m., June 13 (Tuesday), 2017 Place.. No.2 Zhanye 1 st Road, East Dist., Hsinchu City 300, Taiwan R.O.C. Total outstanding shares of Young Optics Inc.: 114,059,785 shares. Total shares represented by shareholders present in person or by proxy (incl. E-voting): 66,502,772 shares. Percentage of shares held by shareholders present in person or by proxy (incl. E-voting): 58.30% Directors and Chiefs present: Han-Ping Shieh, the Director;Claude Shyu, President;Ting-Chao Wang, Vice-President & Hsin-Min Hsu, CPA of Ernst & Young Chairman: Jing-Zhou Huang Recorder: Chun-Yuan Chen I. Commencement of the Meeting The aggregate shareholding of the shareholders present in person or by proxy (incl. E-voting) constituted a quorum. The chairman called the meeting to order. II. Chairman s Statement. III. Report Items Annual Business Report: Please refer to the 2016 Annual Business Report as Attachment no. 1 on Page Audit Committee's Report: Please refer to the Audit Committee s Report on 2016 Financial Statements as Attachment no. 2 on Page 7. IV. Ratification Items 1. Ratification of 2016 Annual Business Report and Financial Statements. (Proposed by the Board of Directors) (1) The Company s 2016 Financial Statements have been audited by Ernst & Young. (2) Please refer to Attachment no. 1 and no. 3 for 2016 Business Report and Financial Statements. (3) The proposal is submitted for ratification. Voting Results: Shares represented at the time of voting: 66,502,772. Votes in favor: 66,472,271 (incl. E-voting: 61,774,446 votes). Votes against: 19,012 (incl. E-voting: 19,012 votes). Votes abstained: 11,489 votes (incl. E-voting: 11,489 votes). Votes invalid: none. Resolution: The above proposal hereby was approved as proposed. 2. Ratification of the Proposal for the Distribution of 2016 Earnings. (Proposed by the Board of Directors) -1-

2 (1) The retained earnings at the beginning of 2016 plus re-measurement of defined benefit obligations in 2016 of NTD100,430,the subtotal of retained earnings at the beginning of 2016 available for distribution is NTD517,052,833. Taking the net loss in 2016 of NTD198,693,492 into account, the retained earnings available for distribution at the end of 2016 is NTD318,459,771. The above-mentioned retained earnings will be reserved for the working capital demand for future business operation, (2) The earnings distribution proposal has been prepared and attached below in accordance with the Articles of Incorporation and the Company Act. (3) The proposal is submitted for ratification. Voting Results: Shares represented at the time of voting: 66,502,772. Votes in favor: 66,449,008 (incl. E-voting: 61,751,183 votes). Votes against: 42,275 (incl. E-voting: 42,275 votes). Votes abstained: 11,489 votes (incl. E-voting: 11,489 votes). Votes invalid: none. Resolution: The above proposal hereby was approved as proposed. Young Optics Inc Earnings Distribution Proposal Item(s) Amount Total Unit:NTD Retained Earnings at the beginning of this period 517,052,833 Add: Re-measurement of defined benefit obligations ,430 Sub-total 517,153,263 Net Loss of 2016 (198,693,492) Retained Earnings Available for Distribution 318,459,771 Retained Earnings at the end of this period 318,459,771 Chairman: Jing-Zhou Huang President: Claude Shyu Accountant: Cynthia Chang V. Proposed Resolutions 1. The Amendments to the Articles of Incorporation. (Proposed by the Board of Directors) (1) It is proposed to amend the Articles of Incorporation according to the Company Act and the company's business needs. (2) Comparison Table for the Amendment of the Articles of Incorporation is attached as Attachment no. 4 on Page 26. (3) Please resolve. Voting Results: Shares represented at the time of voting: 66,502,772. Votes in favor: 66,468,007 (incl. E-voting: 61,770,182 votes). Votes against: 18,013 (incl. E-voting: -2-

3 18,013 votes). Votes abstained: 16,752 votes (incl. E-voting: 16,752 votes). Votes invalid: none. Resolution: The above proposal hereby was approved as proposed. 2. The Amendments to the Articles of Rules and Procedures of Shareholders Meeting. (Proposed by the Board of Directors) (1) It is proposed to amend the Rules and Procedures of Shareholders Meeting according to the Company Act and the company's business needs. (2) Comparison Table for the Amendment of the Articles of Rules and Procedures of Shareholders Meeting is attached as Attachment no.5 on Page 27. (3) Please resolve. Voting Results: Shares represented at the time of voting: 66,502,772. Votes in favor: 66,468,007 (incl. E-voting: 61,770,182 votes). Votes against: 18,013 (incl. E-voting: 18,013 votes). Votes abstained: 16,752 votes (incl. E-voting: 16,752 votes). Votes invalid: none. Resolution: The above proposal hereby was approved as proposed. 3. The Amendments to the Regulations Governing the Acquisition and Disposal of Assets. (Proposed by the Board of Directors) (1) It is proposed to amend the Rules and Governing the Acquisition and Disposal of Assets per 9 February Order No. Financial-Supervisory-Securities-Corporate of the Financial Supervisory Commission. (2) Comparison Table for the Amendment of the Articles of Regulations Governing the Acquisition and Disposal of Assets is attached as Attachment no. 6 on Page 28. (3) Please resolve. Voting Results: Shares represented at the time of voting: 66,502,772. Votes in favor: 66,466,007 (incl. E-voting: 61,768,182 votes). Votes against: 18,013 (incl. E-voting: 18,013 votes). Votes abstained: 18,752 votes (incl. E-voting: 18,752 votes). Votes invalid: none. Resolution: The above proposal hereby was approved as proposed. 4. The execution of permitting Directors to Engage in Competitive Conducts. (Proposed by the Board of Directors) (1) Per the Article no. 209 item 1 of Company Act: the director who does anything for himself or on behalf of another person that is within the scope of the company's business, shall explain to the meeting of shareholders the essential contents of such an act and secure its approval. (2) The directors to be permitted to engage in competitive conducts are listed below: Title Name Competitive Conducts to Permit Chairman Coretronic Corp. Director, Rays Optics Inc. Legal Representative: Jing-Zhou Huang Independent Director Han-Ping Shieh Director, FocalTech Systems Co., Ltd. (3) Please resolve. -3-

4 Voting Results: Shares represented at the time of voting: 66,502,772. Votes in favor: 66,454,955 (incl. E-voting: 61,757,130 votes). Votes against: 22,065 (incl. E-voting: 22,065 votes). Votes abstained: 25,752 votes (incl. E-voting: 25,752 votes). Votes invalid: none. Resolution: The above proposal hereby was approved as proposed. VI. Motions (None) VII. Adjournment: There being no other business and special motion, the meeting was adjourned at 9:16 a.m., 13 June,

5 Young Optics Inc Annual Business Report Attachment 1 For the fiscal year of 2016, Young Optics Inc. has reported consolidated sales revenue of NT$4,146 million. Net operating loss was reported at NT$186 million, loss before tax was NT$165 million with net loss was NT$202 million. The basic EPS was -NT$1.74 per common share. In the year of 2016, Due to the lower customer demand, consolidated sales revenue was reported at NT$4,146 million, representing a 7.73% decrease as compared to the same period in Due to the adjustments of sales with products portfolio as well as the selling price, gross margin has dropped to 21.15%, comparing with 27.50% of the previous year. In terms of research and innovation, we have shown the following achievements in 2016 through teamwork and collaboration of R&D Department: 1. Successfully Developed the Color Wheel for Different Primary Color of RGBCYM. 2. Successfully Developed the PGU Module for Car HUD Application. 3. Successfully Developed 500lm 720p 0.3 Projectors with Laser-phosphor Light Source. 4. Successfully Developed High-speed (1 sec.) Auto-focus Zoom Lens. 5. Successfully Developed Aspheric Lens Modeling for Car Application. 6. Successfully Developed Measurement Equipments for Len Thickness (+/-1um). Looking into the future, Young Optics Inc. will aim to implementing the following strategies: (1) To maximize existing product lines, to plow deeply in the middle part of the niche market and to permeate the high-end niche products. (2) To build the professional equipment maintenance team in the whole planet. Lean product development and design verification process, to integrate the quality program of supply chain and to improve customer service delivery systems, so that the quality of products and services can meet and exceed customer expectations; (3) To integrate and develop the high-end 3D-Printing technology and concentrate on the professional fields of applications. (4) To enhance the technical capabilities and automation degree of the optical components manufacturing process through the integration of computer aided manufacturing system, and to build competitive advantage and cost barriers for application modules with superior design technology of optical components. (5) To lean into the key technology of car support system based on the core technical capabilities of optical design and plastic injection; projection technology to innovate consumer -5-

6 demand and user experience based on the existing position in image and projection industry (6) Moreover, we will gather the consensus to the maximum of all employees, through the teamwork, positive innovating attitude and execution, to pursue the best interests of all shareholders and employees. Sincerely, Chairman: Jing-Zhou Huang President: Claude Shyu Accountant: Cynthia Chang -6-

7 Audit Committee s Report Attachment 2 To: 2016 General Annual Shareholders Meeting of Young Optics Inc. The Board of Directors of the Company has delivered the 2016 business report, the financial statements and the proposed 2016 earnings distribution. The aforesaid 2016 financial statements of the Company and the consolidated financial statements had been audited by Ernst & Young. The Audit Committee has examined the above statements and found nothing out of order and thus prepared this report in accordance with Article 14-4 of the Securities and Exchange Act and Article 219 of the Company Act for your ratification. Young Optics Inc. Chairman of the Audit Committee:Han-Ping Shieh Date: April 24,

8 AUDIT REPORT OF INDEPENDENT ACCOUNTANTS Attachment 3 English Translation of a Report Originally Issued in Chinese To Young Optics Inc. Opinion We have audited the accompanying parent company only balance sheets of Young Optics Inc. as of December 31, 2016 and 2015, and the related parent company only statements of comprehensive income, parent company only changes in equity and parent company only cash flows for the years ended December 31, 2016 and 2015, and notes to the parent company only financial statements, including the summary of significant accounting policies (together the parent company only financial statements ). In our opinion, the parent company only financial statements referred to above present fairly, in al1 material respects, the parent company only financial position of the Company as of December 31, 2016 and 2015, and its parent company only financial performance and cash flows for the years ended December 31, 2016 and 2015, in conformity with the requirements of the Regulations Governing the Preparation of Financial Reports by Securities Issuers. Basis for Opinion We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Parent company only financial Statements section of our report. We are independent of the Company in accordance with the Norm of Professional Ethics for Certified Public Accountant of the Republic of China (the Norm ), and we have fulfilled our other ethical responsibilities in accordance with the Norm. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. -8-

9 Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of 2016 parent company only financial statements. These matters were addressed in the context of our audit of the parent company only financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Valuation for inventories The Company recognized allowance for inventory write-down amounting to NT$24,303 thousand for the years ended December 31, Due to the uncertainties arising from the rapid changes of technology and market environment, the assessment of obsolete and slow-moving inventory write-downs required significant management judgement, we therefore determined this as a key audit matter. Our audit procedures included, but not limited to, evaluating and testing the design and operating effectiveness of internal controls around inventories; evaluating the inventory counting plan and choosing significant warehouse for observation of the physical inventory count to verify the quantity and the status; evaluating and testing net realizable value of inventories adopted by the management; evaluating the reasonableness of the accounting policies on obsolete and slow-moving inventory, including the identification of the obsolete and slow-moving inventory, testing the correctness of the inventory aging and recalculating the correctness of the allowance write-down amount. We also assessed the adequacy of disclosures of inventories. Please refer to Notes 5 and 6 to the Company s parent company only financial statements. Maintenance warranties for products The Company recognized the provision of maintenance warranties for products amount to NT$25,896 thousand for the years ended December 31, Based on the experience of maintenance warranties for products, management judges and estimates the provision of maintenance warranties. Considering the assessment of the amount of the provision of maintenance warranties require significant management judgement, we determined this as a key audit matter. Our audit procedures included, but not limited to, evaluating and testing the design and operating effectiveness of internal controls around the provision ratio of maintenance warranties; evaluating the reasonableness of accounting policies on the provision of maintenance warranties; testing the selected samples for the provision of maintenance warranties and confirming that whether to comply with the accounting policies; testing the source of the basic data. We also assessed the adequacy of disclosures of the provision of maintenance warranties for products. Please refer to Notes 5 and 6 to the Company s parent company only financial statements. -9-

10 Responsibilities of Management and Those Charged with Governance for the Parent company only financial Statements Management is responsible for the preparation and fair presentation of the parent company only financial statements in accordance with the requirements of the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Financial Reporting Standards, International Accounting Standards, Interpretations developed by the International Financial Reporting Interpretations Committee or the former Standing Interpretations Committee as endorsed by Financial Supervisory Commission of the Republic of China and for such internal control as management determines is necessary to enable the preparation of parent company only financial statements that are free from material misstatement, whether due to fraud or error. In preparing the parent company only financial statements, management is responsible for assessing the ability to continue as a going concern of the Company, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance, including audit committee, are responsible for overseeing the financial reporting process of the Company. Auditor s Responsibilities for the Audit of the Parent company only financial Statements Our objectives are to obtain reasonable assurance about whether the parent company only financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these parent company only financial statements. As part of an audit in accordance with auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 1. Identify and assess the risks of material misstatement of the parent company only financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, -10-

11 misrepresentations, or the override of internal control. 2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control of the Company. 3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 4. Conclude on the appropriateness of management s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the ability to continue as a going concern of the Company. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor s report to the related disclosures in the parent company only financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause the Company to cease to continue as a going concern. 5. Evaluate the overall presentation, structure and content of the parent company only financial statements, including the accompanying notes, and whether the parent company only financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 6. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the parent company only financial statements. We are responsible for the direction, supervision and performance of the company audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of 2016 parent company only financial statements and are therefore the key audit matters. We describe these matters in our auditor s report unless law or -11-

12 regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Ernst & Young, Taiwan Taiwan Republic of China February 14, 2017 Notice to Readers The accompanying parent company only financial statements are intended only to present the parent company only 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 parent company only financial statements are those generally accepted and applied in the Republic of China. -12-

13 English Translation of Parent Company Only Financial Statements Originally Issued in Chinese YOUNG OPTICS INC. PARENT COMPANY ONLY BALANCE SHEETS December 31, 2016 and December 31, 2015 (In thousands of New Taiwan Dollars) ASSETS December 31, 2016 December 31, 2015 LIABILITIES AND EQUITY December 31, 2016 December 31, 2015 Current assets Current liabilities Cash and cash equivalents $239,009 4 $217,265 4 Short-term loans $854, $500,000 9 Notes receivable, net 58-1,616 - Accounts payable 83, ,557 2 Accounts receivable, net 312, ,608 7 Accounts payable-related parties 415, ,990 6 Accounts receivable-related parties, net 195, ,745 2 Other payables 285, ,102 6 Other receivables 4,903-5,940 - Other payables-related parties 1,984-18,714 - Other receivables-related parties 57, ,721 1 Current tax liabilities Current tax assets Provisions-current 31, ,397 1 Inventories, net 125, ,857 2 Advance receipts 18,431-9,435 - Prepayments 8,120-5,591 - Long-term liabilities - current portion 1, Other current assets 44, ,666 1 Other current liabilities 7,059-7,135 - Total current assets 988, , Total current liabilities 1,699, ,298, Non-current assets Non-current liabilities Investments accounted for using the equity method 2,406, ,449, Long-term loans 28, Property, plant and equipment 1,739, ,777, Deferred tax liabilities 54, ,672 1 Investment property, net 192, ,616 4 Net defined benefit liabilities, noncurrent 7,250-10,056 - Intangible assets 5,531-8,576 - Guarantee deposits 2,085-7,499 - Deferred tax assets 16,408-13,742 - Total non-current liabilities 92, ,227 1 Refundable deposits Total liabilities 1,792, ,360, Other financial assets 21, ,797 - Equity Other noncurrent assets-others - - 4,140 - Capital Total non-current assets 4,381, ,476, Common stock 1,140, ,140, Capital surplus 1,648, ,647, Retained earnings Legal reserve 421, ,946 8 Special reserve 82, ,686 1 Undistributed earnings 318, , Total retained earnings 822, ,085, Other equity (34,583) - 142,750 3 Non-controlling interests 3,577, ,016, Total assets $5,369, $5,377, Total equity $5,369, $5,377,

14 English Translation of Parent Company Only Financial Statements Originally Issued in Chinese YOUNG OPTICS INC. PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME For the years ended December 31, 2016 and 2015 (In thousands of New Taiwan Dollars, except for earnings per share) Description 2016 % 2015 % Net sales $3,257, $3,177, Operating costs (2,725,057) (84) (2,323,608) (73) Gross profit 531, , Unrealized intercompany profit (16,127) - (3,505) - Realized intercompany profit 3,505-6,350 - Gross profit, net 519, , Operating expenses Sales and marketing expenses (103,399) (3) (102,951) (3) General and administrative expenses (284,506) (9) (305,395) (10) Research and development expenses (411,771) (13) (554,527) (17) Total operating expenses (799,676) (25) (962,873) (30) Operating loss (280,339) (9) (106,159) (3) Non-operating income and expenses Other income 47, ,547 2 Other gains and losses (12,059) - (4,737) - Finance costs (7,079) - (5,746) - Share of profit of subsidiaries, associates and joint ventures 62, ,040 5 Total non-operating income and expenses 90, ,104 7 Net income before income tax (189,398) (6) 126,945 4 Income tax expense (9,295) - 1,720 - Net (loss) income (198,693) (6) 128,665 4 Other comprehensive income (loss) Items that will not be reclassified subsequently to profit or loss Remeasurements of defined benefit pension plans 121-9,094 - Income tax benefit (expense) related to items that will not be reclassified (21) - (1,546) - subsequently Items that may be reclassified subsequently to profit or loss Exchange differences resulting from translating the financial statements of foreign operations (177,333) (5) (41,586) (1) Income tax benefit (expense) related to items that may be reclassified - - subsequently Other comprehensive loss, net of tax (177,233) (5) (34,038) (1) Total comprehensive (loss) income $(375,926) (11) $94,627 3 Basic (loss) Earnings Per Share (in New Taiwan Dollars) $(1.74) $1.13 Diluted (loss) Earnings Per Share (in New Taiwan Dollars) $(1.74) $

15 English Translation of Consolidated Financial Statements Originally Issued in Chinese YOUNG OPTICS INC. AND SUBSIDIARIES PARENT COMPANY ONLY STATEMENTS OF CHANGES IN EQUITY For the years ended December 31, 2016 and 2015 (In thousands of New Taiwan Dollars) Equity attributable to shareholders of the parent Retained earnings Other equity Exchange differences resulting from translating the financial statements Description Common stock Capital surplus Legal reserve Special reserve Undistributed earnings of foreign operations Total Balance as of January 1, 2015 $1,140,598 $1,647,625 $389,674 $82,686 $645,660 $184,336 $4,090,579 Appropriation and distribution of 2014 retained earnings Legal reserve ,272 - (19,272) - - Cash dividends (168,808) - (168,808) Net income in , ,665 Other comprehensive income (loss) in ,548 (41,586) (34,038) Total comprehensive income (loss) ,213 (41,586) 94,627 Decrease in non-controlling interests Balance as of December 31, 2015 $1,140,598 $1,647,625 $408,946 $82,686 $593,793 $142,750 $4,016,398 Balance as of January 1, 2016 $1,140,598 $1,647,625 $408,946 $82,686 $593,793 $142,750 $4,016,398 Appropriation and distribution of 2015 retained earnings Legal reserve ,866 - (12,866) - - Cash dividends (63,874) - (63,874) Net Loss in (198,693) - (198,693) Other comprehensive income (loss) in (177,333) (177,233) Total comprehensive loss (198,593) (177,333) (375,926) Changes in ownership interests in subsidiaries Other Balance as of December 31, 2016 $1,140,598 $1,648,711 $421,812 $82,686 $318,460 $(34,583) $3,577,684 15

16 English Translation of Consolidated Financial Statements Originally Issued in Chinese YOUNG OPTICS INC. AND SUBSIDIARIES PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS For the years ended December 31, 2016 and 2015 (In thousands of New Taiwan Dollars) 項 目 項 目 Cash flows from operating activities : Cash flows from investing activities : Net income before tax $(189,398) $126,945 Proceeds from disposal of property, plant and equipment 64 1,324 Adjustments for: Acquisition of property, plant and equipment (142,381) (27,899) Profit or loss items : Proceeds from capital reduction for using the equity method (88,818) - Bad debt expenses (reversal) 4 (301) Acquisition of intangible assets (4,774) (4,316) Depreciation (including investment property) 183, ,033 Decreased (increased) in refundable deposits Share of profit of subsidiaries, associates and joint venture (62,815) (174,040) Increase in other financial assets (14) (15) Unrealized intercompany profit 16,127 3,505 Decreased (increased) in other noncurrent assets-others 4,140 (4,140) Realized intercompany profit (3,505) (6,350) Net cash used in investing activities (231,763) (34,940) Amortization 7,819 9,844 Interest expense 7,079 5,746 Interest income (565) (812) (Realized) unrealized gain on disposal of property, plant and equipment (115) (28) Gain on disposal of property, plant and equipment - (931) Cash flows from financing activities : Transfer of property, plant and equipment to expense 1,101 - Increase (decrease) in short-term loans 356,375 (175,000) Changes in operating assets and liabilities: Increase in long-term loans 28,125 - Notes receivable decreased (increased) 1,558 (1,616) Decrease in guarantee deposits (5,414) - Accounts receivable decreased 63,804 34,925 Cash dividends (63,874) (168,808) Accounts receivable-related parties (increased) decreased (113,010) 126,124 Net cash used in financing activities 315,212 (343,808) Other receivables decreased 1,032 2,278 Net (decrease) increase in cash and cash equivalents 21,744 (41,157) Other receivables-related parties Increased (31,541) (514) Cash and cash equivalents at beginning of the period 217, ,422 Inventories decreased 6,411 3,903 Cash and cash equivalents at end of the period $239,009 $217,265 Prepayments increased (2,529) (158) Other current assets-others decreased (Increased) 9,018 (3,785) Accounts payable decreased (12,073) (31,697) Accounts payable-related parties increased (decreased) 103,661 (132,823) Other payables decreased (41,706) (42,570) Other payables-related parties (decreased) increased (16,730) 16,629 Other current liabilities decreased (76) (918) Advance receipts increased (decreased) 8,996 (36,602) Net defined benefit liability decreased (2,685) (2,846) Provisions-current Increased 6,640 3,073 Cash generated from operations (59,701) 79,014 Interest received Dividend received 6, ,666 Interest paid (6,715) (6,618) Income tax paid (2,178) (29,285) Net cash provided by operating activities (61,705) 337,591 16

17 AUDIT REPORT OF INDEPENDENT ACCOUNTANTS English Translation of a Report Originally Issued in Chinese To Young Optics Inc. Opinion We have audited the accompanying consolidated balance sheets of Young Optics Inc. and its subsidiaries ( the Group ) as of December 31, 2016 and 2015, and the related consolidated statements of comprehensive income, changes in equity and cash flows for the years ended December 31, 2016 and 2015, and notes to the consolidated financial statements, including the summary of significant accounting policies (together the consolidated financial statements ). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2016 and 2015, and its consolidated financial performance and cash flows for the years ended December 31, 2016 and 2015, in conformity with the requirements of the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Financial Reporting Standards, International Accounting Standards, Interpretations developed by the International Financial Reporting Interpretations Committee or the former Standing Interpretations Committee as endorsed by Financial Supervisory Commission of the Republic of China. Basis for Opinion We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the Norm of Professional Ethics for Certified Public Accountant of the Republic of China (the Norm ), and we have fulfilled our other ethical responsibilities in accordance with the Norm. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. -17-

18 Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of 2016 consolidated financial statements. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Valuation for inventories The Group recognized allowance for inventory write-down amounting to NT$76,199 thousand for the years ended December 31, Due to the uncertainties arising from the rapid changes of technology and market environment, the assessment of obsolete and slow-moving inventory write-downs required significant management judgement, we therefore determined this as a key audit matter. Our audit procedures included, but not limited to, evaluating and testing the design and operating effectiveness of internal controls around inventories; evaluating the inventory counting plan and choosing significant warehouse for observation of the physical inventory count to verify the quantity and the status; evaluating and testing net realizable value of inventories adopted by the management; evaluating the reasonableness of the accounting policies on obsolete and slow-moving inventory, including the identification of the obsolete and slow-moving inventory, testing the correctness of the inventory aging and recalculating the correctness of the allowance write-down amount. We also assessed the adequacy of disclosures of inventories. Please refer to Notes 5 and 6 to the Group s consolidated financial statements. Maintenance warranties for products The Group recognized the provision of maintenance warranties for products amount to NT$30,038 thousand for the years ended December 31, Based on the experience of maintenance warranties for products, management judges and estimates the provision of maintenance warranties. Considering the assessment of the amount of the provision of maintenance warranties require significant management judgement, we determined this as a key audit matter. Our audit procedures included, but not limited to, evaluating and testing the design and operating effectiveness of internal controls around the provision ratio of maintenance warranties; evaluating the reasonableness of accounting policies on the provision of maintenance warranties; testing the selected samples for the provision of maintenance warranties and confirming that whether to comply with the accounting policies; testing the source of the basic data. We also assessed the adequacy of disclosures of the provision of maintenance warranties for products. Please refer to Notes 5 and 6 to the Group s consolidated financial statements. -18-

19 Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the requirements of the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Financial Reporting Standards, International Accounting Standards, Interpretations developed by the International Financial Reporting Interpretations Committee or the former Standing Interpretations Committee as endorsed by Financial Supervisory Commission of the Republic of China and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the ability to continue as a going concern of the Group, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance, including audit committee, are responsible for overseeing the financial reporting process of the Group. Auditor s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 1. Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, -19-

20 misrepresentations, or the override of internal control. 2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control of the Group. 3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 4. Conclude on the appropriateness of management s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the ability to continue as a going concern of the Group. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause the Group to cease to continue as a going concern. 5. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the accompanying notes, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 6. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of 2016 consolidated financial statements and are -20-

21 therefore the key audit matters. We describe these matters in our auditor s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Others We have audited and expressed an unqualified opinion on the parent company only financial statements of the Company as of and for the years ended December 31, 2016 and Ernst & Young, Taiwan Taiwan Republic of China February 14, 2017 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 -21-

22 English Translation of Consolidated Financial Statements Originally Issued in Chinese YOUNG OPTICS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2016 and December 31, 2015 (In thousands of New Taiwan Dollars) ASSETS December 31, 2016 % 一 December 31, 2015 % LIABILITIES AND EQUITY December 31, 2016 % December 31, 2015 % Current assets Current liabilities Cash and cash equivalents $1,962, $1,754, Short-term loans $972, $500,000 9 Notes receivable, net ,914 2 Accounts payable 369, ,835 7 Accounts receivable, net 476, ,656 8 Accounts payable-related parties 940-3,282 - Accounts receivable-related parties, net 175, ,637 3 Other payables 416, ,213 8 Other receivables 17,075-23,258 1 Other payables-related parties 12,535-13,559 - Current tax assets 9, Current tax liabilities 5,526-17,942 - Inventories, net 509, , Provisions-current 35, ,183 2 Prepayments 13,804-19,235 - Advance receipts 28, ,949 - Other current assets 76, ,339 1 Long-term liabilities - current portion 1, Total current assets 3,240, ,126, Other current liabilities 8,699-8,269 - Total current liabilities 1,851, ,452, Non-current assets Property, plant and equipment 2,017, ,112, Non-current liabilities Investment property, net 192, ,616 4 Long-term loans 28, Intangible assets 30, ,409 1 Deferred tax liabilities 54, ,672 1 Deferred tax assets 23,663-20,997 - Net defined benefit liabilities, noncurrent 7,250-10,056 - Refundable deposits 4,888-20,430 - Guarantee deposits 6,551-7,852 - Other financial assets 21,811-21,797 - Total non-current liabilities 96, ,580 1 Other noncurrent assets-others - - 4,140 - Total liabilities 1,947, ,514, Total non-current assets 2,291, ,404, Equity attributable to shareholders of the parent Capital Common stock 1,140, ,140, Capital surplus 1,648, ,647, Retained earnings Legal reserve 421, ,946 7 Special reserve 82, ,686 1 Undistributed earnings 318, , Total retained earnings 822, ,085, Other equity (34,583) (1) 142,750 3 Non-controlling interests 6, Total equity 3,584, ,016, Total assets $5,532, $5,531, Total liabilities and equity $5,532, $5,531,

23 English Translation of Consolidated Financial Statements Originally Issued in Chinese YOUNG OPTICS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the years ended December 31, 2016 and 2015 (In thousands of New Taiwan Dollars, except for earnings per share) Description 2016 % 2015 % Net sales $4,115, $4,460, Operating costs (3,245,154) (79) (3,233,836) (72) Gross profit 870, ,226, Operating expenses Sales and marketing expenses (153,515) (4) (127,296) (3) General and administrative expenses (374,574) (9) (383,980) (9) Research and development expenses (528,188) (13) (616,573) (14) Total operating expenses (1,056,277) (26) (1,127,849) (26) Operating income (185,645) (5) 98,804 2 Non-operating income and expenses Other income 41, ,879 2 Other gains and losses (12,095) - 4,408 - Finance costs (8,550) - (5,748) - Total non-operating income and expenses 20, ,539 2 Net income before income tax (164,871) (4) 174,343 4 Income tax expense (37,422) (1) (45,876) (1) Net (loss) income (202,293) (5) 128,467 3 Other comprehensive income (loss) Items that will not be reclassified subsequently to profit or loss Remeasurements of defined benefit pension plans 121-9,094 - Income tax benefit (expense) related to items that will not be reclassified subsequently (21) - (1,546) - Items that may be reclassified subsequently to profit or loss Exchange differences resulting from translating the financial statements of foreign operations (177,338) (4) (41,581) (1) Income tax benefit (expense) related to items that may be reclassified subsequently Other comprehensive loss, net of tax (177,238) (4) (34,033) (1) Total comprehensive (loss) income $(379,531) (9) $94,434 2 Net (loss) income attributable to : Shareholders of the parent $(198,693) $128,665 Non-controlling interests $(3,600) $(198) Total comprehensive (loss) income attributable to : Shareholders of the parent $(375,926) $94,627 Non-controlling interests $(3,605) $(193) Basic (loss) Earnings Per Share (in New Taiwan Dollars) $(1.74) 1.13 Diluted (loss) Earnings Per Share (in New Taiwan Dollars) $(1.74) $

24 English Translation of Consolidated Financial Statements Originally Issued in Chinese YOUNG OPTICS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY For the years ended December 31, 2016 and 2015 (In thousands of New Taiwan Dollars) Equity attributable to shareholders of the parent Retained earnings Other equity Exchange differences resulting from translating the Description Common stock Capital surplus Legal reserve Special reserve Undistributed earnings financial statements of foreign operations Total Noncontrolling interests Total equity Balance as of January 1, 2015 $1,140,598 $1,647,625 $389,674 $82,686 $645,660 $184,336 $4,090,579 $- $4,090,579 Appropriation and distribution of 2014 retained earnings Legal reserve ,272 - (19,272) Cash dividends (168,808) - (168,808) - (168,808) Net income in , ,665 (198) 128,467 Other comprehensive income (loss) in ,548 (41,586) (34,038) 5 (34,033) Total comprehensive income (loss) ,213 (41,586) 94,627 (193) 94,434 Decrease in non-controlling interests Balance as of December 31, 2015 $1,140,598 $1,647,625 $408,946 $82,686 $593,793 $142,750 $4,016,398 $25 $4,016,423 Balance as of January 1, 2016 $1,140,598 $1,647,625 $408,946 $82,686 $593,793 $142,750 $4,016,398 $25 $4,016,423 Appropriation and distribution of 2015 retained earnings Legal reserve ,866 - (12,866) Cash dividends (63,874) - (63,874) - (63,874) Net Loss in (198,693) - (198,693) (3,600) (202,293) Other comprehensive income (loss) in (177,333) (177,233) (5) (177,238) Total comprehensive loss (198,593) (177,333) (375,926) (3,605) (379,531) Changes in ownership interests in subsidiaries (651) - Share-based Payment Increase in non-controlling interests - 10,725 10,725 Balance as of December 31, 2016 $1,140,598 $1,648,711 $421,812 $82,686 $318,460 $(34,583) $3,577,684 $6,529 $3,583,743 24

25 Description English Translation of Consolidated Financial Statements Originally Issued in Chinese YOUNG OPTICS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 2016 and 2015 (In thousands of New Taiwan Dollars) Description Cash flows from operating activities : Cash flows from investing activities : Net income before tax $(164,871) $174,343 Acquisition of subsidiaries (net of cash acquired) (20,530) Adjustments for: Proceeds from disposal of property, plant and equipment 5,995 1,544 Profit or loss items : Acquisition of property, plant and equipment (123,611) (52,288) Bad debt (reversal) expenses 134 (366) Acquisition of intangible assets (6,482) (5,768) Depreciation (including investment property) 224, ,803 Decreased (increased) in refundable deposits 15,874 (5,419) Amortization 9,923 11,659 Increase in other financial assets (14) (15) Interest expense 8,550 5,748 Decreased (increased) in other noncurrent assets-others 4,140 (4,140) Interest income (24,594) (32,831) Net cash used in investing activities (124,628) (66,086) Share-based payment expenses Net gain of financial assets and liabilities at fair value through profit or loss - (4,857) Loss (gain) on disposal of property, plant and equipment 3,965 (854) Transfer of property, plant and equipment to expense 2, Cash flows from financing activities : Changes in operating assets and liabilities: Increase (decrease) in short-term loans 472,264 (175,000) Notes receivable decreased 106,856 5,137 Increase in current portion of long-term loans payable 1,875 - Accounts receivable (increased) decreased (47,943) 168,779 Increase in long-term loans 28,125 - Accounts receivable-related parties (increased) decreased (2,583) 107,928 Decrease in guarantee deposits (1,301) (575) Other receivables decreased (increased) 4,581 (11,573) Cash dividends (63,874) (168,808) Inventories decreased (increased) 41,679 (33,850) Increase in noncontrolling interests 10, Prepayments decreased (increased) 5,431 (743) Net cash used in financing activities 447,514 (344,165) Other current assets-others increased (decreased) 2,208 (10,607) Effect of exchange rate changes on cash and cash equivalents (166,945) (42,766) Accounts payable decreased (35,384) (59,922) Net (decrease) increase in cash and cash equivalents 208,181 (93,403) Accounts payable-related parties decreased (2,342) (52,106) Cash and cash equivalents at beginning of the period 1,754,524 1,847,927 Other payables decreased (58,635) (66,530) Cash and cash equivalents at end of the period $1,962,705 $1,754,524 Other payables-related parties (decreased) increased (1,024) 3,353 Other current liabilities increased (decreased) 430 (55) Advance receipts increased (decreased) 7,463 (51,148) Net defined benefit liability decreased (2,685) (2,846) Provisions-current Increased 7,076 2,524 Cash generated from operations 85, ,709 Interest received 26,196 37,900 Interest paid (7,990) (6,620) Income tax paid (51,641) (66,375) Net cash provided by operating activities 52, ,614 25