IONICS, INC. and SUBSIDIARIES QUARTERLY REPORT

For the 1st Quarter Ended March 31, 2018

(SEC Form 17-Q)

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SEC Registration Number

1 0 7 4 3 2

Company Name

I O N I C S , I N C . A N D S U B S I D I A R I E S

Principal Office (No./Street/Barangay/City/Town/Province)

C i r c u i t S T r e e t , L i g h t I n d u s t r y

a n d S c i e n c e P a r k o f t h e P h i l i p

p i n e s , B a r r i o D i e z m o , C a b u y a o ,

L a g u n a

Form Type Department requiring the report Secondary License Type, If Applicable

1 7 - Q

COMPANY INFORMATION

Company’s Email Address Company’s Telephone Number/s Mobile Number

ronan.andrade@ionics-ems.com

(049) 508-1111 0917-869-5688

No. of Stockholders Annual Meeting

Month/Day Fiscal Year Month/Day

866 06/19 03/31

CONTACT PERSON INFORMATION

The designated contact person MUST be an Officer of the Corporation

Name of Contact Person Email Address Telephone Number/s Mobile Number

RONAN R. ANDRADE ronan.andrade@ionics-ems.com

(049) 508-1111 0917-869-5688

Contact Person’s Address

No.14 Mountain Drive, Light Industry and Science Park II Brgy.La Mesa, Calamba, Laguna

Note: In case of death, resignation or cessation of office of the officer designated as contact person, such incident shall be reported to the Commission within thirty (30) calendar days from the occurrence thereof with information and complete contact details of the new contact person designated.

C O V E R S H E E T

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SEC Number: 107432 File Number: ________

IONICS, INC. AND SUBSIDIARIES ________________________________________

(Company’s Full Name)

Circuit Street, Light Industry and Science Park of the Philippines, Barrio Diezmo, Cabuyao, Laguna

________________________________________ (Company’s Address)

(049) 508 - 1111 _________________________________________

(Telephone Number)

March 31, 2018 _________________________________________

(Fiscal Year Ending) (month & day)

Quarterly Interim Condensed Financial Statements (SEC Form 17-Q)

________________________________________________ Form Type

________________________________________________

Amendment Designation (if applicable)

_________________________________________ Period Ended Date

__________________________________________

Secondary License Type and File Number

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SECURITIES AND EXCHANGE COMMISSION

SEC FORM 17-Q

QUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION CODE AND SRC RULE 17 (2) (B) THEREUNDER

1. For the quarter ended March 31, 2018

2. SEC Identification Number 107432 3. BIR Tax Identification No. 000-124-671-000 4. Exact name of issuer as specified in its charter IONICS, INC. 5. Province, country or other jurisdiction of incorporation or organization Philippines 6. Industry classification code: (SEC Use Only) 7. Address of principal office Circuit Street, Light Industry and Science Park of

the Philippines, BarrioDiezmo, CabuyaoLaguna Postal code 4025 8. Issuer's telephone number, including area code (049) 508-1111 and Fax Number (049) 508-111 loc. 309 9. In 1996, the Company changed its principal place of business from Makati, Metro Manila to Cabuyao,

Laguna. 10. Securities registered pursuant to Sections 8 and 12 of the SRC, or Sec. 4 and 8 of the SRC

Title of Each Class Number of Shares of Common Stock Outstanding Common P=1.00 par value, issued 857,974,992 shares and

outstanding, 837,130,992 shares (net of 20,844,000 shares of treasury stock).

11. Are any or all of these securities listed on a Stock Exchange? Yes [ x ] No [ ]

If yes, state the name of such Stock Exchange and the classes of securities listed therein: Philippine Stock Exchange Common

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12. Check whether the issuer:

(a) has filed all reports required to be filed by Section 17 of the SRC and SRC Rule 17 thereunder or Section 11 of the SRC and SRC Rule 11(a)-1 thereunder, and Sections 26 and 141 of The Corporation Code of the Philippines during the preceding twelve (12) months (or for such shorter period that the registrant was required to file such reports);

Yes [ x ] No [ ]

(b) has been subject to such filing requirements for the past ninety (90) days. Yes [ x ] No [ ]

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PART I – FINANCIAL INFORMATION

ITEM 1.Unaudited Interim Condensed Consolidated Financial Statements

The unaudited interim condensed consolidated financial statements including notes thereto are filed as part of this report (pages 12-33). These unaudited interim condensed consolidated financial statements include the accounts of the Parent Company and its wholly owned subsidiaries, Ionics Properties, Inc. (IPI), Synertronix, Inc. (SI), Ionics Circuits Limited (ICL), Iomni Precision, Inc. (Iomni), Ionics Products Solutions, Inc. (IPSI) and the 97% owned Ionics EMS, Inc. (EMS) and a Subsidiary(EMS-USA). Material intercompany balances have been eliminated in the consolidation.

ITEM 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations Below are the Consolidated Key Financial Ratios for the period ended March 31, 2018 and for the year ended December 31, 2017:

March 31,

2018 December 31,

2017 Revenue Growth 24.23% 8.18% Gross Profit Margin 13.25% 15.51% Net Income Margin 6.31% 6.63% Return on Equity 1.83% 7.97% Current Ratio 2.18:1 2.27:1 Leverage Ratio 12.57:1 14.83:1 Debt to Equity Ratio 0.50:1 0.50:1 Asset to Equity Ratio 1.50:1 1.50:1 Interest Rate Coverage Ratio 12.33:1 22.12:1

1. Revenue Growth

Revenue growth is computed from current revenue less revenue of the prior period divided by revenue of the prior period. The result is expressed in percentage.

2. Gross Profit Margin

Gross profit margin reflects the management’s policies related to pricing and production efficiency. This is computed by dividing gross profit by the sum of net sales and rental income. The result is expressed in percentage.

3. Net Income Margin

Net income margin is the ratio of the Group’s net income for a given period. This is computed by dividing net income by the sum of net sales and rental income. The result is expressed in percentage.

4. Return on Equity

Return on equity ratio is the ratio of the Group’s net income to equity. This measures the management’s ability to generate returns on their investments. This is computed by dividing net income by total equity.

5. Current Ratio

Current ratio is the ratio of the Group’s current resources and its current obligation. This is computed by dividing current assets by current liabilities.

6. Leverage Ratio

Leverage ratio determines the Group’s cost mix and its effects on the operating income. This is computed by dividing net debt by the sum of total equity and net debt.

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7. Debt to Equity Ratio The debt to equity ratio is used to measure the Group’s financial standing and ability to repay its obligations.This is computed by dividing total liabilities by equity.

8. Asset to Equity Ratio The asset to equity ratio shows the relationship of the total assets of the Group to the portion owned by shareholders. This indicates the company’s leverage (debt) used to finance the Group. This is computed by dividing total assets by equity.

9. Interest Rate Coverage Ratio Interest coverage ratio is the ratio of the Group’s ability to meet its interest payment. This is computed by dividing the sum of income before income taxes and finance costs by the finance costs.

As of the filing date, the management of the Group is not aware of:

a) any known trends, demands, commitments, events or uncertainties that will have a material impact on the issuer’s liquidity;

b) any events that will trigger direct or contingent financial obligation that is material to the Group, including any default or acceleration of an obligation;

c) all material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the Group with unconsolidated entities or other persons created during the reporting period;

d) any material commitments for capital expenditures, the general purpose of such commitments and the expected sources of funds for such expenditures;

e) any known trends, events or uncertainties that have had or that are reasonably expected to have a material favorable or unfavorable impact on net sales/ revenues/ income from continuing operations;

f) any significant elements of income or loss that did not arise from the issuer’s continuing operations; and

g) any seasonal aspects that had a material effect on the financial condition or results of operations.

The causes for any material change from period to period, which shall include vertical and horizontal analyses of any material item, were disclosed in page number 7 to 10 of this report.

CONSOLIDATED FINANCIAL POSITION As of March 31, 2018, the consolidated assets of the Group amounted to US$70.07 million which is US$1.33 million higher than the US$68.74 million as of December 31, 2017. The increase in the Group’s total assets was due to the increase in inventories, cash and cash equivalents generated by operations and advance payment to suppliers reported under prepayments and other current assets.

Current ratio slightly decreased from 2.27:1 as of December 31, 2017 to 2.26:1 as of March 31, 2018 due to increase in accounts payable and accrued expenses. While, Group’s debt to equity ratio remain at 0.50:1 as of December 31, 2017 and March 31, 2018, respectively.

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Below is the summary of Balance Sheet Accounts with more than 5% increase (decrease):

Percentage increase (decrease) March 31, 2018 vs. December 31, 2017 vs December 31, 2017 December 31, 2016 ASSETS Cash and cash equivalents 24 (24) Receivables (24) 38 Inventories 23 47 Prepayments and other current assets 54 49 Available-for-sale investments N/A (16) Property, plant and equipment N/A 38 Deferred tax asset

38 (19)

LIABILITIES Accounts payable and accrued expenses 20 38 Advances from customers (29) (55) Bank and finance lease (8) 267 Income tax payable 55 103 Pension liability (7) N/A Security deposits N/A 12

As of March 31, 2018 (03.31.18 vs 12.31.17) Cash and cash equivalents increased due to cash flows generated from operations. Receivables decreased due to collection of receivables from previous quarter with a higher sales. Inventories increased in anticipation of increase in customer orders for the next quarter. The increase in prepayments and other current assets was attributable to advance payment made to suppliers in line with the increase in purchase of materials. Deferred tax assets increase due to tax adjustments related to straight line valuation of rental income. The increase in accounts payable and accrued expenses is attributable to the purchase of raw materials. The decrease in advances from customer was due to application of advance payments against receivable. Bank loans and finance lease liability decreased due to settlement of loans for the quarter. The increase in income tax payable was a result of the provision for income tax for the quarter. Net pension liability decreased due to foreign currency revaluation and funding requirements of retirement plan. As of December 31, 2017 (12.31.17 vs 12.31.16) The decrease in cash was primarily due to acquisition of machineries and equipment and raw materials. Receivables increased due to sales to a new customer. Inventories increased as a result of increasing customers order. The increase in prepayments and other current assets was attributable to advance payment made to suppliers in line with the increase in purchase of materials. AFS investments decrease due to impairment of investment in Pacific Synergies IV. Property and equipment increased due to acquisitions made during the period to invest the plant’s capacity. Deposits and others decreased due to foreign currency exchange revaluation and a refund of deposit from a utility company. Deferred tax assets decrease due to tax adjustments related to straight line valuation of rental income. The increase in accounts payable and accrued expenses is attributable to the purchase of raw materials. The decrease in advances from customer was due to application of advance payments against receivable. Bank loans and finance lease liability increased due to acquisition of machine under finance lease. The increase in income tax payable was due to increase in income tax for the period. The increase in security deposits was due to additional deposit made by one of its lessee.

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CONSOLIDATED RESULTS OF OPERATIONS The summarized revenues and net income (losses) of the Group for the three months ended March 31, 2018 and 2017 are presented as follows (amounts in US Dollars):

March 31, 2018 (3 months)

March 31, 2017 (3 months)

REVENUE

Operating Expense

NET INCOME (LOSS)*

REVENUE

Operating Expense

NET INCOME (LOSS)* COMPANY Sales

Rent income and

Other income Total Sales

Rent income and Other

income Total Parent − 149,756 149,756 116,907 (2,886) − 123,699 123,699 90,214 (5,274) EMS and a Subsidiary 12,181,865 106,373 12,288,238 725,005 357,786 9,552,375 4,600 9,556,975 609,869 152,558 IPI − 628,613 628,613 25,654 480,371 − 627,612 627,612 26,482 479,859 ICL − 3,701 3,701 658 3,044 − 18,424 18,424 139,747 (121,377) Iomni 806,038 44,784 850,822 44,373 17,739 768,133 39,961 808,094 48,758 (2,293) Synertronix − 1 1 110 (109) − 1 1 520 (519) IonicsProducts Solutions, Inc. − 29 29 461 (4,378) − 36 36 13,114 (14,234) TOTAL 12,987,903 933,257 13,921,160 913,168 851,567 10,320,508 814,333 11,134,841 928,704 488,720 Eliminations (80,827) (155,527) (236,354) (50,578) (7,475) (48,201) (144,899) (193,100) (27,460) (3,926) Consolidated 12,907,076 777,730 13,684,806 862,590 844,092 10,272,307 669,434 10,941,741 901,244 484,794

*Net income (loss) attributable to equity holders of the Parent Company.

The Group’s sales increased by US$2.64 million or by 26% from US$10.27 million for the three months of 2017 to US$12.91 million in the same period of 2018. With the increase in sales, gross profit increased to US$1.80 million in 2018 from US$1.48 million in 2017. Operating expenses decreased by US$0.04 million from US$0.90 million in 2017 to US$0.86 million in 2018. Finance cost and other expenses increased by US$0.06 million from US$0.04 million to US$0.10 million.

Group posted an income before income tax of US$0.96 million and US$0.57 million for the three months ended March 31, 2018 and 2017, respectively.

With the foregoing, the Group reported an increase of 71% in the consolidated net income attributable to equity holders of the Parent Company from US$0.49 million to US$0.84 million for the three months ended March 31, 2017 and 2018, respectively. INDIVIDUAL RESULT OF OPERATIONS Ionics, Inc. The Parent Company reported a net loss of US$0.003 million and US$0.005 million for the three months ended March 31, 2018 and 2017, respectively. There was no dividend income received during the period.

The individual performances of the subsidiaries for the three months ended March 31, 2018 and 2017 are as follows: Ionics EMS, Inc. and a Subsidiary The Group’s sales increased by US$2.63 million or 28% from US$9.55 million for the three months ended March 31, 2017 to US$12.18 million in the same period of 2018 due to higher demand in both turnkey and consignment business. With the increase in sales, gross profit increased by 36% from US$0.84 million for the three mons ended March 31, 2017 to US$1.14 million in the same period of 2018. Operating expenses slightly increased by US$0.12 million from US$0.61 million in 2017 to US$0.73 million in 2018. With the foregoing, the Group reported a 135% increase in net income from US$0.15 million to US$0.36 million for the three months ended March 31, 2017 and 2018, respectively

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Ionics Properties, Inc. (IPI)

IPI contributed rent income of US$0.63 million in three months ended March 31, 2018 and 2017. Net income amounted to US$0.48 million for the three months ended March 31, 2018 and 2017. Ionics Circuits, Ltd. (ICL) ICL reported a net income amounting to US$0.003 million and net loss US$0.12 million for the three months ended March 31, 2018 and 2017, respectively. No impairment loss was recognized this year as compared from last year which significantly cause the increase in the net income as of March 31, 2018. Synertronix, Inc. (SI) Synertronix’ reported a net loss amounting to US$109 and US$519 for the three months ended March 31, 2018 and 2017, respectively. Iomni Precision, Inc. (Iomni) Iomni’s sales in the first three months of 2018 increased to US$0.81 million from US$0.77 million in 2017 due to increase in customer order. Iomni reported a gross income of US$0.06 million in 2018 as compared to a gross loss of US$0.05 million in 2017. Operating expenses amounted to US$0.04 million and US$0.05 in March 31, 2018 and 2017, respectively.

With the foregoing, the Company’s performance resulted to a net income of US$0.018 million and net loss of US$0.002 million for the three months ended March 31, 2018 and 2017, respectively. Ionics Products Solutions, Inc. (IPSI) IPSI reported a net loss amounting to US$0.004 million due to the impact of foreign currency translation and US$0.014 million for the three months ended March 31, 2018 and 2017, respectively. ITEM 3. Additional Requirements Financial Soundness Indicator Below are the financial ratios that are relevant to the Group for two comparative periods:

a. Liquidity Ratio

March 31,

2018 December 31,

2017 Current ratio Current ratio 2.18:1 2.27:1 Quick asset ratio 1.30:1 1.50:1 Debt-to-equity ratio 0.50:1 0.50:1 Asset-to-equity ratio 1.50:1 1.50:1

b. Profitability Ratio

March 31,

2018 March 31,

2017 Interest rate coverage ratio 12.33:1 22.77:1 Profitability ratio Gross profit margin 13.25% 13.58% Operating margin 6.88% 5.32% Net income margin 6.31% 4.44% Revenue growth (decline) 24.23% (12.09%)

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PART II - OTHER INFORMATION As of the period ended March 31, 2018, the Group: a) has not experienced any suspension of its operations; b) has no contract of merger, consolidation or joint venture, contract of management,

licensing, marketing, distributorship or similar agreement was signed; c) has no offering of right, granting of stock options and corresponding plans; and d) has not done any transfer of assets during the quarter.

SIGNATURE

Pursuant to the requirements of the Securities Regulation Code, the issuer has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ISSUER : IONICS, INC.

__ 05.15.2018____ RONAN R. ANDRADE Date VP - Finance

__05.15.2018____ LAWRENCE C. QUA Date

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IONICS, INC. AND SUBSIDIARIES UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF FINANC IAL POSITION (Amounts in Thousands)

Unaudited March 31,

2018

Audited December 31,

2017

ASSETS

Current Assets Cash and cash equivalents (Notes 3, 4 and 5) US$12,320 US$9,961 Receivables (Notes 3 and 6) 12,000 15,710 Inventories (Note 7) 14,859 12,057 Prepayments and other current assets 1,826 1,184 Total Current Assets 41,005 38,912

Noncurrent Assets Available-for-sale investments (Notes 3 and 8) 2,276 2,287 Investment in associates (Note 9) 737 731 Property, plant and equipment (Note 10) 20,487 21,164 Investment properties (Note 11) 5,163 5,249 Deferred tax assets 29 21 Other noncurrent assets (Note 3) 372 378 Total Noncurrent Assets 29,064 29,830 US$70,069 US$68,742

LIABILITIES AND EQUITY

Current Liabilities Accounts payable and accrued expenses (Notes 3, 4 and 12) US$11,523 US$9,609 Advances from customers (Note 13) 928 1,311 Bank loans - current portion (Notes 3 and 4) 6,029 6,040 Income tax payable 293 189 Total Current Liabilities 18,773 17,149

Noncurrent Liabilities Net pension liability 2,494 2,679 Bank loans - net of current portion (Notes 3 and 4) 1,303 1,890 Other noncurrent liabilities (Note 12) 803 1,155 Total Noncurrent Liabilities 4,600 5,724 Total Liabilities 23,373 22,873

(Forward)

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IONICS, INC. AND SUBSIDIARIES UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF FINANC IAL POSITION (Amounts in Thousands)

Unaudited March 31,

2018

Audited December 31,

2017

Equity (Note 4) Capital stock US$17,633 US$17,633 Additional paid-in capital 9,072 9,072 Retained earnings 22,400 21,556 Unrealized losses on available-for-sale investments (Note 8) (372) (361) Other reserves (838) (838) Adjustment to noncontrolling interests (943) (943) Exchange differences 886 904 Treasury shares (1,365) (1,365) 46,473 45,658 Noncontrolling interests 223 211 Total Equity 46,696 45,869 US$70,069 US$68,742 See accompanying Notes to Unaudited Interim Condensed Consolidated Financial Statements.

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IONICS, INC. AND SUBSIDIARIES UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF COMPRE HENSIVE INCOME (Amounts in Thousands, Except Loss per Share) 2018 2017

January to March

(3 months)

January to March

(3 months) REVENUE Sales US$12,907 US$10,272 Rental income 650 641 13,557 10,913 COST OF SALES AND RENTAL SERVICES Cost of sales (Note 14) 11,635 9,312 Cost of rental services (Note 15) 126 119 11,761 9,431

GROSS PROFIT 1,796 1,482 OPERATING EXPENSES (Note 16) 863 901 OTHER INCOME (EXPENSES) Share in net earnings of associates (Note 9) 5 19 Finance costs (85) (26) Others income (expenses) - net 110 (8) 30 (15)

INCOME BEFORE INCOME TAX 963 566

PROVISION FOR INCOME TAX 107 76

NET INCOME 856 490

OTHER COMPREHENSIVE INCOME (LOSS) Items that may be reclassified to profit or loss: Exchange differences (18) (150) Unrealized loss of available-for-sale investments

transferred from equity to profit or loss (11) (190) (29) (340)

TOTAL COMPREHENSIVE INCOME US$827 US$150

NET INCOME ATTRIBUTABLE TO: Equity holders of the Parent Company US$844 US$485 Noncontrolling interests 12 5 US$856 US$490

TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:

Equity holders of the Parent Company US$815 US$145 Noncontrolling interests 12 5 US$827 US$150

BASIC/DILUTED EARNINGS PER SHARE

For net income for the year attributable to ordinary equity holders of the Parent Company US$0.0010 US$0.0006

See accompanying Notes to Unaudited Interim Condensed Consolidated Financial Statements.

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IONICS, INC. AND SUBSIDIARIES UNAUDITED INTERIM CONSOLIDATED STATEMENTS CHANGES I N EQUITY (Amounts in Thousands)

Attributable to the Equity Holders of the Parent Company

Capital

Stock

Additional Paid-in Capital

Retained Earnings

Unrealized Gains/

(Losses) on

Available- for-Sale

Instrument (Note 8)

Other Reserves

Adjustment to Non-

Controlling Interest

Exchange Difference

Treasury Shares Totals

Non- Controlling

Interest Total

Balances as of January 1, 2018 US$17,633 US$9,072 US$21,556 (US$361) (US$838) (US$943) US$904 (US$1,365) US$45,658 US$211 US$45,869 Net income − − 844 − − − − − 844 12 856 Other comprehensive income − − − (11) − − (18) − (29) − (29) Total comprehensive income (loss) − − 844 (11) − − (18) − 815 12 827 Balances as of March 31, 2018 US$17,633 US$9,072 US$22,400 (US$372) (US$838) (US$943) US$886 (US$1,365) US$46,473 US$223 US$46,696 Balances as of January 1, 2017 US$17,633 US$9,072 US$17,975 (US$216) (US$908) (US$943) US$927 (US$1,065) US$42,475 US$137 US$42,612 Net income − − 485 − − − − − 485 5 490 Other comprehensive income − − − (190) − − (151) − (341) − (341) Total comprehensive income (loss) − − 485 (190) − − (151) − 144 5 149 Treasury shares − − − − − − − (102) (102) − (102) Balances as of March 31, 2017 US$17,633 US$9,072 US$18,460 (US$406) (US$908) (US$943) US$776 (US$1,167) US$42,517 US$142 US$42,659

See accompanying Notes to Unaudited Interim Condensed Consolidated Financial Statements.

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IONICS, INC. AND SUBSIDIARIES

UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CASH F LOWS (Amounts in Thousands)

For the Period Ended March 31 2018 2017

CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax US$963 US$565 Adjustments for: Depreciation and amortization 1,184 891 Share in net losses of associates (5) (19) Finance cost 85 20 Impairment of available-for-sale investment − 136

Unrealized foreign exchange gain (loss) - net (96) − Movement in pension liability (77) 12 Interest income (14) (7)Operating income before working capital changes 2,040 1,598 Decrease (increase) in: Receivables 3,709 1,316 Inventories (2,802) (2,464) Prepayments and other current assets (650) (639)Increase (decrease) in Accounts payable and accrued expenses 1,929 3,110 Advances from customers (383) 232 Security deposits (335) 19 Net cash generated from operations 3,508 3,172 Interest received 14 4 Interest paid (98) (28)Income taxes paid (7) − Net cash provided by operating activities 3,417 3,148

CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of: Property, plant and equipment (409) (2,492) Investment property − (48)Net cash used in investing activities (409) (2,540)

CASH FLOWS FROM FINANCING ACTIVITIES

Finance lease payment (613) (335)Payments of bank loans (16) (19)Proceeds from bank loans − 29 Reacquisition of Parent Company’s owner shares − (102)Net cash used in financing activities (629) (427)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (20) −

NET INCREASE IN CASH AND CASH EQUIVALENTS 2,359 181

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 9,9 61 13,144

CASH AND CASH EQUIVALENTS AT END OF PERIOD US$12,320 US$13,325

See accompanying Notes to Unaudited Interim Consolidated Financial Statements.

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IONICS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED F INANCIAL STATEMENTS (Amounts in Thousands, Except Par Value per Share and Earnings per Share) 1. Corporate Information

Ionics, Inc. (the Parent Company) is a domestic corporation incorporated under the laws of the Philippines and registered with the Securities and Exchange Commission (SEC) in September 1982 with a corporate life of 50 years. The Parent Company started commercial operations in July 1987 to engage in electronic manufacturing services business. In September 1999, the Parent Company transferred its primary manufacturing business to a majority owned subsidiary, Ionics EMS, Inc. (EMS), which was subsequently listed in the Singapore Exchange Securities Trading Limited (Singapore Exchange). Consequently, the Parent Company’s primary purpose was amended from a manufacturing company to a holding company. The registered office address of the Group is Circuit Street, Light Industry and Science Park of the Philippines, Barrio Diezmo, Cabuyao, Laguna.

The Parent Company is listed in the Philippine Stock Exchange. The unaudited interim consolidated financial statements were approved and authorized for issue by the Board of Directors (BOD) on May 9, 2018.

2. Summary of Significant Accounting Policies

Basis of Preparation The unaudited interim condensed consolidated financial statements of the Group have been prepared in accordance with Philippine Accounting Standards (PAS) 34, Interim Financial Reporting.

The unaudited interim consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group’s annual financial statements as at December 31, 2017.

The unaudited interim condensed consolidated financial statements are presented in United States (US) Dollar, which is also the Group’s functional currency. All values are rounded to the nearest thousand (US$000) except when otherwise indicated.

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The following are the wholly and majority owned subsidiaries of the Parent Company as of March 31, 2018 and December 31, 2017:

Subsidiaries Country

of Incorporation Principal Activity

Effective Percentage of Ownership

2018 ICL Cayman Islands Investing 100% IPI Philippines Leasing 100 Iomni Philippines Manufacturing 100 SI Philippines Manufacturing 100 IPSI Philippines Retailing 100 EMS Philippines Manufacturing 97

IUSA United States of America Prototyping 97

Changes in Accounting Policies and Disclosures The accounting policies adopted in the preparation of the unaudited interim condensed consolidated financial statements are consistent with those of the Group’s annual consolidated financial statements for the year ended December 31, 2017, except for the adoption of new standards and interpretations effective as of January 1, 2018. As required by PAS 34, the nature and effect of these changes are disclosed below. Several other new standards and amendments apply for the first time in 2018. However, they do not impact the unaudited interim consolidated financial statements of the Group. The nature and impact of each new standard and amendment is described below:

• Amendments to PFRS 2, Share-based Payment, Classification and Measurement of Share-

based Payment Transactions The amendments to PFRS 2 address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and the accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash settled to equity settled. On adoption, entities are required to apply the amendments without restating prior periods, but retrospective application is permitted if elected for all three amendments and if other criteria are met. Early application of the amendments is permitted. The Group has assessed that the adoption of these amendments will not have any impact on the 2018 consolidated financial statements.

• PFRS 9, Financial Instruments

PFRS 9 reflects all phases of the financial instruments project and replaces PAS 39, Financial Instruments: Recognition and Measurement, and all previous versions of PFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. PFRS 9 is effective for annual periods beginning on or after January 1, 2018. Retrospective application is required but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions. The Group’s detailed impact assessment of the three aspects of PFRS 9: classification and measurement, impairment, and hedge accounting is still ongoing.

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• PFRS 15, Revenue from Contracts with Customers

PFRS 15 establishes a new five-step model that will apply to revenue arising from contracts with customers. Under PFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in PFRS 15 provide a more structured approach to measuring and recognizing revenue. The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under PFRSs. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after January 1, 2018. Early adoption is permitted. The recognition and measurement requirements in PFRS 15 also apply to gains or losses on disposal of nonfinancial assets (such as items of property and equipment and intangible assets), when that disposal is not in the ordinary course of business. The Group’s detailed assessment of the changes in the new revenue standard is ongoing. In addition, as the presentation and disclosure requirements in PFRS 15 are more detailed than under current PFRS, the Group is currently assessing what necessary changes it needs to make on its current systems, internal controls, policies and procedures to enable the Group to collect and disclose the required information.

• Amendments to PAS 28, Measuring an Associate or Joint Venture at Fair Value (Part of Annual Improvements to PFRSs 2014 - 2016 Cycle) The amendments clarify that an entity that is a venture capital organization, or other qualifying entity, may elect, at initial recognition on an investment-by-investment basis, to measure its investments in associates and joint ventures at fair value through profit or loss. They also clarify that if an entity that is not itself an investment entity has an interest in an associate or joint venture that is an investment entity, the entity may, when applying the equity method, elect to retain the fair value measurement applied by that investment entity associate or joint venture to the investment entity associate’s or joint venture’s interests in subsidiaries. This election is made separately for each investment entity associate or joint venture, at the later of the date on which (i) the investment entity associate or joint venture is initially recognized; (ii) the associate or joint venture becomes an investment entity; and (iii) the investment entity associate or joint venture first becomes a parent.

The amendments should be applied retrospectively and is effective on January 1, 2018, with earlier application permitted. The Group is currently assessing the potential effect of the amendments on its consolidated financial statements.

• Amendments to PAS 40, Investment Property, Transfers of Investment Property The amendments clarify when an entity should transfer property, including property under construction or development into or out of investment property. The amendments state that a change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. A mere change in management’s intentions for the use of a property does not provide evidence of a change in use. The amendments should be applied prospectively to changes in use that occur on or after the beginning of the annual reporting period in which the entity first applies the amendments.

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Retrospective application is only permitted if this is possible without the use of hindsight. Effective for annual periods beginning on or after January 1, 2018. Since the Group’s current practice is in line with the clarifications issued, the Group does not expect any effect on its consolidated financial statements upon adoption of these amendments.

• Philippine Interpretation IFRIC 22, Foreign Currency Transactions and Advance Consideration The interpretation clarifies that, in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a nonmonetary asset or nonmonetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognizes the nonmonetary asset or nonmonetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine a date of the transactions for each payment or receipt of advance consideration. Entities may apply the amendments on a fully retrospective basis. Alternatively, an entity may apply the interpretation prospectively to all assets, expenses, and income in its scope that are initially recognized on or after (i) the beginning of the reporting period in which the entity first applies the interpretation; or (ii) the beginning of a prior reporting period presented as comparative information in the financial statements of the reporting period in which the entity first applies the interpretation. Since the Group’s current practice is in line with the clarifications issued, the Group does not expect any significant effect on its consolidated financial statements upon adoption of this interpretation.

3. Financial Risk Management Objectives and Policies

Risk Management Structure All policy directions, business strategies and management initiatives emanate from the BOD. The BOD convenes in quarterly meetings and in addition, is available to meet in the interim should the need arise. The Group has adopted internal guidelines setting forth matters that require BOD approval. Under the guidelines, all new investments, any increase in investment in business and subsidiary and any divestments require BOD approval. The normal course of the Group’s business exposes it to a variety of financial risks such as credit risk, liquidity risk and market risks which include equity price risk and foreign currency risk exposures.

The Group has various financial assets such as cash and cash equivalents, trade and non-trade receivables (excluding advances to officers and employees), AFS investments and refundable deposits. The Group’s principal financial liabilities consist of accounts payable and accrued expenses (excluding advances from investee and deferred rent), bank loans, and security deposits. The main purpose of these financial liabilities is to raise funds for the Group’s operations.

The Group’s policies on managing the risks arising from the Group’s financial instruments follow:

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Credit Risk Credit risk is the risk of loss resulting from the failure of a borrower or counterparty to perform its obligations during the life of the transaction. This includes the risk of non-payment by banks and customers, failed settlement of transactions and default on contracts. Management has a credit policy in place and the exposures to these credit risks are monitored on an ongoing basis. The Group’s credit risk management involves entering into arrangements only with counterparties with acceptable credit standing and that are duly approved by the BOD. The Group’s receivables are monitored on a regular basis resulting to insignificant exposure to bad debts. The Group does not hold any collateral from its customers thus, the carrying amounts of cash and cash equivalents, receivables, AFS investments and refundable deposits approximate the Group’s maximum exposure to credit risk. No other financial assets carry a significant exposure to credit risk. The Group performs ongoing credit evaluations of its customers’ financial condition and makes provisions for impairment losses based on the outcome of its credit evaluations. Risk concentration of the maximum exposure to credit risk An industry sector analysis of the Group’s maximum exposure to credit risk is as follows:

March 31, December 31, 2018 2017

Banks and financial intermediaries US$12,307 9,948 Telecommunications (Telecom) 5,216 8,761 Computer peripherals 2,730 2,525 Consumer electronics 2,277 2,853 Automotive 1,019 712 Real estate 232 327 Others 804 768 Total US$24,585 US$25,894

The Group has concentration of credit risk due to sales to significant customers. The financial assets of the Group were more concentrated to telecom, banks and financial intermediaries, and computer peripherals industries which accounted for 82.38% of the total financial assets as of March 31, 2018. While as of December 31, 2017, the Group’s assets are more concentrated to telecom, computer peripherals, and consumer electronics industries which accounted for 83.27% of the total financial assets. The Group’s financial instruments are broadly diversified along industry, product and geographic lines, and transactions are entered into with a range of counterparties, thereby mitigating any significant concentration of credit risk.

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The tables below summarize the credit quality of the Group’s financial assets (gross of allowance for credit and impairment losses) as of March 31, 2018 and December 31, 2017, respectively:

March 31, 2018

Neither Past Due nor Individually Impaired Past Due

but not Individually Minimal Risk Average Risk High Risk Impaired Impaired Total Cash and cash equivalents* US$12,307 US$− US$− US$− US$− US$12,307 Receivables Trade receivables 8,017 − − 2,188 547 10,752 Other receivables from customers 472 − − 809 66 1,347 Rent receivables 228 − − − − 228 SSS claims receivables 23 − − − − 23 Advances to managers and employees** 20 − − − − 20 Others*** 18 − − 131 5 154 Refundable deposits 372 − − − − 372 US$21,457 US$− US$− US$3,128 US$618 US$25,203 *Excludes cash on hand amounting to US$0.013 million **Excludes nonfinancial assets amounting to US$0.074 million

*** Excludes nonfinancial assets amounting to US$0.020 million.

December 31, 2017

Neither Past Due nor Individually Impaired Past Due

but not Individually Minimal Risk Average Risk High Risk Impaired Impaired Total Cash and cash equivalent* US$9,948 US$− US$− US$− US$− US$9,948 Receivables Trade receivables 9,885 − − 3,494 458 13,837 Other receivables from customers 561 − − 1,196 55 1,812 Rent receivables 228 − − − − 228 SSS claims receivables 22 − − − − 22 Advances to managers and employees** 13 − − − − 13 Others*** 47 − − 122 5 174 Refundable deposits 378 − − − − 378 US$21,082 US$− US$− US$4,812 US$518 US$26,412

*Excludes cash on hand amounting to US$0.013 million ** Excludes nonfinancial assets amounting to US$0.076 million. *** Excludes nonfinancial assets amounting to US$0.066 million. The Group classifies credit quality risk as follows: Minimal risk - accounts with a high degree of certainty in collection, where counterparties have consistently displayed prompt settlement practices, and have little to no instance of defaults or discrepancies in payment.

Average risk - active accounts with minimal to regular instances of payment default, due to ordinary/common collection issues, but where the likelihood of collection is still moderate to high as the counterparties are generally responsive to credit actions initiated by the Group. High risk - accounts with a low probability of collection and can be considered impaired based on historical experience, where counterparties exhibit a recurring tendency to default despite constant reminder and communication, or even extended payment terms. The Group maintains cash and cash equivalents with various financial institutions that management believes to be of high credit quality. The Group’s policy is to invest with financial institution from which it has outstanding loans and loan facilities.

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Liquidity Risk Liquidity risk is the risk of not being able to meet funding obligations such as the repayment of liabilities or payment of asset purchases. Short-term funding is obtained to finance cash requirements for capital expenditures and operations. Amount of credit lines are obtained from designated banks duly approved by the BOD. Surplus funds are placed with reputable banks to which the Group has outstanding loans and loan facilities. The Group’s policy is to regularly monitor its liquidity requirements and its compliance with lending covenants, to ensure that it maintains sufficient reserves of cash and highly liquid marketable securities and adequate committed lines of funding from major financial institutions to meet the short and longer term liquidity requirements of the Group.

The tables below show the maturity profile of the financial assets and liabilities, based on its internal methodology that manages liquidity based on remaining contractual maturities:

March 31, 2018

On demand Less than 3 months

3 to 12 Months

1 to 5 years

Total

Financial assets Cash and cash equivalents US$9,120 US$3,200 US$− US$− US$− US$12,320 Receivables1 3,128 8,778 − − − 11,906 Refundable deposit2 − − − 45 − 45 12,248 11,978 − 45 − 24,271 Financial liabilities Accounts payable and

accrued expenses3 3,510 7,562 -

11,072 Bank loans4 − 4,675 1,222 1,543 2 7,442 Security deposits5 − − − 84 410 494 3,510 12,237 1,222 1,627 412 19,008 Liquidity gap US$8,738 (US$259) (US$1,222) (US$1,582) (US$412) US$5,263

1Excluding nonfinancial asset amounting to US$0.071 million. 2Excludes utility deposits amounting to US$0.33 million 3Excluding cash advances from an investee for future dividend declaration amounting to US$0.06 million 4Including future interest payable amounting to US$0.110 million

5Excluding future interest amounting to US$0.18 million

December 31, 2017

On demand Less than 3 months

3 to 12 months

1 to 5 years

More than 5 years Total

Financial assets Cash and cash equivalent US$7,461 US$2,500 US$− US$− US$− US$9,961Receivables1 4,812 10,583 173 − − 15,568Refundable deposit2 − − − 41 − 41 12,273 13,083 173 41 − 25,570Financial liabilities Accounts payable and other

liabilities3 3,064 6,423 10 − − 9,497Bank loans and finance lease

liabilities4 − 712 5,507 1,888 3 8,110Security deposits5 − − − 182 306 488 3,064 7,135 5,517 2,070 309 18,095Liquidity gap US$9,209 US$5,948 (US$5,344) (US$2,029) (US$309) US$7,475

1Excludes nonfinancial assets amounting to US$0.141 million 2Excludes utility deposits amounting to US$0.34 million. 3Excluding cash advances from an investee for future dividend income amounting to US$0.091 million. 4Including future interest payable amounting to US$0.18 million 5Included under other noncurrent liabilities

The Group finances its cash requirements by tapping its available credit lines.

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Market Risk Market risk is the risk of loss to future earnings, to fair value or future cash flows of a financial instrument as a result of changes in its price, caused by changes in interest rates, equity prices and foreign currency exchange rates and other market factors.

Equity price risk The Group’s equity price risk exposure at period-end relates to financial assets whose values will fluctuate as a result of changes in market prices, principally, quoted equity securities classified as AFS investments.

Quoted AFS investments are subject to price risk due to changes in market values of instruments arising either from factors specific to individual instruments or their issuers or factors affecting all instruments traded in the market.

The analysis below is performed for reasonably possible movements in the market index with all other variables held constant, showing the impact on equity both in March 31, 2018 and December 31, 2017.

March 31, 2018 December 31, 2017

Change in

market index

Effect on other

comprehensive income

Change in market index

Effect on other

comprehensive income

US NASDAQ +28% US$16 +25% US$12 -28% (16) -25% (12)

Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group is exposed to currency risk primarily through purchases that are denominated in a currency other than the functional currency of the Group. The currency giving rise to this risk is primarily Philippine Peso (P=) and Japanese Yen (¥). It is the Group’s policy not to trade in derivative contracts. In addition, the Group believes that its profile of foreign currency exposure on its assets and liabilities is within conservative limits in the type of business in which the Group is engaged.

The table below details the Group’s exposure at the reporting date to currency risk arising from forecasted transactions or recognized assets or liabilities denominated in a currency other than the functional currency of the Group.

a. Philippine Peso

March 31, 2018 December 31, 2017

In US Dollar

In Philippine Peso In US Dollar

In Philippine Peso

Cash US$917 P=47,725 US$901 P=44,972

Receivables 764 39,859 661 33,020 AFS investments 685 35,747 687 34,298 Refundable deposits 216 11,255 225 11,249

2,582 134,586 2,474 123,539 Less: Accounts payable and accrued expenses 2,552 133,092 2,070 103,374

Net exposure US$30 P=1,494 US$404 P=20,165

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b. Japanese yen

March 31, 2018 December 31, 2017

In US Dollar

In Japanese Yen In US Dollar In Japanese Yen

Gross exposure arising from recognized liabilities (US$2) (¥161) (US$66) (¥7,400)

The exchange rates used to restate the Group’s foreign currency-denominated assets and liabilities follow:

Currency Source March 31,

2018 December 31,

2017 Philippine Peso Philippine Dealing & Exchange Corp.

closing rate US$0.0192 US$0.020028 Japanese Yen Bangko Sentral ng Pilipinas (BSP)

closing rate ¥0.0095

¥0.008859 Sensitivity analysis The following table indicates the approximate change in the Group’s income before income tax in response to reasonably possible changes in the foreign exchange rates to which the Group has significant exposure at the reporting date:

Increase (decrease) from year-end exchange rates 2018 2017 Changes in foreign currency exchange rates Philippine Peso 4.46% (4.46%) 0.42% (0.42%) Japanese Yen 6.74% (6.74%) 3.28% (3.28%) Effect on income (loss) before tax Philippine Peso US$1 (US$1) US$2 (US$2) Japanese Yen US$2 (US$2) (US$3) US$3

Other than the potential impact on income (loss) before income tax, there is no other effect on equity.

The sensitivity analysis has been determined assuming that the change in foreign currency exchange rates has occurred at the reporting date and has been applied to each of the Group entities’ exposure to currency risk for financial instruments in existence at that date, and that all other variables, in particular interest rates, remain constant.The Group does not expect the impact of the volatility on other currencies to be material.

The stated changes represent management’s assessment of reasonably possible changes in foreign currency exchange rates over the period until the next annual reporting date. Results of the analysis as presented in the above table represent an aggregation of the effects on each of the entities’ incomebefore tax measured in the respective functional currencies, translated into US Dollars at the exchange rate ruling at the reporting date for presentation purposes.

4. Capital Management

The Group’s primary objective in managing capital is to provide returns for shareholders and benefits for other stakeholders, by pricing products and services commensurately with the level of risk and by securing access to finance at a reasonable cost.

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The Group monitors capital using a leverage ratio, which is net debt divided by the sum of total equity and net debt. Net debt includes bank loans and trade and other payables less cash and cash equivalents. The Group’s policy is for its leverage ratio not to exceed 75%.

The leverage ratio as of March 31, 2018 and December 31, 2017:

March 31,

2018 December 31,

2017 Current liabilities Accounts payable and other liabilities* US$11,392 US$9,478 Bank loans - current portion 6,029 6,040 17,421 15,518 Noncurrent liabilities Security deposits 307 467 Bank loans - net of current portion 1,303 1,890 1,610 2,357 Total debt 19,031 17,875 Less cash and cash equivalents 12,320 9,961 Net debt 6,711 7,914 Equity 46,696 45,869 Total equity and net debt US$53,407 US$53,783 Leverage ratio 12.57% 14.71%

*Excluding cash advances from an investee amounting to US$0.13 million as of March 31, 2018 and December 31, 2017. 5. Cash and Cash Equivalents

This account consists of:

March 31,

2018 December 31,

2017 Cash on hand US$13 US$13 Cash in banks 9,107 7,448 Cash equivalents 3,200 2,500 US$12,320 US$9,961

6. Receivables

This account consists of:

March 31,

2018 December 31,

2017 Trade receivables US$10,752 US$13,837 Other receivables from customers 1,347 1,812 Rent receivables 228 228 Advances to managers and employees 94 89 SSS claims receivables 23 22 Others 174 240 12,618 16,228 Less allowance for impairment losses 618 518 US$12,000 US$15,710

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The table below shows the aging analysis of receivables as at March 31, 2018 and December 31, 2017:

Past Due but Not Impaired

1 to 30 31 to 60 61 to 90 91 to 120 Over 120 Total Current Days Days days days Days Impaired

Trade receivables US$10,752 US$7,911 US$1,691 US$271 US$79 US$4 US$238 US$558 Other receivables from customers 1,347 473 38 44 83 374 280 55 Rent receivables 228 228 − − − − − − Advances to managers and employees 94 94 − − − − −

−

SSS claims receivables 23 23 − − − − − − Others 174 35 − − − − 134 5 US$12,618 US$8,764 US$1,729 US$315 US$162 US$378 US$652 US$618

Past Due but Not Impaired

1 to 30 31 to 60 61 to 90 91 to 120 Over 120 Total Current Days Days days days Days Impaired

Trade receivables US$13,837 US$9,866 US$1,986 US$963 US$244 US$− US$354 US$424 Other receivables from customers 1,812 563 87 740 43 44 280 55 Rent receivables 228 228 − − − − − − Advances to managers and employees 89 89 − − − − −

−

SSS claims receivables 22 22 − − − − − − Others 240 113 − − − − 122 5 US$16,228 US$10,881 US$2,073 US$1,703 US$287 US$44 US$756 US$484

7. Inventories This account consist of:

March 31,

2018 December 31,

2017 At NRV: Finished goods (Note 14) US$57 US$73 Work-in-process (Note 14) 769 421 826 494 At cost: Raw materials 12,231 9,474 Finished goods (Note 14) 204 206 Work-in-process (Note 14) 414 1,012 Spare parts and supplies 1,184 871 14,033 11,563 US$14,859 US$12,057

8. Available-for-Sale Investments

March 31,

2018 December 31,

2017 Quoted US$128 US$139 Unquoted 2,148 2,148 US$2,276 US$2,287

Quoted AFS investments are listed in the Philippines Stock Exchange, aside from Rovi which is listed in the US NASDAQ stock market.

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The movements in net unrealized losses on AFS investments follow:

March 31,

2018 December 31,

2017 Balances at beginning of period (US$361) (US$216)Unrealized gain transferred from equity to profit or loss − (179)Change in fair value of AFS

investments (11) 34Balances at end of period (US$372) (US$361)

9. Investment in Associates

The composition of and movements in this account follow:

March 31,

2018 December 31,

2017 Acquisition cost: Balances at beginning of year US$580 US$406 Additions − 174 Balances at end of year 580 580 Accumulated equity in net earnings Balances at beginning of year 244 256 Share in net earnings (losses) 5 (12) Balances at end of year 249 244 Equity in cumulative translation adjustment (92) (93) Net book values US$737 US$731

10. Property, Plant and Equipment The composition of and movements in this account follow:

March 31, 2018

Land

Machineries and

Equipment

Building, Building

Improvements and Leasehold Improvements

Tools and Other

Equipment

PlantWater andAircondi-

tioningSystems

Furniture, Fixtures

and Equipment

Transpor-tation

EquipmentConstruction

in Progress TotalCost Balances at beginning of year US$1,925 US$33,772 US$7,693 US$7,038 US$1,429 US$263 US$268 US$57US$52,445Additions − 326 − 95 − − − − 421Disposals − (6) − (20) − (1) − − (27)Balances at end of year 1,925 34,092 7,693 7,113 1,429 262 268 57 52,839Accumulated depreciation Balances at beginning of year − 18,558 6,709 4,423 1,224 251 116 − 31,281Depreciation and amortization

(Notes 14, 15 and 16) − 766 72 218 29 1 12 − 1,098Disposals − (6) − (20) − (1) − − (27)Balances at end of year − 19,318 6,781 4,621 1,253 251 128 − 32,352Net book values US$1,925 US$14,774 US$912 US$2,492 US$176 US$11 US$140 US$57 US$20,487

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December 31, 2017

Land

Machineries and

Equipment

Building, Building

Improvements and Leasehold Improvements

Tools and Other

Equipment

PlantWater andAircondi-

tioningSystems

Furniture, Fixtures and

Equipment

Transpor-tation

EquipmentConstruction

in Progress TotalCost Balances at beginning of year US$1,919 US$30,726 US$7,659 US$5,735 US$1,388 US$259 US$191 US$304 US$48,181 Additions 6 8,103 34 1,273 12 4 79 57 9,568 Disposals − (5,061) − (241) − − (2) − (5,304) Reclassifications − 4 − 271 29 − − (304) − Balances at end of year 1,925 33,772 7,693 7,038 1,429 263 268 57 52,445 Accumulated depreciation Balances at beginning of year − 21,153 6,435 3,864 1,026 245 74 − 32,797 Depreciation and amortization

(Notes 14, 15 and 16) − 2,465 274 769 178 6 44

− 3,736 Disposals − (5,061) − (189) − − (2) − (5,252) Reclassifications − 1 − (21) 20 − − − − Balances at end of year − 18,558 6,709 4,423 1,224 251 116 − 31,281 Net book values US$1,925 US$15,214 US$984 US$2,615 US$205 US$12 US$152 US$57 US$21,164

11. Investment Properties The composition of and movements in this account follow:

March 31, 2018

Land Building Building

Improvements Total Cost Balances at beginning and end of year US$2,390 US$5,295 US$3,905 US$11,590 Accumulated Depreciation and

Amortization Balances at beginning of year − 2,798 3,537 6,335 Depreciation and amortization

(Notes 15 and 16) − 44 42 86 Balances at end of year − 2,842 3,579 6,421 Exchange Reserves (6) − − (6) Net Book Values US$2,384 US$2,453 US$326 US$5,163

December 31, 2017

Land Building Building

Improvements Total Cost Balances at beginning and end of year US$2,390 US$5,295 US$3,905 US$11,590 Accumulated Depreciation Balances at beginning of year − 2,619 3,353 5,972 Depreciation and amortization

(Notes 15 and 16) − 179 184 363 Balances at end of year − 2,798 3,537 6,335 Exchange Reserves (6) − − (6) Net Book Values US$2,384 US$2,497 US$368 US$5,249

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12. Accounts Payable and Accrued Expenses This account consists of:

March 31,

2018 December 31,

2017 Trade payables US$8,273 US$6,966 Accrued expenses 1,966 1,731 Non-trade payables − 46 Unearned rent income 704 710 Security deposit 494 488 Others 889 823 12,326 10,764 Less noncurrent portion of unearned rent and security deposits 803 1,155 US$11,523 US$9,609

Accrued expenses consist of:

March 31,

2018 December 31,

2017 Accrued salaries, wages and other benefits US$696 US$505 Accrued utilities 305 364 Accrued sales commission 273 257 Accrued professional fees 150 118 Accrued handling charges 121 135 Accrued rent 46 46 Accrued direct materials 26 14 Others 349 292 US$1,966 US$1,731

13. Advances from Customers

The account represents advanced payments for raw material purchases, amounting to US$0.93 million and US$1.31 million as of March 31, 2018 and December 31, 2017, respectively.

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14. Cost of Sales

This account consists of:

March 31, 2018

(3 months)

March 31, 2017

(3 months) Raw materials and supplies used US$6,770 US$5,810 Salaries, wages and benefits 2,428 2,014 Occupancy cost and utilities 724 807 Depreciation and amortization (Notes 10 and 11) 1,061 794 Handling and freight charges 101 116 Other expenses 283 61 Total manufacturing cost 11,367 9,602 Work-in-process (Note 7) Beginning 1,433 295 Ending (1,183) (386)Cost of goods manufactured 11,617 9,511 Finished goods (Note 7) Beginning 279 127 Ending (261) (326) US$11,635 US$9,312

15. Cost of Rental Services

This account consists of:

March 31, 2018

(3 months)

March 31, 2017

(3 months)Depreciation (Notes 10 and 11) US$89 US$84 Taxes and licenses 2 5 Other expenses 35 30 US$126 US$119

16. Operating Expenses This account consists of:

March 31, 2018

(3 months)

March 31, 2017

(3 months) General and administrative expenses US$604 US$660 Selling expenses 259 241

US$863 US$901

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General and administrative expenses consist of the following:

2018 2017 Salaries and benefits US$307 US$320 Provision for impairment loss on

receivable 100 - Professional fees 56 66 Occupancy cost and utilities 28 83 Depreciation (Notes 10 and 11) 28 6 Insurance 14 14 Impairment loss on AFS investment

(Note 10) − 136 Taxes and licenses 1 3 Other expenses 70 32

US$604 US$660 Selling expenses consist of the following:

2018 2017 Sales commission and agent’s

professional fee US$148 US$125 Salaries and benefits 77 76 Depreciation and amortization

(Notes 10 and 11) 6 5 Other expenses 28 35

US$259 US$241 17. Earnings Per Share

The basis of income per share calculations attributable to the equity holders of the Parent Company follows:

March 31, 2018

(3 months)

March 31, 2017

(3 months)a. Net income attributable to equity holders of the Parent Company US$844 US$485 b. Weighted average number of outstanding common shares 823,072 842,516 c. Basic earnings per share (a/b) US$0.0010 US$0.0006

There were no potential dilutive shares in 2018 and 2017.

18. Segment Information The primary segment reporting format of the Group is by business segments as the Group’s

risks and rates of return are affected predominantly by differences in the goods produced. Secondary information is reported geographically. The operating businesses are organized and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets.

32

The Group’s geographical segments are based on the location of the Group’s assets. Sales to external customers disclosed in the geographical segments are based on the geographical location of its customers.

The revenues from major customers under the telecom industry amounted to US$4.45 million and US$3.81 million, in the three months ended March 31, 2018 and 2017, respectively. Total revenues from these customers exceed 10% of the total revenues of the Group.

The analysis of the Group’s segments by product line follows: March 31, 2018 (3 months)

Computer

Peripherals Telecom Automotive Consumer

Electronics Real Estate Others

Adjustments and

Eliminations Total Sales (external customers) US$4,138 US$4,448 US$318 US$3,680 US$− US$404 (US$81) US$12,907 Rental income US$− US$36 US$− US$− US$627 US$139 (US$151) US$650 Income (loss) from operations US$267 US$163 (US$75) US$- US$512 US$91 US$- US$941 Foreign exchange gain (loss) - net 76 10 3 8 (1) 2 − 98 Income tax (23) (29) - (15) (26) (14) − (107) Share in net earnings of associates - net − − − − − 4 1 5 Interest – net (38) (25) − (21) (7) 6 − (85) Non-controlling interests − − − − − − (12) (12) Miscellaneous - net (4) (4) (1) (3) − (1) − (13) Net income (loss) US$278 US$115 (US$73) (US$31) US$478 US$88 (US$11) US$844 Identifiable assets US$14,246 US$18,363 US$921 US$11,086 US$11,031 US$46,269 (US$38,847) US$63,069 Unallocated assets - − − 6,083 − 917 − 7,000 Total assets US$14,246 US$18,363 US$921 US$17,169 US$11,031 US$47,186 (US$38,847) US$70,069 Identifiable liabilities US$136 US$1,839 US$83 US$378 US$1,300 US$31,030 (US$46,634) (US$11,868) Unallocated liabilities − − − − − 35,240 − 35,240 Total liabilities US$136 US$1,839 US$83 US$378 US$1,300 US$66,270 (US$46,634) US$23,373 Capital expenditures US$228 US$32 US$- US$26 US$- US$135 US$− US$421 Depreciation and amortization US$705 US$251 US$- US$74 US$93 US$61 US$− US$1,184 March 31, 2017 (3months)

Computer

Peripherals Telecom Automotive Consumer

Electronics Real Estate Others

Adjustments and

Eliminations Total Sales (external customers) US$3,756 US$3,806 US$654 US$1,869 US$− US$236 (US$48) US$10,273 Rental income US$− US$25 US$− US$− US$627 US$135 (US$146) US$641 Income (loss) from operations US$269 (US$85) (US$39) US$46 US$497 (US$115) US$- US$572 Foreign exchange gain (loss) -net 17 (19) 1 - - 1 − - Income tax (27) (17) (1) (7) (22) (2) − (76) Share in net losses of associates - net − − − − − 18 1 19 Interest - net (5) (11) − − 5 1 − (10) Non-controlling interests − − − − − − (5) (5) Miscellaneous - net (1) (9) (1) (3) − (2) − (16) Net income (loss) attributable to equity holders of Parent Company US$253 (US$141) (US$40) US$36 US$480 (US$99) (US$4) US$485 Identifiable assets US$12,297 US$15,296 US$2,087 US$5,529 US$9,595 US$46,495 (US$39,059) US$52,240 Unallocated assets - − − 8,970 − 438 − 9,407 Total assets US$12,297 US$15,296 US$2,087 US$14,498 US$9,595 US$46,932 (US$39,059) US$61,647 Identifiable liabilities US$48 US$3,899 US$259 US$464 US$2,028 US$31,110 (US$47,192) (US$9,386) Unallocated liabilities − − − − − 28,374 − 28,374 Total liabilities US$48 US$3,899 US$259 US$464 US$2,028 US$59,484 (US$47,192) US$18,988 Capital expenditures US$1,700 US$475 US$29 US$242 US$49 US$46 US$− US$2,542 Depreciation and amortization US$604 US$93 US$15 US$31 US$94 US$55 US$− US$892

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19. Fair Value Measurement The Group’s financial instruments consist of cash and cash equivalents, receivables (excluding advances to officers and employees), refundable deposits, AFS investments, accounts payable and accrued expenses, bank loans and security deposits. The fair values of cash and cash equivalents, receivables, accounts payable and accrued expenses approximate their respective carrying values due to the short term maturities of these instruments.

The fair value of bank loans approximates its carrying value because these bank loans are subject to monthly/quarterly interest repricing based on market rate.

The fair value of refundable deposits approximates its carrying value due to its indefinite term.

AFS investments measured at fair value based on the quoted market bid prices are included within the Level 1 of the fair value hierarchy. In 2018 and 2017, there were no transfer between Level 1 and Level 2 of the fair value hierarchy, and no transfer into and out of the Level 3 category.